Middlesex Mut. Ass. Co. v. Puerta de la Esperanza, 2011 U.S. Dist. LEXIS 38993 (Decided April 11, 2011)

"A Complaint for Declaratory Judgment Does Not Vaccinate an Insurance Company Against a Claim for Breach of Contract."


This case is significant in two respects: (1) the effectiveness of filing declaratory judgments and (2) whether the duty of a policyholder's submission to the appraisal process survives a insurer's breach of contract.

In an earlier decision, the Court held that the loss was covered under the policy. Middlesex Mut. Ass. Co. v. Puerta de la Esperanza, 723 F.Supp.2d 294 (D.Mass 2010). The policyholder moved for summary judgment on its breach of contract, among other counts. The policyholder argued that, in light of the court's ruling that the loss is covered, the insurer’s wrongful denial of coverage constituted a breach of the insurance contract and relieved the policyholder's duty to submit the matter to the appraisal process.

The insurer argued that even if its decision to deny coverage was incorrect, its denial of coverage was not a breach since it simultaneously came to this court in good faith to seek judicial guidance in the form of a declaratory judgment. The insurer further took the position that the policyholder may only bring a breach of contract claim after there has been a determination of coverage and the insurance company refuses to pay. The Court disagreed with the insurer’s position, holding, “Put differently, a complaint for declaratory judgment does not vaccinate an insurance company against a claim for breach of contract.”

The Court held that the requirement to submit to the appraisal process survives a breach of contract - “Indeed, both the First Circuit and the SJC have determined that the Massachusetts legislature intended this term of the Standard Fire Policy Provision to survive a breach of contract."

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Reference Info:Decision | Federal, 1st Circuit, Massachusetts | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Marie Cheung-Truslow, Insurance Subrogation Group | Attorney Advertising

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