United States Court of Appeals
For the First Circuit
No. 00-1815
KATHY F. PARKER,
Plaintiff, Appellant,
v.
WORCESTER INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Torruella, Chief Judge,
Boudin and Lynch, Circuit Judges.
Michael D. Parker for appellant.
Patrick Markey with whom Robinson Donovan Madden & Barry,
P.C. was on brief for appellee.
April 23, 2001
BOUDIN, Circuit Judge. This is a surprisingly
difficult case involving a limitations defense, fixed by
contract and statute, for suit by the insured (Kathy Parker)
claiming a loss under an insurance contract. The matter was
resolved on summary judgment in favor of the insurer
(Worcester). Thus, in reciting the events, we take the facts as
alleged by or in the light most favorable to the insured as the
party opposing summary judgment. Landrau-Romero v. Banco
Popular de P.R., 212 F.3d 607, 611 (1st Cir. 2000).
In January 1985, Michael and Kathy Parker, husband and
wife, moved into a new house at 41 Manse Hill Road, Somers,
Connecticut, purchased from its builder, LHM Developers, Inc.
Kathy Parker thereafter considered herself a Connecticut
resident. Title in the Manse Hill house was taken in Kathy
Parker's name, and homeowner's insurance was obtained, also in
Kathy Parker's name, from Worcester Insurance Company
("Worcester"), an insurance company headquartered in Worcester,
Massachusetts. Almost immediately, Kathy Parker began to notice
hairline, mostly horizontal cracks in the concrete walls of the
basement, which formed the house's foundation.
The Parkers first disregarded the cracks as cosmetic,
but in March 1996 Kathy Parker noticed that the cracks were
growing larger and that the basement wall seemed to be
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developing a sandy texture, as if it were disintegrating. That
summer, Edward Noonan, owner of the company that serviced the
Parkers' heating system, told Michael that a burner repairman
who worked for Noonan had commented either that the Manse Hill
"house look[ed] like it's about to fall over" or that its
"basement wall [was] amazing." Michael Parker then found that
some of the cracks had grown wide enough that he could insert
his fingers and also that cracking had occurred aboveground in
the brick facade supported by the basement wall.
Michael Parker sought an expert to determine the scope
and nature of the cracking problem, but had no immediate
success. Sometime before late September 1996, the Parkers
advised Worcester of problems with the foundation wall. Kathy
Parker's homeowner's policy required that, in the event of a
loss, the insured give "prompt notice" to the insurer--a
requirement distinct from provisions (discussed below) requiring
that any lawsuit be brought within one year of loss. At this
point it is useful to outline, in bare bones terms, pertinent
substantive provisions in the policy obtained by Kathy Parker.
Section I, providing property insurance for the house,
insured against "direct [physical] loss to [the described]
property" but not, among other losses, those "involving
collapse, other than as provided in Additional Coverage 8," or
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those caused by "[f]reezing, thawing, pressure or weight of
water or ice . . . to a . . . [f]oundation." Additional
Coverage 8 provides coverage for "collapse" only where due to
certain specified causes. Another set of exclusions applies to
loss due to faulty design, workmanship, construction, or
construction materials.1
Following the Parkers' report to Worcester in September
1996, Peter Judd, an insurance claims adjuster acting for
Worcester, inspected the house; he then wrote a report on
October 1, 1996, concluding that exterior pressure from clay
flow or ice had caused the Manse Hill house's foundation to
crack, and that the damage to the house was therefore not
covered. In a misaddressed letter dated October 8, 1996, Judd
advised the Parkers that, under the "pressure or weight"
exclusion to the policy, coverage was denied; the Parkers say
they never received the letter but admit learning at some point
that coverage had been denied.
The foundation's condition continued to deteriorate.
