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Berkley wins property ruling against policyholder

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Berkley

A federal appeals court affirmed a lower court ruling in favor of a W.R. Berkley Corp. unit in litigation filed by a property owner, holding that the policyholder’s request for additional insurance proceeds was too late. 

South Hamilton, Massachusetts-based Railroad Avenue Properties LLC owns property in Millbury, Massachusetts, for which it obtained coverage from Berkley unit Acadia Insurance Co., according to Tuesday’s ruling by the 1st U.S. Circuit Court of Appeals in Boston in Railroad Avenue Properties, LLC v. Acadia Insurance Co

In November 2017, the building was severely damaged by a fire caused by an unidentified arsonist, the ruling said. In February 2019, Acadia paid Railroad a net actual cash value of $575,928.46 for the loss. 

Under terms of the policy, Railroad could recover the “depreciation holdback,” which is the difference between the building’s replacement cost value and the actual cash value of $197,539.67, and code upgrade coverage of $25,000 if it completed the building’s reconstruction within two years of the property loss, the ruling said. 

In November 2019, Railroad asked for a six-month extension to the two-year rebuild requirement, which the insurer did not grant, and the building’s reconstruction began more than two years after the fire. 

Railroad filed suit against Acadia in U.S. District Court in Worcester, Massachusetts, seeking the additional payments under the policy. The district court ruled against Railroad and was affirmed by a three-judge appeals court panel. 

“Based on its ‘usual and ordinary’ meaning, the language in the Policy is not ambiguous,” the panel said. “A reasonably intelligent person would understand that Railroad was not entitled to the depreciation holdback or code upgrade coverage unless the damaged Building was actually rebuilt within two years of the fire damage,” it said. 

“Indeed, Railroad understood as much when it asked the Insurance Company for a six-month extension to the two-year rebuild requirement on November 5, 2019, less than two weeks before the rebuild deadline,” the panel said, in affirming the lower court’s decision. 

Railroad attorney James E. Grumbach, of counsel at the Boston Law Collaborative LLC, said in a statement, “We and our client are very disappointed. The court missed an opportunity to accept the reasoning of many courts around the country, and of Massachusetts state and federal district court judges in other but similar contexts, construing the artificial two-year limit on repair or replacement as inflexible and not subject to a reasonableness standard where conditions outside the control of the insured prevent completion of repairs or replacement within that time.  

“The court refused to consider the reasonable expectations of the insured, as Massachusetts requires in construing insurance policy provisions.” 

Robert J. Maselek Jr., of McDonough Cohen & Maselek LLP in South Hamilton, Massachusetts, who represented Acadia, said in a statement, "This case is an example of the First Circuit applying the clear policy terms to the facts of the case, enforcing the two-year condition precedent where the insurer had promptly paid the actual cash value of the loss and played no role in any delay in rebuilding.”