First Circuit Strictly Interprets “Additional Insured” Requirements

By David A. Gauntlett* 

Introduction

A recent case from the First Circuit applying Massachusetts law illustrates the difficulty of securing coverage as an “Additional Insured” under the policy of another entity. The decision serves as an important reminder for businesses to procure their own policies for any potential liability rather than relying on those of others. The case also highlights the danger of delayed notice, particularly in a state like Massachusetts that has not adopted the notice-prejudice standard embraced by the majority of jurisdictions.

“Additional Insured” Faced a Narrow Path to Coverage

In BI 40 LLC v. Ironshore Specialty Ins. Co.,[1] BI 40 was a commercial real estate loan provider that was appointed as a receiver after a care facility for Alzheimer’s patients defaulted on its loan. BI 40 sought a defense for two lawsuits against the care facility in which BI 40 also faced potential liability.  

In the “Frost Action,” an individual patient alleged she was wrongfully removed from the facility and asserted causes of action for breach of contract and a variety of state statutory violations. It included eleven counts against BI 40. The “Salie Action” was a putative class action suit that did not name BI 40 as a defendant in either its original or first amended complaint. The plaintiffs, however, sought leave to file a second amended complaint that would include BI 40, which prompted BI 40 to seek a defense. The court eventually ruled that BI 40 could not be added as a defendant, but BI 40 sought recovery of the defense expenses paid in addressing the issue.

The care facility had a policy from Ironshore that included BI 40 as an “Additional Insured,” but the policy limited coverage for an “Additional Insured” in two critical ways. First, it specified that an “Additional Insured” would only be covered under the general liability insuring agreement. BI 40 conceded that the only potentially applicable provision granted coverage for “the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor.”[2] Second, an “Additional Insured” would only be covered for liability “liability incurred solely as a result of the acts, errors or omissions of [the care facility].”[3]

Court Determined Frost Action Allegations Failed Both Coverage Requirements

The district court ruled there was potential coverage for the Frost Action based on allegations of an unlawful administrative fee imposed on the resident. It reasoned this fell within the “wrongful eviction” coverage because:

[T]he complaint alleged that the fee was collected, in part, to cover the cost of “continued maintenance,” and because Frost's removal from Wood Haven was tied to maintenance issues, that link was sufficient to construe the count as alleging wrongful eviction. the First Circuit panel disagreed.[4]

The First Circuit disagreed. In its view, “the source of Frost's injury with respect to that alleged unlawful act was the payment of the fee and the associated pecuniary loss,”[5] thereby leaving it disconnected from any wrongful eviction.

The panel also concluded that no potential coverage could exist because even if the allegation could be construed as a wrongful eviction, the resulting liability was not solely due to actions of the care facility. The panel highlighted the allegations that BI 40 was responsible for the failure to perform necessary repairs and maintenance, which created an unhospitable environment and contributed to the resident’s forced removal.[6]

Late Notice Led to No Defense Reimbursement in Salie Action

Both the district court and the First Circuit agreed that the fees incurred fighting the motion to add BI 40 as a defendant in the Salie Action could not be recovered. The First Circuit did not bother to substantively analyze the issue of potential coverage because BI 40 failed to provide notice until after it had fully litigated the matter and the policy’s “Voluntary Payments” provision precluded any recovery. The panel noted “a general rule for claims-made insurance policies that the insurer ‘is not required to show prejudice before denying coverage due to an insured's failure to comply with the [policy's] notice requirement’” established by a Massachusetts Supreme Judicial Court ruling.[7]

While these provisions are generally enforced in the minority jurisdictions that still allow insurers to deny late-notice claims even absent a showing a prejudice, they are inherently problematic for a number of reasons.[8] An extreme situation might feature an insurer strategically prolonging its “investigation” of a claim while the underlying action approaches resolution. This would enable the insurer to monitor the case’s progress and assess the amount of post-tender fees. It could then decide between (1) denying the entire claim and directly implicating the late-notice statute or (2) accepting the defense, paying the post-tender fees, and relying on the “Voluntary Payments” provision to deny pre-tender fees.

Delaying in this manner risks the underlying action concluding during consideration. This could serve as a constructive denial of the claim, regardless of the insurer’s eventual decision. In many states, delay on its own is sufficient for a constructive denial.[9] One federal court applying New York law stated “the length of the delay is not the only factor that courts consider . . . [.] [A] plaintiff bears the burden of demonstrating discriminatory intent.”[10] That intent is readily evident where the insurer fails to respond to a defense request until the publicly available docket of the underlying action reveals an imminent settlement.[11] While most jurisdictions have yet to address this issue, a failure to agree to defend during the pendency of the action has to be treated as a constructive denial of a defense, regardless of whether the insurer later accepts its defense responsibilities.

Conclusion

Securing coverage under an insurance policy is rarely a simple matter. Between confusing coverage provisions and broad exclusions, insurers will resort to any trick they can to support a denial. This is doubly true when the policy isn’t even yours. As BI 40 learned, “Additional Insureds” are often not covered as effectively as the “Named Insured.” Savvy businesses seeking protection should be sure to procure their own policies for any foreseeable liability. The BI 40 case also highlights a lesson frequently repeated in our blog posts. Tender of any claim (or even potential claim) should always be a priority. Delays can only complicate an already difficult journey to securing coverage.

*David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.

[1] BI 40 LLC v. Ironshore Specialty Ins. Co., No. 24-1855, 2025 WL 2437643 (1st Cir. (Mass.) Aug. 25, 2025).

[2] Id. at *4.

[3] Id. at *3.

[4] Id. at *5.

[5] Id.

[6] Id. at *6 (“Frost's complaint alleges that, in connection with KCP's appointment, ‘BI 40 [had] assumed responsibility for [KCP's] compliance with Frost's residency agreement’ including ‘perform[ing] necessary maintenance and repairs.’ In other words, Frost's complaint alleges that BI 40 was partially liable for Frost's eviction (because it failed to ensure KCP complied with residents’ residency agreements, including by failing to perform necessary maintenance and repairs).”)

[7] Id. at *7 (citing Chas. T. Main, Inc. v. Fireman's Fund Ins. Co., 406 Mass. 862, 865 (1990)).

[8] Setting aside the public policy concerns, “Voluntary Payments” provisions are typically restricted to specific payments, such as “damages” and “loss,” the latter of which is usually a defined term. Neither term ordinarily includes defense expenses.

[9] See, e.g., Anderson v. Va. Sur. Co., 985 F. Supp. 182, 192 (D. Me. 1998) (“The Unfair Claims Practices statute permits insureds to bring civil actions against their insurers for . . .  ‘failing to acknowledge and review claims, which may include payment or denial of a claim, within a reasonable time following receipt of notice by the insurer of a claim by an insured arising under a policy.’”)

[10] Logan v. Matveevskii, 175 F. Supp. 3d 209, 230 (S.D.N.Y. 2016).

[11] See David A. Gauntlett, Enforceability of “Voluntary Payments” Provisions, https://www.gauntlettlaw.com/blogs/enforceability-of-voluntary-payments-provisions (Aug. 24, 2023).