USCA1 Opinion
United States Court of Appeals
For the First Circuit
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No. 94-2004
GRE INSURANCE GROUP
D/B/A ATLAS ASSURANCE COMPANY OF AMERICA,
Plaintiff, Appellee,
v.
METROPOLITAN BOSTON HOUSING PARTNERSHIP, INC.,
Defendant, Appellant.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
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Before
Cyr, Circuit Judge,
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Coffin and Bownes, Senior Circuit Judges.
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Joseph G. Blute with whom Jonathan Z. Pearlson and Robert Quinn
________________ _____________________ ____________
were on brief for appellant.
Daniel P. Carter with whom Michael R. Luongo and Jayne Conroy
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were on brief for appellee.
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July 25, 1995
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COFFIN, Senior Circuit Judge. This appeal raises the
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question whether an insurance carrier has a duty to defend and
indemnify its insured against lawsuits currently pending in
Massachusetts courts under two Comprehensive General Liability
insurance policies. The district court granted summary judgment
in favor of the carrier, and the insured appeals. Concluding, on
the present state of the record, that the carrier must fulfill
the first of these duties, i.e., the duty to defend the lawsuits,
we reverse and remand.
I. Background
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Appellee GRE Insurance Group (GRE) sold the two policies at
issue here to appellant Metropolitan Boston Housing Partnership,
Inc. (Metropolitan), and one of its predecessor entities,
Metropolitan Housing, Inc. (MHI). Metropolitan, like MHI before
it, disburses federal and state housing subsidies to
participating landlords and tenants.1 Metropolitan issues
Certificates of Participation to eligible tenants, who then
search the private rental housing market. Once a tenant locates
a suitable unit, Metropolitan steps in and negotiates the rent
with the property's landlord. Metropolitan and the landlord then
enter into an agreement regarding the payment of rent subsidies,
and the tenant and landlord sign a lease. Metropolitan never
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1 MHI and Metropolitan were formed to privatize the
functions previously performed by the Metropolitan Housing
Assistance Program of the Massachusetts Executive Office of
Communities and Development.
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becomes a party to the lease, nor acquires any possessory
interest in the apartments.
Before agreeing to subsidize a particular apartment,
Metropolitan inspects the premises to insure that federal Housing
Quality Standards are satisfied. A Metropolitan representative
visits the apartment and, after visual inspection, completes a
checklist confirming the number and types of rooms, whether
sinks, stoves, and refrigerators are in working order, and so
forth. Metropolitan's inspectors never test for the presence of
lead paint. Instead, they simply note whether the paint is
chipped or peeling, and whether the landlord has a Letter of
Compliance from a licensed lead paint inspector attesting to lead
paint safety. If no letter is on file, the landlord is told that
one is required before the subsidy will be given.
Despite this rather limited role, Metropolitan has been
named as a defendant or third party defendant in five
Massachusetts state lawsuits alleging personal injury due to lead
paint exposure of minors at Metropolitan-subsidized apartments.
These suits assert a number of different legal theories against
Metropolitan, many of which are based on its alleged failure to
inspect adequately for lead paint before agreeing to subsidize
the apartments.
GRE filed this diversity action seeking a declaratory
judgment that it had no obligation to defend or indemnify
Metropolitan against the lawsuits, and the district court granted
summary judgment in its favor. Metropolitan now appeals.
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II. Analysis
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We review de novo the district court's interpretation of
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these insurance contracts, St. Paul Fire and Marine Ins. Co. v.
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Warwick Dyeing Corp., 26 F.3d 1195, 1199 (1st Cir. 1994), guided
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by several familiar rules of construction.2 We begin with the
actual language of the policies and consider "what an objectively
reasonable insured, reading the relevant policy language, would
expect to be covered." Trustees of Tufts Univ. v. Commercial
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Union Ins. Co., 415 Mass. 844, 849, 616 N.E.2d 68, 72 (1993)
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(quoting Hazen Paper Co. v. United States Fidelity & Guaranty
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Co., 407 Mass. 689, 700, 555 N.E.2d 576, 583 (1990)). Absent
___
ambiguity, we give policy language its plain and ordinary
meaning. E.g., Cody v. Connecticut General Life Ins. Co., 387
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Mass. 142, 146, 439 N.E.2d 234, 237 (1982). Ambiguities are
resolved against the insurer, who drafted the policy, and in
favor of the insured. Thus, if "there are two rational
interpretations of policy language, the insured is entitled to
the benefit of the one that is more favorable to it." Hazen, 407
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Mass. at 700, 555 N.E.2d at 583. The insured bears the initial
burden of proving that a claim falls within the grant of
coverage, which, once established, shifts the burden onto the
insurer to show the applicability of any exclusion. Camp Dresser
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& McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 321, 568
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N.E.2d 631, 633 (1991).
