
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 94-1576                       BROWN DALTAS & ASSOCIATES, INC., ET AL.,                                Plaintiffs, Appellees,                                          v.                GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, ET AL.,                                 Defendant, Appellee,                                 ____________________                      NORTHBROOK EXCESS & SURPLUS INSURANCE CO.,                                Defendant, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. Morton A. Brody,* U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                 Selya, Circuit Judge,                                        _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Erik  Lund,  with  whom  Sibley  P.  Reppert,  Jon  C.  Cowen, and            __________               ___________________   ______________        Posternak, Blankstein & Lund were on brief for appellant.        ____________________________            William Shields, with  whom Day, Berry  & Howard was on  brief for            _______________             ____________________        plaintiffs-appellees.                                 ____________________                                  February 21, 1995                                 ____________________        _____________________        * Of the District of Maine, sitting by designation.                      BOWNES, Senior Circuit  Judge.  This appeal  arises                      BOWNES, Senior Circuit  Judge.                              _____________________            out  of  an  insurance  coverage  dispute between  defendant-            appellant  Northbrook  Excess  &  Surplus  Insurance  Company            ("Northbrook"),  and  plaintiffs-appellees  Brown   Daltas  &            Associates,  Inc. ("BDA"),  Brown Daltas  &  Associates Saudi            Arabia Ltd.  ("BDASA"), Benjamin  I. Brown, and  Spero Daltas            (collectively,  "the  insureds").1     At  issue  is  whether            Northbrook must indemnify  the insureds  under the  discovery            clause  of a $1,000,000  claims-made architects and engineers            professional  liability  policy ("the  Policy")  covering the            period May 5,  1981 through June 4, 1982.   The Saudi Arabian            Monetary  Authority ("SAMA")  made  an  underlying  claim  of            architectural design  negligence in April 1987;  the insureds            and the  SAMA settled  it in  February 1990.   After  a jury-            waived  trial,  the  district  court  resolved  the  coverage            dispute in favor  of the insureds, entering judgment for them            in the amount of $788,637.57.                      Although  Northbrook asserts  that this  ruling was            infected  by  several deficient  factual  determinations, its            flagship appellate  argument is that the  court clearly erred            in finding  that the insureds  first became aware  during the                                           _____            policy period of  the circumstances subsequently giving  rise                                            ____________________            1.  Individual plaintiffs Brown and Daltas are architects and            the  founders of BDA.   They also hold  significant stakes in            BDASA.  Both were  named insureds on the insurance  policy at            the heart of this litigation.                                         -2-                                          2            to  the SAMA's  claim.   Such  awareness on  the part  of the            insureds is one of the conditions precedent to coverage under            the  Policy's discovery  clause --  the only  means by  which            coverage  under the  Policy  was possible.   After  carefully            reviewing the record and  considering the parties'  arguments            on this question, we agree with Northbrook.   Accordingly, we            reverse.                                          I.                                          I.                                          __                      The  background of this  litigation has  been fully            set  forth in a published opinion by the district court.  See                                                                      ___            Brown Daltas & Assocs. Inc. v.  General Acc. Ins. Co. of Am.,            ___________________________     ____________________________            844  F.  Supp.  58  (D.  Mass.  1994).    The facts  will  be            reiterated here  only to the extent necessary  to explain and            resolve the  dispositive issue -- i.e.,  whether the insureds            first  became   aware  during   the  policy  period   of  the            circumstances subsequently giving rise to the SAMA's claim of            design negligence.            A.  General Background            A.  General Background            ______________________                      In  1974,  BDA,  which  was  then  operating  as  a            partnership,  entered into a contract with the SAMA to design            branch bank buildings  in the Saudi cities  of Riyadh, Jedda,            Damman, Mecca, and Medinah.  BDA completed the designs during            the  period 1974-1978.    In 1978,  BDA  (which was  by  then            incorporated)  and Xenel, a Saudi company,  formed BDASA as a            joint venture.  That same year, BDASA entered into a contract                                         -3-                                          3            with the SAMA to administer and supervise the construction of            the banks.  In 1983, BDASA and the SAMA entered into a second            supervision contract.                        From 1979  through  1986,  BDASA  was  insured  for            liability  arising  out  of  its supervision  of  the  banks'                                             ___________            construction under consulting  engineer's indemnity  policies            issued  by  underwriters at  Lloyd's  of London.    From 1978            through 1985, BDA  and, at  least in some  cases, BDASA  were            insured for  liability arising  out of  their  design of  the                                                           ______            banks   under   professional   liability    policies   issued            consecutively  by  Lloyd's   underwriters,  Northbrook,   the            Evanston  Insurance  Company  ("Evanston"), and  the  General            Accident Insurance Company  of America ("General  Accident").            As we have stated,  at issue here is a  $1,000,000 Northbrook            professional  liability claims-made  contract issued  for the            period May 5,  1981 through June 4, 1982.  The underwriter of            the Policy was Shand, Morahan & Company ("Shand").                      Because  of its  "claims-made"  nature, the  Policy            generally  provided  coverage  only  for  claims  first  made            against  the  insureds  during   the  coverage  period.    An            exception to this general rule was, however, set forth in the            Policy's  discovery clause.   