Due to a recent ruling by the Massachusetts high court, policyholders in Massachusetts should now carefully consider whether to list a trade name or "dba" in a commercial general liability (CGL) policy, particularly as such a listing seems to have an undesirable effect of reducing the scope of coverage.
In Masonic Temple Ass'n of Quincy, Inc. v. Patel, 489 Mass. 549, 185 N.E.3d 888 (April 27, 2022), the highest court in Massachusetts, the Massachusetts Supreme Judicial Court, has ruled that the scope of the CGL policy (Insurance Services Office, Inc., Coverage Form CG 00 01 12 07) is limited by how the named insured is described in the declarations. Specifically, the court concluded that "even if the phrase 'doing business as' does not operate to create a separate legal entity, that does not preclude it from being used in the ordinary sense, as here, to describe the ambit of a policy's coverage."
In other words, according to the court, the use of "doing business as" in the named insured listing means the CGL policy covers only liability arising out of activities that it undertakes under the listed trade name. While the court referred to other entries on the declarations page, such as the business description, and the premium was based on a single location, such references only served as support for its conclusion as to the limitation of the CGL coverage.
The Relevant CGL Policy Declarations
Jay Patel, the president and sole owner of Dipika, Inc., operated a Super 8 motel located in Weymouth, Massachusetts. The policy issued by Union Insurance Company listed the named insured and address on the Common Policy Declarations and the CGL declarations as "Dipika, Inc. dba Super 8, 655 Washington Street, Weymouth, MA 01288." The Common Policy Declarations listed the Business Description as "motel"1 and the form of business as "corporation."
The CGL policy declarations also listed under "classification" for Massachusetts Location #1 (the only location listed on the policy): "Hotel and Motels—without pools or beaches—less than four stories—products-completed operations are subject to the General Aggregate limit." The Class Code shown was 45192 and showed $1,375,000 as gross receipts for location #1.
The Facts of the Case
The facts here are complicated and involve a number of parties. The court also ruled on issues that are not pertinent to the coverage discussion, including a unanimous ruling that Patel's insurance broker was not liable for its alleged failure to procure insurance or its issuance of a certificate of insurance to others. For the purposes of discussing the coverage ruling, the facts will be summarized as follows.
Patel had been engaged to convert the second floor of the Masonic Temple into a boutique hotel. Several months into the project, two workers were cutting metals to remove parts of the building as part of the overall demolition performed prior to construction. A spark caused a fire at the temple, which caused extensive damage to the building as well as to some personal property owned by the temple. Because only about half of the damages were paid by the temple's property insurer, the Masons brought claims for negligence against Patel and Dipika. Patel notified Union Insurance Company. Union denied coverage and obtained a summary judgment in its favor from the superior (trial) court.
The Massachusetts High Court Ruling
While agreeing that all of Dipika's fire-related losses would qualify as "sums" that the "the insured is legally obligated to pay as damages because of … property to damage …," the court distilled the issue as follows.
The heart of the parties' dispute over the scope of coverage is the designation of the named insured as "Dipika, Inc. dba Super 8." According to Dipika and the Masons, because the use of "dba" name does not create a legal entity,2 all of Dipika's activities are covered under the policy, whether related to the Super 8 or not. Union's stance is that the identification of the named insured as "Dipika, Inc. dba Super 8" means the policy only covers liability arising from Dipika's activities doing business as the Super 8.
While declining to apply a "bright-line" rule that the "dba" means everything or nothing, the court concluded that Dipika's policy unambiguously did not cover losses stemming from the Temple fire.
The court announced that the "ordinary understanding" of the phrase "doing business as Super 8" meant that the policy covered only liability arising from Dipika's activities that it undertook doing business as a Super 8 motel. This "ordinary understanding" was further supported by the fact that the policy described the business as a "motel" and that the premium charged was based on the gross revenue of the single listed location—a Super 8 motel. Accordingly, the court concluded that the Union CGL policy should not provide coverage for Dipika's activities at the Masonic Temple because they "were of a different scope and nature from those of the Super 8." Any other interpretation would render the "dba Super 8" as wholly superfluous.
The court went further—stating in footnote 17 that they were skeptical that the CGL policy would "allow such open-ended risk of liability, unforeseeable to the insurer at the time of contracting, for an insured's unilateral decision to undertake dramatically different business ventures not even in existence at the time the policy was executed." In other words, the court was opining that the CGL policy should not cover activities that developed during the policy period, particularly if the activities were drastically different business ventures.
Chief Justice Kimberley S. Budd dissented on the coverage decision. She pointed out the obvious—the scope of coverage in a CGL policy is not linked to or otherwise tied to how the named insured happens to be described, the description of the business provided, or the premium charged.