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2 The parties agree that Massachusetts law controls.
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To determine if a liability policy obligates a carrier to
defend claims made against its insured, we simply compare the
underlying complaint to the policy; "if the allegations of the
complaint are `reasonably susceptible' of an interpretation that
they state or adumbrate a claim covered by the policy terms, the
insurer must undertake the defense." Liberty Mut. Ins. Co. v.
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SCA Services, Inc., 412 Mass. 330, 331-32, 588 N.E.2d 1346, 1347
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(1992) (quoting Continental Cas. Co. v. Gilbane Bldg. Co., 391
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Mass. 143, 146, 461 N.E.2d 209, 212 (1984)) (internal quotation
omitted). At issue here are two combined comprehensive general
liability and commercial property insurance policies. In the
Insuring Agreement of the general liability coverage part, GRE
promised to:
pay those sums that [Metropolitan] becomes legally obligated
to pay as damages because of `bodily injury' . . . to which
this insurance applies. . . . The `bodily injury'. . . must
be caused by an `occurrence.' The `occurrence' must take
place in the `coverage territory.' We will have the right
and duty to defend any `suit' seeking those damages.
There is no question that the terms `occurrence' and `bodily
injury' are defined in such a way as to cover personal injury due
to lead paint exposure, and that the occurrences took place
within the relevant coverage territory. Thus, unless a policy
exclusion effectively defeats this grant of coverage, GRE is
obligated to defend and indemnify the underlying lawsuits against
Metropolitan.
The district court relied upon two grounds, both of which
GRE urges upon us, for holding that there is no coverage: first,
that the policies are restricted to liability arising at
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Metropolitan's home office; and second, that the underlying
claims fall within a policy exclusion relating to inspection
services. We examine these propositions in turn.
A. Was Coverage Limited to Metropolitan's Office?
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GRE argues that the policy does not apply to liability for
claims arising from Metropolitan's activities away from its home
office, relying upon language in the policy's Declarations form
and two supplemental schedules, and upon the amount of the
premium, which the district court found to be too low conceivably
to reflect the parties' intent to cover additional risks.
As for the policy language, the "Common Policy Declarations
Form" lists certain basic information about the policy, such as
the types of coverage purchased, the premium for each coverage
part, the coverage period, the name, address and type of business
of the insured, the policy number, and so forth. It also
contains the operative sentence: "In return for the payment of
the premium, and subject to all the terms of this policy, we
agree with you to provide the insurance as stated in this
policy." GRE seizes on the fact that the next line of the form
calls for a "business description" of the insured, which is
listed as "office," as evidence that only liability arising from
Metropolitan's office operations was covered. The flaw in this
reasoning is that the question calls for a description of the
insured's type of business, not the premises or building to which
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insurance was to be limited. The fact that Metropolitan operated
as an office, rather than a hockey rink, manufacturing plant, or
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boarding house, was obviously relevant to coverage. But it does
not show a clear understanding to restrict coverage to liability
arising out of Metropolitan's office only.
A somewhat closer question is presented by language that
appears in the insurance schedules. The "Comprehensive General
Liability Coverage Declarations Form" directs the reader to
"refer to [the] common policy premises schedule for a description
and location of all premises owned, rented or controlled by the
named insured." The "Common Policy Premises Schedule," under the
heading "Premises," lists "434 Massachusetts Avenue, Boston, MA,"
i.e., the location of Metropolitan's office. Further, on the
"Comprehensive General Liability Insurance Supplemental
Schedule," the "Description of Hazards Classification" is listed
as "Buildings or Premises -- Office," and the "Exposure" is
listed as "15,000" square feet, roughly the area of
Metropolitan's office. GRE argues that this shows that only
those risks arising out of Metropolitan's office activities were
covered.
Based on a recent decision of the Supreme Judicial Court of
Massachusetts, however, we cannot agree. In Trustees of Tufts
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University v. Commercial Union Ins. Co., the insurance carrier
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argued that the failure to include a certain risk on the schedule
of hazards to a comprehensive general liability insurance policy
removed any coverage for that risk. The SJC rejected that
argument, holding simply that "nowhere does the policy
unambiguously provide that coverage is limited to the specific
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hazards listed in the schedule." 415 Mass. at 856, 616 N.E.2d at
76.
