By John F. Nagle
On April 25, 2025, in Peoplesbank v. Certain Underwriters at Lloyd’s, London, the Massachusetts Court of Appeals found that statutory pre-judgment interest had begun to accumulate on the date that an insurer (Lloyd’s) had improperly denied a claim by a lender (Peoples) under a builder’s risk policy. The decision added nearly 3 years of additional interest at 12% per annum, increasing the value of Peoples’ judgment by over $800,000. Inevitably, this decision provides a powerful incentive for insurance companies to resolve and pay claims quickly rather than draw out the process and potentially face a substantial award of pre-judgment interest.
In the underlying Superior Court case, a developer known as Historic Round Hill Summit, LLC (“Historic”) had obtained a builder’s risk policy from Lloyd’s that would be used to cover any losses during renovation of two buildings in Northampton, MA. After a 2016 fire destroyed one of the buildings and caused extensive water and smoke damage to the other, Peoples, as mortgagor to Historic, sought coverage from Lloyd’s. Lloyd’s then denied coverage for one of the buildings on the grounds that it was occupied by tenants at the time of the fire, which Lloyd’s claimed voided coverage under the builder’s risk policy.
In June of 2018, Peoples submitted a proof of loss to Lloyd’s seeking coverage for that building in the amount of $2.8 million. Lloyd’s rejected that claim on July 3, 2018, leading Peoples to file a complaint for breach of contract.
The Trial Court held that Lloyd’s had breached a mortgage-holder endorsement to the policy and was in fact obligated to cover the loss. The parties entered into stipulations for the damages on April 27, 2021 and May 24, 2023, and incorporated those amounts into a judgment. Peoples then sought to recover prejudgment interest.
Peoples argued that prejudgment interest accrued starting July 3, 2018 when Lloyd’s breached its contract by improperly denying the claim, while Lloyd’s argued that the dates of the stipulations in 2021 and 2023 were the relevant dates for accrual of interest.
At a bench trial, the Superior Court judge largely agreed with Lloyd’s’ interpretation in finding that prejudgment interest accrued from the time of the first stipulation in April 2021. Peoples appealed, and the Court of Appeals sided with Peoples, and awarded interest going back to July 3, 2018.
On appeal, the Appeals Court clarifies that, because Peoples had already paid out of pocket for repairs that Lloyd’s initially refused to pay, the insurer is liable for 12% interest per annum from the date on which they denied the claim, not, as the insurer argued, from the dates when the amount became due as a result of a subsequent stipulation between the parties nearly 3 years later. Since the final judgment was for $2,510,194.07, the earlier accrual date for statutory interest means that the insurer in this instance owes over $800,000 more to its insured.
The Appeals Court’s discussion focuses on M.G.L. c. 231, § 6C, which provides the statutory basis for awarding prejudgment interest in cases “based on contractual obligations,” which includes improper denials of coverage under insurance contracts. In cases where monetary damages are awarded for breach of contract, the statute says that interest of 12% per annum should be added to the damages “from the date of the breach or demand.”
Despite the language of M.G.L. c. 231, § 6C and clear precedent that an improper denial of an insurance claim is considered a breach of contract, the Appeals Court notes that the date of improperly denying a claim has not always been recognized by courts as the date when prejudgment interest begins to accrue.
In the previous case cited by the court, Sterilite Corp. v. Continental Cas. Co., 397 Mass. 837 (1986), an insurer had improperly denied coverage for litigation defense costs, which included payment of attorney’s fees that the insurer did not agree to fund. In that case, however, the insured party did not pay their legal fees until years later. So, when the insurer was found to have breached the policy’s terms, the Massachusetts Supreme Judicial Court (SJC) opted to award interest only from the time that the insured actually paid the bills, rather than from the date the claim was denied.
In Sterilite, the SJC reasoned that because M.G.L. c. 231, § 6C “is designed to compensate a damaged part for the loss of use or unlawful detention of money,” and the insured party had not been deprived of the use of their money until they actually paid the legal bills, awarding prejudgment interest from the date of the denial of the claim would result in an unwarranted windfall to the insured.
Now that the Appeals Court has found that interest can begin to accrue from the time a claim is improperly denied so long as the insured has in fact paid out of pocket, insured parties who are able to do so may benefit from paying expenses that must be incurred quickly, then seeking statutory interest if a denied claim is later resolved in their favor. At 12% per annum, starting from the date on which the claim was denied, it may turn out to be a wise investment.
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