In June 1997, the Parkers finally arranged for an engineer to
1
Both Additional Coverage 8 and the exclusions just
mentioned are lengthy and complicated. They are set forth in
pertinent part in an Appendix to this opinion. We have assumed,
because the parties do so, that the terms of the policy
furnished in the joint appendix were in force at all relevant
times.
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inspect the premises. This expert said that he did not regard
the house as safe, especially during the winter when snow could
add to the weight pressing on the foundation, and he surmised
that "something abnormal had occurred in the process of
preparing and mixing the concrete." In late November 1997, the
Parkers had the house jacked up and much of its foundation
rebuilt. Repairs continued into 1998, the total cost
approximating $102,720 by late 1999.
Before the foundation was replaced, the Parkers sent
Worcester a demand letter dated November 12, 1997. The letter
acknowledged the company's denial of coverage in 1996, but it
claimed that the Manse Hill house was now collapsing, and that
Worcester was liable for the repairs needed to prevent collapse.
Worcester hired CCAllc, an architecture and engineering firm, to
inspect the Parkers' home and had tests performed on samples of
concrete from the original foundation wall. CCAllc concluded
that the cracking of the basement walls was due to defective
concrete and to high lateral earth pressures due to poor
drainage.2 In January 1998, Worcester again denied coverage.
2
Gerard Allard, who was in charge of replacing and repairing
the Parkers' foundation in late 1997, agreed that the original
concrete was defective, but opined that adequate concrete "would
have easily been able to withstand the lateral pressure from the
soil directly against the wall."
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On February 23, 1998, Kathy Parker filed suit in
Massachusetts state court, alleging breach of contract and
violation of Massachusetts General Laws chapter 93A, which
provides multiple damages for consumer fraud and deception,
Mass. Gen. Laws ch. 93A, §§ 2, 9 (1998). Worcester removed the
case to federal district court on diversity grounds. The
parties consented to jury trial by a magistrate judge, 28 U.S.C.
§ 636(c)(1) (1994 & Supp. II 1996). Ultimately, the magistrate
judge granted summary judgment for the insurer on the ground
that Kathy Parker's suit was barred by the applicable one-year
limitations period, the parties having agreed that Connecticut
law applies.3
The magistrate judge reasoned that the presence of
hairline cracks prior to 1996 was too slight to suggest
appreciable damage, but the larger cracks and other damage
visible by mid-1996 "was sufficient to put a reasonable person
on notice of a substantial problem." Coupled with Noonan's
statement to Michael Parker in 1996, and the Parkers' notice to
the insurer in September of that year, the magistrate judge
3
The magistrate judge dismissed both the contract claim and
the chapter 93A claim, because Kathy Parker had not sought to
distinguish between them. The magistrate judge thought it
arguable that the chapter 93A claim might be subject to a longer
limitations period, see Lees v. Middlesex Ins. Co., 594 A.2d
952, 956-58 (Conn. 1991), but deemed this argument waived, as do
we.
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found that "a reasonable person would have been on notice by the
end of 1996 that the Premises had suffered appreciable damage."
Kathy Parker now appeals.
Kathy Parker's main argument on appeal is that, in
ruling that her claims were time-barred, the magistrate judge
misconstrued Connecticut law and improperly resolved genuine
issues of material fact. The insurance contract in question
provides explicitly that "[n]o action can be brought [against
the insurer] unless . . . the action is started within one year
after the date of loss." Although strict, this provision
accords with a Connecticut statute requiring that policies that
provide fire insurance coverage contain a one-year period of
limitations. Conn. Gen. Stat. 38a-307, -308(a) (1999); Bocchino
v. Nationwide Mut. Fire Ins. Co., 716 A.2d 883, 884 (Conn.
1998).