In the instant case, there is no language in the policy
clearly indicating that liability insurance is limited to claims
arising from occurrences at the premises listed on the schedules
from which we have quoted.3 This absence is made even more
probative when compared to the presence of such language on both
the coverage grant description and the declarations form for the
property coverage part of the policy. The grant of coverage on
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the property part states that: "We will pay for direct physical
loss of or damage to Covered Property at the premises described
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in the Declarations caused by or resulting from any Covered Cause
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of Loss" (emphasis added). The property declarations form, under
the heading "Coverages Provided," states that the insurance
"applies only to the premises shown below, and with respect to
those premises, only for the coverages, causes of loss and limits
shown." By reference to the common premises schedule, the
"premises shown below" is Metropolitan's office space. The
failure to include such language anywhere in the liability
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coverage part, under Tufts, is fatal to GRE's claim that its
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comprehensive liability insurance was converted into a premises-
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3 We reject GRE's citation to the "products-completed
operations hazard" exclusion as a sufficiently unambiguous
statement of such a limitation. As GRE recognized at oral
argument, that provision applies when a completed product causes
injury or property damage after it leaves the hands of its
manufacturer. It excludes from coverage liability that arises
after an insured's operations are completed, not, as here, from
the insured's operations themselves.
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only liability policy simply by listing a certain premise on the
schedule of hazards.
Several other considerations support our conclusion that the
liability insurance was not limited to occurrences at
Metropolitan's office. First, for an additional premium,
Metropolitan purchased a so-called "Broad Form Comprehensive
Liability" endorsement for the 1990-91 policy, which was
incorporated into the 1991-92 policy. This endorsement expanded
the coverage territory to "anywhere in the world with respect to
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[injuries] arising out of the activities of [the] insured"
(emphasis added). We find it quite unlikely that parties who
intended coverage only for activities at Metropolitan's home
office at 434 Massachusetts Avenue in Boston would have bought
and sold such an endorsement. Certainly, an "objectively
reasonable insured, reading [this] policy language, would expect
to be covered" for liability beyond that arising at its home
office. Tufts, 415 Mass. at 849, 616 N.E.2d at 72.
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Second, as part of its application for insurance,
Metropolitan, through its broker, made a specific point of
telling GRE that it hired outside "inspectors" to go to the
apartments and determine whether they satisfied the relevant
federal standards so as to qualify for the subsidy. Having
received this information, GRE sold Metropolitan policies that,
as their titles made clear, purported to cover "comprehensive
general liability." Thus, absent express exclusionary language,
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it was reasonable for Metropolitan to believe that its coverage
included the inspectors' activities.
Indeed, as we find infra, there was an endorsement, the
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professional services exclusion, which may indeed have been added
in an attempt to exclude from the grant of coverage any liability
arising from the inspectors' activities. Among other things,
that endorsement expressly excluded from coverage any claims
"arising out of the rendering or failure to render any
professional services . . . including . . . inspection . . .
services." If coverage were given only to Metropolitan's office
activities in the first place, there would have been no reason to
add this exclusion.
The district court also gave weight to the relatively small
amount of the premium as evidence that no more than
Metropolitan's office activities were covered. While we also
find the premium to be relatively low, we do not believe the
amount of the premium to be dispositive. First, if GRE wanted to
press this argument seriously, it could have submitted expert
testimony regarding the premium amount here versus premiums
charged for comparable risks. Instead, on this record, there is
no factual basis whatsoever upon which to assess whether the
premium is low or high for the covered risks.
More importantly, we can speculate as to many reasons for
the low premium. GRE may have concluded that Metropolitan faced
very little liability exposure because it was essentially a
disbursing agent for government funds, which, even including the
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apartment inspections, may not have been seen as an enterprise
generating large risks. Or, GRE's calculus of low exposure may
have been influenced by a Massachusetts statute, Mass. Gen. L.
ch. 231 85K, which limits liability of non-profit organizations
to a $20,000 per claim cap. Or, it could have calculated the
premium erroneously, overlooking the apartment inspection aspect
of Metropolitan's operations. Thus, without a fact finding on
the circumstances surrounding premium calculation based on
competent evidence, our general view is that the amount of the
premium will rarely be dispositive in determining the extent of
coverage, for such a rule would allow poor estimates of risk, or
calculations of risk based upon mathematical error, to supersede
the actual coverage to which parties agreed.
Neither of the cases relied upon by the district court is to
the contrary. In Chesapeake Physicians Prof. Ass. v. The Home
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Ins. Co., 92 Md. App. 385, 608 A.2d 822 (1992), the court was
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faced with a question similar to ours -- whether a comprehensive
general liability insurance policy was in fact limited to cover
only certain premises -- and determined that it was. But that
court's holding was based upon the fact that the policy language
itself clearly limited coverage to the premises in question. The
"key language" was the carrier's promise to indemnify and defend
all claims "arising out of the ownership, maintenance, or use of
__
the insured premises and all operations incidental thereto." Id.
