Moroney Body Works, Inc. v. Central Insurance Cos. , 87 Mass. App. Ct. 774 ( 2015 )

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14-P-422 Appeals Court
MORONEY BODY WORKS, INC. vs. CENTRAL INSURANCE COMPANIES.
No. 14-P-422.
Worcester. January 12, 2015. - August 6, 2015.
Present: Fecteau, Wolohojian, & Massing, JJ.
Insurance, Fire, Property damage, Construction of policy,
Coverage, Amount of recovery for loss. Contract,
Insurance. Damages, Breach of contract, Repairs.
Practice, Civil, Damages.
Civil action commenced in the Superior Court Department on
February 13, 2012.
The case was heard by Richard T. Tucker, J., on motions for
summary judgment.
William A. Schneider for the defendant.
David K. McCay for the plaintiff.
WOLOHOJIAN, J. We consider whether a commercial property
insurance policy issued by Central Insurance Companies (Central)
provides coverage and, if so, to what extent, for damage to a
bookmobile caused by a fire at its insured, Moroney Body Works,
Inc. (Moroney). Central relies principally on two provisions of
2
its policy to support its denial of coverage. First, it
contends that the "other insurance" provision means that
Central's coverage does not come into play until the policy
limit of a Massachusetts garage insurance policy issued to
Moroney by Pilgrim Insurance Company (Pilgrim) is exhausted.1
Second, Central argues, in the alternative, that its liability
is limited to the cost of repairing the bookmobile. We conclude
that because the two policies insured the same interest in the
same property against the same risk, Central's "other insurance"
provision applies. We also conclude that the "loss payment"
provision of Central's policy limits its liability, at its
election, to the cost of repair. We accordingly reverse the
summary judgment in favor of Moroney on its breach of contract
claim.
1. Background. The facts are undisputed. Moroney
manufactures specialized truck bodies in Worcester. On April 7,
2011, a fire began in one vehicle at Moroney's facility and
spread to a custom-built bookmobile that had just been completed
for the city of Beverly (city). The city refused to accept
delivery of the bookmobile after the fire.
Moroney had two insurance policies at the time of the fire:
a commercial property policy issued by Central, and a garage
1
Pilgrim entered into a settlement with the plaintiff and
is no longer a party in this case.
3
insurance policy issued by Pilgrim. Moroney demanded payment
under both. Central denied liability. Pilgrim's policy
provided primary coverage, and Pilgrim agreed that its policy
covered the cost of repairing the bookmobile. It paid
$12,449.82 based on its appraiser's estimate of the repair costs
-- an amount Moroney thought inadequate given its own estimate
of the repair costs.
Moroney sued both insurers. The claims against Pilgrim
were resolved when it paid an additional amount which, in
combination with Pilgrim's earlier payment, resulted in Moroney
receiving more than the repair costs. Central, on the other
hand, persisted in denying liability. Ultimately, Central and
Moroney cross-moved for summary judgment, and those motions were
decided in favor of Moroney on its breach of contract claim.2
2. Discussion. a. Other insurance. Central does not
dispute that the damage to the bookmobile was "direct physical
loss of or damage to Covered Property at [Moroney's] premises,"
as covered by its policy. Instead, Central argues that its
coverage is excess to coverage under Pilgrim's garage insurance
policy and that it (Central) therefore has no liability unless
the loss exceeds the coverage limit of Pilgrim's policy.
2
Moroney also made claims for breach of the covenant of
good faith and fair dealing and a violation of G. L. c. 93A.
The motion judge allowed Central's motion on these claims, and
there is no appeal from that decision.
4
Central relies on the following "Other Insurance" provision of
its policy:
"2. If there is other insurance covering same loss
or damage, . . . we will pay only for the amount
of covered loss or damage in excess of the amount
due from that other insurance, whether you can
collect on it or not. But we will not pay more
than the applicable limit of insurance"
(emphasis added).
"'Other insurance' clauses, clauses designed to establish a
policy's relationship with other policies covering a loss, were
first developed in the real property fire insurance field in
order to prevent owners from overinsuring." Mission Ins. Co. v.
