HILLMAN, D.J.
Shri Gayatri, LLC ("Shri Gayatri") filed suit against The Charter Oak Fire Insurance Company ("Charter Oak") seeking a declaratory judgment that it is entitled to an award for Replacement Cost Value of the loss owed and Ordinance and Law loss under an insurance policy, Policy Number I-660-7496M38A-COF-10 ("Policy") issued to Shri Gayatri that covered a commercial property owned by it and operated as a motel at 66-68 Haynes Street, Sturbridge, MA. More specifically, the property was a Days Inn consisting of four buildings, which housed thirty-four (34) rooms, and a pool ("Property"). Shri Gayatri has also asserted claims for breach of the implied covenant of good faith and fair dealing, and violation of the Massachusetts Consumer Protection Act, Mass.Gen.L. ch. 93A, §§ 2,11 and Mass.Gen.L. ch. 176D, §§ 3(9)(f), (g) ("Chapter 93A claim"). Charter Oak has filed a Counterclaim seeking a declaratory judgment that it has no obligation to pay Shri Gayatri for: (1) the difference between the replacement and actual cash value for any property loss or damage; and (2) the increased cost of construction of building, zoning and use ordinance. This Memorandum of Decision and Order For Entry Of Judgment addresses Defendant's Motion For Summary Judgment (Docket No. 47). For the reasons set for the below, that motion is granted.
The Policy contains the following provisions relevant to replacement cost coverage:
The Policy further provides "Replacement Cost" as an "Optional Coverage,", in relevant part, as follows:
The Policy contains the following Endorsement as required under Massachusetts law:
The Policy contains the following provisions relevant to ordinance of law coverage:
The Policy was a commercial insurance policy effective from September 24, 2010 through September 24, 2011. Charter
On June 1, 2011, the Property sustained damage caused by a tornado (the "Loss"). The damage included fallen trees and roof and structural damage to the four buildings. That same day, Shri Gayatri submitted a claim to Charter Oak. On June 2, 2011, Charter Oak conducted an initial inspection of the damage to the Property. Based on the initial inspection, Charter Oak assigned the claim to Gerald Alfieri ("Alfieri"), a General Adjuster in Charter Oak's Property Major Case Unit. Alfieri, on behalf of Charter Oak, retained the following outside consultants to assist in Charter Oak's investigation of the loss: Gary Page ("Page"), of Page Consulting, to assist with an estimate of the building damage; Leonard J. Morse-Fortier, a structural engineer, to assist with a determination of the scope of damages to the buildings; Russell Drummey, a mechanical engineer, to assist with an evaluation of the extent of damages to HVAC systems and other building mechanicals; and Commercial Equipment Insurance Pricing Service to assist with an evaluation of the business personal property loss. Alfieri also requested Walter Shutak, a CPA employed by the Charter Oak claim department, to assist with an evaluation of the business income loss. On June 3, 2011, Charter Oak conducted a site inspection of the Property. Alfieri indicated that it may take six months or more to restore the Property. Charter Oak's representatives, including Alfieri and Page, visited the Property additional times in June and July, 2011 to investigate the Loss.
Charter Oak issued two payments dated June 9, 2011 to Shri Gayatri totaling $107,500 as an advance payment on the building loss. A $100,000 payment was made payable jointly to Shri Gayatri and United Bank, the mortgage holder. United Bank held $50,000 and the remaining $50,000 was released to Shri Gayatri for emergency repairs. The $7,500 payment was made jointly to Shri Gayatri, United Bank and John Grenier ("Grenier"), Shri Gayatri's public adjuster; Grenier retained the entire amount.
On Shri Gayatri's behalf, Grenier retained a building estimator, Dennis Walsh ("Walsh"), who worked with Page in June and July, 2011 to arrive at an agreement on the scope of damages. Walsh's estimate, dated July 7, 2011, shows a total replacement cost value of $755,200.20. Shri Gayatri never provided Walsh's estimate to Charter Oak.
