Railroad Avenue Properties, LLC v. Acadia Insurance Company

United States Court of Appeals
For the First Circuit
No. 21-1834
RAILROAD AVENUE PROPERTIES, LLC,
Plaintiff, Appellant,
v.
ACADIA INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Timothy S. Hillman, U.S. District Judge]
Before
Lynch, Thompson, and Gelpí,
Circuit Judges.
James E. Grumbach, with whom Boston Law Collaborative, LLC
was on brief, for appellant.
Robert J. Maselek, Jr., with whom McDonough Cohen & Maselek
LLP was on brief, for appellee.
June 14, 2022
LYNCH, Circuit Judge. Railroad Avenue Properties, LLC
("Railroad") sued Acadia Insurance Company ("Insurance Company")1
for breach of contract to recover additional insurance proceeds
for property damage sustained from a fire at one of Railroad's
commercial properties ("Building"). The Insurance Company insured
the Building and paid Railroad for damages arising out of the fire.
Railroad argues that it is entitled to additional payment under
the terms of the insurance policy ("Policy") in the form of a
depreciation holdback and code upgrade coverage.
The district court granted summary judgment in favor of
the Insurance Company, holding that the terms of the Policy were
clear and unambiguous, Railroad did not satisfy the Policy's
condition precedent for receiving the additional insurance
proceeds, and Railroad's failure to perform could not be otherwise
1 In the complaint, Railroad named Acadia Insurance
Company ("Acadia") as the purported issuer of the insurance policy.
It is undisputed that the insurance policy was actually issued by
Tri-State Insurance Company of Minnesota ("Tri-State"). Acadia
and Tri-State are both ultimately owned by W. R. Berkley
Corporation.
On appeal, defendant argues for the first time that it
is entitled to judgment as a matter of law because there was never
a contract between Railroad and Acadia. Defendant never filed a
motion to dismiss due to misnomer and did not argue misnomer as a
ground for summary judgment before the district court. This
argument is thus waived. See Reyes-Colón v. United States, 974
F.3d 56, 62 (1st Cir. 2020). Further, it is clear that Tri-State
had notice of this action against it, and defendant has not shown
that any prejudice would result from permitting Railroad to
substitute Tri-State for Acadia.
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excused. R.R. Ave. Props., LLC v. Acadia Ins. Co., No. 19-40155,
2021 WL 4459692, at *4-6 (D. Mass. Sept. 29, 2021).
We affirm.
I.
A. Factual Background
Railroad owns commercial buildings in Millbury,
Massachusetts, including the Building, which was located at 11
Railroad Avenue. The Insurance Company issued a Commercial Lines
Policy, No. ADV 5211789-11, to Railroad for its commercial
properties; the Policy was effective from February 26, 2017 to
February 26, 2018.
On November 18, 2017, the Building sustained severe fire
damage. The Insurance Company retained consultants to assist its
investigation of the fire loss and the potential for subrogation
claims arising from the fire loss. On December 4, 2017, the
Insurance Company determined that no viable subrogation claims
existed because the fire was caused by an unidentified arsonist.
Given the extent of damage, the building was determined to be a
total loss and would need to be rebuilt. On December 11, 2017,
the Insurance Company paid Railroad a $25,000 advance payment.
On February 5, 2018, the Insurance Company provided
Railroad's public adjuster with an estimate of the building loss.
Railroad's public adjuster agreed with the estimate and reserved
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the right to seek an additional $25,000 in code upgrade coverage2
arising out of the anticipated need to install sprinklers during
the rebuild. On February 22, 2018, Railroad sent the Insurance
Company a Proof of Loss, which Railroad unilaterally executed.
The Proof of Loss stated: (1) the Replacement Cost Value ("RCV")
of repair was $808,468.13; (2) the Actual Cash Value ("ACV") was
$610,928.46; and (3) after the deductible amount ($10,000) and the
advance payment ($25,000), the net ACV was $575,539.67. On
February 26, 2018, the Insurance Company paid Railroad the net ACV
payment of $575,928.46. Under the terms of the Policy, Railroad
could recover the depreciation holdback (the difference between
the RCV and the ACV: $197,539.67) and the code upgrade coverage
($25,000) if it completed reconstruction of the Building within
two years of the property loss.
In July 2018, Railroad demolished the damaged Building.
In August 2018, Railroad began meeting with a contractor, RGN
Construction ("RGN"), to "review options to reconstruct the
[B]uilding." In January 2019, Railroad signed a contract with RGN
for architectural and structural design services. In July 2019,
2 The code upgrade coverage under the Policy permits
Railroad to recover increased costs of reconstruction "when the
increased cost is a consequence of a requirement to comply with
the minimum standards requirements of the ordinance or law," here,
the costs of installing sprinklers.
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Railroad and RGN agreed on the scope of construction for the shell
of the new building.
