United States Court of Appeals For the First Circuit
No. 24-1671
UNITED STATES FIRE INSURANCE COMPANY and THE NORTH RIVER INSURANCE COMPANY,
Plaintiffs, Appellants,
v.
PETERSON'S OIL SERVICE, INC., d/b/a CLEGHORN OIL BY PETERSON and d/b/a PETERSON OIL; HOWARD WOOD PETERSON, JR., KRISTEN PETERSON HALUS; SHARON PETERSON; SHEENA MARANDINO; SEAN MARANDINO; NANCY CARRIGAN; CLAIRE FREDA; KELLEY FREDA; ALICE HART; ROBERT F. HART; TORRE MASTROIANNI; and CONGREGATION BETH ISRAEL OF WORCESTER,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Montecalvo, Lipez, and Aframe, Circuit Judges.
Kristin V. Gallagher, with whom Frank M. Falcone, Joanna L. Young, Kennedys CMK LLP, Joan A. Lukey, and Manatt, Phelps & Phillips, LLP were on brief, for appellants.
Louis M. Ciavarra, with whom AiVi Nguyen, Jared A. Fiore, Brian J. Edmonds, and Prince Lobel Tye LLP were on brief for appellees, Peterson's Oil Service, Inc., Howard Wood Peterson, Jr., Kristen Peterson Halus, and Sharon Peterson. Jeffrey S. Strom, with whom John Regan, Regan Strom, P.C., Edward Foye, and Arrowood LLP were on brief, for appellees Sheena Marandino, Sean Marandino, Nancy Carrigan, Claire Freda, Kelley Freda, Alice Hart, Robert F. Hart, Torre Mastroianni, and Congregation Beth Israel of Worcester.
September 9, 2025 AFRAME, Circuit Judge. This appeal concerns a dispute
over whether United States Fire Insurance Company and The North
River Insurance Company (together, the "Insurers") must defend
their insured, Peterson's Oil Service, Inc., against a class action
lawsuit brought by its customers concerning Peterson's sale of
heating fuel blended with high amounts of biodiesel. After
initially defending Peterson's in the litigation subject to a
reservation of rights, the Insurers filed this action in the U.S.
District Court for the District of Massachusetts seeking a judgment
declaring that they have no defense or indemnity obligations under
the relevant general liability insurance policies. In ruling on
the Insurers' motion for summary judgment, the district court
rejected the Insurers' argument that Peterson's intentional
decision to alter the chemical composition of its heating oil
removed the underlying action from the scope of coverage, ruled
that the policies' failure-to-supply limitations did not apply,
and ordered the Insurers to continue defending Peterson's in the
pending litigation. We affirm.
BACKGROUND
A. The Underlying Litigation
This coverage dispute arises out of a Massachusetts
state court class action brought against Peterson's and three of
its officers (collectively, "Peterson's") by a putative class of
customers (the "customer-plaintiffs") who say that, for years,
- 3 - Peterson's supplied them with a biodiesel-blended fuel product
that was incompatible with conventional heating systems and less
efficient than the ordinary heating oil that they believed they
had purchased. Per the operative complaint,1 every gallon of fuel
that Peterson's supplied between 2012 and 2019 consisted of more
than five percent biodiesel -- the maximum amount of biodiesel a
fuel blend may contain while still qualifying as ordinary heating
oil under relevant industry standards -- and contained an average
of thirty-five percent biodiesel between 2015 and 2018. Peterson's
allegedly continued to distribute blended fuel even after
receiving numerous complaints from customers reporting heating
system failures in 2018, and only early in 2019 began disclosing
the high level of biodiesel in its products. As a result, the
customer-plaintiffs assert that they paid more for Peterson's fuel
than it was worth, suffered repeated losses of heat, and incurred
permanent damage to their heating systems.
The customer-plaintiffs brought five claims against
Peterson's under Massachusetts law. The causes of action include
a breach-of-contract claim arising out of Peterson's failure to
supply customers with the ordinary heating oil that it had agreed
to deliver, a fraud claim for misrepresentations and omissions
1 The district court based its summary judgment ruling on the allegations set forth in the Fifth Amended Complaint. Although this pleading has since been amended, the parties agree that the changes are immaterial to the issues on appeal.
