
<head>

<title>USCA1 Opinion</title>



	<style type="text/css" media="screen, projection, print">



		<!--

		@import url(/css/dflt_styles.css);

		-->

	</style>

</head>

<body>

<p align=center>

</p><br>

<pre>                  United States Court of Appeals <br>                      For the First Circuit <br>                       ____________________ <br> <br> <br>No. 97-2056 <br> <br>                  MERCHANTS INSURANCE COMPANY OF <br>                       NEW HAMPSHIRE, INC., <br> <br>                      Plaintiff - Appellee, <br> <br>                                v. <br> <br>             UNITED STATES FIDELITY AND GUARANTY CO., <br> <br>                      Defendant - Appellant. <br> <br>                       ____________________ <br> <br>           APPEAL FROM THE UNITED STATES DISTRICT COURT <br> <br>                FOR THE DISTRICT OF MASSACHUSETTS <br> <br>           [Hon. Joseph L. Tauro, U.S. District Judge] <br> <br>                       ____________________ <br> <br>                              Before <br> <br>                      Selya, Circuit Judge, <br> <br>                  Coffin, Senior Circuit Judge, <br> <br>and Shadur, Senior District Judge. <br> <br>                      _____________________ <br> <br>    James R. Loughman, with whom Donovan & O'Connor was on brief <br>for appellant. <br>    Nina E. Kallen, with whom Neville & Kelley was on brief for <br>appellee. <br> <br> <br>                       ____________________ <br> <br>                          May 1, 1998 <br>                       ____________________