The magistrate judge assumed, and we agree, that the
one-year limitations period is subject to at least one implicit
qualification: that, in the case of a non-obvious injury or
loss, the period begins to run only when a reasonable person
would have learned of the injury or loss. Although there is no
Connecticut case in point, a number of cases in other
jurisdictions adopt some form of discovery rule in similar
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situations.4 Absent more explicit language, no one would expect
an insured to be stripped of coverage where a reasonable person
would not have detected the injury or loss. Alternatively, her
brief summarily asserts that there was no loss until the repairs
themselves were made, beginning in November 1997; but this
theory, which is not seriously developed, would allow the
insured to postpone a claim almost indefinitely simply by
deferring the repair work.
At argument, counsel for the insurer properly conceded
that a discovery rule should apply but suggested that it was
enough that the Parkers knew that some kind of appreciable
damage had occurred by mid-1996. This is a plausible position
and is seemingly the view taken by the magistrate judge.
Specifically, the magistrate judge assumed that under
Connecticut law "the 'date of loss' or 'inception of loss' in
this case would be the date on which there was a sufficient
problem to put a reasonable person on notice of the occurrence
of appreciable damage to the Premises."
4
E.g., Honeycomb Sys., Inc. v. Admiral Ins. Co., 567 F.
Supp. 1400, 1405 (D. Me. 1983); Prudential-LMI Commercial Ins.
v. Superior Court, 798 P.2d 1230, 1238 (Cal. 1990) (en banc);
U.S. Fid. & Guar. Co. v. Am. Ins. Co., 345 N.E.2d 267, 272 (Ind.
Ct. App. 1976); O'Reilly v. Allstate Ins. Co., 474 N.W.2d 221,
222-23 (Minn. Ct. App. 1991); Jackson v. State Farm Fire & Cas.
Co., 835 P.2d 786, 789 (Nev. 1992).
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Kathy Parker, by contrast, argues (primarily) that the
one year period began to run only when she knew or should have
known of the threatened collapse of the house; and, she argues,
this occurred only after her expert so reported in mid-1997.
Because suit followed within one year (i.e., in February 1998),
she says that she met the one-year requirement. Of course, the
house itself never collapsed, but for prudential reasons
Connecticut allows a claim, where a collapse is covered, as soon
as structural integrity is substantially impaired. Beach v.
Middlesex Mut. Assurance Co., 532 A.2d 1297, 1300-01 (Conn.
1987).
It is difficult to find case law, in Connecticut or
elsewhere, on the legal issue thus posed. There is some general
support for the view, taken by the magistrate judge, that the
time to sue under a policy begins to run when the insured knows
(or should have known) of a significant loss, regardless of
whether the cause or the full extent of the loss is known at the
time.5 This view allows the insurer to investigate at the
earliest reasonable stage and is consistent with the short
limitations period. If this is the legal test, summary judgment
5
E.g., Lally v. Allstate Ins. Co., 724 F. Supp. 760, 762-63
(S.D. Cal. 1989), aff'd, 930 F.2d 28 (9th Cir. 1991); Elsey v.
Hastings Mut. Ins. Co., 411 N.W.2d 460, 461-62 (Mich. Ct. App.
1987); cf. Burns v. Hartford Hosp., 472 A.2d 1257, 1261 (Conn.
1984).
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was manifestly justified for the reasons given by the magistrate
judge.
On the other hand, it is not clear that Kathy Parker
had any claim under the policy unless there was not merely
appreciable damage but a structural flaw (indeed, even a
collapse claim may be barred, as we shall soon see). Although
the policy purports initially to cover any property damage,
several exclusions would appear to bar recovery here for the
cracks--short of collapse--in the foundation or the outside
wall. In this case, the company, through Judd, deemed the claim
barred by the "pressure or weight of water" language and
rejected the 1996 claim made by Kathy Parker. An alternative
possible objection, absent collapse, is the general exclusion
for poor construction materials or workmanship.
Taking Judd at his word, Kathy Parker had reason to
believe that no loss covered by the policy had occurred until
she learned or should have learned that a different level or
kind of damage (i.e., a substantial structural flaw) existed;
and in these circumstances one might treat the one year period,
at least where the claim is contingent on "collapse," as
beginning to run only from the point of real or imputed
knowledge of such a threat. Making our best guess, we are
inclined to think that the Connecticut Supreme Court would
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probably take this view, given the protective attitude toward
the insured displayed in Beach.