- 4 - made by Peterson's concerning the quality and suitability of its
fuel, and a negligence claim based on, among other things,
Peterson's failure to exercise reasonable care in delivering
heating oil that would efficiently heat customers' homes and not
damage their heating equipment
B. The Policies
Between July 1, 2011 and July 1, 2016, Peterson's
maintained five successive one-year commercial general liability
policies (the "primary policies") issued by the Insurers. Each
primary policy provided coverage for "those sums that the insured
becomes legally obligated to pay as damages because of
. . . 'property damage' to which this insurance applies," so long
as the damage was caused by an "occurrence" and took place during
the policy period.
The primary policies define "occurrence" to mean "an
accident, including continuous or repeated exposure to
substantially the same general harmful conditions." "Property
damage," in turn, means "physical injury to tangible property,
including all resulting loss of use of that property" or "[l]oss
of use of tangible property that is not physically injured." Each
primary policy contains a $1 million per occurrence limit and a $2
million general aggregate limit. These limits are subject to
various conditions, including a "Failure to Supply" endorsement
that limits coverage for "property damage arising out of the
- 5 - failure of any Insured to adequately supply gas, oil, water,
electricity or steam" to $250,000 in each policy year.
Peterson's was also covered under five corresponding
umbrella liability policies issued by The North River Insurance
Company between July 2011 and July 2016. The umbrella policies
provide coverage in the amount of $15,000,000 per occurrence and
in the aggregate, subject to certain conditions and exclusions.
Like the primary policies, the umbrella policies define
"occurrence" to mean "an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions that results in . . . '[p]roperty [d]amage' that is not
expected or intended by the [i]nsured."
The umbrella policies in effect between July 2011 and
July 2015 exclude coverage entirely for property damage arising
out of Peterson's failure to "adequately supply gas, oil, water,
electricity or steam." The umbrella policies in effect between
July 2014 and July 2016 also contain a similar overlapping
exclusion for property damage arising out of Peterson's failure
"to provide an adequate supply of gas, oil, electricity, steam, or
any other form of energy, or water, to any person or entity."2
2 The umbrella policies in effect between July 2012 and July 2016 also contain an exclusion for any losses "subject to a 'Sublimit'" in the associated primary policy, which would include losses subject to the primary policies' Failure to Supply endorsement.
- 6 - Taken together, the primary and umbrella policies cover Peterson's
for property damage caused by an "occurrence," but limit losses
that fall within the failure-to-supply provisions to $250,000 per
year under the primary policies.
C. Proceedings Below
Subject to a reservation of rights, the Insurers assumed
Peterson's defense in the underlying Massachusetts class action
brought by the customer-plaintiffs. After substantial discovery
in that case, the Insurers invoked the district court's diversity
jurisdiction and initiated the instant litigation seeking a
declaratory judgment that they have no obligation to continue to
defend or indemnify Peterson's in the underlying action.
Peterson's disagreed and defended against the federal action; the
putative class of customer-plaintiffs intervened and opposed as
well.
The Insurers' complaint includes fifteen counts, each
identifying a different basis for excluding or limiting coverage
of the customer-plaintiffs' claims and associated damages under
the relevant policies or Massachusetts law. The Insurers moved
for summary judgment on three of those counts, arguing that the
damages sought by the customer-plaintiffs were not caused by an
"occurrence" under the policies (Count I), or arose from Peterson's
failure to "adequately supply" customers with heating fuel,
thereby triggering the $250,000 coverage cap under the primary
- 7 - policies and complete exclusion under the umbrella policies
(Counts VIII and IX).
The district court denied the motion. On Count I, the
court found that there remained a genuine dispute of material fact
about whether Peterson's knew that its blended fuel would damage
the customer-plaintiffs' heating equipment during the time in
which the relevant policies were in effect. This, according to
the court, made it possible that the damages sought in the
underlying litigation by way of the negligence count resulted from
a covered "occurrence," since Peterson's lack of knowledge would
mean the customer-plaintiffs' injuries to their heating equipment
arose from an "accident" within the meaning of the policies. The
court thus concluded that the Insurers "must continue to defend
the entire underlying action" because it remained possible that
the customer-plaintiffs could prevail on their negligence claim in
that lawsuit. On Counts VIII and IX, the court found that the
failure-to-supply provisions were susceptible to multiple
interpretations and resolved the resultant ambiguity in Peterson's
favor. The court accordingly held the limitations inapplicable
and granted Peterson's summary judgment sua sponte on Counts VIII
and IX.
