In a recent August 2020 decision, the Supreme Court of Massachusetts in. (SJC-12856) determined that molestation policy exclusions do not preclude coverage arising out of alleged assault in personal injury claims. The Court found that the term “physical abuse” was ambiguous in a homeowner’s insurance policy and a personal injury claim arising out of a physical altercation was not sufficient to trigger an abuse and molestation policy exclusion for the coverage of a bodily injury claim.

Background

On September 13, 2014 Timothy Krusell, who was 23 years old at the time, was with a friend when he struck up a conversation with Robert Christian Haufler, age 62, and his companion. The conversation became heated and Krusell pushed Haufler, causing him to lose his balance and fall onto a parked automobile before striking the pavement. Krusell fled the scene and Haufler suffered broken bones and other injuries that resulted in permanent damage to his right arm. Haufler filed a civil action against Timothy Krusell and Dorchester Mutual, the homeowners’ insurance carrier of Krusell’s parents (“the Krusells”).  Dorchester Mutual agreed to defend the claim under a reservation of rights, citing to a coverage exclusion in the Krusells’ insurance policy relating to “intentional acts.”

The Krusells requested that Dorchester Mutual participate in settlement negotiations, however, Dorchester Mutual declined to participate in on the grounds that it had insufficient information to determine whether the claim will be denied. The Krusells settled the claim for $750,000, anticipating that Dorchester Mutual would cover $500,000 under their insurance policy. Dorchester Mutual commenced a declaratory judgment action seeking a judgment that it had no duty to indemnify the Krusells under the terms of their homeowners’ insurance policy, and the Krusells brought a counterclaim against Dorchester Mutual, arguing that its refusal to participate in settlement discussions constituted a breach of contract, a breach of the implied covenant of good faith and fair dealing, and a violation of G.L.c. 93A and G.L.c. 176D.

Policy Analysis & Court’s Ruling

Dorchester Mutual argued in its summary judgment motion that even if Krusell did not intend to injure Haufler and the intentional acts exclusion was inapplicable, a different exclusion known as the “abuse and molestation exclusion” precluded coverage. The “abuse and molestation exclusion” precluded coverage for bodily injury or property damage arising out of sexual molestation, corporal punishment or physical or mental abuse. They argued that the “physical abuse” phrase unambiguously described Krusell’s conduct and the exclusion thus precluded coverage.

A Superior Court judge agreed that Krusell’s conduct constituted physical abuse and thus, the abuse and molestation exclusion precluded coverage and granted Dorchester Mutual’s motion for summary judgment. The Krusells filed an appeal in the Massachusetts Appeals Court and the case was transferred to the Supreme Judicial Court on its own motion.

The crux of the dispute is whether the term “physical abuse” in the abuse and molestation exclusion precludes coverage for Krusell’s conduct. The Krusells argue that the term “physical abuse” is ambiguous and should require intentional conduct or conduct involving a sexual element. The Supreme Judicial Court agreed and concluded that the term “physical abuse” is ambiguous.  The SJC found an objectively reasonable insured would expect to be covered under the policy at issue, as the insured would expect that the term “physical abuse” does not preclude coverage for Krusell’s conduct. Ambiguity of a term is not determined by virtue of a disagreement as to its meaning (Sullivan v. Southland Life Ins. Co. (2006) 67 Mass.App. Ct.439), but rather when it is “susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one.” (Citation Ins. Co. v. Gomez (1998) 426 Mass. N.E.2d 951. The Court reasoned that when deciding whether a term is ambiguous, it does not initially consider any extrinsic evidence of the intended meaning. (See Bank v. Thermo Elemental, Inc. 451 Mass. 638, 648 (2008). The Court stated that it further attempts to ascertain possible relevant meanings by considering dictionary definitions and looking into case law to determine whether a consistent interpretation has been adopted by other courts. (Suffolk Constr. Co. v. Illinois Union Ins. Co., 80 Mass. App. Ct. 90, 94 (2001), citing BloomSouth Flooring Corp., v. Boys’ & Girls’ Club of Taunton Inc., 440 Mass. 618, 622-623 (2003). Bearing these factors in mind, the Court concluded the word “abuse” has a potential for broad interpretation and physical abuse can include any harmful physical treatment. (See Miglino v. Universal Prop. & Cas. Ins. Co., 174 So. 3d 479, 481 (Fla. Dist. Ct. App. 2015)(defining “abuse” as “physical…maltreatment”). The Court found that, given the varying interpretations across different courts, “the term “abuse” is susceptible of more than one meaning and reasonably intelligent persons could differ as to which meaning is the proper one.” (Dorchester Mutual v. Krussel)

