Three recent Massachusetts cases touched on issues of significance to insurers doing business in and around the Commonwealth.

Conflicts of Law

Judge Allan van Gestel of the Business Litigation Session recently held that Rhode Island law applied to the interpretation of a pollution exclusion in a commercial liability policy even though the policy was negotiated in Massachusetts between a Massachusetts-based insurance broker and a Massachusetts-based insurance company. OneBeacon America Insurance Company v. Narragansett Electric Company, C.A. No. 05-3086-BLS (August 15, 2007). The court found the “place of negotiating and the place of contracting” to be the “least significant considerations in a choice-of-law analysis.” More relevant, found the court, was the location of the nine contaminated sites at issue and the situs of the insured that may be charged with responsibility for the contamination. Finding that both of these factors weighed in favor of application of Rhode Island law, the court held that Rhode Island’s narrower interpretation of the pollution exclusion applied.

Duty to Defend

The Massachusetts Appeals Court recently held that a property insurer had a duty to defend and indemnify an insured against a claim for injury that allegedly occurred on an adjacent parcel of land used “in connection with” the property owner’s insured residence.” Utica Mutual Ins. Co. v. Fontneau, No. 06-P-930 (Oct. 25, 2007). In so holding, the court reaffirmed that the “settled rule” in Massachusetts is that a duty to defend arises where “the allegations of the complaint are reasonably susceptible of an interpretation stating a claim covered by the policy terms . . . .” The court further reiterated that, under Massachusetts law, “the insurer’s duty to defend its insured arises whenever the allegations in a complaint state cause of action that gives rise to the possibility of recovery under the policy; there need not be a probability of recovery . . . .”

Bad Faith Damages

A Massachusetts trial court recently held that where a defendant insurance company has been found to have engaged in unfair practices against its insured, attorneys fees should be included within “damages” awarded to the insured for the purpose of calculating statutory multiple damages. Dattilo v. Arbella Mutual Ins. Co., C.A. No. 02-4510-E (Mass. Super. Ct. September 19, 2007). As a result, the insured was awarded a total of $1,007,342.58 on a policy containing a $20,000 limit.