If this is the legal test--and it is our best guess as
to Connecticut law--then summary judgment barring suit under the
one-year limitations period is not proper. Admittedly, on the
proffered facts the point is debatable, even assuming the legal
test most favorable to the insured. While Kathy Parker did not
"know" that the cracks represented a substantial structural flaw
until her expert so reported in mid-1997, conceivably she should
have known by mid-1996 that this was likely the case, given the
widening cracks, Noonan's statement about the repairman's
assessment, and the sandy texture of the wall.6
However, it is not entirely clear what Noonan reported
the repairman had said or just what the sandy surface looked
like and what it would connote to a reasonable person. And even
if the facts were undisputed, a reasonable factfinder could draw
varying conclusions as to whether a reasonable person should
have known from these facts that a substantial structural flaw
was present or at least likely. A judgment on undisputed facts
6What "likelihood" of a potentially covered loss is
necessary to trigger running of the limitations period is an
obscured, confusing issue rarely addressed by the courts. It is
not clear that "percentages" alone are determinative; severity
of the threat, the diligence required to uncover the threat and
its extent, and other factors may play a role. See Prudential-
LMI, 798 P.2d at 1238.
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that a reasonable person "should have known" something is (like
negligence) a legal conclusion; but it is one of those
conclusions that most courts leave to juries where, as here,
reasonable juries could differ.7
In remanding, we do not suggest that a trial on the
limitations issue will automatically be necessary. The insurer
moved for summary judgment on the basis of the limitations
period alone, seemingly because the facts made it easy to secure
under the "appreciable damage" test urged by Worcester. But the
mystery for anyone reading the policy is how Kathy Parker, given
the report of her own expert, can make out a claim under the
collapse coverage (or otherwise) even if her claim is entirely
timely. Her expert, it will be remembered, said that the flaw
was in the concrete.
The policy contains a set of exclusions any one of
which could be read to exclude a loss due to faulty construction
of the foundation, whether in workmanship or materials. The
policy excludes property loss "caused by" "deterioration,"
"[i]nherent vice [or] latent defect," or "[s]ettling, shrinking,
bulging or expansion, including resultant cracking, of . . .
7E.g., Childers Oil Co. v. Exxon Corp., 960 F.2d 1265, 1272-
73 (4th Cir. 1992); In re Mushroom Transp. Co., 247 B.R. 395,
406 (E.D. Pa. 2000); see also Ashley River Indus., Inc. v. Mobil
Oil Corp., -- F. Supp. 2d --, 2000 WL 33243614, at *10 (D.S.C.
2000).
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foundations." Even more in point, the policy generally excludes
loss "caused by" "[f]aulty, inadequate or defective" "[d]esign
. . . , workmanship . . . , construction," or "[m]aterials used
in . . . construction."
Although this last general exclusion appears on its
face to bar Parker's claim, the Beach case could be read to
bypass the exclusions if the claim falls within Additional
Coverage 8's provision for collapse. See Beach, 532 A.2d at
1300. But coverage for collapse is itself limited to only that
collapse which results from certain specified causes. Although
Kathy Parker's brief refers tersely to "hidden decay," which is
a covered cause, it is open to doubt whether defective concrete
could be called "decay," especially when the term is read in the
context of other specified causes (e.g., "[h]idden insect or
vermin damage").
This doubt is greatly reinforced by the final covered
cause of collapse, which reads as follows: "Use of defective
material or methods in construction . . . if the collapse occurs
during the course of the construction . . . ." This language
directly deals with collapse caused by poor workmanship or
materials, but expressly limits coverage in such cases to
collapse during construction. This arguably makes the clause of
no use to Kathy Parker and, even worse for her position,
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suggests that "decay" is not a backdoor to coverage for poor
construction materials or workmanship.