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at 394, 608 A.2d at 826 (emphasis added). As we have noted,
GRE's liability policies have a conspicuous lack of such express
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language limiting coverage to Metropolitan's office. It is true
that the Chesapeake court went on to discuss a number of
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considerations that buttressed its decision, one of which was the
fact, also present in our case, that the premium was calculated
based on the square footage of the properties and premises
covered. But, as this was in the context of a policy that
unambiguously limited coverage to certain premises by its express
terms, it has little, if any, relevance to interpreting the
meaning of the instant policy -- particularly after the SJC
decision in Tufts.
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The second case, Rumford Property and Liability Ins. Co. v.
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Carbone, 590 A.2d 398 (R.I. 1991), is even less persuasive. In
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Rumford, the insurance company had argued that the relatively low
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premium and the use of only certain square footage to calculate
the premium showed that only certain premises were covered. The
trial court rejected that argument, a ruling from which the
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insurance company did not even appeal. Instead, the only issue
on appeal was the insurance company's alleged bad faith in
refusing to provide coverage. In the context of resolving that
issue, the Supreme Court of Rhode Island stated that the low
premium and the square footage calculation created "at least an
arguable basis for denying coverage." Since the insurance
company's contention was "not a frivolous one," its conduct of
refusing to defend and indemnify, "while certainly not exemplary,
. . . failed to reach the level of bad faith." Id. at 400-01.
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Thus, neither Rumford nor Chesapeake persuade us that the amount
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of the premium is highly probative in this case.
B. The Professional Services Exclusion
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Each policy contains a professional services exclusion,
which removes from coverage liability "arising out of the
rendering or failure to render any professional services by or
for you, including . . . supervisory, inspection or engineering
services." The district court found that this endorsement
"plainly omits coverage for any inspection service (however
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`professional' it might be)." GRE Ins. Group v. Metropolitan
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Boston Housing Part., Inc., No. 93-11727-RGS, slip op. at 6 (D.
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Mass. Aug. 11, 1994).
We disagree. By its own plain terms, the endorsement
excludes coverage for a broad category -- professional services -
- and then specifies types of excluded professional services as
examples. The examples themselves cannot be broader than the
category they exemplify; they are nothing more than subsets of
"professional services." Thus, only inspections that are
"professional," as opposed to "nonprofessional," fall within the
endorsement. See Atlantic Mut. Ins. Co. v. McFadden, 413 Mass.
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90, 92, 95, 595 N.E.2d 762, 764, 765 (1992) (employing similar
reasoning in finding that lead paint exposure was not within
pollution exclusion, which defined pollutant as "any contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals
and waste," because of additional requirement of "discharge,
dispersal, release or escape" of pollutant).
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In Roe v. Federal Ins. Co., 412 Mass. 43, 587 N.E.2d 214
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(1992), the Supreme Judicial Court applied a formulation for
assessing the applicability of a professional services exclusion
that we find instructive in the instant case. To be engaged in
professional services,
"[s]omething more than an act flowing from mere employment
or vocation is essential. The act or service must be such
as exacts the use or application of special learning or
attainments of some kind. The term `professional' . . .
means something more than mere proficiency in the
performance of a task and implies intellectual skill . . . .
A `professional' act or service is one arising out of a
vocation, calling, occupation, or employment involving
specialized knowledge, labor, or skill and the labor or
skill involved is predominantly mental or intellectual,
rather than physical or manual. . . . In determining
whether a particular act is . . . a `professional service'
we must look not to the title or character of the party
performing the act, but to the act itself."
412 Mass. at 48, 587 N.E.2d at 217 (quoting Marx v. Hartford Acc.
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& Indem. Co., 183 Neb. 12, 13, 157 N.W.2d 870, 872 (1968)
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(citations omitted)). The cases collected in Roe all analyze the
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applicability of professional services exclusions by determining
whether the relevant activity was "professional" in nature. See
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Harad v. Aetna Cas. & Sur. Co., 839 F.2d 979, 984 (3d Cir. 1988)
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(professional services exclusion applies to attorney's
preparation and filing of pleadings); Curtis Ambulance v. Shawnee
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County Bd. of County Comm'rs., 811 F.2d 1371, 1379-84 (10th Cir.