The district court thereafter requested that the parties
file a joint statement addressing the need for further proceedings
on the Insurers' claims. The parties agreed that the Insurers'
- 8 - duty to indemnify Peterson's -- which they identified as the
"remaining claim in this matter" -- could not be decided before
resolution of the underlying litigation and jointly requested
dismissal of the action without prejudice. The Insurers also
requested the entry of a final judgment on their duty to defend
claims. The court then dismissed without prejudice the "portion
of [the Insurers'] complaint" pertaining to indemnification as
"not ripe" but declined to enter what it called a "piecemeal"
judgment regarding the Insurers' duty to defend.
The Insurers timely appealed. They now seek reversal of
the district court's summary judgment rulings and a judgment
declaring that they have no duty to continue defending Peterson's
in the underlying action. Peterson's contends that we lack
jurisdiction over this appeal, noting, among other things, that
the district court declined to enter final judgment on the
duty-to-defend claims and did not order the Insurers to undertake
a defense of the action in a manner akin to that which we have
previously held to be an appealable injunction. See W Holding Co.
v. AIG Ins. Co.-P.R., 748 F.3d 377 (1st Cir. 2014). Because the
jurisdictional issue is statutory and somewhat complex, and the
appeal is more easily resolved against the Insurers on the merits,
we assume appellate jurisdiction and proceed to the substance of
the arguments. See Donahue v. Fed. Nat'l Mortg. Ass'n, 980 F.3d
204, 207 (1st Cir. 2020).
- 9 - ANALYSIS
A. Standard of Review
We review summary judgment decisions de novo, drawing
all reasonable inferences from the record "in the light most
favorable to the non-moving part[y]." Certain Interested
Underwriters at Lloyd's, London v. Stolberg, 680 F.3d 61, 65 (1st
Cir. 2012) (quoting Estate of Hevia v. Portrio Corp., 602 F.3d 34,
40 (1st Cir. 2010) (alteration in original)). We will affirm the
judgment below if there are no genuine disputes of material fact
and the district court's conclusions are correct as a matter of
law. Lionbridge Techs., LLC v. Valley Forge Ins. Co., 53 F.4th
711, 718 (1st Cir. 2022). The parties agree that Massachusetts
law governs the interpretative questions in this diversity action,
and "we accept their reasonable agreement." Id. at 718 n.12
(quoting Suzuki v. Abiomed, Inc., 943 F.3d 555, 561 (1st Cir.
2019)).
The Insurers' lead argument on appeal is that they should
be absolved of any duty to defend Peterson's in the underlying
action because the customer-plaintiffs' claims are not based on an
"occurrence" covered by the policies. In the alternative, the
Insurers argue that the failure-to-supply provisions apply to
limit coverage to $250,000 per year under the primary policies.
Both contentions require interpreting the relevant policy
provisions, raising questions of law that we review de novo.
- 10 - Zurich Am. Ins. Co. v. Elec. Maine, LLC, 927 F.3d 33, 35 (1st Cir.
2019). We consider each argument in turn.
B. Duty to Defend
"In Massachusetts, a general liability insurer owes a
broad duty to defend its insured against any claims that create a
potential for indemnity." Doe v. Liberty Mut. Ins. Co., 667 N.E.2d
1149, 1151 (Mass. 1996). The duty to defend "is antecedent to,
and independent of, the duty to indemnify," and "is more expansive
than [the] duty to indemnify." Millipore Corp. v. Travelers Indem.
Co., 115 F.3d 21, 35 (1st Cir. 1997) (citing Bos. Symphony
Orchestra v. Com. Union Ins. Co., 545 N.E.2d 1156, 1158 (Mass.
1989)). It is "the nature of the claim and not the ultimate
judgment against the insured that triggers the duty to defend even
though the plaintiff may not succeed and the claim may, in fact,
be weak or frivolous." Metro. Prop. & Cas. Ins. Co. v. Morrison,
951 N.E.2d 662, 668 (Mass. 2011) (quoting A.A. Sansoucy, Liability
Insurance Law in Massachusetts 8 (2d ed. 2008)) (alterations
omitted).