Upon finding that the term “physical abuse” ambiguous, the Court then analyzed what a reasonable insured’s interpretation of the term is through analysis of prior cases and statutes. Specifically, the standard applied was “what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.” (See Metropolitan Life Ins. Co., 464 Mass. At 635, quoting Hazen Paper Co. v. United States Fid. & Gaur. Co., 407 Mass. 689, 700 (1990)). The Court reasoned that an insurance policy is designed to provide coverage for “occurrences,” which are defined in part as “accidents.”  Therefore, such a broad interpretation of “physical abuse” as was advocated by Dorchester Mutual would undermine the basic purpose of a homeowner purchasing such a policy. (Quincy Mut. Fire Ins. Co. v. Abernathy, 393 Mass. 81, 84 – 85 (1984).

Dorchester Mutual’s Motion for Summary Judgment on G.L.c. 93A and G.L.c. 176D Claims & Court’s Ruling

The Krusells not only argued that the term “physical abuse” is ambiguous and the “abuse and molestation” exclusion did not preclude coverage, but also argued that Dorchester Mutual’s refusal to engage in settlement talks constituted an unfair settlement practice in violation of G.L.c. 93A and G.L.c. 176D. A Superior Court judge concluded that the exclusion precluded coverage and granted Dorchester Mutual’s motion for summary judgment. The judge further concluded that Dorchester Mutual’s refusal to enter into settlement discussions did not violate G.L.c. 93A and G.L.c. 176D.

G.L.c. 176D, section 3(9)(f) states in pertinent part that an insurer engages in an unfair claim settlement practice by “failing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” There was evidence that the only full accounts of the incident available to Dorchester Mutual were Haufler’s complaint and the police report, until just days before the settlement. The police report indicated that Krusell charged towards Haufler and pushed him with sufficient force, causing him to become airborne. Days before the settlement, the Krusells provided Dorchester Mutual with a report by a forensic psychiatrist who had been retained to evaluate Krusell in connection with the criminal proceeding. This report served as a second-hand account of the incident for Dorchester Mutual.

Ultimately, while the Supreme Judicial Court found that the abuse and molestation exclusion did not preclude coverage, it agreed with the lower court’s decision to grant the Motion for Summary Judgment as to G.L.c. 93A and G.L.c. 176D, finding that at the time the Krusells agreed to a settlement, Dorchester Mutual reasonably could have concluded that liability remained unclear. Although the Court expressed no view as to whether the intentional acts exclusion would preclude coverage in this case, it found no error with the lower court’s decision to grant summary judgment to Dorchester Mutual on the G.L.c. 93A and G.L.c. 176D claims.

Potential Implications

Cases in which courts have declined to apply the abuse and molestation exclusion illustrate that abuse reasonably can be interpreted to refer to a limited subset of physically harmful treatment, and not just the assault that is at issue in the Dorchester Mutual Insurance Company v. Krusell, et al. matter. Conduct that is deemed physically harmful does not necessarily equate to physical abuse. Thus, both insureds and insurers must bear in mind what a reasonable insured could, and likely would, understand to be “abusive” as they navigate policies and face issues involving coverage for personal injury claims.