          SHADUR, Senior District Judge.  United States Fidelity <br>and Guaranty Co. ("USF&G") appeals the order of the United States <br>District Court for the District of Massachusetts granting a Fed. R. <br>Civ. P. ("Rule") 56 summary judgment motion filed by Merchants <br>Insurance Company of New Hampshire, Inc. ("Merchants") and denying <br>the corresponding cross-motion filed by USF&G.  Merchants had <br>brought a diversity-of-citizenship action, pursuant to the <br>Declaratory Judgment Act (28 U.S.C.  2201), seeking a declaration <br>that it was entitled to contribution from USF&G for the attorneys' <br>fees and expenses incurred in defending and settling a personal <br>injury action brought against Merchants' insured D'Agostino <br>Associates, Inc. ("D'Agostino").  We affirm. <br>Facts <br>     In 1992, general contractor D'Agostino entered into a <br>contract with two Massachusetts towns to remove and replace a <br>bridge.  In connection with that project D'Agostino hired <br>subcontractor Great Eastern Marine Service, Inc. ("Great Eastern").  <br>Although Merchants had already issued a commercial general <br>liability policy to D'Agostino, the subcontract required Great <br>Eastern to list the general contractor as an additional insured on <br>its own commercial general liability insurance policy issued by <br>USF&G. <br>     Of particular importance here, the additional insured <br>endorsement ("Endorsement") provided D'Agostino with coverage "but <br>only with respect to liability arising out of 'your work' for that <br>[added] insured by or for you."  In part that language is clear <br>indeed:  "You" means Great Eastern, while D'Agostino is "that <br>[added] insured."  We will later address the meaning of the <br>potentially more murky aspect of the Endorsement--what is intended <br>by its "arising out of" phrase. <br>     On October 28, 1992, Great Eastern's employee Daniel <br>Woundy ("Woundy") sustained serious injuries while working at the <br>job site when a D'Agostino employee accidentally caused Woundy's <br>arm to become pinned between two pieces of demolition equipment.  <br>Almost a year later Woundy and his wife (collectively "Woundys") <br>brought suit against D'Agostino, alleging that his physical <br>injuries and her loss of consortium were "a direct and proximate <br>result" of the general contractor's negligence.  USF&G then refused <br>Merchants' demand to defend that underlying action, explaining that <br>the Endorsement did not afford D'Agostino coverage for its own <br>negligence.  <br>     On March 25, 1995 Merchants settled Woundys' claims <br>against D'Agostino for $250,000, an amount to which USF&G did not <br>object.  Merchants had also incurred attorneys' fees and expenses <br>aggregating $28,297.21.  Shortly thereafter Merchants brought this <br>federal court action against USF&G to seek contribution for half of <br>the total amount it had incurred in defending and settling Woundys' <br>personal injury and loss of consortium claims.  After the district <br>court ruled in Merchants' favor on the parties' cross-motions for <br>summary judgment, this appeal followed. <br>                        Standard of Review <br>     We review the district court's grant of summary judgment <br>de novo (Vartanian v. Monsanto Co., 131 F.3d 264, 266 (1st Cir. <br>1997)).  Familiar Rule 56 principles impose on a party seeking <br>summary judgment the burden of establishing the lack of a genuine <br>issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, <br>322-23 (1986)).  As we stated in Woods-Leber v. Hyatt Hotels of <br>P.R., Inc., 124 F.3d 47, 49 (1st Cir. 1997)(citations and internal <br>quotation marks omitted): <br>          The genuineness requirement signifies that <br>          a factual controversy must be sufficiently <br>          open-ended to permit a rational factfinder <br>          to resolve the issue in favor of either <br>          side.  The materiality requirement <br>          signifies that the factual controversy <br>          must pertain to an issue which might <br>          affect the outcome of the suit under the <br>          governing law.   <br> <br>     For Rule 56 purposes we read the record in the light most <br>favorable to the non-moving party, drawing all reasonable <br>inferences in its favor (Reich v. John Alden Life Ins. Co., 126 <br>F.3d 1, 6 (1st Cir. 1997)).  In that regard "[a]n inference is <br>reasonable only if it can be drawn from the evidence without resort <br>to speculation" (Mulero-Rodrguez v. Ponte, Inc., 98 F.3d 670, 672 <br>(1st Cir. 1996), quoting Frieze v. Boatmen's Bank, 950 F.2d 538, <br>541 (8th Cir. 1991)).   <br>     Where as here cross-motions for summary judgment are <br>involved, "the court must consider each motion separately, drawing <br>inferences against each movant in turn" (Reich, 126 F.3d at 6).  <br>Because here neither the facts nor any potential inferences are in <br>dispute, that Janus-like dual perspective creates no risk that both <br>motions might have to be denied.  Instead the parties are at odds <br>about whether as a matter of law the district court erred in <br>holding that D'Agostino's liability arose out of Great Eastern's <br>work performed on its behalf, thus entitling D'Agostino to coverage <br>under the Endorsement. <br>Choice of Law <br>     Before we turn to the merits of the parties' respective <br>positions, we must first identify the applicable substantive law, <br>a subject on which both policies are silent.  For cases sounding in <br>diversity, the Erie v. Tompkins mandate to look to state law for <br>the substantive rules of decision includes the application of the <br>forum's choice of law doctrines (Klaxon Co. v. Stentor Elec. Mfg. <br>Co., 313 U.S. 487, 496 (1941); New Ponce Shopping Ctr., S.E. v. Integrand Assurance Co., 86 F.3d 265, 267 (1st Cir. 1996)).  But <br>here both Merchants and USF&G have eschewed any such inquiry, <br>instead citing directly to Massachusetts' internal law.  