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13-P-1890                                            Appeals Court

    PREFERRED MUTUAL INSURANCE COMPANY vs. VERMONT MUTUAL
                  INSURANCE COMPANY & others.1


                            No. 13-P-1890.

         Middlesex.       October 7, 2014. - June 17, 2015.

              Present:   Cohen, Wolohojian, & Blake, JJ.


Insurance, Coverage, Insurer's obligation to defend, Defense of
     proceedings against insured, Homeowner's insurance,
     Business exclusion, Excess Liability Insurance. Contract,
     Insurance. Practice, Civil, Summary judgment. Indemnity.



     Civil action commenced in the Superior Court Department on
March 30, 2012.

     The case was heard by Dennis J. Curran, J., on motions for
summary judgment, and the entry of separate and final judgment
was ordered by him.


    Peter C. Kober for Vermont Mutual Insurance Company.
    Robert A. Curley, Jr., for the plaintiff.


    COHEN, J.     This insurance dispute arises from an accident

in which Richard Dubois was injured while working at a residence

in Medford.    The residence was owned by Francis and Eileen

    1
        Joseph Munyon, Richard Dubois, and Laurie Dubois.
                                                                   2


Munyon, who lived there with their adult son, Joseph.2    In

October, 2009, the Munyons undertook to renovate their second-

floor bathroom and hired Dubois's employer as the plumbing

contractor.   On Dubois's first day on the job, he removed old

copper piping and other debris from the bathroom and attempted

to throw it into the backyard from a second-floor deck.

Unbeknownst to Dubois, on the previous day, Joseph had

unfastened the porch railing in order to push the old cast iron

bathtub into the backyard; but when he finished, he left the

railing in an upright position so it appeared to be securely in

place.   While leaning against the unsecured railing, Dubois fell

to the ground and was injured.   Dubois and his wife later filed

suit against Joseph and his parents, alleging that they were

liable for Dubois's personal injuries and his wife's loss of

consortium.

     At the time of the accident, Francis and Eileen were the

named insureds under a homeowner's policy issued by the

defendant, Vermont Mutual Insurance Company (Vermont).    In

addition, by virtue of his status as a resident relative,

Joseph, too, was an insured under the Vermont policy.

Independently, Joseph was the named insured under a commercial

lines policy issued by the plaintiff, Preferred Mutual Insurance


     2
       As these individuals have the same last name, we refer to
them individually by their first names.
                                                                   3


Company (Preferred), in connection with Joseph's business as a

self-employed licensed electrician.   Both Vermont and Preferred

were notified of the Duboises' claims.   Vermont assumed the

defense of Francis and Eileen, but refused to defend Joseph.

Preferred undertook to defend Joseph, but did so under a

reservation of rights.   As discussed below, the coverage issues

raised by the insurers related to Joseph's role in the

renovation project and whether he was acting in a personal or

business capacity.

     The Dubois lawsuit ultimately was successful.   After a

trial in 2013, a jury found Francis, Eileen, and Joseph liable

for Dubois's personal injuries and his wife's loss of

consortium.   Judgment entered for Dubois in the amount of

$226,218.49, and for his wife in the amount of $12,567.69.

Vermont paid the judgments in their entirety on behalf of

Francis and Eileen, who subsequently obtained a judgment against

Joseph for contribution.3

     While the underlying case was pending, Preferred filed the

instant action, naming Vermont, Joseph, and the Duboises as

defendants.   In count I of its complaint, Preferred sought a

judgment declaring that its policy did not afford coverage for

the underlying claims and that Vermont was obliged to defend and

     3
       The parents (collectively) and Joseph were determined to
be joint tortfeasors, each responsible for fifty percent of the
judgment.
                                                                      4


indemnify Joseph.   In count II, Preferred asserted an equitable

claim against Vermont for fifty percent of all defense costs

incurred by Preferred on Joseph's behalf.     Preferred and Vermont

filed cross motions for summary judgment, which were decided

after the underlying case had been concluded.    After a hearing,

a judge of the Superior Court allowed Preferred's motion and

denied Vermont's motion.   The judge ruled that Preferred had no

duty to defend or indemnify; that Vermont had both a duty to

defend and a duty to indemnify; and that Vermont was required to

reimburse the entirety of the defense costs incurred by

Preferred in defending Joseph.