For this reason, the duty to defend does not depend on
"the facts [ultimately] proven at trial," Bos. Symphony Orchestra,
545 N.E.2d at 1158, but rather hinges "on the facts alleged in the
complaint," id., as well as those facts which are "known or readily
knowable by the insurer that may aid in its interpretation of the
allegations in the complaint," Billings v. Com. Ins. Co., 936
- 11 - N.E.2d 408, 414 (Mass. 2010). If the facts alleged are "reasonably
susceptible of an interpretation that states or roughly sketches
a claim covered by the policy terms," an insurer has a duty to
defend. Id. Massachusetts operates under an "in for one, in for
all" rule such that a general liability insurer "must defend the
entire lawsuit if it has a duty to defend any of the underlying
counts in the complaint." Deutsche Bank Nat'l Ass'n v. First Am.
Title Ins. Co., 991 N.E.2d 638, 641 n.11 (Mass. 2013) (quoting
GMAC Mortg., LLC v. First Am. Title Ins. Co., 985 N.E.2d 823, 827
(Mass. 2013)).
To determine whether an insurer has a duty to defend, we
consider "what kinds of losses may be proved as lying within the
range of the allegations of the [underlying] complaint, and then
[] whether any such loss fits the expectation of protective
insurance reasonably generated by the terms of the policy."
Billings, 936 N.E.2d at 415 (quoting Bos. Symphony Orchestra, 545
N.E.2d at 1159). Any uncertainty as to whether the complaint
includes a claim within the policy terms is resolved in favor of
coverage. Deutsche Bank Nat'l Ass'n, 991 N.E.2d at 642.
Where a complaint triggers coverage, Massachusetts law
recognizes two "narrow exceptions" to an insurer's duty to defend.
Metro. Prop. & Cas. Ins. Co., 951 N.E.2d at 668. First, the
insurer may be absolved of its duty to defend if "there is
'undisputed, readily knowable, and publicly available information'
- 12 - in court records that demonstrates that the insurer has no duty to
defend." Id. (quoting Billings, 936 N.E.2d at 417). Second, the
insurer may establish that there is "an undisputed extrinsic fact
that takes the case outside the coverage and that will not be
litigated at the trial of the underlying action." Id. (quoting
Billings, 936 N.E.2d at 414 n.8); see also Sterilite Corp. v.
Cont'l Cas. Co., 458 N.E.2d 338, 343 (Mass. App. Ct. 1983)
(providing that an insurer may "get clear of the duty" to defend
"from and after the time when it demonstrates with conclusive
effect on the third party that as matter of fact . . . the third
party cannot establish a claim within the insurance").
i. Occurrence
Peterson's bears the initial burden of establishing that
coverage exists for the underlying litigation under the pertinent
policies. See B & T Masonry Constr. Co. v. Pub. Serv. Mut. Ins.
Co., 382 F.3d 36, 39 (1st Cir. 2004) ("The insured bears the
initial burden of showing coverage under the policy's insuring
agreements." (citing Highlands Ins. Co. v. Aerovox Inc., 676 N.E.2d
801, 804 (Mass. 1997))). As described above, the policies insure
Peterson's against liability for property damage incurred during
the policy period and caused by an "occurrence," which is defined
as "an accident." Though the policies do not specifically define
"accident," Massachusetts courts have construed the term "broadly"
- 13 - when assessing insurance coverage. Quincy Mut. Fire Ins. Co. v.
Abernathy, 469 N.E.2d 797, 799 (Mass. 1984).
"In its common signification," an accident means "an
unexpected happening without intention or design." Id. (quoting
Beacon Textiles Corp. v. Emp'rs Mut. Liab. Ins. Co., 246 N.E.2d
671, 673 (Mass. 1969)). The Supreme Judicial Court has stated
that an accident includes the insured's "volitional act[s]" so
long as "the insured does not specifically intend to cause the
resulting harm or is not substantially certain that such harm will
occur." Id. Put differently, the key inquiry is whether the
insured "intended or expected to cause the injury in question"; if
they did not, the resulting harm caused is an "accident" and is
thus an "occurrence." Terra Nova Ins. Co. v. Fray-Witzer, 869
N.E.2d 565, 571 (Mass. 2007).