Charter Oak issued payments dated August 8, 2011 to Shri Gayatri totaling $396,824 (a check for $367,062 and a check for $29,762) for the building loss and $40,089 for business personal property losses. Shri Gayatri did not deposit the $367,062 check until March 22, 2012. Shri Gayatri did not challenge Charter Oak's August, 2011 estimate of the building loss, either in its evaluation of the scope of damages or the cost of making repairs. In mid-August, 2011, Shri Gayatri retained Tocci Building Companies ("Tocci"), a company that builds hotels, to prepare an estimate of the loss. Shri Gayatri did not inform Charter Oak that it had retained Tocci to prepare an estimate.
On or about August 28, 2011, the Property sustained additional property damage caused by Tropical Storm Irene. Shri Gayatri did not report the additional damage caused by Tropical Storm Irene to Charter Oak and Tocci had not inspected the Property prior to the additional damage caused by Irene. Tocci completed its estimate of the cost to repair the building damage ($2,195,426) and provided it to Mr. Jayesh Patel ("Patel"), manager of Shri Gayatri, at the end of September 2011. The estimate was provided to Charter Oak on or about November 9, 2011. On or about October 29, 2011, the Property sustained a third loss caused by an early ice/snow storm ("October Snowstorm"). Again, Shri Gayatri did not report the additional damage caused by this storm to Charter Oak. On November 4, 2011, Alfieri, while driving past the Property, observed that no repairs were in progress. On November 7, 2011, he called Grenier to inquire into the status of the claim and the repairs. Grenier informed Alfieri, for the first time, that the Property had sustained additional damage as a result of the August and October storms. Grenier also informed Alfieri, for the first time, of the Tocci estimate. Grenier provided the Tocci estimate to Alfieri on November 9, 2011. The Tocci estimate, based on an inspection of the Property that occurred after Tropical Storm Irene, calculated the total replacement cost value of the loss to be $1,945,474. The Tocci estimate did not contain any calculation of the ACV of the Loss.
On November 29, 2011, Charter Oak conducted another inspection of the Property along with representatives of the insured. At this inspection, Charter Oak observed the damage to the Property caused by Tropical Storm Irene and the October Snowstorm for the first time. Charter Oak's representatives also observed that, despite the $509,324 ACV amount Charter Oak had paid to Shri Gayatri on the building loss, Shri Gayatri had not undertaken any repairs other than temporary roof covering, initial removal of wet items, and other minor remediation.
Following the November 29, 2011 inspection, Alfieri asked Page to revise his estimate. Page's revised estimate calculated the replacement cost value of the building loss to be $1,010,655. The major reason for the increase was Charter Oak's determination that one of the buildings in the motel complex was a total loss and needed to be demolished and replaced. In addition, Charter Oak made payment allowances to
Charter Oak issued two payments dated February 2, 2012 to Shri Gayatri, totaling $299,154, for the additional ACV of the building loss. On or about February 24, 2012, Patel received a revised estimate from Tocci. The estimate broke down as follows: $1,816,014 to reconstruct the four buildings; $224,753 for site work; $164,917 for septic/pool/well; and $412,039 for code upgrades. Although it is not clear when, the revised estimate was forwarded to Alfieri. On March 1, 2012, Charter Oak conducted another inspection of the damage to the Property. As of the March 1, 2012 inspection, Shri Gayatri still had not made permanent repairs to the Property. According to Patel, he was holding the checks (he had not deposited them) and not initiating repairs due to the perceived concerns of United Bank, the mortgage holder. Additionally, Patel did not start repairs because Charter Oak had not provided him with enough funds to rebuild the property. A Mr. Ferolito ("Ferolito") from Tocci was present at the inspection. He compared the Page estimate to Tocci's first and second estimates and concluded that Page had missed a number of items and had priced the work for a number of repairs lower than what Tocci had estimated it would cost to perform the work. It is not clear that Grenier, Ferolito or anyone else associated with Shri Gayatri ever raised these concerns with Page or anyone else from Charter Oak.