     Vermont now appeals from a separate and final judgment that

entered as a result of these rulings.4    After de novo review, see

Norfolk & Dedham Mut. Fire Ins. Co. v. Cleary Consultants, Inc.,

81 Mass. App. Ct. 40, 47 (2011), we affirm in part and vacate in

part.

     1.   Relevant policy provisions.    a. Vermont policy.   The

liability coverage section of the Vermont policy contains a so-

called "business pursuits exclusion" stating that coverage does

not apply to bodily injury "[a]rising out of or in connection

with a business engaged in by an insured."     In the "Definitions"


     4
       The motion judge ruled that issues of fact remained to be
decided as to counterclaims brought against Vermont by the
underlying tort plaintiffs pursuant to G. L. c. 93A and G. L.
c. 176D. Those claims remain pending in the trial court.
                                                                    5


section of the policy, "business" is defined to include "trade,

profession or occupation."

    The "Conditions" section of the Vermont policy includes an

"other insurance" clause, providing that "[t]his insurance is

excess over other valid and collectible insurance except

insurance written specifically to cover as excess over the

limits of liability that apply in this policy."

    b.    Preferred policy.   The "Commercial General Liability

Coverage Part" of the Preferred policy has its own

"Declarations" page, which identifies the named insured, Joseph,

as an "individual," and the business of the named insured as:

"electrician."   The policy later provides, in paragraph 1(a) of

section II:   "If you are designated in the Declarations as [a]n

individual, you and your spouse are insureds, but only with

respect to the conduct of a business of which you are the sole

owner."

    The "other insurance" clause in the Preferred policy

provides, with exceptions not relevant here, that the policy is

"primary" insurance and will provide coverage with any other

"primary" policy "by limits," if (as in the case of the Vermont

policy) the other insurer does not state that it will contribute

by equal shares.   The clause further explains that "[u]nder this

method, each insurer's share is based on the ratio of its
                                                                    6


applicable limit of insurance to the total applicable limits of

insurance of all insurers."

    2.    Duty to defend.   "It is settled that an insurer's duty

to defend is independent from, and broader than, its duty to

indemnify."   Metropolitan Property & Cas. Ins. Co. v. Morrison,

460 Mass. 352, 357 (2011), quoting from A.W. Chesterton Co. v.

Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 527

(2005).   "An insurer has a duty to defend an insured when the

allegations in a complaint are reasonably susceptible of an

interpretation that states or roughly sketches a claim covered

by the policy terms.    The duty to defend is determined based on

the facts alleged in the complaint, and on facts known or

readily knowable by the insurer that may aid in its

interpretation of the allegations in the complaint.    In order

for the duty of defense to arise, the underlying complaint need

only show, through general allegations, a possibility that the

liability claim falls within the insurance coverage.    There is

no requirement that the facts alleged in the complaint

specifically and unequivocally make out a claim within the

coverage.   However, when the allegations in the underlying

complaint lie expressly outside the policy coverage and its

purpose, the insurer is relieved of the duty to investigate or

defend the claimant."    Billings v. Commerce Ins. Co., 458 Mass.
                                                                      7


194, 200-201 (2010) (quotations, citations, and footnotes

omitted).

    Relevant here, the underlying complaint alleges that

"Joseph . . . is a licensed electrician . . . who resides at

[the Munyon residence] and has, at all times relevant to this

action, been in charge of the contracting work conducted

[there]."   The complaint alleges further that Francis and Eileen

had Joseph "serve as their general contractor," and that Joseph

entered into a subcontract with Dubois's employer for the

performance of the plumbing work on the second-floor bathroom.

The complaint also describes Joseph as the "construction

supervisor" for the renovation work.     The complaint further

alleges that the Munyons unhinged the railing of the second-

floor deck in order to dispose of the old bathtub, left it in

place so it appeared to be securely fastened, and failed to warn

Dubois of its condition.

    a.   Vermont's duty to defend.     Based upon the references to

Joseph's occupation and his role in supervising the project,

Vermont contends that its business pursuits exclusion negates

the coverage that otherwise would inure to Joseph as an insured

under his parents' homeowner's policy.     The argument is without

merit, however, because the allegations of the complaint,

especially when read in light of Vermont's knowledge that Joseph

was the son of the policyholders and that the residence being
                                                                   8


renovated was their mutual home, did not conclusively establish

that Dubois's injuries were ones "arising out of" or "in

connection with" Joseph's business.