Thus, we assume that on remand the insurer will move
for summary judgment on grounds that the loss, even if not
barred by the one-year limitations period, is not covered by the
policy. Unless there is a rabbit hidden somewhere in the hat,
it is not apparent to us how Kathy Parker can establish
coverage. Still, the issue has not been briefed and lawyers are
inventive in finding ambiguities to construe against the
insurer. While we think it is fair to point out the apparent
difficulties, this is without prejudice to resolution after full
briefing.
This remand also reawakens Kathy Parker's claim under
93A, applying to it the same limitations period as for the
policy claim; any argument for a longer period has been waived.
However, thus far the 93A claim is not very promising. Chapter
93A requires a level of misconduct over and above a good faith
and reasonable disagreement about policy language. Boston
Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 545
N.E.2d 1156, 1160 (Mass. 1989). As evidenced by the able
decision of the magistrate judge, this is a close and difficult
case on limitations, and the validity of Kathy Parker's claim of
coverage itself remains uncertain.
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Kathy Parker also challenges the magistrate judge's
partial denial of her motion to strike Worcester's reply brief
in support of summary judgment. Parker's interest in this issue
is presumably blunted by our disposition of the main question.
However, assuming that the issue is still alive, and also that
Parker's challenge is not forfeit for failure to provide an
adequate record, we find that there was no abuse of discretion
in the denial as Parker describes it. FDIC v. Kooyomjian, 220
F.3d 10, 15-16 (1st Cir. 2000). The arguments that Parker
claims should have been stricken directly responded to arguments
in Parker's memorandum opposing summary judgment, and were
therefore appropriate for a reply brief.
The judgment is vacated and the case remanded for
proceedings consistent with this decision.
It is so ordered.
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ADDENDUM
Kathy Parker's Homeowner's Insurance Policy (excerpts)
SECTION I - PROPERTY COVERAGES
. . .
ADDITIONAL COVERAGES
. . .
8. Collapse. We insure for direct physical loss
to covered property involving collapse of a
building or any part of a building caused only
by one or more of the following:
a. Perils Insured Against in
COVERAGE C - PERSONAL PROPERTY.
These perils apply to covered
buildings and personal property
for loss insured by this
additional coverage;
b. Hidden decay;
c. Hidden insect or vermin damage;
d. Weight of contents, equipment, animals or
people;
e. Weight of rain which collects on a roof;
or
f. Use of defective material or methods in
construction, remodeling or renovation if
the collapse occurs during the course of
the construction, remodeling or
renovation.
Loss to an awning, fence, patio, pavement,
swimming pool, underground pipe, flue, drain,
cesspool, septic tank, foundation, retaining
wall, bulkhead, pier, wharf or dock is not
included under items b., c., d., e., and f.
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unless the loss is a direct result of the
collapse of a building.
Collapse does not include settling, cracking,
shrinking, bulging or expansion.
This coverage does not increase the limit of
liability applying to the damaged covered
property.
. . .
SECTION I - EXCLUSIONS
. . .
2. We do not insure for loss to property described
in Coverages A and B caused by any of the
following. However, any ensuing loss to
property described in Coverages A and B not
excluded or excepted in this policy is covered.
a. Weather conditions. However, this
exclusion only applies if weather
conditions contribute in any way with a
cause or event excluded in paragraph 1.
above to produce the loss;
b. Acts or decisions, including the failure
to act or decide, of any person, group,
organization or governmental body;
c. Faulty, inadequate or defective:
(1) Planning, zoning, development,
surveying, sitting;
(2) Design, specifications, workmanship,
repair, construction, renovation,
remodeling, grading, compaction;
(3) Materials used in repair,
construction, renovation or
remodeling; or
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(4) Maintenance;
of part or all of any property whether on
or off the "residence premises."
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