Following the March 1, 2012 inspection, Alfieri asked Page to revise his estimate. Page's revised estimate calculated the replacement cost of the building loss to be $1,038,331. The modest increase was based on observations made during the March 1, 2012 inspection and Page's use of an updated price list. Charter Oak prepared a revised Statement of Loss based on the revised estimate. The revised Statement of Loss calculated the replacement cost of the building loss to be $1,082,715, with an ACV of $836,825. Charter Oak forwarded the revised building estimate and Statement of Loss to Grenier. On March 23, 2012, Alfieri met with Grenier and Patel and informed them that once the April payment was made, Charter Oak believed that it did not owe any additional money on the claim, and that the parties should proceed with reference if there was disagreement about whether the proper amount had been paid. Also on March 23, 2012, Patel requested from Alfieri that Charter Oak exercise its option under the Policy to find and engaged a contractor to repair and rebuilt the Property. Charter Oak declined to do so. Charter Oak issued additional payments on April 2, 2012 to Shri Gayatri totalling $23,328 for the building loss.
On August 15, 2012, Attorney Caryn L. Daum, on behalf of Charter Oak, sent a letter to Timothy Wickstrom, counsel for Shri Gayatri, stating that "if your client disagrees with the amount of loss as determined by Charter Oak, the amount of loss must be submitted to reference in accordance with the Policy and the procedures set forth in M.G.L. ch. 175, § 100, et seq." Attorney Wickstrom replied by letter dated August 30, 2012, in which he stated that "[i]t is the insured's position that reference must be initiated by the insured, not the insurer, pursuant to the statute."
Charter Oak issued payments dated August 27, 2012 to Shri Gayatri totaling $18,956 for business personal property losses (this payment amount was re-issued to Shri Gayatri at a later date because the checks had not been deposited). On or about on October 1, 2012, Shri Gayatri replaced Grenier as its public adjuster and retained David A. Benton ("Benton") in his place. Over the next seven months, Benton attempted to obtain photographs and reports and determine how the damages occurred at the time of loss plus the two subsequent storms. Benton never received any documents from Grenier, and he never spoke with Grenier. Benton also never saw any estimates from Grenier. Benton had no knowledge of what Grenier did during the almost year and a half Grenier worked on the claim on behalf of Shri Gayatri.
By letter dated April 12, 2013, Benton, on behalf of Shri Gayatri, demanded reference on the claim. By letter dated May 20, 2013, Benton asked Charter Oak to extend the two year time period listed in the Policy for Shri Gayatri to repair or replace the damages to the Property. By letter dated May 22, 2013, Charter Oak declined to extend the two-year period set forth in the Policy for Shri Gayatri to repair or replace the damages to the Property, but agreed that the two-year limitation period to file suit in the Policy would be tolled pending the conclusion of the reference. Shortly before the reference hearings held between October 17 and 29, 2013, Benton submitted to the referees a Public Adjuster/Loss Consultant memorandum providing an overview of the issues in dispute at the reference. Benton's memorandum enclosed a Statement of Loss prepared by him. The memorandum and Statement of Loss calculated the replacement cost value of the building loss to be $1,894,047.89, with an ACV $1,569,580.57. At about the same time, Shri Gayatri also submitted to the reference panel a claim binder containing voluminous invoices and estimates, most of which had not previously been provided to Charter Oak. Specifically, Shri Gayatri produced the following documents to the reference panel, none of which had been previously produced to Charter Oak, either by Benton or Grenier:
Alfieri asked Shutak to prepare an four month business loss estimate, which represented the least amount of time that the Property would be out of service. Shutak did not request a copy of the Days Inn franchise agreement before preparing the estimate. On or about June 29, 2011, Shutak estimated that the business income loss over an eight month period would be $168,000. Charter Oak issued a payment dated July 5, 2011 to Shri Gayatri in the amount of $43,000 for business income loss.
