In Callahan, Inc. v. Arch Specialty Insurance Co., the United States District Court for the District of Massachusetts issued a decision addressing the intersection of contractual choice-of-law provisions and Massachusetts unfair business practices claims. The case arose from a subcontractor default on a construction project in Yonkers, New York.
Callahan, Inc., a Massachusetts construction management firm, had procured a subcontractor default insurance policy from Arch Specialty Insurance Company. After the subcontractor defaulted, Callahan submitted a claim seeking approximately $3.83 million in losses. Although Arch acknowledged coverage, it applied what it characterized as a contractual loss cap and paid approximately $951,950, asserting that the company owed no further indemnity. Callahan disputed that interpretation and filed suit in Massachusetts Superior Court, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of Massachusetts General Laws Chapters 93A, § 11 and 176D. In its claim, Callahan sought declaratory relief. The action was removed to federal court, and Arch moved to dismiss the statutory claims.
The court granted Arch's motion to dismiss. The court noted that the dismissal depended on the scope of the policy's choice-of-law clause. The court analyzed the clause under First Circuit precedent distinguishing between narrow choice-of-law clauses that govern only the construction of an agreement and broader provisions that contain language binding the "rights and obligations" of the parties. Under decisions such as Northeast Data Systems, Inc. v. McDonnell Douglas Computer Systems Co., and Kleiner v. Cengage Learning Holdings II, Inc., Massachusetts statutory claims may survive when a clause merely provides that an agreement shall be "governed" or "construed" under another state's law. However, when the clause extends past the agreement, the language may displace Massachusetts statutory remedies in favor of the chosen state's law.
Applying that framework, the court concluded that the policy's language was expansive and governed far more than contract interpretation alone ("the laws of the State of New York shall apply to any controversy or claim between any Insured and [Arch] . . . arising out of or in any way related to this Policy, including but not limited to disputes as to the meaning, interpretation or operation of any term, condition, definition or provision of this Policy or any alleged breach of this Policy.").Here, Callahan based its Chapter 93A and 176D claims on Arch's handling of the claim and its interpretation of policy language. The alleged misconduct (misrepresentations, unreasonable conduct, and refusal to adjust its position) did not take the claims outside of the scope of the parties' broad clause.
Callahan argued that Massachusetts public policy favors the availability of Chapter 93A remedies and relied on H1 Lincoln, Inc. v. South Washington Street, LLC, where the Supreme Judicial Court declined to enforce a contractual waiver that would have eliminated Chapter 93A liability. The court rejected that argument, noting that H1 Lincoln was decided under Massachusetts law and did not involve a valid contractual selection of another state's law to govern all claims arising from the agreement. Here, the parties had agreed that New York law would control any controversy related to the policy, and the court found no basis to override that choice on public policy grounds.
The decision may serve as a reminder that in commercial insurance disputes, the drafting of the choice-of-law clause might materially determine exposure under Chapter 93A. Where a clause extends past the construction of the policy, Massachusetts courts may enforce it to bar statutory unfair practices claims tied to a coverage dispute, even when the insured is a Massachusetts corporation. For insurers and policyholders alike, the breadth of the choice-of-law language may ultimately shape not only the governing substantive law, but the availability of enhanced statutory remedies under Chapter 93A.
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