     Although there are a few Massachusetts cases involving some

form of business pursuits exclusion in a homeowner's policy,5 our

appellate courts have not had occasion to articulate general,

guiding principles for determining when an activity arises out

of or in connection with the insured's business.    In other

States, there is widespread agreement that a two-prong

functional test should be used.   The first element of the test

is "continuity" -- that is, the activity in question must be one

in which the insured regularly engages as a means of livelihood;

the second element is "profit motive" -- that is, the purpose of

the activity must be to obtain monetary gain.   See 5 New

Appleman on Insurance Law Library Edition § 53.06[2][d][i]

(2014); 9A Couch on Insurance § 128.13 (3d ed. 2006); 3 Windt,

Insurance Claims & Disputes § 11:15 (6th ed. 2013).    See also

Springer v. Erie Ins. Exch., 439 Md. 142, 162-164 (2014)

(surveying cases).   The two-prong test is so widely utilized

that we accept it as the norm and employ it here.



     5
       See Worcester Ins. Co. v. Fells Acres Day Sch., Inc., 408
Mass. 393, 412 (1990); Commerce Ins. Co. v. Finnell, 41 Mass.
App. Ct. 701, 702-703 (1996); Metropolitan Property & Cas. Ins.
Co. v. Fitchburg Mut. Ins. Co., 58 Mass. App. Ct. 818, 820-823
(2003).
                                                                   9


    Insofar as the first prong is concerned, the underlying

complaint identifies Joseph as a licensed electrician; however,

the complaint leaves uncertain whether he participated in the

bathroom renovation in that capacity.   The complaint

specifically alleges that Joseph served as a general contractor,

contracted with others, and oversaw the work.   It also alleges

that in conjunction with disposing of the old bathtub, he

unhinged the railing of the second-floor deck, left it in place,

and failed to warn Dubois of its condition.   However, there is

no indication in the complaint that his alleged supervisory or

disposal activities were ones in which he regularly engaged in

connection with his means of livelihood.

    Insofar as the second prong is concerned, the complaint

does not indicate whether Joseph's participation in the

renovation project was motivated by profit.   Especially when

considered in light of the extrinsic facts known to Vermont, the

complaint leaves it entirely plausible that Joseph contributed

his labor out of a desire to help his parents and improve the

residence in which they all lived.

    "It is the insurer who bears the burden of proving the

applicability of an exclusion.   In order for an exclusion to

negate an insurer's duty to defend ab initio, the facts alleged

in the third-party complaint must establish that the exclusion

applies to all potential liability as matter of law.    If the
                                                                     10


claimant's factual allegations are susceptible of an

interpretation that leaves room for coverage, or are

insufficiently developed, the insurer must defend unless and

until it demonstrates with conclusive effect on the third party

[i.e., the claimant] that as matter of fact -- as distinguished

from the appearances of the complaint and policy -- the third

party cannot establish a claim within the insurance."     Norfolk &

Dedham Mut. Fire Ins. Co. v. Cleary Consultants, Inc., 81 Mass.

App. Ct. at 52 (quotations and citations omitted).     Because the

facts alleged in the Dubois complaint do not establish that the

business pursuits exclusion applies to all potential liability

as matter of law, Vermont had a duty to defend and should not

have disclaimed outright.

    b.   Preferred's duty to defend.    Vermont argues in the

alternative that even if it had a duty to defend, so did

Preferred, and, by operation of the policies' "other insurance"

clauses, Preferred was required to shoulder that burden alone.