Notably, however, these aspects (dba Super 8, description as motel and the premium calculation) of the policy are not accompanied by any language indicating that they define the scope of coverage. The stand-alone "Super 8" means only "doing business as Super 8." The phrase itself says nothing about the scope of coverage under the policy.
Here, the named insured was a corporation. Section II of the CGL policy—"Who Is Insured" states: "If you are designated in the Declarations as: An organization other than partnership, joint venture or limited liability company, you are an insured." [Emphasis added.] The CGL policy simply does not say "you are an insured, but only for activities that you undertake within the description" or similar restrictive wording. But that is exactly what the majority is reading into the policy.
Addressing the information on the declarations page, the dissent notes the following in footnote 4.
Although the declarations page undoubtedly is part of the policy, the information provided in that portion of the policy cannot define the scope of coverage unless it does so expressly. Indeed, that Dipika's address is listed in the declarations does not mean that coverage is limited to liabilities arising from operations at that address.
As respects the open-ended risk of liability, the dissent countered that an open-ended risk is precisely the risk general liability insurers take on unless expressly provided otherwise: "unless the policy expressly provided otherwise, insurer accepts the risk that a policyholder's operations will expand or diversify along with the risk that these expanded or diversified activities will result in lawsuits, settlements and adverse judgments."3
In short, the dissent would not have granted summary judgment to Union because the policy did not expressly provide that coverage was limited to operations associated with Dipika's Super 8 motel.
While the court does not explain or provide any basis in the CGL policy wording for its "ordinary" understanding that the CGL policy covers only liability arising out of the trade name, the court's ruling is now the law of Massachusetts. Unfortunately, the majority seems to substitute its own judgment for that of the insurer, determining for insurers what, after issuance of a CGL policy, are acceptable changes in operations of the named insured.
The majority's position here seems to transform Section IV—Commercial General Liability Conditions, 6. Representations,4 which applies only at the time of policy issuance, into a continuous representation that applies throughout the policy period. That is, coverage applies only to those activities or operations represented and relied upon by the insurer when the policy was issued and accepted by the named insured. Any "drastically different business ventures" that arise after the CGL policy issuance, at least according to the majority, appear to run afoul of the Representations condition. The result is that the majority has read into the CGL policy an ongoing disclosure requirement—if CGL coverage is to apply to new or diversified operations, the named insured must seek approval from the insurer, or no coverage will apply. As the dissent repeatedly points out, such restrictions in the scope of the CGL coverage that the majority contends are created by certain descriptions on the declarations have no support in the CGL policy wording.
The court's singular focus on the declarations also seems to negate coverage expressly granted by Section II—Who Is an Insured, 3. automatic coverage for newly acquired or formed organizations.5 Suppose Dipika had formed a separate corporation to renovate buildings into hotels, and the fire at the Temple had occurred prior to the end of the 90-day period for automatic coverage for the new corporation. Would the court's ruling have been different? It does not seem likely, particularly in light of the majority's rejection of the notion that the CGL policy would provide coverage for "an insured's unilateral decision to undertake a drastically different business venture not even in existence at the time the policy was executed." Yet, this benefit (to which there a number of exceptions) in Section II is provided without regard to how dissimilar the new organization's activities may be compared to the current named insured. Would Section II, newly acquired or formed organization, apply only to Dipika for another Super 8 motel? Of course, this outcome is not even remotely suggested by CGL policy wording in Section II of the CGL policy. This is but one example of the problems created when the actual CGL policy wording is overlooked in favor of an ill-defined "ordinary" understanding of the CGL policy wording.
Considering this decision, Massachusetts policyholders may think twice about listing trade names or "dba" in their CGL policy. If possible, it may be advisable to remove trade names or dba descriptions from the named insured on CGL policies. Further, if changes in business operations arise, disclosure to the insurer (and that insurer's acceptance) of the new operations may be necessary, despite the express benefit of the newly acquired or formed organization wording in Section II—Who Is an Insured.
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1 The Business Description "Motel" did not appear on the CGL policy declarations.
2 Footnote 14. Massachusetts appellate courts have not explicitly decided that a "dba" designation does not create a separate legal entity, but for the purposes of our decision, we will assume, without deciding, that this is the case.
4Representations. By accepting this policy, you agree: a. The statements in the Declarations are accurate and complete; b. Those statements are based upon representations you made to use; and c. We have issued this policy in reliance upon your representations.
5Section II—Who Is an Insured. 3. Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to the organization. However: a. Coverage under this provision is afforded only until the 90th day after you acquire or form the organization or the end of the policy period, whichever is earlier.