In Vermont Mutual Ins. Co. v. Zamsky, No. 13-1172 (1st Circuit, Oct. 9, 2013), the First Circuit Court of Appeals held that a homeowner’s insurance carrier had a duty to defend and indemnify its insured against claims for personal injury arising from an accident that occurred at an uninsured property owned by the policyholder.
The defendant, Andrew Zamsky, was an insured under three homeowners’ policies issued to his parents by the plaintiff, Vermont Mutual Insurance Company (“Vermont Mutual”). The policies required Vermont Mutual to defend and indemnify all persons insured thereunder, including Andrew Zamsky, against claims stemming from “bodily injury” caused by a covered “occurrence,” subject to various exclusions. The “UL exclusion” precludes coverage for injuries “[a]rising out of a premises” owned by an insured but not itself an “insured location.”
On the night of November 27, 2008, Zamsky and several friends drove to a house in Falmouth, Massachusetts. The house was owned by Zamsky’s parents, but it was not an “insured location” as defined in the Vermont Mutual policies. At some point after their arrival, Zamsky retrieved from a shed on the property a portable fire pit and placed it on the deck. The group tried to start a fire but the wood was too wet. Zamsky told another member of the group, Aaron Bronstein, to look in the garage for something to help get the fire going. Bromstein retrieved a container of gasoline and poured it on the fire, setting at least three members of the group aflame. Suit was filed against Zamsky, and the matter was tendered to Vermont Mutual (along with two other insurers). Vermont Mutual filed a declaratory judgment action in federal court. On summary judgment, Vermont Mutual argued that it did not have a duty to defend Zamsky because of the UL exclusions. The district court denied Vermont Mutual’s motion holding that the UL exclusion did not apply. Vermont Mutual appealed.
The First Circuit addressed the meaning and effect of the UL exclusion. This was a question that the Supreme Judicial Court of Massachusetts had yet to answer. Since the SJC had not ruled on the issue, the First Circuit was required to make an informed decision on how the SJC would likely rule if confronted with the question. The First Circuit looked at two Massachusetts Appeals Court cases for guidance, Callahan v. Quincy Mutual Fire Insurance Co., 50 Mass. App. Ct. 260 (2000) and Commerce Ins. Co., Inc. v. Theodore, 65 Mass. App. Ct. 471 (2006). The First Circuit held that Callahan and Theodore established a dichotomy: if the covered occurrence arises out of a condition on the premises and the UL exclusion’s other requirements are satisfied, the exclusion applies. Otherwise, it does not.
The First Circuit held that it was clear that this portable fire pit – stored on the property for a matter of months prior to the occurrence (in a different location) – was not a condition of the Falmouth premises. The fire pit was easily moveable and was not erected on the property. Rather, it was a portable item of personal property that happened to be stored in a building on the Falmouth premises. Therefore, the First Circuit held that the UL exclusion did not apply.
This case should serve as a reminder to the insurance industry to be straightforward in drafting exclusions in insurance policies when they want to exclude coverage under certain conditions. See Makrigiannis v. Nintendo of Am., Inc., 442 Mass. 675, 681 (2004) (holding that if the insurer “intended to exclude coverage” under certain conditions “it could have expressly stated such an exclusion.”). The SJC has long held that ambiguities in insurance policies are to be construed in favor of affording coverage to the insured. See Hakim v. Massachusetts Insurers' Insolvency Fund, 424 Mass. 275, 281 (1997). This is consistent with the SJC’s unwavering insistence that exclusions from coverage should be strictly construed. See Id. at 281. The First Circuit took note of these principles and indicated that if Vermont Mutual wanted to exclude from coverage all injuries occurring at an owned premises that it did not insure, it would have been simple to do so. Under such circumstances, the First Circuit did not believe the SJC would construe the policy exclusion to sweep more broadly than its language dictated.