United States Fire Ins. Co., 401 Mass. 492, 495 (1988). Such
clauses apply where there are two or more concurrent policies
that "insure the same risk and the same interest, for the
benefit of the same person, during the same period."3 Boston Gas
Co. v. Century Indem. Co., 454 Mass. 337, 361 n.36 (2009),
quoting from 23 Holmes, Appleman on Insurance § 145.4[C], at 34
3
"In general, there are three types of 'other insurance'
clauses -- pro rata, escape, and excess." Mission Ins. Co. v.
United States Fire Ins. Co., supra. "Pro rata clauses provide
that, if other insurance is available to the insured, the policy
containing the pro rata clause will contribute to the loss in
the proportion that its policy limit bears to the total limit of
all available policies. Escape clauses provide that, if there
is other insurance available to the insured, the policy
containing the escape clause will pay no benefits. Excess
clauses provide that, if there is other insurance available to
the insured, the policy containing the excess clause will pay no
benefits until such other insurance is exhausted." Id. at 495
n.3. The "other insurance" clause in this case made Central's
coverage excess to "the amount due" under the Pilgrim policy.
5
(2d ed. 2003). "It is generally held that in order for an other
insurance clause to operate in the insurer's favor, there must
be both an identity of the insured interest and an identity of
risk."4 15 Couch, Insurance § 219:14 (3d ed. 2005).
Our cases have not previously addressed what it means for
the insured interests of two different policies to be the same.5
We begin by noting that although Pilgrim's policy was a garage
liability policy, and Central's was a commercial property
policy, that distinction alone is not dispositive. Instead, the
inquiry turns on the terms of the respective policies.
Although the record does not explicitly disclose the basis
upon which Pilgrim made payment, coverage under the Pilgrim
policy apparently lay under Section VII (Physical Damage
4
"The rule that the risks be identical in order for an
'other insurance' clause to apply does not mean that the total
possible coverage under each policy be the same, but merely that
with respect to the harm which has been sustained there be
coverage under both policies." 15 Couch, Insurance § 219:14.
There is no dispute that the same risk (fire) in this case was
covered under both policies. Cf. McCormick v. Travelers Indem.
Co., 22 Mass. App. Ct. 636, 639 (1986) (pro rata "other
insurance" clause did not apply where the two policies insured
against different risks, specifically, one insured against
damage caused solely by windstorms and one against damage caused
by water). See also Liquor Liab. Joint Underwriting Assn. of
Mass. v. Hermitage Ins. Co., 419 Mass. 316, 324 n.6 (1995),
citing 8A Appleman, Insurance § 4907.65, at 367-368 (1981).
5
Cases involving "other insurance" clauses often arise when
two policies have competing other insurance provisions and the
question is how to allocate or divide liability between the two
carriers. See, e.g., Mission Ins. Co. v. United States Fire
Ins. Co., 401 Mass. 492 (1988). We are not presented with such
a situation here.
6
Coverage), which provided comprehensive coverage for covered
"autos" damaged by fire.6 Covered "autos" included vehicles
owned by Moroney, such as the bookmobile. The Central policy
covered "direct physical loss of or damage to Covered Property
at the premises." "Covered Property" included Moroney's
building, fixtures, machinery, equipment, personal property
owned by Moroney to maintain or service the building, and
6
We have inferred the basis of coverage from the fact that
the joint statement of undisputed facts states that Moroney
owned the bookmobile. Had ownership of the bookmobile not been
admitted, or if the city were the owner, then our analysis would
have been different. In that case, Moroney's interest in the
bookmobile would have been as a bailee for hire, see Wright v.
Heil Equip. Co., 357 Mass. 74 (1970) (repairer was bailee for
hire of tractor left in its custody for repairs); Black's Law
Dictionary 141 (6th ed. 1990) ("a mechanic to whom an automobile
is entrusted for repairs is a bailee for hire"), and coverage
would lie under a different provision of the Pilgrim policy.
Bailees generally have been held to have an insurable interest
in the bailed property that is separate from the interest of the
bailor. See, e.g., 43 Am. Jur. 2d Insurance § 186 (2013); 44
Am. Jur. 2d Insurance § 939 (2013). In those circumstances, the
insured interest under the Pilgrim and Central policies would
not have been the same, and Central would not have been entitled
to the benefit of the "other insurance" provision in its policy.
See Atlantic Mut. Ins. Co. v. Cooney, 303 F.2d 253, 268 (9th
Cir. 1962); Employers' Mut. Cas. Ins. Co. v. Hughes, 780 F.
