National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

At issue in Citation Ins. Co. v. Mary Blake Newman, No. 10-P-0331 (Mass. App. Ct. August 18, 2011) was a dispute between the owners of adjacent units at a small Cambridge condominium. Mary Blake Newman objected to her neighbor’s through-wall air conditioner which projected into a yard area to which Newman held an exclusive easement as a common area under the condo’s by-laws. Newman complained to her neighbor that his air conditioner intruded into the yard and emitted excessive noise, hot air and vibrations. 

After Hanratty ignored Newman’s complaints, she resorted to self help by sealing the air conditioner with duct tape to make it unusable. Hanratty responded by filing a pro se complaint against Newman seeking to restrain her from interfering with his air emissions and requiring her to stay ten yards away from him and his family. Newman counterclaimed for nuisance, trespass and defamation and sought an order requiring that the air conditioner be removed. 

Hanratty tendered the defense of this counterclaim to his homeowner’s insurer (Citation Insurance), which agreed to defend him subject to a reservation of rights. Citation then filed an action for declaratory relief seeking a declaration that it was not required to provide coverage for these claims. Hanratty counterclaimed alleging bad faith and asserting that Citation had failed to pay a reasonable hourly rate for his chosen defense counsel.  While the coverage litigation was still pending, the feuding Cambridge neighbors reached agreement whereby Hanratty agreed to remove the offending air conditioner and exchanged his counterclaim against Citation to his contentious neighbor Newman. 

In June 2009, a trial judge granted summary judgment to Citation. Newman appealed and on August 18, 2011, the Appeals Court of Massachusetts ruled that Newman’s counterclaim set forth a potential claim for both “property damage” triggering the insurer’s duty to defend. 

On the crucial issue of whether an easement is “tangible property,” the court held that what is important is not the nature of the insured’s right in a particular piece of property but the nature of the property in which the right is held. Accordingly, the fact that Newman merely had a right to use the back yard and did not actually own it did not change the fact that the yard itself was, in the Court’s view “tangible property.” In light of Newman’s allegations that her use of the yard had been infringed by the offending air conditioner, the Court held that such claims triggered the policy’s “property damage” coverage as involving a loss of use of tangible property.

In a footnote, the Appeals Court distinguished the California Supreme Court’s opinion in Kazi v. State Farm Fire & Cas. Co., 24 Cal. 4th 871 (2001) as involving a different set of facts (Kazi involved a dispute with respect to an implied non-exclusive easement as opposed to the existing express easement possessed by Newman) and was declared by the Court, in any event, to be an unreliable precedent that it need not follow. 

The Appeals Court ruled, moreover, that coverage was independently triggered by allegations in an affidavit that Newman had filed claiming that the noisy air conditioner had affected her use of the interior space in her condominium unit:  “When the air conditioner is operating, I can hear it in my unit. I can feel its vibrations through the floor when I’m on my balcony. When its running, it interferes with conversations in my room, especially if I leave my outside door open for cross-ventilation purposes. In fact, its so noisy that I can’t leave my windows open and door open. . . .” The Court of Appeals declared, without a trace of irony, that this evidence clearly supported a finding that she was claiming for loss of use of tangible property.

There are a number of problems with Citation. First, the Court did not discuss the extent to which an affidavit not referenced in the underlying complaint could trigger a duty to defend. Although Massachusetts has recently evidenced a broader standard with respect to whether insurers are limited to the allegations in the “four corners” of the complaint, it is far from clear that an affidavit is the type of “fact” that an insurer is required to consider.

More to the point, the court’s analysis with respect to the back yard obscured the fact that the back yard itself did not suffer any injury. Rather, it was the insured’s intangible right that was impaired. One might just as easily argue that my recent losses in the stock market involve a loss of use of tangible property since the subject matter of those claims involve tangible objects (stocks, bonds and dollar bills).

The ruling is all the more surprising in that it was authored by Justice Cynthia Cohen who, before going on the bench, was one of Boston’s leading insurer coverage attorneys.