Shutak did not perform any work on the Shri Gayatri file between July 7, 2011 and November 1, 2011. In November 2011, Alfieri requested a new business loss estimate covering the six month period from June 1, 2011 to December 1, 2011. Shutak completed the estimate around November 15, 2011. He calculated a projection of lost sales in the amount of $266,000, which
On or about January 30, 2012, Shutak sent a business interruption loss report to Alfieri which indicated an eight month business income loss for Shri Gayatri in the amount of $173,905.85. This calculation did not include rent as a continuing expense. By this time, the rental expense had increased to $11,547.49 and had it been included in the business loss income calculation, the estimated loss would have been $185,000.00. On February 10, 2012, Alfieri and Shutak discussed the estimate and concluded that the sales projection was not as great as Shutak had first calculated — Shutak had used a 50% growth trend in making his calculation. Shutak had also prepared an estimate that included a 19.42% increase in monthly revenues/sales. Using the 19.42% growth trend, Shutak calculated the lost business income to be $131,230.47, excluding rent. A colleague of Shutak had reviewed the estimate and suggested using an 11.93% growth trend. Using the 11.93% sales projection figure resulted in a business income loss of $121,300.04. After talking to Alfieri, Shutak revised his estimate and found the business lost income to be $121,127.10. Charter Oak issued a check dated February 13, 2012 to Shri Gayatri in the amount of $78,127, representing its calculation of eight months of loss of business income. At the same time, Alfieri acknowledged that the restoration period was likely to increase from eight to twelve months.
After receiving the February 13th payment, Patel requested that his accountant, Giris Chokshi ("Chokshi"), review Shutaak's calculation. The worksheet containing Chokshi's calculations was forwarded to Alfieri
On December 4, 2013, the reference panel issued its decision (the "Reference Award"): (1) the ACV of the Building loss was $1,053,880.35 and the replacement cost was $1,281,164.35; (2) the ACV of the Business Personal Property loss was $74,305.50 and the replacement cost was $97,770.00;
Patel applied for a loan in the spring of 2011 to assist him with his intended purchase of 21 Boston Post Road in Sturbridge, Massachusetts, for a new Holiday Inn Express hotel. When he applied for the loan, Patel did not request any funds to make permanent repairs at the Property. In a letter from Shri Gayatri's counsel dated March 3, 2014, approximately two years and eight months after the tornado loss, Shri Gayatri told Charter Oak, for the first time, that it had purchased a replacement property located at 408 Main Street, Sturbridge, Massachusetts. The purchase and sale agreement for the purported replacement property was not executed until January 15, 2014. Shri Gayatri "purchased" the property from Om Shri Uma Bhavani, LLC, a limited liability company owned by Patel. The transaction involved Patel transferring assets between the two entities he owned. Shri Gayatri did not complete the purchase within two years of the date of Loss, or within two years of the expiration of the Policy on December 3, 2011.
"Summary judgment is appropriate when the moving party shows that there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. In considering whether or not a genuine issue of material fact exists, the court `must view the evidence in the light most favorable to the opposing party.' "Under Massachusetts law, the interpretation of an unambiguous insurance policy is normally a question of law for the court." BioChemics, Inc. v. Axis Reinsurance Co., 83 F.Supp.3d 405, 407 (D.Mass.2015)(internal citations and citation to quoted case omitted). The court applies general rules of contract interpretation, and looks first to the actual policy language, which is "`given its plain and ordinary meaning.'" Valley Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir.2012). Like all contracts, an insurance policy is to be construed according to the fair and reasonable meaning of its words. Exclusionary clauses must be strictly construed against the insurer so as not to defeat any intended coverage or diminish the protection purchased by the insured. See Vappi & Co. v. Aetna Cas. & Sur. Co., 348 Mass. 427, 431-432, 204 N.E.2d 273, 276 (1965). Thus, where "the relevant policy provisions are plainly expressed, those provisions must be enforced according to their terms and interpreted in a manner consistent with what an objectively reasonable ensured would expect to be covered. Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 11 (1st Cir.2012).
"The insurer bears the burden of demonstrating that an exclusion exists that precludes coverage, and `any ambiguities in the exclusion provision are strictly construed against the insurer'. Ambiguity
Shri Gayatri seeks a declaration that it is entitled to recover: (1) the difference between the replacement cost of the damaged property and the ACV of that property; and (2) the hypothetical cost of the additional expenses it would have incurred to bring a repaired or replaced building up to the current building code standards if it had actually repaired or replaced the damaged property. Shri Gayatri has also asserted claims for breach of the implied covenant of good faith and fair dealing, and unfair and deceptive trade acts or practices in violation of Chapter 93 A.