On November 5, 2019, Railroad requested from the
Insurance Company a six-month extension to the two-year rebuild
requirement under the Policy. The Insurance Company did not grant
an extension. Railroad and RGN began reconstruction of the
building in January 2020, more than two years after the fire.
B. Relevant Policy Provisions
The Building and Personal Property Coverage Form, the
basic coverage form in the Policy, provides:
3. Replacement Cost
. . .
c. You may make a claim for loss or damage
covered by this insurance on an actual cash
value basis instead of on a replacement cost
basis. In the event you elect to have loss or
damage settled on an actual cash value basis,
you may still make a claim for the additional
coverage this Optional Coverage provides if
you notify us of your intent to do so within
180 days after the loss or damage.
d. We will not pay on a replacement cost basis
for any loss or damage:
(1) Until the lost or damage property is
actually repaired or replaced; and
(2) Unless the repair or replacement is made
as soon as reasonably possible after the loss
or damage.
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The Massachusetts Changes Endorsement, required under
Mass. Gen. Laws ch. 175, § 47, clause 17, amends the Replacement
Cost provision:
D. Paragraph 3.d. of the Replacement Cost
Optional Coverage is replaced by the
following:
d. We will not pay on a replacement cost basis
for any loss or damage:
(1) Until the lost or damaged property is
actually repaired or replaced:
(a) On the described premises; or
(b) At some other location in the Commonwealth
of Massachusetts; and
(2) Unless the repairs or replacement are made
within a reasonable time, but no more than 2
years after the loss or damage.
The Advantage Property Endorsement, which includes the
provision covering the code upgrade coverage in the amount of
$25,000, provides:
(b) We will not pay for the increased cost of
construction under this coverage:
(i) Until the property is actually repaired or
replaced, at the same or another premises; and
(ii) Unless the repairs or replacement is made
as soon as reasonably possible after the loss
or damage, not to exceed two years.
C. Procedural History
On November 13, 2019, Railroad filed suit against the
Insurance Company in Massachusetts state court, alleging a single
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cause of action for breach of contract for failing to pay the
depreciation holdback and code upgrade coverage, a sum of
$222,539.67. The Insurance Company removed the case to federal
court based on the diversity of the parties. See 28 U.S.C. § 1441.
On October 20, 2020, the Insurance Company filed a motion
for summary judgment. After full briefing, the district court
granted summary judgment in favor of the Insurance Company, holding
that Railroad did not satisfy the Policy's condition precedent to
recover the depreciation holdback or the code upgrade coverage
because Railroad failed to replace the Building within two years
of the loss, as required by the clear and unambiguous terms of the
Policy. R.R. Ave. Props., 2021 WL 4459692, at *4-5. The district
court also held that Railroad's failure to perform was not excused.
Id.Railroad timely appealed.
II.
A. Standard of Review
"We review de novo a district court's grant of summary
judgment." See Forbes v. BB&S Acquisition Corp., 22 F.4th 22, 25
(1st Cir. 2021). Summary judgment is appropriate if "there is no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law." Fed. R. Civ. P. 56(a); see
Santos-Rodríguez v. Seastar Sols., 858 F.3d 695, 697 (1st Cir.
2017).
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B. Analysis
1. The Policy Language Is Not Ambiguous.
Railroad first argues that the Policy phrases "until the
property is actually repaired or replaced" and "unless the repairs
or replacement are made as soon as reasonably possible after the
loss or damage, not to exceed two years" are inherently ambiguous.
Railroad does not explain which words in the Policy language are
ambiguous or how the language could otherwise be interpreted.
Under Massachusetts law, the "[i]nterpretation of an
insurance policy is a question of law to be determined by the
court." Golchin v. Liberty Mut. Ins. Co., 993 N.E.2d 684, 688
(Mass. 2013). "Interpretation of an insurance policy is no
different from interpretation of any other contract." Citation
Ins. Co. v. Gomez, 688 N.E.2d 951, 952 (Mass. 1998). Massachusetts
courts construe the terms in an insurance policy in their "usual
and ordinary sense." Hakim v. Mass. Insurers' Insolvency Fund,
675 N.E.2d 1161, 1164 (Mass. 1997). "A term is ambiguous only if
it is susceptible of more than one meaning and reasonably
intelligent persons would differ as to which meaning is the proper
one." Citation Ins., 688 N.E.2d at 953. Where policy terms are
required by statute, as here,3 "the rule of construction resolving
3 Mass. Gen Laws ch. 175, § 47, clause 17 provides that
insurance companies may:
insure buildings . . . for the difference
between the actual value of the insured
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ambiguities in a policy against the insurer is inapplicable."