To satisfy its threshold burden, Peterson's asserts that
the underlying complaint features a negligence count that alleges
accidental property damage to the customer-plaintiffs' heating
systems, i.e., property damage caused by an occurrence. The
negligence count is therefore a covered claim, Peterson's argues,
and the Insurers must accordingly defend against the entire class
action lawsuit under the "in for one, in for all" rule. See
Deutsche Bank Nat'l Ass'n, 991 N.E.2d at 642 n.11.
During summary judgment proceedings, the Insurers argued
that any suggestion of accidental conduct in the underlying
- 14 - complaint was affirmatively disproved by discovery in the
state-court litigation. Specifically, the Insurers contended that
deposition testimony from Peterson's president conclusively
established that he made an intentional decision to change the
composition of the heating oil Peterson's sold to its customers,
and that this fact was "dispositive" for the occurrence inquiry.
In other words, the Insurers attempted to invoke one of the
aforementioned "narrow exceptions" to the duty to defend for an
instance in which there is an "undisputed extrinsic fact that takes
the case outside the coverage." Metro. Prop. & Cas. Ins. Co., 951
N.E.2d at 668 (quoting Billings, 936 N.E.2d at 414 n.8).
On appeal, the Insurers switch gears to contend that the
district court erred in considering discovery material relating to
the intention behind Peterson's decision because the duty to defend
must be based solely on the facts alleged in the underlying
complaint. The Insurers submit that the district court would have
found no duty to defend had it limited its occurrence analysis to
just those facts, which include allegations that Peterson's made
a strategic choice to supply blended fuel product, even though it
knew that this decision could harm customers. Because the
customer-plaintiffs' alleged injuries are all traceable to
Peterson's intentional conduct of blending the fuel in the face of
known harm, the Insurers argue that none of the claims in the
underlying litigation are based on a covered "occurrence."
- 15 - Setting aside any tension between the Insurers' present
position and their arguments to the district court, their
contentions on appeal lack merit. Even assuming that the district
court placed too much weight on the underlying case discovery in
its occurrence analysis, the well-pleaded negligence claim in the
underlying complaint seeks to recover for property damage caused
by a covered "occurrence" and thus provides an independent
predicate for the Insurers' continuing duty to defend in the
underlying litigation. See Williams v. United States, 858 F.3d
708, 714 (1st Cir. 2017) ("As always, we are also free to affirm
on any basis apparent in the record[.]" (internal quotation marks
omitted)).
We begin by noting that the underlying complaint does
not expressly allege that Peterson's either intended or was
substantially certain that its blended fuel product would cause
injury to the customer-plaintiffs' heating systems. Arguing
otherwise, the Insurers cite to allegations throughout the
complaint relating to Peterson's "knowledge of the risks
associated with biodiesel." Generously read, these allegations
plead that Peterson's may have known information suggesting that
adding biodiesel to fuel created a degree of risk of physical harm
and yet acted or failed to act without regard to that risk. Put
differently, these allegations amount to an assertion that
Peterson's acted recklessly in supplying customers with fuel
- 16 - containing high amounts of biodiesel. See Sandler v. Commonwealth,
644 N.E.2d 641, 643 (Mass. 1995) (defining recklessness).
Such allegations do not remove the underlying litigation
from the ambit of coverage. Under Massachusetts law, an injury
caused by reckless conduct still constitutes an accident:
Generally, injuries resulting from reckless conduct do not fall into the category of "expected or intended" injuries, but are considered "accidental" and thus are covered under insurance policies. "Our cases have concluded that an injury is nonaccidental only where the result was actually, not constructively, intended, i.e., more than recklessness."
Worcester Ins. Co. v. Fells Acres Day Sch., Inc., 558 N.E.2d 958,
970 (Mass. 1990) (quoting Quincy Mut. Fire Ins. Co., 469 N.E.2d at
800); see also Vappi & Co. v. Aetna Cas. & Sur. Co., 204 N.E.2d
273, 276 (Mass. 1965) ("Unintended or unforeseen consequences of
reckless or negligent acts, and even of intentional acts, at least
if not undertaken 'with malice or intent to injure' the person or
property hurt may be within the definition of 'accident.'"
(citation omitted)). Other allegations in the complaint
suggesting that Peterson's was "aware" that its product was
"creating issues for its customers' heating equipment" also fall
short of establishing a specific intent to harm for the same
reason.
