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Merchants Insurance v. Guaranty Co., 143 F.3d 5, 1st Cir. (1998)
Merchants Insurance v. Guaranty Co., 143 F.3d 5, 1st Cir. (1998)
3d 5
James R. Loughman, with whom Donovan & O'Connor was on brief for
appellant.
Nina E. Kallen, with whom Neville & Kelley was on brief for appellee.
Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and SHADUR,*
Senior District Judge.
United States Fidelity and Guaranty Co. ("USF&G") appeals the order of the
United States District Court for the District of Massachusetts granting a
Fed.R.Civ.P. ("Rule") 56 summary judgment motion filed by Merchants
Insurance Company of New Hampshire, Inc. ("Merchants") and denying the
corresponding cross-motion filed by USF&G. Merchants had brought a
diversity-of-citizenship action, pursuant to the Declaratory Judgment Act (28
U.S.C. 2201), seeking a declaration that it was entitled to contribution from
USF&G for the attorneys' fees and expenses incurred in defending and settling
a personal injury action brought against Merchants' insured D'Agostino
Associates, Inc. ("D'Agostino"). We affirm.
Facts1
On March 25, 1995 Merchants settled Woundys' claims against D'Agostino for
$250,000, an amount to which USF&G did not object. Merchants had also
incurred attorneys' fees and expenses aggregating $28,297.21. Shortly thereafter
Merchants brought this federal court action against USF&G to seek contribution
for half of the total amount it had incurred in defending and settling Woundys'
personal injury and loss of consortium claims.3 After the district court ruled in
Merchants' favor on the parties' cross-motions for summary judgment, this
appeal followed.
Standard of Review
10
Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265
(1986)). As we stated in Woods-Leber v. Hyatt Hotels of P.R., Inc., 124 F.3d
47, 49 (1st Cir.1997) (citations and internal quotation marks omitted):
11 genuineness requirement signifies that a factual controversy must be sufficiently
The
open-ended to permit a rational factfinder to resolve the issue in favor of either side.
The materiality requirement signifies that the factual controversy must pertain to an
issue which might affect the outcome of the suit under the governing law.
12
For Rule 56 purposes we read the record in the light most favorable to the nonmoving party, drawing all reasonable inferences in its favor (Reich v. John
Alden Life Ins. Co., 126 F.3d 1, 6 (1st Cir.1997)). In that regard "[a]n inference
is reasonable only if it can be drawn from the evidence without resort to
speculation" (Mulero-Rodriguez v. Ponte, Inc., 98 F.3d 670, 672 (1st Cir.1996),
quoting Frieze v. Boatmen's Bank, 950 F.2d 538, 541 (8th Cir.1991)).
13
Where as here cross-motions for summary judgment are involved, "the court
must consider each motion separately, drawing inferences against each movant
in turn" (Reich, 126 F.3d at 6). Because here neither the facts nor any potential
inferences are in dispute, that Janus-like dual perspective creates no risk that
both motions might have to be denied. Instead the parties are at odds about
whether as a matter of law the district court erred in holding that D'Agostino's
liability arose out of Great Eastern's work performed on its behalf, thus
entitling D'Agostino to coverage under the Endorsement.
Choice of Law4
14
Before we turn to the merits of the parties' respective positions, we must first
identify the applicable substantive law, a subject on which both policies are
silent. For cases sounding in diversity, the Erie v. Tompkins mandate to look to
state law for the substantive rules of decision includes the application of the
forum's choice of law doctrines (Klaxon Co. v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941); New Ponce
Shopping Ctr., S.E. v. Integrand Assurance Co., 86 F.3d 265, 267 (1st
Cir.1996)). But here both Merchants and USF&G have eschewed any such
inquiry, instead citing directly to Massachusetts' internal law. In that situation
Bird v. Centennial Ins. Co., 11 F.3d 228, 231 n. 5 (1st Cir.1993) teaches:
15
Because
the parties agree that Massachusetts law governs this dispute, and because
there is at least a "reasonable relation" between the dispute and the forum whose law
has been selected by the parties, we will forego an independent analysis of the
choice-of-law issue and apply Massachusetts law.
16
General Principles
17
18
Hakim v. Massachusetts Insurers' Insolvency Fund, 424 Mass. 275, 675 N.E.2d
1161, 1164 (1997) confirms the applicability of general rules of contract
construction in construing an insurance policy:
Where policy provisions are ambiguous--that is, "[w]here the language permits
more than one rational interpretation" (Boston Symphony Orchestra, Inc. v.
Commercial Union Ins. Co., 406 Mass.7, 545 N.E.2d 1156, 1159 (1989)
(internal quotation omitted))--the reading most favorable to the insured must
prevail (Hazen Paper Co. v. USF & G, 407 Mass.689, 555 N.E.2d 576, 583
(1990)).5 That contra proferentem principle applies with added rigor in
determining the meaning of exclusionary provisions (id.).
23
It is true "that an insurance company's duty to defend is broader than its duty to
indemnify" (Boston Symphony, 545 N.E.2d at 1158). But USF&G's rejection of
any participation in the underlying defense (as tendered to it by Merchants) also
carries with it USF & G's liability for the cost of settlement in addition to the
expenses of defending the lawsuit. As Camp Dresser & McKee, Inc. v. Home
Ins. Co., 30 Mass.App.Ct. 318, 568 N.E.2d 631, 636 (1991) (numerous
citations omitted) has held:
24 cases generally have recognized the peril implicit in unjustified disclaimer
Our
decisions, and held an insurer making such a decision liable for the reasonable costs
of both defense and settlement.
25
And more recently Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 610
N.E.2d 912, 921 (1993) has confirmed that proposition.