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1987) (professional services exclusion applies to ambulance
personnel's provision of emergency medical services); Bank of
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California, N.A. v. Opie, 663 F.2d 977, 981-82 (9th Cir. 1981)
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(professional services exclusion applies to mortgage broker's
management of loan proceeds). Therefore, we reverse the district
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court's decision that all inspections were necessarily excluded
under this endorsement, and remand for a determination of
whether, under Massachusetts law, Metropolitan's inspectors
performed professional services.
Even if Metropolitan's inspections are found to be
professional in nature, however, GRE would still have to defend
the underlying lawsuits -- at least initially. This is so
because, after reviewing the complaints filed against
Metropolitan, we find that some of the claims raise legal
theories of recovery broader than inadequate inspections. Taken
collectively, the claims include negligence, negligent
misrepresentation, negligently creating a lead paint risk,
failing to require an owner to take corrective action, failing to
correct a lead paint hazard, failure to obtain certificates of
compliance with the lead paint law, and breach of contract and/or
the implied covenant of habitability.
At least on their face, these claims are "reasonably
susceptible" of being read to "state or adumbrate" claims that
are beyond the inspection services exclusion. Liberty Mutual,
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412 Mass. at 330, 588 N.E.2d at 1347 (quoting Continental Cas.,
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391 Mass. at 146, 461 N.E.2d at 212). For example, the claimed
failure to correct a lead paint risk appears to rest on the
theory that the very provision of rent subsidies carried with it
the responsibility to make whatever lead paint safety
improvements were necessary. Other claims might be based on the
theory that the inspections were all perfectly adequate, but
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Metropolitan's follow up with the landlords was lacking. See
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Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316,
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318, 458 N.E.2d 338, 341 (1983) ("[T]he process is one of
envisaging what kind of losses may be proved as lying within the
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range of the allegations of the complaint, and then seeing
whether any such loss fits the expectation of protective
insurance reasonably generated by the terms of the policy.")
(emphasis added); cf. Complaint of Stone Petroleum Corp., 961
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F.2d 90, 91-92 (5th Cir. 1992) (general liability insurer must
defend suits because they contain claims that, liberally
construed, are beyond the professional services exclusion). We
express no view on whether such expansive theories ultimately
will be successful against Metropolitan, and thus GRE.4
Therefore, because certain of the claims are not within the
professional services exclusion, GRE is obligated to defend the
underlying suits notwithstanding the possibility that certain
other claims might be found to be excluded. See Camp Dresser, 30
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Mass. App. Ct. at 323, 568 N.E.2d at 634 (imposing a duty to
defend despite the fact that "many of the complaint allegations
fell within the exclusion"); see also Aetna Cas. & Surety Co. v.
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Continental Cas. Co., 413 Mass. 730, 732 n.1, 604 N.E.2d 30, 32
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n.1 (1992) (noting that "the weight of authority places the duty
to defend all counts on an insurer which has a duty to defend at
least one count of a complaint"). As the Camp Dresser court
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4 Nor need we, for GRE agreed to defend suits within the
grant of coverage "even if the allegations of the suit are
groundless, false or fraudulent."
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indicated, an insurer in this position may "undertake the defense
of the underlying action with a reservation of rights with
respect to the excludable claims" or it may share respective
defense responsibilities with co-counsel. 30 Mass. App. Ct. at
323 n.4, 568 N.E.2d at 634 n.4.
III. Conclusion
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If the inspections are found to fall within the professional
services exclusion, GRE would be obligated to defend the suits
against Metropolitan until the non-excludable claims are
resolved,5 or an arrangement such as contemplated by the Camp
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Dresser court is established, and would have to indemnify only if
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Metropolitan were found liable on a non-excludable claim. If the
inspections are found not to be professional services, GRE would
have to defend the suits and indemnify Metropolitan for any
successful claims.
The judgment of the district court in favor of GRE is
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reversed. The case is remanded for entry of judgment in favor of
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Metropolitan on the duty to defend, and for a determination
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consistent with this opinion of whether Metropolitan's
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5 In this case, we would imagine that GRE could test the
viability of those claims that do not rely exclusively on alleged
inadequate inspections by way of early motion to dismiss or for
summary judgment in the underlying state cases. If those claims
were removed, it appears that GRE's obligation to defend the
underlying cases would terminate. See Sterilite, 17 Mass. App.
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Ct. at 323-24 (the duty to defend ceases if and when the insurer
demonstrates that no claim asserted within the grant of coverage
can be successful in the underlying action); see also Lumbermans
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Mut. Cas. Co. v. Belleville Ind., Inc., 407 Mass. 675, 685-86,
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555 N.E.2d 568, 575 (1990) (citing Sterilite approvingly). Of
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course, we are not faced with these questions.
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inspections were professional in nature.
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