But even if awareness of "issues" sufficed, the
complaint does not allege that Peterson's knew about a pattern of
- 17 - heating equipment damage during the relevant policy periods
between July 2011 and July 2016. The district court correctly
observed that the earliest customer report of equipment damage
identified in the complaint occurred in 2018. There are no
specific allegations showing that Peterson's received early and
repeated reports of damage prior to then or that it previously
understood the nature or extent of any emerging issues with the
operation of customer heating systems. Instead, the
customer-plaintiffs assert a course of conduct over multiple
years, without pinpointing the time at which Peterson's became
aware of the alleged consequences that its actions were having on
their heating equipment. In similar circumstances, Massachusetts
courts have declined to infer intent or substantial certainty of
the resulting harm. See Quincy Mut. Fire Ins. Co., 469 N.E.2d at
801-02 (assuming that an insured "was fully aware of the
circumstances" when he threw a rock at a passing car did not permit
the conclusion that the insured "expected or intended" to cause
personal injury to the car's occupants).
In the absence of express allegations on point, the
Insurers assert that we can infer Peterson's intent to cause "some"
harm as a matter of law from its decision to "intentionally
deviate" from industry standards and the terms of its customer
agreements. But even accepting that an insured who knowingly
breaches a material term of an agreement expects that the breach
- 18 - will cause "[s]ome degree of intangible harm," Smartfoods, Inc. v.
Northbrook Prop. & Cas. Co., 618 N.E.2d 1365, 1367 (Mass. App. Ct.
1993), does not resolve the present coverage dispute. Rather,
Peterson's must have intended or been substantially certain of the
type of harm inflicted for those injuries to be deemed
non-accidental. See City of Newton v. Krasnigor, 536 N.E.2d 1078,
1081 (Mass. 1989) ("The 'resulting harm' concerns the type of harm
inflicted . . . and not the extent of the harm actually
sustained.").
Unlike in Smartfoods, the injuries claimed by the
customer-plaintiffs are not limited to intangible economic harm,
618 N.E.2d at 1367, but extend to damaged heating equipment.
Because we cannot infer that Peterson's intended or expected with
substantial certainty to damage customer-plaintiffs' heating
systems by supplying fuel that deviated from contractual or
industry standards, we reject the Insurers' contention that the
complaint's breach of contract allegation eliminates the duty to
defend the underlying litigation.
Moreover, as noted by the district court, the
customer-plaintiffs may ultimately recover on their negligence
claim based on Peterson's failure to deliver efficient heating oil
even without proof that Peterson's intentionally breached a
contract or engaged in fraud. The negligence count alleges that
Peterson's "knew or should have known" that the biodiesel content
- 19 - in its fuel "would not efficiently heat [customers'] houses and
businesses and could harm their furnaces" and "also knew the risks
[its] fuel posed to traditional heating equipment." From there,
the underlying complaint includes a negligence theory that
Peterson's violated its duty to deliver heating oil that would not
damage customer heating equipment. The negligence count thus
seeks, among other things, to remedy an injury to the
customer-plaintiffs' tangible property, i.e., the heating systems,
caused by Peterson's failure to exercise reasonable care in
delivering blended fuel that it "should have known" would cause
such damage.
These allegations -- including those concerning
Peterson's knowledge of the risks attendant to its blended fuel
product -- are consistent with the type of conventional negligence
theories that Massachusetts courts have found to fall within the
scope of covered "accidental" conduct. Cf. Worcester Ins. Co.,
558 N.E.2d at 970 (finding that complaint alleging defendants "knew
or should have known of the assault, rape and sexual molestation
of the minor plaintiffs and failed to exercise care to prevent"
those acts pleaded "accidental" conduct covered by policy). The
customer-plaintiffs therefore have pleaded an "occurrence" under
the policies insofar as they allege that Peterson's negligently
damaged their heating equipment by delivering sub-standard oil.