In that <br>situation Bird v. Centennial Ins. Co., 11 F.3d 228, 231 n.5 (1st <br>Cir. 1993) teaches: <br>          Because the parties agree that <br>          Massachusetts law governs this dispute, <br>          and because there is at least a <br>          "reasonable relation" between the dispute <br>          and the forum whose law has been selected <br>          by the parties, we will forego an <br>          independent analysis of the choice-of-law <br>          issue and apply Massachusetts law. <br> <br>We do the same here. <br>                        General Principles <br>     Under Massachusetts law the interpretation of an <br>insurance policy and the determination of the policy-dictated <br>rights and obligations are questions of law, appropriate grist for <br>the summary judgment mill (see Assetta v. Safety Ins. Co., 682 <br>N.E.2d 931, 932 (Mass. App. Ct. 1997)).  Hence we review de novo <br>the district court's determination that the Endorsement covers <br>D'Agostino for its own negligence. <br>     Hakim v. Massachusetts Insurers' Insolvency Fund, 675 <br>N.E.2d 1161, 1164 (Mass. 1997) confirms the applicability of <br>general rules of contract construction in construing an insurance <br>policy: <br>          The interpretation of an insurance <br>          contract is no different from the <br>          interpretation of any other contract, and <br>          we must construe the words of the policy <br>          in their usual and ordinary sense. <br> <br>Where policy provisions are ambiguous--that is, "[w]here the <br>language permits more than one rational interpretation" (Boston <br>Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 545 N.E.2d <br>1156, 1159 (Mass. 1989)(internal quotation omitted))--the reading <br>most favorable to the insured must prevail (Hazen Paper Co. v. USF&G, 555 N.E.2d 576, 583 (Mass. 1990)).  That contra proferentem <br>principle applies with added rigor in determining the meaning of <br>exclusionary provisions (id.). <br>      Insurance Coverage:  Duties To Defend and To Indemnify <br>     Any liability insurer has a duty to defend an underlying <br>third-party action against its putative insured if the allegations <br>in the complaint are "reasonably susceptible of an interpretation <br>that they state[] or adumbrate[] a claim covered by the policy <br>issued to its insured" (New England Mut. Life Ins. Co. v. Liberty <br>Mut. Ins. Co., 667 N.E.2d 295, 297 (Mass. App. Ct. 1996)(internal <br>quotation omitted)).  "This is true even if the claim is baseless, <br>as it is the claim which determines the insurer's duty to defend" <br>(Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. <br>1997)(internal quotation marks omitted)). <br>     It is true "that an insurance company's duty to defend is <br>broader than its duty to indemnify" (Boston Symphony, 545 N.E.2d at <br>1158).  But USF&G's rejection of any participation in the <br>underlying defense (as tendered to it by Merchants) also carries <br>with it USF&G's liability for the cost of settlement in addition to <br>the expenses of defending the lawsuit.  As Camp Dresser & McKee, <br>Inc. v. Home Ins. Co., 568 N.E.2d 631, 636 (Mass. App. Ct. 1991) <br>(numerous citations omitted) has held: <br>          Our cases generally have recognized the <br>          peril implicit in unjustified disclaimer <br>          decisions, and held an insurer making such <br>          a decision liable for the reasonable costs <br>          of both defense and settlement. <br> <br>And more recently Polaroid Corp. v. Travelers Indem. Co., 610 <br>N.E.2d 912, 921 (Mass. 1993) has confirmed that proposition. <br>     We turn then to the Endorsement, which provides in its <br>entirety: <br>          WHO IS AN INSURED (Section II) is amended <br>          to include as an insured the person or <br>          organization shown in the Schedule [in <br>          this instance D'Agostino]. (sic) but only <br>          with respect to liability arising out of <br>          "your work" for that insured by or for <br>          you. <br> <br>In turn the USF&G policy defines "your work" as: <br> <br>          a.  Work or operations performed by you [Great Eastern] <br>     or on your behalf; and <br> <br>          b. Materials, parts or equipment furnished in <br>     connection with such work or operations. <br> <br>     USF&G urges that the district court erred in holding that <br>D'Agostino's liability "arose out of" Great Eastern's work because <br>Great Eastern did not proximately cause Woundy's injury (it will be <br>recalled that one of D'Agostino's own employees was at fault).  <br>That contention presupposes that the phrase "arising out of" <br>imports proximate causation and therefore operates to exclude all <br>claims that stem directly from D'Agostino's own negligence.  But <br>whether or not the construction advocated by USF&G might be <br>considered to distort the usual and ordinary meaning ascribed to <br>the quoted phrase (see Plymouth Rubber Co. v. Ins. Co. of N. Am., <br>465 N.E.2d 1234, 1238 (Mass. App. Ct. 1984), declining to "torture" <br>the meaning of a clause in an insurance contract where it was <br>understandable in its "usual and ordinary sense"), what controls <br>here is that such a reading would contravene established state law. <br>     Beyond question, under Massachusetts law the phrase <br>"arising out of" denotes a level of causation that lies between <br>proximate and actual causation.  As recently as 1996 that state's <br>intermediate appellate court said in New England Mut. Life, 667 <br>N.E.2d at 298: <br>          The usual meaning ascribed to the phrase <br>          "arising out of" is much broader than <br>          "caused by"; the former phrase is <br>          considered synonymous with "originate" or <br>          "come into being." <br> <br>And later in the same year the Massachusetts Supreme Judicial Court <br>confirmed in Rischitelli v. Safety Ins. Co., 671 N.E.2d 1243, 1245 <br>(Mass. 1996): <br>          The expression "arising out of" indicates <br>          a wider range of causation than the <br>          concept of proximate causation in tort <br>          law. <br> <br>By way of further explanation, Rischitelli, id. went on to say: <br>          However, the expression does not refer to <br>          all circumstances in which the injury <br>          would not have occurred "but for" the <br>          involvement of a motor vehicle. <br> <br>     In that light it is plain that the allegations in <br>Woundys' Complaint raised the potential for policy coverage, <br>triggering USF&G's duty to defend.  