Charter Oak has paid Shri Gayatri the amount of the Reference Award, i.e., the ACV (less the $5,000 Policy deductible), for damage to the Property sustained as a result of three distinct weather events which occurred in the 2011 calendar year: a tornado (June 1, 2011), Tropical Storm Irene (August 28, 2011) and the October Snowstorm (October 29, 2011). Shri Gayatri claims that it was entitled to the replacement cost to repair and/or replace the Property and seeks to recover the difference between the replacement cost and the ACV. Shri Gayatri also asserts that it is entitled to payment under the Ordinance or Law provision of the Policy which entitles it to recover increased costs incurred in connection with the repair and replacement of damaged property in order to bring the repaired/replaced property into minimum compliance with building, zoning or land use ordinance or law (hereafter, "ordinance cost").
Charter Oak asserts that the clear and unambiguous language of the Policy provides that the insured is not entitled to replacement cost or ordinance cost unless the damaged property is repaired or replaced within two years of the date of loss. Because it is undisputed that Shri Gayatri did not repair or replace the Property within two years of the date of loss, Charter Oaks argues that Shri Gayatri's was not entitled to recover replacement cost or ordnance cost. I agree with Charter Oaks: The plain language in the Policy provides that Shri Gayatri is not entitled to recover replacement or ordinance cost under the Policy until the damaged property is actually repaired or replaced. Moreover, such repairs or replacement were to be made as soon as reasonably possible and must have been completed within two years of the date of loss. Shri Gayatri asserts that it was unable repair and/or replace the Property within two years of the date of the loss because of the actions or inactions of Charter Oak and therefore, Charter Oak is "estopped" from denying coverage for replacement cost and/or ordinance cost. More specifically, Shri Gayatri argues that it was unable to timely repair and/or replace the Property because Charter Oak made untimely payments on Shri Gayatri's claims and provided unduly low estimates of the cost to repair/replace the Property
Before discussing the merits of Shri Gayatri's claim, the Court must first examine whether Shri Gayatri's reliance on an "estoppel" theory is legally sound. The requirement that the damaged property be repaired or replaced is a condition precedent to the insured being entitled to replacement cost and ordinance cost proceeds. That is, the insurer is not liable to pay either replacement or ordinance unless and until the insured has met all necessary conditions, i.e., repaired or replaced the damaged property. If the time by which the condition must be fulfilled ends the condition remains unsatisfied, the obligor's duty is discharged unless the obligor excuses fulfillment of the condition. Charter Oak expressly notified Shri Gayatri in writing that it was not waiving the condition that repair or replacement of the damages Property occur within two years of the Loss. Accordingly, performance of the condition precedent was not excused. Therefore, Shri Gayatri is left to argue that Oak Charter breached its obligations under the Policy and prevented the condition precedent from being met. Moreover, the burden of proof is on Shri Gayatri to establish that Charter Oak prevented it from complying with the condition that the damaged Property be repaired and replaced within two years of the Loss.
