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By: David A. Slocum
The Massachusetts Appeals Court recently held, based on an “uninsured location” exclusion in a homeowner’s policy, that an insurer was not required to defend and indemnify an insured homeowner against a third-party’s negligent misrepresentation claim arising out of the sale of a home previously owned by the insured.
In Norfolk & Dedham Mutual Fire Insurance Company v. Norton, 100 Mass. App. Ct. 476 (2021), the Nortons (the “Insureds”) sold their home in Duxbury, Massachusetts in February 2017. In 2019, the buyer brought suit alleging the Insureds made false statements that induced the buyer to purchase the property. Specifically, the buyer alleged that, prior to the sale, the Insureds represented that the home had no “water drainage problems” and that there were no “water,” “seepage,” or “dampness” issues in the basement. The buyer further alleged that the Insureds knew or reasonably should have known those representations were false based on information indicating that the basement had flooded on multiple occasions in the past. After the buyer purchased the property, the basement flooded in January and again in March 2018, causing significant damage to the home and to the buyer’s personal property.
The Insureds tendered defense of the lawsuit to their homeowner’s insurer Norfolk & Dedham Mutual Fire Insurance Company (the “Insurer) based on a policy issued in September 2017 in connection with the Insureds’ new home in Sandwich, Massachusetts. That policy, which was in effect when the Duxbury property flooded in 2018, provided coverage to the Insureds for personal liability “[i]f a claim is made … against an ‘insured’ for damages because of ‘property damage’ caused by an ‘occurrence.’” An “insured location” exclusion in the policy language, however, barred coverage for property damage arising out of a premises “owned by an insured” “that is not an ‘insured location.’” The policy language defined “insured location” as “[t]he … dwelling where [the Insureds] reside,” which at the time the policy was issued was the Insureds’ home in Sandwich, not the Duxbury property.
The Insurer sought a ruling that under the “uninsured location” exclusion, it had no duty to defend or indemnify the Insureds against the buyer’s claims. The trial Court ruled in the Insurer’s favor, and the Insureds appealed. The Massachusetts Appeals Court affirmed. The Court reasoned, “homeowner’s insurance provides protection against ‘two distinct perils’: ‘(1) liability resulting from the condition of the insured premises, and (2) liability stemming from the insured’s tortious personal conduct which may occur at any place on or off the insured premises.’” The Court interpreted the “uninsured location” exclusion as barring coverage for a “distinct third ‘peril’ — injury arising out of the premises of uninsured property — because the insurer has not been given the opportunity to inspect and assess the uninsured property and been compensated to assume this additional risk.” As the Court explained: “[w]ithout an opportunity for inspection, the insurer cannot know the risks associated with the uninsured property and cannot include them in the underwriting determination.”
In determining whether the “uninsured location” exclusion was applicable to the buyer’s claims against the Insureds, the Court resolved the disputed issues of: (i) whether the property damage claimed by the buyer “ar[o]se out of” the uninsured Duxbury property; and (ii) the meaning of the words “owned by an insured” within the “uninsured location” exclusion. The Court rejected the Insureds’ argument that the property damage ‘arose out of’ severe weather events rather than the uninsured Duxbury property, explaining that the “buyers claimed property damage is inextricably linked to the condition of the Duxbury premises.”
The Court also rejected the Insureds’ argument that the words “owned by an insured” within the “uninsured location” exclusion should be interpreted to mean only property owned during the policy period and that it could not be read to encompass property that was previously owned by the Insureds. Instead, the Court reasoned that what mattered for purposes of the exclusion is whether the Insureds owned the Duxbury property at the time of the alleged misrepresentations.
Thus, finding that the “uninsured location” exclusion was applicable to the buyer’s claims against the Insureds, the Appeals Court affirmed the trial Court’s Order granting summary judgment in the Insurer’s favor.