26
27
WHO
IS AN INSURED (Section II) is amended to include as an insured the person
or organization shown in the Schedule [in this instance D'Agostino]. (sic) but only
with respect to liability arising out of "your work" for that insured by or for you.
28
29
30
31
USF&G urges that the district court erred in holding that D'Agostino's liability
"arose out of" Great Eastern's work because Great Eastern did not proximately
cause Woundy's injury (it will be recalled that one of D'Agostino's own
employees was at fault). That contention presupposes that the phrase "arising
out of" imports proximate causation and therefore operates to exclude all claims
that stem directly from D'Agostino's own negligence. But whether or not the
construction advocated by USF&G might be considered to distort the usual and
ordinary meaning ascribed to the quoted phrase (see Plymouth Rubber Co. v.
Ins. Co. of N. Am., 18 Mass.App.Ct. 364, 465 N.E.2d 1234, 1238 (1984),
declining to "torture" the meaning of a clause in an insurance contract where it
was understandable in its "usual and ordinary sense"), what controls here is that
such a reading would contravene established state law.
32
Beyond question, under Massachusetts law the phrase "arising out of" denotes a
level of causation that lies between proximate and actual causation. As recently
as 1996 that state's intermediate appellate court said in New England Mut. Life,
667 N.E.2d at 298:
The
33 usual meaning ascribed to the phrase "arising out of" is much broader than
"caused by"; the former phrase is considered synonymous with "originate" or "come
into being."
34
And later in the same year the Massachusetts Supreme Judicial Court
confirmed in Rischitelli v. Safety Ins. Co., 423 Mass. 703, 671 N.E.2d 1243,
1245 (1996):
35 expression "arising out of" indicates a wider range of causation than the concept
The
of proximate causation in tort law.
36
37
However,
the expression does not refer to all circumstances in which the injury
would not have occurred "but for" the involvement of a motor vehicle.6
38
In that light it is plain that the allegations in Woundys' Complaint raised the
potential for policy coverage, triggering USF&G's duty to defend. And the line
of Massachusetts cases referred to earlier teach that USF&G's dishonor of that
duty to defend triggered USF&G's additional duty to indemnify.
39
It is undisputed, as the Complaint alleged, that "[a]t the time of his accident
Woundy was working within the scope of his employment for Great Eastern"
(R. 5 p 10). And it is equally beyond cavil that Great Eastern was in turn
working for D'Agostino pursuant to its subcontract. Woundy's injury "arose out
of" Great Eastern's work in the sense that the harm occurred while he was
cutting and removing a section of the bridge, a task that was assigned to Great
Eastern in the Sherman's Bridge project. Under an intermediate causation test,
that causal relationship justifies the conclusion that D'Agostino's liability for
the harm to Woundy "arose out of" Great Eastern's work for D'Agostino. More
than "but for" causation existed. It was not simply because the two companies
happened to be working in the same location that Woundy was injured by a
D'Agostino employee; rather, the injury was a consequence of the work that
Great Eastern was performing.
40
That causal connection between Woundy's injury and Great Eastern's work for
D'Agostino suffices to satisfy the intermediate causation standard (see
Transamerica Ins. Group v. Turner Constr. Co., 33 Mass.App.Ct. 446, 601
N.E.2d 473, 476 (1992), followed in a nonMassachusetts case, American States
Ins. Co. v. Liberty Mut. Ins. Co., 291 Ill.App.3d 336, 225 Ill.Dec. 342, 683
N.E.2d 510, 513 (1997)). As the district court reasoned (op. at 6):7
Unlike the facts of Rischitelli, the facts of the present case fall squarely within
41
Rischitelli 's definition of "arising out of." Woundy was employed by Great Eastern
and suffered his injuries in the course of, and contemporaneously with, Great
Eastern's work. The injuries sustained by the plaintiff in Rischitelli, by contrast,
occurred subsequent to the automobile accident and were not otherwise related to the
insured's use of his automobile. Furthermore, Woundy's injuries were not the result
of "intentional wrongdoing" by D'Agostino. Again, this differs from Rischitelli, in
which the insured's injuries were the result of a battery committed by the other
driver. The connection between D'Agostino's liability and Great Eastern's work,
therefore, is stronger than the simple "but for" connection rejected in Rischitelli.
42
We therefore agree with the district court's conclusion that under Massachusetts
law D'Agostino's liability "arose out of" Great Eastern's work on its behalf. In
those terms the Endorsement covers D'Agostino both for its own negligence
and to the extent that it might be deemed vicariously liable for Great Eastern's
negligence. In light of that coverage, USF&G must bear half of Great Eastern's
total burden running to Woundys.
44
45
After all, if USF&G had really intended to limit coverage under the additional
insured Endorsement to those situations in which an added insured such as
D'Agostino was to be held vicariously liable only for the negligence of a
principal insured such as Great Eastern, USF&G was free to draft a policy with
qualifying language that expressly implemented that intention (see, e.g.,
Consolidation Coal Co. v. Liberty Mut. Ins. Co., 406 F.Supp. 1292
Because the district court correctly determined that Merchants was entitled to a
judgment as a matter of law, Merchants' Rule 56 motion was properly granted,
while USF&G's cross-motion was of course properly denied. We AFFIRM.
This undisputed factual statement is drawn from the parties' briefs and the
district court's unreported opinion
This issue poses a legal question subject to plenary review (see Arcwel Marine,
Inc. v. Southwest Marine, Inc., 816 F.2d 468, 470 (9th Cir.1987))
That qualification was critical in Rischitelli, for there the insured's injuries were
not sustained as the direct result of an automobile accident. Instead the insured
suffered his injuries in a post-accident altercation when the driver of the other
car physically attacked the insured