Unlike the motion judge, we agree with Vermont that Preferred

also had a duty to defend, because the claims asserted in the

complaint are potentially within the scope of Preferred's

coverage.    However, as explained in the following section, we

reject Vermont's position that the operation of the "other

insurance" clauses relieved Vermont of its own, independent duty

to defend.
                                                                    11


    The existence of Preferred's duty to defend turns on the

allegations of the complaint as they relate to the policy's

description of the risks covered.    Joseph is identified in the

"Declarations" as an "individual," and, pursuant to the

provisions of section II, paragraph (1)(a), is an insured "only

with respect to the conduct of a business of which [he is] the

sole owner."   That business is identified in the "Declarations"

as "electrician."     The underlying complaint alleges that Joseph

is an electrician, who "has . . . been in charge of" the

renovation project.    Although the complaint later characterizes

Joseph as a "general contractor," that characterization is not

mutually exclusive with his performing services as an

electrician.   The allegations do not negate the possibility that

he was engaged to work on the renovations as an electrician, and

that his supervisory activities and/or his removal and disposal

of the bathtub, were ancillary to his electrical work and

performed in the conduct of his business.    Because the

allegations of the complaint do not "lie expressly outside the

policy coverage and its purpose," Herbert A. Sullivan, Inc. v.

Utica Mut. Ins. Co., 439 Mass. 387, 394-395 (2003), Preferred

appropriately chose to defend under a reservation of rights and

to file a declaratory judgment action as a means of determining

its obligations.
                                                                     12


    c.     Effect of "other insurance" clauses.   Because the

motion judge ruled that only Vermont had a duty to defend, he

did not reach the additional argument made by Vermont concerning

the operation of the policies' respective "other insurance"

clauses.   Vermont correctly observes that Preferred's clause is

a "pro rata clause" (providing that the policy will contribute

to the loss in the proportion that its policy limit bears to the

total limit of all available policies), while Vermont's clause

is an "excess clause" (providing that the policy will not

contribute to the loss until other available insurance is

exhausted).   See Mission Ins. Co. v. United States Fire Ins.

Co., 401 Mass. 492, 495 n.3 (1988).    Vermont also observes that

when an excess clause competes with a pro rata clause, the

excess clause ordinarily will be given effect.     See id. at 496.

On this basis, Vermont takes the position that even though each

policy is designed as primary insurance and each provides the

insured with defense coverage separate and apart from indemnity

coverage, the operation of the "other insurance" clauses

transforms the Vermont policy into an "excess policy" and

relieves it of its contractual duty to defend.

    This argument reflects a fundamental misunderstanding of

the nature and purpose of "other insurance" clauses that, like

the ones involved here, make no reference to the insurers'
                                                                    13


defense obligations.6   Such clauses are provisions "designed to

establish a policy's relationship with other policies covering a

loss."   Id. at 495 (emphasis supplied).   As one commentator has

emphasized, they "speak only to loss allocation.    In the

liability insurance context, 'losses' are either covered

judgments or settlements on the behalf of insureds.    'Other

insurance' clauses thus relate only to insurers' indemnity

obligations, and they do not even purport to address the

allocation or apportionment of defense costs."     Richmond, Issues

and Problems in "Other Insurance," Multiple Insurance, and Self-

Insurance, 22 Pepp. L. Rev. 1373, 1429 (1995) (emphasis

supplied).

     Put another way, regardless of how the "other insurance"

clauses may have operated in the event that both Vermont and

Preferred were required to indemnify Joseph, they have no

bearing on Vermont's concurrent duty to defend him.     See

American Fid. & Cas. Co. v. Pennsylvania Threshermen & Farmers'

Mut. Cas. Ins. Co., 280 F.2d 453, 458-460 (5th Cir. 1960).      When

a primary policy is not a true excess policy, but merely "is

deemed 'excess' by virtue of other collectible insurance, the

limiting language is directed to its obligation to contribute to

     6
       For extensive discussion of the operation and
enforceability of an "other insurance" clause expressly
purporting to relieve an insurer of its defense obligation if
there is another insurer with a duty to defend, see Nautilus
Ins. Co. v. Lexington Ins. Co., 132 Haw. 283, 295-297 (2014).
                                                                    14


a settlement or judgment, not to its duty to defend."     GMAC v.

Nationwide Ins. Co., 4 N.Y.3d 451, 456 (2005).

