First Circuit Narrows Duty-to-Defend for Additional Insureds:
“Sole-Liability” & Strict-Notice Requirement Under Claims-Made Policies

Introduction

In BI 40 LLC v. Ironshore Specialty Insurance Co., Nos. 24-1855 & 24-1856 (1st Cir. Aug. 25, 2025), the United States Court of Appeals for the First Circuit addressed whether an insurer owed a duty to defend an additional insured (a lender-mortgagee) under a highly restricted endorsement in a claims-made liability policy. The litigation stems from the alleged wrongful eviction of elderly residents from Wood Haven Senior Living, an assisted-living facility in Tewksbury, Massachusetts, after control of the property passed from the operator (TLG) to a court-appointed receiver at the urging of BI 40 (the lender).

Two groups of residents sued various facility stakeholders:

• The Frost Action (federal court, individual resident).
• The Salie Action (state court, putative class action).

When Ironshore denied coverage to BI 40, the lender filed a declaratory-judgment and bad-faith action. The district court found a duty to defend as to the Frost suit but not the Salie suit. Both sides appealed. The First Circuit reversed the Frost ruling, affirmed dismissal regarding the Salie action and the Chapter 93A/176D bad-faith claims, and, in doing so, announced two clarifying principles:

1. Coverage for an additional insured exists only where liability is incurred solely by reason of the named insured’s acts; courts may not “mix and match” allegations to create coverage.
2. Under a claims-made policy, an insured that either fails to secure the insurer’s prior consent for defense costs or fails to give timely notice cannot later recover those costs, even if the insurer had “actual notice.”

Summary of the Judgment

1. No Duty to Defend Frost. Allegations surrounding an illegal administrative fee did not constitute “personal injury” (wrongful eviction) and, even if they did, the complaint attributed eviction liability to the receiver and BI 40, not solely to TLG. Therefore, Endorsement #3 was not triggered.
2. No Duty to Defend or Reimburse Costs in Salie. BI 40 opposed a motion to add itself as a defendant without seeking Ironshore’s consent. Section I(I)(1) of the policy barred reimbursement; Massachusetts law (citing Harvard College v. Zurich) requires no showing of insurer prejudice.
3. No Bad-Faith Liability. Because Ironshore’s denial of coverage was reasonable, BI 40’s Chapter 93A and 176D claims necessarily failed.

Analysis

A. Precedents Cited or Applied

• Billings v. Commerce Ins. Co., 936 N.E.2d 408 (Mass. 2010) – articulated the “pleadings test” for duty to defend.
• Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 788 N.E.2d 522 (Mass. 2003) – duty extinguished when allegations lie “expressly outside” coverage.
• President & Fellows of Harvard College v. Zurich Am. Ins. Co., 77 F.4th 33 (1st Cir. 2023) – insurer may deny claims-made coverage for lack of written notice without proving prejudice.
• Stormo v. State Nat’l Ins. Co., 116 F.4th 39 (1st Cir. 2024) – defined claims-made policies; referenced for context.
• Additional Massachusetts cases (Sterilite, Deutsche Bank, Saint Consulting) guided the “in-for-one, in-for-all” rule and burden-shifting framework.

B. The Court’s Legal Reasoning

1. Policy Construction.
   • The only potentially applicable coverage was “Personal Injury” under Insuring Agreement (B)—specifically, “wrongful eviction.”
   • Endorsement #3 imposed three cumulative restrictions: (i) additional-insured status usable only for General Liability, (ii) liability must be incurred solely by TLG’s acts, and (iii) no coverage for any claim “based on or arising out of” an additional insured’s own independent liability.
2. Frost Complaint Dissection.
   • The administrative-fee count alleged a financial loss, not wrongful eviction → no “personal injury.”
   • Even assuming wrongful eviction, complaint expressly alleged receiver and BI 40’s post-receivership failures → liability not “solely” TLG’s.
   • BI 40’s “mix-and-match” theory (combine fee allegation with eviction allegation) contravened policy text.
3. Salie Cost-Reimbursement Claim.
   • Section I(I)(1): insured may not “incur any expense … without the insurer’s written consent.”
   • BI 40 funded opposition papers before notifying Ironshore → barred recovery.
   • Attempt to rely on insurer’s “actual notice” foreclosed by Harvard College; notice/consent conditions in a claims-made policy are enforced without prejudice inquiry.
4. Bad-Faith Dismissal. Massachusetts precedent (Polaroid) holds that a good-faith, plausible coverage position cannot violate Chapters 93A/176D.

C. Impact of the Decision

• Additional Insureds. Lenders, landlords, and other non-operational stakeholders frequently rely on “blanket” additional-insured endorsements. This decision warns that, unless liability is exclusively attributable to the named insured’s acts, coverage will evaporate.
• Receiverships & Turnarounds. The involvement of a court-appointed receiver can break the causal chain needed for additional-insured coverage because the receiver’s conduct is not that of the named insured.
• Notice & Consent Clauses. The First Circuit re-affirms that, in claims-made policies, written notice and consent provisions are strict conditions precedent; “actual knowledge” or lack of insurer prejudice will not salvage late notice.
• Litigation Strategy. Insureds opposing motions to add them as defendants must tender the motion immediately and secure the insurer’s written consent before incurring fees if they hope to obtain reimbursement.
• Bad-Faith Exposure. Insurers retain a safe harbor where their denial rests on a reasonable policy construction—even if later deemed incorrect—thereby narrowing the circumstances for treble damages under Chapter 93A.

Complex Concepts Simplified

• Claims-Made Policy – Covers claims first made against the insured during the policy period, irrespective of when the wrongful act occurred. Timely notice is integral.
• Additional Insured – A party added to an insurance policy via endorsement, receiving specified (often narrower) coverage.
• Endorsement – A policy amendment that modifies coverage; later-in-time endorsements override conflicting base-policy language.
• Duty to Defend – The insurer’s obligation to hire counsel whenever the complaint’s allegations are “reasonably susceptible” to covered claims. Broader than the duty to indemnify.
• Personal Injury (Policy Definition) – Not bodily harm; rather, offenses such as wrongful eviction, false arrest, libel, etc.
• Wrongful Eviction – Depriving a person of lawful occupancy rights without proper legal process.
• Chapter 93A / 176D – Massachusetts statutes imposing liability for unfair or deceptive insurance practices; require unreasonable insurer conduct.

Conclusion

The First Circuit’s ruling in BI 40 LLC v. Ironshore tightens the availability of defense coverage for additional insureds under specialized endorsements and reinforces Massachusetts’ unforgiving stance on notice and consent conditions in claims-made policies. Lenders and other passive investors can no longer assume that broad allegations in resident or consumer lawsuits will trigger defense duties; instead, they must scrutinize whether liability rests solely on the named insured’s conduct and must involve their insurers immediately when litigation threatens. Concurrently, insurers gain a clear appellate blessing for denying defense where (i) the sole-liability condition is not met or (ii) notice/consent provisions are breached, without needing to show prejudice. This decision thus recalibrates the risk calculus for parties who seek to transfer operational liabilities through insurance endorsements and underscores the primacy of policy language in coverage disputes.