J. & T. ENTERPRISES, INC. vs. LIBERTY MUTUAL INSURANCE COMPANY.

WILKINS, J. We are concerned with whether the plaintiff, a mortgagee of property damaged by fire, may maintain an action on an insurance policy more than two years after the fire. A statutory limitation on the commencement of any action on such a policy is prescribed by G. L. c. 175, Section 99, Twelfth, as in effect at all material times. The statute states in relevant part that "[n]o suit or action against this company for the recovery of any claim by virtue of this policy shall be sustained in any court of law or equity in this commonwealth unless commenced within two years from the time the loss occurred" (emphasis supplied). We conclude that this limitation applies to an action brought by the

Page 587

plaintiff as mortgagee of the insured property and that no exception takes the plaintiff out of the statutory limitation.

The case comes before us on our transfer to this court of a report by a judge of the Superior Court of a question presented by an agreement of material facts. That question, which is set forth in the margin, [Note 1] raises the issue of the timeliness of the commencement of this action in the circumstances.

In May, 1976, the defendant Liberty Mutual Insurance Company (Liberty Mutual) issued a fire insurance policy in the Massachusetts statutory form covering the contents of a restaurant, Peter's Clam Plaza, Inc. The policy named the plaintiff as a loss payee under the mortgage clause. On July 6, 1977, while the policy was still in force, a fire occurred at the restaurant, and some or all of the insured property was damaged. The agreed facts do not disclose when the plaintiff learned of the loss. On August 10, 1979, more than two years after the loss, the plaintiff commenced this action seeking payment under the insurance policy of the outstanding balances on two loans made to the restaurant corporation and secured by the property insured by Liberty Mutual.

The parties correctly assume that there were two contracts of insurance, one between Liberty Mutual and the mortgagor, the other between Liberty Mutual and the plaintiff. See Palmer Sav. Bank v. Insurance Co. of N. America, 166 Mass. 189, 195 (1896). Those contracts may differ in certain respects. See Trustees of Thayer Academy v. Corporation of the Royal Exch. Assurance of London, 281 Mass. 150, 154 (1932).

The virtually unanimous rule in this country is that an insured mortgagee, as well as the insured mortgagor, is bound

Page 588

by a standard provision limiting the time within which an action may be brought to collect on an insurance policy. See Sterling Sav. & Loan Ass'n v. Reserve Ins. Co., 63 Ill. App. 2d 220 (1965); Howe v. Mill Owners Mut. Fire Ins. Co., 241 App. Div. 336, 338 (N.Y. 1934); Satchell v. Insurance Placement Facility, 241 Pa. Super. Ct. 287, 297 (1976); Miners Sav. Bank v. Merchants Fire Ins. Co., 131 Pa. Super. Ct. 21, 27 (1938); Greater Providence Trust Co. v. Nationwide Mut. Fire Ins. Co., 116 R.I. 268, 271-272 (1976); Blanton v. Northwest Nat'l Ins. Co., 335 F.2d 965, 969 (9th Cir. 1964) (Ohio law). See also 20A J.A. Appleman, Insurance Law and Practice Section 11616, at 481-482 (1980); 18 R.A. Anderson, Couch's Cyclopedia of Insurance Law Section 75.43, at 733 (2d ed. 1968). [Note 2] There is much in favor of all courts treating standard language uniformly.

Section 99 of G. L. c. 175 is not limited by its terms to actions brought by insured mortgagors. It states broadly that no action for recovery of any claim by virtue of the policy shall be sustained unless brought within two years from the time the loss occurred. Following the mandate of this language, and the substantially unanimous weight of authority elsewhere in similar circumstances, we hold that the limitations of Section 99 apply to the plaintiff as an insured mortgagee. [Note 3]

We turn then to the plaintiff's reliance on other statutory provisions which it claims relieve it of the two-year limitation of Section 99. The plaintiff points to language in Section 99 that provides an exception where, within the two-year period,

Page 589

the amount of the loss was referred to arbitration. [Note 4] It is stated in the reported question that no party instituted reference proceedings. Despite this fact, the plaintiff relies on policy language that provides that its insurance protection "shall not be invalidated by any act or neglect of the mortgagor," arguing that the failure of the mortgagor to request arbitration is an "act or neglect" that may not invalidate the plaintiff's insurance. [Note 5]

The weakness in the plaintiff's claim is its failure to acknowledge that, as a mortgagee, it had a right to demand arbitration of the amount of the loss. See Union Inst. for Sav. v. Phoenix Ins. Co., 196 Mass. 230, 235 (1907). The plaintiff's insurance was not "invalidated by any act or neglect" of the mortgagor. The failure of the mortgagor to seek a reference to arbitration did not invalidate the plaintiff's coverage. Instead, the plaintiff's insurance claim was rendered unenforceable in this action by its own failure seasonably to protect its rights by commencing an action within the statutory time limitation. Even if we should equate "invalidation" of insurance coverage with the unenforceability of an insurance claim, a point we assume but do not

Page 590

decide (cf. Union Inst. for Sav. v. Phoenix Ins. Co., supra at 234), the mortgagor's neglect cannot insulate the plaintiff from its own omission with respect to the commencement of this action.

We answer the reported question in the affirmative. The plaintiff mortgagee, on the record before us, could not properly commence suit against the insurer more than two years after the loss occurred.