     3.   Duty to indemnify.   The duty to indemnify turns on a

different universe of facts -- those contained in the summary

judgment record, which includes, among other things, the

parties' agreed upon facts and deposition testimony.7

     a.   Vermont.   After consideration of the summary judgment

record in the light most favorable to Vermont, we conclude, as

matter of law, that Vermont cannot carry its burden of proving

the applicability of its business pursuits exclusion.     As to the

continuity prong of the two-part test, the record does not

permit the conclusion that Dubois's injuries arose from any

activities in which Joseph regularly engaged as a means of

livelihood.   In response to Preferred's statement of facts,

Vermont admitted that Joseph did not act as a general contractor

or construction supervisor on the job, he was not licensed as a

construction supervisor, he never ran a business as a

construction supervisor, and he never earned money as a

construction supervisor.    So far as the record reveals, the only

business in which Joseph was continually engaged was his

business as an electrician, and the record is devoid of evidence



     7
       We view that record under familiar summary judgment
standards. See generally Herbert A. Sullivan, Inc. v. Utica
Mut. Ins. Co., supra, at 393-394.
                                                                    15


that Dubois's injuries were connected with or incidental to any

work performed by Joseph in that capacity.

    As to the "for profit" prong, Vermont argues that a profit

motive may be inferred from evidence that Joseph's parents

forgave a few hundred dollars of an approximately $2,000 debt

that he owed them for helping him pay his taxes.     Vermont also

argues that Joseph expected to earn goodwill by working with

other tradesmen who might recommend him in the future.     We think

that this showing is far too thin to meet Vermont's burden of

demonstrating the second prong; regardless, Vermont must satisfy

both prongs for the business pursuits exclusion to apply, and

this it cannot do.

    b.    Preferred.    Because the question of Preferred's duty to

indemnify turns on the coverage granting provisions of its

policy and not upon an exclusion, it is not Preferred's burden

to negate coverage; it is the burden of the party seeking to

establish coverage (in this case Vermont) to show that the claim

is within the policy.     See Markline Co. v. Travelers Ins. Co.,

384 Mass. 139, 140 (1981).     After consideration of the summary

judgment record, we conclude, as matter of law, that Vermont

cannot demonstrate that the Preferred policy affords coverage to

Joseph.   The Preferred policy covered Joseph only "with respect

to the conduct of a business of which [he was] the sole owner,"
                                                                    16


and that business was designated as "electrician."8   Here, the

record reveals no facts from which it reasonably may be inferred

that Joseph was conducting his business as an electrician at any

time relevant to the occurrence of the accident.

     4.   Conclusion.   The judgment as to count I of Preferred's

complaint is affirmed insofar as the judgement declared that:

(1) Vermont had a duty to defend Joseph in the underlying

action; (2) Vermont had a duty to indemnify Joseph; and (3)

Preferred had no duty to indemnify Joseph.    However, insofar as

the judgment on count I declared that Preferred had no duty to

defend Joseph, the judgment is vacated and shall be replaced by

a declaration that Preferred had a duty to defend Joseph.    The

judgment as to count II is vacated and shall be replaced by a

declaration that Preferred is entitled to equitable contribution

and that Vermont shall reimburse fifty percent of the defense




     8
       Vermont argues that a schedule appended to the Preferred
policy, which identifies "hazards" by location and description,
may be read to suggest that Joseph is covered as a general
contractor. Passing whether the schedule forms a part of the
policy, we think that Vermont's interpretation of the schedule
is unreasonable. More fundamentally, the summary judgment
record contains an admission by Vermont, in response to
Preferred's statement of facts, that Joseph did not serve as a
general contractor on this project. Accordingly, Vermont cannot
contend that Joseph is entitled to coverage on that basis.
                                                              17


costs expended by Preferred in defending Joseph.9

                                   So ordered.




     9
       Unlike Vermont, Preferred commendably assumed Joseph's
defense under a reservation of its rights and brought a
declaratory judgment action as a means to demonstrate with
conclusive effect on the Duboises, as well as Joseph, that the
underlying claims were outside the scope of the Preferred
policy. That does not mean, however, that Preferred is entitled
to be fully reimbursed by Vermont for the fees and costs
incurred in providing Joseph with a defense. The pleadings
reflect that Preferred sought only to be reimbursed fifty
percent; furthermore, both parties represented at oral argument
that if we were to conclude that both insurers had a duty to
defend, the proper method of allocation in this case would be
for them to share the defense costs equally.