Supp. 2d 1204, 1208 (N.D. Ala. 2011) (insured's interest in
value of her property is not the same as her interest in making
her mortgage payment in event home becomes uninhabitable, and
thus other insurance clause does not apply); De Foor v.
Northbrook Excess & Surplus Ins. Co., 128 Ill. App. 3d 929, 936
(1984) (vendor's legal interest in property is distinct and
different from vendee's equitable interest in insured property).
See also generally the discussion in United Natl. Ins. Co. v.
Mundell Terminal Servs., Inc., 915 F. Supp. 2d 809, 823-825
(W.D. Tex. 2012).
7
business personal property.7 Thus, although employing different
language, both policies insured Moroney's interest as owner of
the bookmobile from the risk of fire. Because both policies
insure the same insured's interest (Moroney's ownership) in the
same property (bookmobile) against the same risk (fire),
Central's "other insurance" provision applies. Accordingly,
Central's liability does not begin until Pilgrim's policy limit
is exhausted.8
b. Loss payment. Even if Central were not entitled to the
benefit of its "other insurance" provision, Moroney would fare
no better because of Central's loss payment provision:
"4. Loss Payment
"a. In the event of loss or damage . . . at our
option, we will either:
"1) Pay the value of lost or damaged property;
"2) Pay the cost of repairing or replacing the
lost or damaged property . . . ;
"3) Take all or any part of the property at an
agreed or appraised value; or
"4) Repair, rebuild or replace the property with
other property of like kind and quality . . . .
"We will determine the value of lost or damaged
property, or the cost of its repair or replacement,
7
Although we need not decide the question, within the
category of business personal property, coverage for the
bookmobile could be found either as "personal property owned by
you and used in your business," or as "stock," defined as
"merchandise held in storage or for sale, raw materials and in-
process or finished goods."
8
It is undisputed that Pilgrim's policy limit has not been
reached.
8
in accordance with the applicable terms of the
Valuation Condition in this Coverage Form or any
applicable provision which amends or supersedes the
Valuation Condition."
The function of this provision is unambiguous. See Olson
v. Le Mars Mut. Ins. Co., 269 Neb. 800, 807-808 (2005); Colorado
Cas. Ins. Co. v. Sammons, 157 P.3d 460, 465, 466 (Wyo. 2007).
Compare Society of St. Vincent De Paul in the Archdiocese of
Detroit v. Mt. Hawley Ins. Co., 49 F. Supp. 2d 1011, 1018 (E.D.
Mich. 1999). By its terms, the provision allows Central to
select whichever payment option it prefers, "effectively
insur[ing] the property for the lesser of actual cash value or
the cost to repair or replace the damaged property." Olson v.
Le Mars Mut. Ins. Co., supra at 808. See Colorado Cas. Ins. Co.
v. Sammons, supra. The judge accordingly erred when he awarded
Moroney $126,232.20, representing the difference between the
original contract price for the bookmobile ($156,900) and the
amounts received in settlement with Pilgrim (totaling
$30,667.80). Moroney was not entitled to receive anything more
than its repair costs.
Contrary to Moroney's argument, the last paragraph of the
quoted loss payment provision does not alter Central's right to
choose the lesser measure of damages. Instead, it pertains only
to the method of valuing the loss. In other words, Central
retained the right to choose whether to pay to replace or repair
9
the bookmobile, but the value of those repair or replacement
costs was subject to the valuation provision of the policy.9
Moroney is also not helped by the valuation provision in the
premier plus endorsement, which states that finished stock will
be valued at the selling price.10 That provision modifies the
valuation provision of the policy, not the loss payment
provision.
3. Conclusion. For these reasons, we conclude that
Central is relieved of liability under the other insurance
provision of its policy, and that, even were that not the case,
its exposure would be limited to Moroney's repair costs.
That portion of the judgment that entered in Moroney's
favor on its breach of contract claim is reversed. In all other
respects the judgment is affirmed.
So ordered.
9
The valuation provision provided: "We will determine the
value of Covered Property in the event of loss or damage as
follows: . . . At actual cash value as of the time of loss or
damage." This provision does not apply because Central chose to
compensate Moroney only for its repair costs.
10
"We will determine the value of finished 'stock' you
manufacture, in the event of loss or damage, at: (1) The
selling price, as if no loss or damage occurred; (2) Less
discounts and expenses you otherwise would have had."