Shri Gayatri essentially asserts that it was unable to timely complete the repairs and restoration of the Property because Charter Oak undervalued the damage to the Property and dragged its heels when making payments reflecting the ACV of the Property, payments reflecting lost business, etc. However, the record does not substantiate Shri Gayatri's assertions. Charter Oak promptly viewed the damage to the Property after Shri Gayatri made its initial claims and made numerous follow-up inspections of the Property. It was as a result of these follow-up inspections that Charter Oak discovered that the Property was further damaged by Tropical Storm Irene and the October Snowstorm since Shri Gayatri had never filed claims with Charter Oak regarding damage caused by these events. Charter Oak also provided Shri Gayatri with ongoing estimates of the ACV of Property was well as its estimates of the cost to repair and rebuild. Page's estimate was within $100,000 of the estimate prepared by Walsh (who was hired by Grenier to assist with the process of valuing the damage to the Property). While there may have been some minimal lag time, Charter Oak sent checks to Shri Gayatri within a reasonable time of assessing the loss. Some of those checks were retained by United Bank, the Mortgagor and some went directly to companies who had provided repair services. Additionally, Patel retained some of the funds rather than initiate repairs because he perceived that United Bank had some unspecified concerns. Funds in the amount of $367,062 which Charter Oak issued to Shri Gayatri in August 2011, were not deposited until March 2012. Shri Gayatri received an estimate from Tocci in September 2011, yet it did not forward that estimate to Charter Oak until November 9, 2011. Moreover, Tocci grossly overestimated the ACV and replacement cost, primarily because its figures reflected a complete restoration of the Property, not just the repair or replacement of damaged Property. Over nine months after the Property was damaged by the tornado, Shri Gayatri had not made any permanent repairs. In March 2012, Charter Oak informed Shri Gayatri that it had paid its claim in full and advised it that if it was unsatisfied, they should proceed with reference. On August 15, 2012, Charter Oak made a formal written demand for reference. However,
The reference proceedings were held from October 17 through October 29, 2013. Shri Gayatri submitted an estimate that the replacement cost was $1,894,047.89 and ACV of $1,569,580.57. Shri Gayatri also submitted a claim binder which included a substantial number of invoices and estimates which had never been provided to Charter Oak. The reference panel made the following award:
The award included modest amounts for which Charter Oak and not made any previous payments or offered payment, i.e., appurtenant building and structures, outdoor property, and claim data expense. The reference determined that it would take eighteen months to complete the restorations. The reference panel determined that Charter Oak had underpaid Shri Gayatri on its claim by $369,243.55 of which $97,705 was for loss of business income. While this was a fairly substantial underpayment, it is significantly less than the amount which Shri Gayatri contended it was due. On December 23, 2013, Charter Oak sent Shiri Gayatri a check for $364,243.55, which reflected the difference between what Charter Oak had previously paid Shiri Gayatri and the ACV of the loss determined by the reference panel (less the policy deductible). On March 3, 2014, Shri Gayatri informed Charter Oak that it had purchased a replacement property at another location in Sturbridge, MA. The purchase took place on January 14, 2014, which was over two years after the Loss.
I find that when viewing this evidence in the light most favorable to Shri Gayatri, it has failed to meet its burden of establishing that there is a genuine issue of fact as to whether Charter Oak prevented it from satisfying the condition that it timely repair and replace the damaged Property. On the contrary, the undisputed evidence establishes that Charter Oak acted reasonably promptly in investigating the loss, providing its estimate and paying the claim. However, as discussed above, Shri Gayatri was always one or two steps behind. Much of the delay was attributable to Shri Gayatri's dissatisfaction with the people it hired to pursue its claim, or a lack of communication with its agents. Charter Oak can hardly be faulted for Shri Gayatri changing public adjuster's mid-stream and essentially starting the process
As to Shri Gayatri's claim against Charter Oak for breach of the covenant of good faith and fair dealing, on the record before me, I find that as a matter of law, the undisputed facts fail to establish a lack of good faith on the part of Charter Oak. Therefore, summary judgment shall enter for Charter Oak on this claim.
Shiri Gayatri asserts that Charter Oak violated Chapter 93 A by engaging in unfair or deceptive acts or practices in processing its claim and violated the covenant of good faith and fair dealing. More specifically, Shri Gayatri alleges that Charter Oak delayed the settlement process by making unduly low payments, relied solely on Xactimate estimate rather than obtaining a contractor's bid, failed to consider the Tocci bid and refused to engage a contractor to either provide or substantiate its bid. Shri Gayatri also asserts that Charter Oak engaged in unfair settlement practices when it refused to extend the Policy's two year limitation period for repairing or preplacing the damaged property.
That the reference panel ultimately found that Charter Oak underpaid
Defendant's Motion For Summary Judgment (Docket No. 47) is hereby