Aquino v. United Prop. & Cas. Co., 143 N.E.3d 379, 386 (Mass. 2020)
(quoting McNeill v. Metro. Prop. & Liab. Ins. Co., 650 N.E.2d 793,
795 (Mass. 1995)).
Based on its "usual and ordinary" meaning, the language
in the Policy is not ambiguous. A reasonably intelligent person
would understand that Railroad was not entitled to the depreciation
holdback or code upgrade coverage unless the damaged Building was
actually4 rebuilt within two years of the fire damage. Indeed,
Railroad understood as much when it asked the Insurance Company
for a six-month extension to the two-year rebuild requirement on
November 5, 2019, less than two weeks before the rebuild deadline.
property at the time any loss or damage occurs
and the cost of repairing, rebuilding, or
replacing on the premises described in the
policy . . . if repaired, rebuilt or replaced
within the commonwealth within not exceeding
two years from date of loss or such further
time as may be agreed to between the insurer
and the insured; and also, to insure against
the . . . additional cost of repair or
reconstruction, or both, of portions of the
insured premises which have suffered damage,
necessary to comply with applicable laws,
ordinance or by-laws.
4 The Oxford English Dictionary first defines "actually"
as "[i]n action; in fact, in reality, really. Opposed to possibly,
potentially, theoretically, etc." Actually, OED Online,
https://www.oed.com/view/Entry/1980?redirectedFrom=actually (last
visited May 24, 2022).
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Railroad's citations to nonbinding cases from other
jurisdictions do not support its arguments.5 Those cases involve
different factual situations and different policy language, such
as the insured party purchasing new property as a replacement for
its damaged property (rather than rebuilding), see, e.g., Pierce
v. Farm Bureau Mut. Ins. Co., 548 N.W.2d 551, 552 (Iowa 1996);
Batton-Jajuga v. Farm Bureau Gen. Ins. Co. of Mich., 913 N.W.2d
351, 353 (Mich. Ct. App. 2017), or the definition of the term
"spend," see Northrop v. Allstate Ins. Co., 720 A.2d 879, 882-83
(Conn. 1998).
2. Railroad Failed to Satisfy the Condition Precedent.
Railroad further argues that it satisfied the Policy's
"ambiguous" condition precedent because it had "executed various
design and construction contracts, legally obligating it to pay
the full RCV plus code upgrades; and was in the process of
rebuilding, having made substantial payments, all within two years
of the loss." Railroad also argues that there exists a genuine
dispute of material fact as to whether it had "substantially
complied" with the requirements of the condition precedent.
The plain language of the Policy requires that the
property be "actually" -- not substantially -- repaired or
5 Contrary to Railroad's argument that there is no
directly on-point Massachusetts case law, Massachusetts law
requires adherence to the clear terms of the Policy. Citation
Ins., 688 N.E.2d at 952-53.
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replaced. Where contract language is clear and unambiguous, we
will not construe it against the insurer. See Clark Sch. for
Creative Learning, Inc. v. Phila. Indem. Ins. Co., 734 F.3d 51, 55
(1st Cir. 2013).
Even assuming arguendo that Railroad could demonstrate
performance through substantial compliance with the Policy
provisions, the undisputed record shows that Railroad had not begun
-- let alone substantially completed -- reconstruction of the
Building until more than two years after the fire damage. In fact,
Railroad did not begin construction of the Building until January
2020, two months after the two-year rebuild period had expired.
Railroad's executed contracts and payments alone do not satisfy
the plain language in the insurance policy that the property be
"actually repaired or replaced" within two years of the fire
damage.
3. The Insurance Company Did Not Have an Equitable Duty to
Extend the Time for Performance.
Railroad separately argues that its failure to rebuild
the Building within two years of the fire damage should be excused
because the Insurance Company had an "equitable duty" to extend
the time for performance under the implied covenant of good faith
and fair dealing and the doctrines of frustration of purpose and
impossibility.
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Under Massachusetts law, "[e]very contract implies good
faith and fair dealing between the parties to it." T.W. Nickerson,
Inc. v. Fleet Nat'l Bank, 924 N.E.2d 696, 703 (Mass. 2010) (quoting
Anthony's Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 820
(Mass. 1991)). The implied covenant of good faith and fair dealing
requires that "neither party shall do anything that will have the
effect of destroying or injuring the right of the other party to
the fruits of the contract." Id. at 704 (quoting Anthony's Pier
Four, 583 N.E.2d at 820). Notwithstanding, the scope of the
covenant is only as broad as rights and duties under the terms of
the contract. See Ayash v. Dana-Farber Cancer Inst., 822 N.E.2d
667, 684 (Mass. 2005). "The implied covenant of good faith and
fair dealing does not create rights or duties beyond those the
parties agreed to when they entered into the contract." Bos. Med.
Ctr. Corp. v. Sec'y of Exec. Off. of Health & Hum. Servs., 974
N.E.2d 1114, 1126 (Mass. 2012) (cleaned up) (quoting Curtis v.