Because the underlying complaint "states or roughly sketches a
- 20 - claim covered by the policy terms," Billings, 936 N.E.2d at 414,
we agree with the district court that the Insurers have a
continuing duty to defend Peterson's in the underlying litigation.
ii. Failure to Supply
Having concluded that Peterson's satisfied its "initial
burden of showing coverage under the policy's insuring
agreements," the burden shifts to the Insurers "to prove the
applicability of one or more separate and distinct exclusionary
provisions." B & T Masonry Constr. Co., 382 F.3d at 39. In this
regard, the Insurers bear the burden to show that any coverage in
the underlying litigation is limited by the failure-to-supply
provisions to $250,000 under the primary policies in each policy
period.
As noted above, there are three formulations of the
failure-to-supply limitations set forth in the policies. The
primary policies contain the following endorsement:
LIMITED COVERAGE -- FAILURE TO SUPPLY
This insurance applies to:
Bodily injury or property damage arising out of the failure of any Insured to adequately supply gas, oil, water, electricity or steam. However, regardless of the number of Insureds, claims made or "suits" brought; or persons or organizations making claims or bringing "suits"; $250,000 is the most we will pay for all damages in any one policy year for this coverage.
- 21 - The $250,000 coverage limitation does not apply if the failure to supply results from the sudden and accidental injury to tangible property owned or used by any Insured to procure, produce, process or transmit the gas, oil, water, electricity or steam.
The coverage provided by this endorsement does not apply if the failure to supply was caused by any Insured's inability, however caused, to obtain adequate supplies of gas, oil, water, electricity or steam.
The umbrella policies in effect between 2011 and 2015
each include a similarly worded exclusion:
FAILURE TO SUPPLY EXCLUSION
This policy does not apply to "Bodily Injury", or "Property Damage" arising out of the failure of any insured to adequately supply gas, oil, water, electricity or steam.
Finally, the umbrella policies in effect between 2014
and 2016 each include the following limitation:
FAILURE TO SUPPLY LIMITATION
This policy does not apply to "Bodily Injury", "Property Damage" or "Personal and Advertising Injury" arising out of the failure of any Insured to provide an adequate supply of gas, oil, electricity, steam, or any other form of energy, or water, to any person or entity.
This exclusion does not apply to "Bodily Injury" or "Property Damage" that is covered by "Underlying Insurance" for the full limit scheduled as "Underlying Insurance" by this policy.
- 22 - The parties' dispute centers on the meaning of
"adequately" supply or an "adequate" supply.3 Peterson's argues
that the quoted words must be read to modify supply, as opposed to
the specific products listed in the endorsement, and thus address
the adequacy of the amount of product rather than the adequacy of
the products themselves. The customer-plaintiffs argue similarly
by citing various dictionary definitions indicating that "supply"
connotes quantity.
For their part, the Insurers do not dispute that the
failure-to-supply provisions would apply to losses arising out of
Peterson's failure to provide enough fuel but submit that they
also cover a failure to supply fuel of a sufficient quality. The
Insurers base this argument primarily on definitions showing that
"adequate" and "adequately" may refer both to quantity and quality.
In other words, the Insurers assert that, because the provisions
can be fairly read as referring to either the quantity or quality
of the fuel, they should be construed as covering both.
"Under Massachusetts law, we construe an insurance
policy under the general rules of contract interpretation,
3 The Insurers focus mostly on the phrase "adequately supply" as used in the primary policies and do not contend that the slight variations in the language used in the umbrella policies convey any different meaning. Cf. AIG Prop. Cas. Co. v. Cosby, 892 F.3d 25, 28-29 (1st Cir. 2018) (language used identically in both primary and umbrella policies "carr[ied] identical meaning, calling for identical effect").
- 23 - beginning with the actual language of the policies, given its
plain and ordinary meaning." AIG Prop. Cas. Co., 892 F.3d at 27
(citation modified). A term is ambiguous when it is "susceptible
of more than one meaning and reasonably intelligent persons would
differ as to which meaning is the proper one." Certain Interested
Underwriters at Lloyd's, London, 680 F.3d at 66 (quoting Citation
Ins. Co. v. Gomez, 688 N.E.2d 951, 953 (Mass. 1998)). Any
ambiguity is "strictly construed against the insurer." Id. at 27
(quoting Valley Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir.
2012)). We have observed that this interpretative rule "applies
with particular force to exclusionary provisions." U.S. Liab.