And the line of Massachusetts <br>cases referred to earlier teach that USF&G's dishonor of that duty <br>to defend triggered USF&G's additional duty to indemnify. <br>     It is undisputed, as the Complaint alleged, that "[a]t <br>the time of his accident Woundy was working within the scope of his <br>employment for Great Eastern" (R. 5 10).  And it is equally beyond <br>cavil that Great Eastern was in turn working for D'Agostino <br>pursuant to its subcontract.  Woundy's injury "arose out of" Great <br>Eastern's work in the sense that the harm occurred while he was <br>cutting and removing a section of the bridge, a task that was <br>assigned to Great Eastern in the Sherman's Bridge project.  Under <br>an intermediate causation test, that causal relationship justifies <br>the conclusion that D'Agostino's liability for the harm to Woundy <br>"arose out of" Great Eastern's work for D'Agostino.  More than "but <br>for" causation existed.  It was not simply because the two <br>companies happened to be working in the same location that Woundy <br>was injured by a D'Agostino employee; rather, the injury was a <br>consequence of the work that Great Eastern was performing. <br>     That causal connection between Woundy's injury and Great <br>Eastern's work for D'Agostino suffices to satisfy the intermediate <br>causation standard (see Transamerica Ins. Group v. Turner Constr. <br>Co., 601 N.E.2d 473, 476 (Mass. App. Ct. 1992), followed in a non- <br>Massachusetts case, American States Ins. Co. v. Liberty Mut. Ins. <br>Co., 683 N.E.2d 510, 513 (Ill. App. 1997)).  As the district court <br>reasoned (slip op. at 6): <br>          Unlike the facts of Rischitelli, the facts <br>          of the present case fall squarely within <br>          Rischitelli's definition of "arising out <br>          of."  Woundy was employed by Great Eastern <br>          and suffered his injuries in the course <br>          of, and contemporaneously with, Great <br>          Eastern's work.  The injuries sustained by <br>          the plaintiff in Rischitelli, by contrast, <br>          occurred subsequent to the automobile <br>          accident and were not otherwise related to <br>          the insured's use of his automobile.  <br>          Furthermore, Woundy's injuries were not <br>          the result of "intentional wrongdoing" by <br>          D'Agostino.  Again, this differs from <br>          Rischitelli, in which the insured's <br>          injuries were the result of a battery <br>          committed by the other driver.  The <br>          connection between D'Agostino's liability <br>          and Great Eastern's work, therefore, is <br>          stronger than the simple "but for" <br>          connection rejected in Rischitelli. <br> <br>     We therefore agree with the district court's conclusion <br>that under Massachusetts law D'Agostino's liability "arose out of" <br>Great Eastern's work on its behalf.  In those terms the Endorsement <br>covers D'Agostino both for its own negligence and to the extent <br>that it might be deemed vicariously liable for Great Eastern's <br>negligence.  In light of that coverage, USF&G must bear half of <br>Great Eastern's total burden running to Woundys. <br>                   Contra Proferentem Approach <br>     It would make no difference to our decision if well- <br>established Massachusetts case law had not so plainly dictated that <br>reading of the Endorsement's language.  Even if the "arising out <br>of" phrase were instead to be viewed as ambiguous, the end result <br>would be the same. <br>     As we have noted earlier, the contra proferentem doctrine <br>dictates that an ambiguous provision in an insurance policy that <br>purports to limit coverage must be construed liberally in favor of <br>the insured and against the insurer (see Hazen, 555 N.E.2d at 583).  <br>Under that approach too, the phrase "arising out of" would not be <br>read to exclude coverage for D'Agostino's own negligence.  Though <br>we have not had occasion to speak to that proposition, McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 254-55 (10th Cir. 1993) has <br>collected cases from numerous jurisdictions holding that <br>additional-insured endorsements such as the one at issue here cover <br>an additional insured for its own negligence related to the work of <br>the named insured.   <br>     After all, if USF&G had really intended to limit coverage <br>under the additional insured Endorsement to those situations in <br>which an added insured such as D'Agostino was to be held <br>vicariously liable only for the negligence of a principal insured <br>such as Great Eastern, USF&G was free to draft a policy with <br>qualifying language that expressly implemented that intention (see, <br>e.g., Consolidation Coal Co. v. Liberty Mut. Ins. Co., 406 F. Supp. <br>1292 (W.D. Pa. 1976), pointing to the phrase "but only with respect <br>to acts or omissions of the named insured" in the additional- <br>insured endorsement as limiting the coverage of an additional <br>insured to situations where it was the named insured's negligence <br>that exposed the additional insured to liability).  USF&G did not <br>do so.  Instead it used language requiring only that the general <br>contractor's liability must arise out of Great Eastern's work.  In <br>view of the narrow construction to be given to ambiguous <br>exclusionary provisions, this alternative analytical road leads to <br>the same destination:  USF&G's obligation to bear half of the <br>financial burden of Woundys' claims. <br>                            Conclusion <br>     Because the district court correctly determined that <br>Merchants was entitled to a judgment as a matter of law, Merchants' <br>Rule 56 motion was properly granted, while USF&G's cross-motion was <br>of course properly denied.  We AFFIRM.</pre>

</body>

</html>

