A Liberty Mutual unit has no duty to defend a commercial real estate loan provider in underlying suits over the eviction of residents from a Massachusetts senior care facility, the First Circuit ruled, finding the insurer's denial of coverage to be reasonable.

In an order issued Monday, a three-judge panel reversed a lower court's finding that Ironshore Specialty Insurance Co. had a duty to defend BI 40 LLC in an underlying suit brought by Sue T. Frost, a former resident of Wood Haven Senior Living who died in 2024. The panel also affirmed that the insurer had no duty to defend the lender against a putative class action and, thus, was not required to reimburse BI 40 for costs incurred in opposing a motion to add it as a defendant.

"Because we conclude that Ironshore's denial of coverage was consistent with the policy, BI 40's Chapter 93A and 176D claims necessarily fail," U.S. Circuit Judge Lara E. Montecalvo said, referring respectively to the state's Consumer Protection Act and statute governing unfair and deceptive insurance practices.

The coverage dispute stems from the removal of several residents from the Tewksbury, Massachusetts-based facility in January 2022 after a pipe burst, which resulted in suits against the entities that financed and controlled Wood Haven.

According to court filings, in March 2019, BI 40 loaned $6.8 million to the owner of the property where Wood Haven operated and received a mortgage interest in the property. The property owner and Wood Haven, as a co-borrower, ultimately defaulted on the loan, leading BI 40 to file suit in November 2021 and seek appointment of a receiver.

Frost sued BI 40 and the receiver in Massachusetts federal court in June 2022, alleging that residents were unlawfully evicted as part of a "resident dumping scheme."

Legal representatives of several residents subsequently filed a proposed class action over the incident; however, BI 40 was not initially named in that suit. The lender was named as a defendant in a second amended complaint, according to court filings.

Ironshore ultimately denied BI 40's requests for coverage as an additional insured under Wood Haven's policy, court documents stated. The lender filed the current action in March 2023, seeking a declaration that Ironshore must defend it against the suits and asserting claims for breach of contract and violations of Massachusetts General Laws Chapters 93A and 176D.

Ruling on the parties' cross motions for summary judgment, the court held that Ironshore had a duty to defend the Frost action but not the class action. The court also found that the insurer did not engage in unfair or deceptive acts.

BI 40 is covered under the policy as an additional insured, but, pursuant to an endorsement, coverage is limited to general liability insurance, Judge Montecalvo said Monday. Such coverage is only triggered if the claim is one for personal injury, such as wrongful eviction, which was incurred solely by Wood Haven and did not arise out of independent or direct liability of any additional insured, the judge added.

The panel held that none of the allegations in the Frost suit triggered coverage for BI 40, including Frost's claim that Wood Haven unlawfully collected an administrative fee from her when she first moved into the facility.

While the lower court found that the claim fell within coverage, "as a threshold matter, we disagree that the administrative fee count can be reasonably construed as alleging wrongful eviction," Judge Montecalvo said.

The source of Frost's alleged injury was the payment of the fee and the resulting pecuniary loss, the panel said. And even if the administrative fee claim could be construed as alleging wrongful eviction, the panel found that liability for that wrongful eviction would not be based solely on Wood Haven's acts.

As for the proposed class action, the panel found dispositive the lender's failure to comply with the policy's requirement that it seek and receive approval before incurring defense-related costs. According to the ruling, BI 40 did not notify Ironshore of the proposed class's request to add the lender as a defendant until after BI 40 submitted its opposition and attended the motion hearing.

Representatives of the parties did not immediately respond to requests for comment Tuesday.

U.S. Circuit Judges Lara E. Montecalvo, Sandra L. Lynch and William J. Kayatta Jr. sat on the appeals panel for the First Circuit.

BI 40 LLC is represented by David B. Mack and Stephanie R. Parker of O'Connor Carnathan & Mack LLC.

Ironshore Specialty Insurance Co. is represented by Ronald P. Schiller, Michael R. Carlson and Isabel C. Naveira Lόpez of Hangley Aronchick Segal Pudlin & Schiller.

The case is BI 40 LLC v. Ironshore Specialty Insurance Co., case numbers 24-1855 and 24-1856, in the U.S. Court of Appeals for the First Circuit.