Ins. Co. v. Benchmark Constr. Servs., Inc., 797 F.3d 116, 120 (1st
Cir. 2015) (quoting Boazova v. Safety Ins. Co., 968 N.E.2d 385,
390 (Mass. 2012)). In construing such provisions, Massachusetts
courts favor "the narrowest plausible interpretation."
Performance Trans., Inc. v. Gen. Star Indem. Co., 983 F.3d 20, 25
(1st Cir. 2020).
The Insurers' argument does not advocate the narrowest
possible interpretation of the failure-to-supply provisions. The
Insurers implicitly concede that Peterson's proffered
interpretation -- that the provisions apply to a failure to
provide an adequate quantity of fuel -- is plausible. They argue
only that the provisions should be read to apply to a more
expansive category of losses that includes sub-standard fuel.
- 24 - It is true that "adequately" can be plausibly construed
as connoting both quality and quantity. See, e.g., Adequate,
Black's Law Dictionary (12th ed. 2024) (defining "adequate" to
mean "[f]ully satisfying requirements; sufficient, suitable, and
acceptable in both quality and quantity"). But it is also true
that "adequately" can be interpreted to cover either quantity or
quality. See, e.g., "Adequately," Oxford Learner's Dictionaries,
https://www.oxfordlearnersdictionaries.com/definition/english/ad
equately (last accessed Aug. 19, 2025) (defining "adequately" to
mean "in a way that is enough in quantity, or good enough in
quality, for a particular purpose or need") (emphasis supplied).
In other words, "adequately" or "adequate" are susceptible to
multiple meanings. Thus, barring context clues showing that those
terms are used here to describe both the quality and quantity of
fuel to be supplied, the failure-to-supply provisions must be
deemed ambiguous. See Dorchester Mut. Ins. Co. v. Miville, 204
N.E.3d 382, 388 (Mass. 2023) (resolving uncertainty created by
disputed term's susceptibility to multiple interpretations by
examining "the term's location within the policy").
The failure-to-supply provisions offer no such clarity.
To the contrary, as Peterson's and the intervenors observe,
"adequately" precedes "supply" and is therefore presumed to modify
that verb -- not any of the listed products that follow. See
Nielsen v. Preap, 586 U.S. 392, 403 (2019) (observing that "an
- 25 - adverb cannot modify a noun"); cf. United States v. Jones, 471
F.3d 535, 539 (4th Cir. 2006) ("Adverbs generally modify verbs,
and the thought that they would typically modify the infinite
hereafters of statutory sentences would cause grammarians to
recoil."). The provision thus appears to focus principally on the
adequacy of the supply, i.e., Peterson's distribution of the listed
products, rather than the adequacy of the goods being supplied.
See Supply, Black's Law Dictionary (12th ed. 2024) (defining
"supply" to mean, inter alia, "[a] means of providing a constant
flow of something as needed, esp[ecially] with a system of
distribution or circulation; a system that is used for furnishing
some essential or important commodity," e.g., "the water supply
was cut off"). Had the Insurers intended to convey otherwise,
they could have incorporated "adequate" into an adjectival phrase
describing the enumerated products by rephrasing the provision to
cover a failure to "supply adequate gas, oil, electricity," etc.
See MacArthur v. Mass. Hosp. Serv., Inc., 180 N.E.2d 449, 451
(Mass. 1962) (rejecting insurer's proffered interpretation where
"it would have been an easy matter to state the provisions of the
section in dispute in form and words which would leave no doubt as
to its intent"). Their failure to do so means that it is possible
that the at-issue provisions were intended to capture only
Peterson's failure to deliver an adequate amount of oil -- a
- 26 - shortcoming not implicated by the customer-plaintiffs' underlying
complaint.
In short, "adequate" and "adequately" could mean only
enough product or both enough product and product that was up to
snuff. At best then, these words, as used in the failure-to-supply
provisions, are "susceptible of more than one meaning and
reasonably intelligent persons would differ as to which meaning is
the proper one." AIG Prop. Cas. Co., 892 F.3d at 27. The
provisions are therefore ambiguous, and that ambiguity must be
resolved against the Insurers. See id. On that basis, we affirm
the district court's judgment that the failure-to-supply
provisions do not apply to limit coverage for the underlying
litigation.
CONCLUSION
For the foregoing reasons, the district court's grant of
summary judgment in favor of Peterson's and denial of summary
judgment for the Insurers is affirmed.
- 27 -