In 2009, Middlesex Mutual Assurance Company denied coverage under a Business Owners Policy for the collapse of a pier owned by its insured, Puerta de la Esperanza (“Puerta”). At the same time, Middlesex sought a declaratory judgment in federal district court in Massachusetts that it was not obligated to provide coverage. Puerta counterclaimed. It sought a declaratory judgment that the damage to the pier was covered under the policy, and alleged breach of contract and bad faith, among other things.
In a previous ruling, Judge Michael Ponsor determined that Puerta’s loss was in fact covered. In the present ruling, the court addressed the breach of contract claim and bad faith claim. As to the breach of contract claim, Middlesex argued that it had no liability because, at the same time it denied coverage, it filed for a declaratory judgment seeking “a blessing from the court upon its decision.” The court found that Middlesex’s argument “defie[d] common sense” because it would force the insured to litigate a declaratory judgment action” — incurring fees that may not be reimbursed under Massachusetts law — before the insured could ever successfully bring a claim for breach of contract.
On the other side, as the basis for its claim of bad faith, Puerta argued that Middlesex wrongfully interpreted the policy in its own favor “at every possible juncture,” when it really should have been construing all ambiguous provisions in favor of Puerta. The court disagreed. It concluded that Puerta was wrongly seeking to impose on an insurance carrier a rule of policy construction that is normally reserved for a court. The court found no case law to support Puerta’s position, and noted “the potential for unfairness that might arise if a violation of the covenant of good faith and fair dealing were found to occur every time an insurer interpreted a contract in a manner favorable to itself.”
The court’s order can be found here.
