Arch not owed contribution for condo board's defense based on client's prior knowledge of damages
In this case, the duty to defend depended on the condo board's knowledge of occurrences in the underlying suit.
The U.S. District Court for the District of Massachusetts has ruled that an insurer does not owe contribution to another insurer for the underlying defense of a mutual client because the first insurer is not obligated to defend the underlying suit. The case is Arch Specialty Ins. Co. v. Colony Ins. Co., 590 F. Supp. 3d 395 (D. Mass. 2022).
The underlying case
Two tenants sued the Board of Governors of Glover Landing Condo Trust (the Board), alleging the Board’s failure to make necessary repairs had forced them to vacate their apartment, which they had owned since 1982. That complaint was based primarily on the Board’s failure to approve code-compliant replacements for faulty, non-code-compliant windows and the failure to repair the roof, which leaked into the tenant’s apartment. The tenants brought up the issues of non-code-compliant windows and the leaking roof multiple times, with flooding causing significant problems in 2007, 2011, and 2014. These problems were not fixed, and they continued until the tenants vacated the apartment in February 2015.
Arch assumes defense of the Board
The Board had purchased insurance policies from five different insurers: Arch Specialty, Colony, Nova Casualty, Endurance American Specialty and Greenwich. In December 2017, Arch assumed responsibility for defending the Board without a reservation of rights. Arch later filed suit against the other insurers, seeking a declaratory judgment that each company had to contribute to its existing defense.
Arch’s cases against Nova and Greenwich eventually dropped. When Arch, Colony and Endurance went to court, each party filed for summary judgment. Colony’s motion was granted due to an applicable coverage exclusion in its policy, leaving only Endurance and Arch to fight before the judges.
Arch claimed Endurance had the duty to defend because relevant events in the underlying claim were within the scope of Endurance’s policy, and no exclusions applied. Endurance, on the other hand, said the relevant events were outside the scope of the policy. However, even if the policy did encompass the relevant events, Endurance said there was no duty to defend under the exclusions for expected or intended damages and professional services.
What the court said
The court began with the question of whether the Board’s behavior fell within the scope of coverage under the Endurance policy, which was a key part of the dispute between Arch and Endurance. The Board’s behavior would fall within the scope of the Endurance policy if there was an occurrence that took place during the policy period of which the Board had no knowledge. After determining there was only one occurrence — the leaky roof — that could have taken place during Endurance’s policy period, the court turned to the question of whether the Board knew of property damage that had occurred prior to the inception of the Endurance policy. Under the Endurance policy, property damage was “known” when the insured became aware that property damage had occurred or begun to occur.
The Endurance policy was purchased in 2012, with a policy period of one year. As stated earlier, the tenants in the underlying suit first notified the Board of the leaky roof following a flood in 2007 and again for the same reasons in 2011, in addition to repeated requests for the Board to fix the roof for reasons unrelated to the aforementioned floods. This evidence showed the Board was aware of the leaky roof prior to the purchase and inception of the Endurance policy, which removed the events of the underlying suit from the scope of the Endurance policy. Therefore, Endurance was not obligated to defend the Board in the underlying suit and did not owe contribution to Arch in its defense of the Board.
Since Arch was unable to establish that the events of the underlying suit were within the scope of the Endurance policy, the court did not need to continue its analysis of the duty to defend, or to analyze potentially applicable exclusions. The court granted summary judgment in favor of Endurance.
FC&S editor’s note: The date of loss and date of discovery are key dates in any claim situation. Knowledge of damage to property is to be reported to insurers as soon as possible, and policies generally only pay for losses that occur during the policy period. In this case the board knew there was damage to the property before a policy was taken out with Endurance. No insurance policy will pay for pre-existing damage.
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