Herb Chambers I-95, Inc., 940 N.E.2d 413, 419 (Mass. 2011)).
Here, under the clear language of the Policy, the
Insurance Company had no duty to grant Railroad's request to extend
the deadline of the two-year rebuild requirement. Because the
Policy language is unambiguous, we cannot vary from the text of
the Policy by looking to custom and practice. See Somerset Sav.
Bank v. Chi. Title Ins. Co., 649 N.E.2d 1123, 1127 (Mass. 1995)
("Absent ambiguous contractual language in the policy, custom and
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practice evidence cannot be used to vary the provisions of the
policy."). Thus, Railroad's affidavit that insurance companies
normally grant extensions cannot alter the clear terms of the
contract.
Further, the record does not support Railroad's argument
that the Insurance Company violated the implied covenant of good
faith and fair dealing by delaying the reconstruction of the
property. To the contrary, the undisputed record demonstrates
that the Insurance Company acted promptly to inspect the damaged
property and completed its subrogation investigation by December
4, 2017, less than a month after the fire. And the Insurance
Company provided Railroad with the agreed-upon net ACV payment in
February 2018, three months after the fire and 21 months before
the two-year reconstruction deadline.
Likewise, Railroad's failure to perform cannot be
excused by the doctrine of impossibility.6 Under Massachusetts
6 Railroad did not argue the doctrines of frustration of
purpose or impossibility before the district court. Railroad
raises these arguments for the first time on appeal. These
arguments are thus waived. See United States v. Rodrigues, 850
F.3d 1, 13 n.6 (1st Cir. 2017).
In any event, Railroad's failure to perform cannot be
excused by the doctrine of impossibility for the reasons set out
below. The doctrine of frustration applies "when an event neither
anticipated nor caused by either party, the risk of which was not
allocated by the contract, destroys the object or purpose of the
contract, thus destroying the value of performance." Chase Precast
Corp. v. John J. Paonessa Co., Inc., 566 N.E.2d 603, 605-06 (Mass.
1991). Railroad provides no argument about what "object or purpose
of the contract" was frustrated and fails to develop any argument
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law, the doctrine of impossibility excuses a failure to perform
where the contracting parties assumed "the continued existence of
some particular specified thing as the foundation of what was to
be done," and "performance becomes impossible from the accidental
perishing of the thing without the fault of either party." Chase
Precast Corp. v. John J. Paonessa Co., Inc., 566 N.E.2d 603, 605
(Mass. 1991) (quoting Bos. Plate & Window Glass Co. v. John Bowen
Co., 141 N.E.2d 715, 717 (Mass. 1957)).
If the condition precedent were impossible to perform
within the two-year period, then Railroad's failure to perform
could be excused. However, the doctrine of impossibility does not
apply here because the record clearly demonstrates that Railroad's
performance was not impossible, nor were any of the delays in
reconstruction unforeseen. The damaged Building was demolished in
July 2018, and Railroad had sixteen months remaining to complete
its four-month reconstruction project. Railroad itself did not
review the options to reconstruct the building with RGN until
August 2018, did not sign the contract with RGN until January 2019,
and did not agree on the scope of the replacement Building until
July 2019.7
as to this doctrine. "[W]e see no reason to abandon the settled
appellate rule that issues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are
deemed waived." United States v. Zannino, 895 F.2d 1, 17 (1st
Cir. 1990).
7 Railroad's argument that Covid-19 shutdowns excuse its
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4. The Proof of Loss Was Not a Separate Contract.
Railroad lastly argues that the Proof of Loss that it
submitted to the Insurance Company, which did not contain the two-
year reconstruction requirement for recovering the depreciation
holdback and the code upgrade coverage, modified the terms of the
Policy to eliminate the condition precedent.
Not so. Railroad's Proof of Loss form was not an
independent contract that modified the condition precedent in the
Policy. The Proof of Loss, which was executed by Railroad
unilaterally, states that "[t]he furnishing of this blank or the
preparation of proofs by a representative of the above insurance
company is not a waiver of any of its rights." It is clear that
the purpose of the Proof of Loss was to provide the Insurance
Company with information pertaining to the formal claim of damages
-- not to modify the terms of the Policy. See 13 Couch on Insurance
§ 186:22 (3d ed. 2021) ("[T]he purpose of a proof of loss is . . .
to advise the insurer of facts surrounding the loss for which claim
is being made and to afford the insurer an adequate opportunity to
investigate, to prevent fraud and imposition upon it, and to form
an intelligent estimate of its rights and liabilities before it is
obliged to pay.").
failure to perform also is without merit. The Policy required
that Railroad rebuild the Building by November 2019, four months
before the initial Covid-19 shutdowns in the United States.
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III.
Affirmed.
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