In  relevant part,  this clause            provided:                      If during  the policy period  the Insured                      shall   first   become   aware   of   any                              _____   ______   _____   __   ___                      circumstances which may subsequently give                      _____________ _____ ___ ____________ ____                      rise to a  claim against  the Insured  by                      ____ __ _  _____ _______  ___ _______                                         -4-                                          4                      reasons   [sic]  of  any  act,  error  or                      omission  for  which  coverage  would  be                      afforded  hereunder  and  if the  Insured                      shall  during  the  policy period  herein                      give  written  notice to  [Northbrook] of                      such circumstances, any  claim which  may                      subsequently be made against  the Insured                      arising  out   of  such  act,   error  or                      omission shall be deemed for  the purpose                      of  this Policy to  have been made during                      the   policy   period   stated   in   the                      declarations.             (Emphasis supplied.)                      Because the  underlying claim here was  not made by            the  SAMA until  April 1987  -- nearly  five years  after the            expiration  of  the  Policy  --  coverage  for  the  insureds            depended upon  operation of  the discovery  clause.  And  the            discovery clause establishes as  a condition precedent to its            operation  that the  insureds first  become aware  during the                                          _____            policy period of  the circumstances subsequently  giving rise            to any claim for which they might seek coverage.                       Construction of the Riyadh  and Damman branch banks            began in late 1978 or early 1979.  Construction  at the other            three sites began later.  At some point between 1978 and 1981            (the  evidence relating  to  exactly when  will be  set forth            below), Laing Wimpey Alireza  Ltd. ("LWA"), the contractor at            the  Riyadh, Damman, and Jedda sites, told BDA and BDASA that            the  heating,  ventilation,  and  air  conditioning  ("HVAC")            system  was  defectively designed.    On  November 25,  1981,            following meetings  with LWA  in October 1981,  BDA wrote  to            Shand  and advised  it  of the  possibility  of a  claim  "in                                         -5-                                          5            connection with  the mechanical  services in the  building in            Riyadh now nearing completion."   In the first part  of 1982,            Shand  wrote BDA  and requested  additional information.   By            letter  dated June  30,  1982,  BDA  responded that  (1)  the            potential claim was  at the Riyadh branch;  (2) the potential            claimant was  LWA; (3) "the  areas of  conflict surround  the            mechanical   services,   more   particularly   the   heating,            ventilation  and  air conditioning  (HVAC)  system";  and (4)            "[i]t is important to understand that the Riyadh and Damma[n]            Branches are identical designs."                        Meanwhile,  on  April  6,  1982,  BDASA  also  gave            written notice to its Lloyd's underwriters of the possibility            of  a claim involving the air conditioning system.  The April            6, 1982 notice  did not specify the Riyadh plant  as the site            of  the potential  claim; nor  did it  explain how  the claim            might  be covered under BDASA's  supervision policy.  It did,            however,  state   that  LWA  was   the  potential   claimant.            Moreover, it  listed "October  1981" as  "the  date on  which            [BDASA] first  became aware  of circumstances which  may give            rise  to a  claim  being  made  against  [it]."    This  date            corresponds to the following  assertions, which were included            in   a  statement   attached   to   the   circumstances/claim            notification form:                      1.  [BDASA] was informed by [LWA] in May                           1981 that there were certain problems                          in commissioning the airconditioning                           [sic] plant.                                         -6-                                          6                      2.  BDASA convened a meeting in Riyadh in                          June 1981 together with [LWA] and the                          representative of York International                           the equipment supplier, with the                               design mechanical engineer and the                             Rome project manager also present.                      3.  The next meeting was on 21 October                             1981, when [LWA] said that he [sic]                            was not responsible, but had only to                           install the specified equipment.  We                           replied that it was their                                      responsibility to install a workable                           system.    At  this point  we  became                      aware       that there was  a possibility                      of a          claim being made.                      Although the controversy involving the  banks' HVAC            systems never completely subsided,  no claim was made against            BDA or BDASA  for the next  several years.   In the  interim,            several attempts were made to commission the air conditioning            systems  at several of the banks.   For a variety of reasons,            none enjoyed sustained success.  During this same period, BDA            and BDASA periodically submitted to the SAMA requests for the            payment of fees (monthly payments  on design work) and claims            (extra costs  that arose during design) owed  for their work.            The SAMA was not very responsive to these requests.                      Finally, in November 1986, BDA and  BDASA completed            their design  and supervision work,  and requested  financial            resolution  meetings with  the SAMA.   Contemporaneously, BDA            issued a comprehensive report  documenting SR 13,192,3372  in            unpaid fees and claims.  On April 7, 1987, the SAMA responded                                            ____________________            2.  The applicable exchange rate  between the Saudi Riyal and            the dollar is SR 3.75 per $1.00.                                         -7-                                          7            to  this report with a  letter stating its  intention to make            claims of  its own against BDA and BDASA in the amounts of SR            9,000,000  for negligence  in  the design  of the  electrical            systems;  SR 4,139,249  for negligence in  the design  of the            HVAC  systems;  and  over   SR  5,000,000  for  other  errors            (including supervision errors).   The letter also stated that            the SAMA was willing  "to renounce all claims against  BDA in            return  for  a  zero   settlement  of  your  final  account."            Although  it took  several years  to consummate,  the parties            eventually  entered into  a  zero-sum settlement  in February            1990.    The  settlement  was reached  without  either  party            initiating an adversarial proceeding.            B.  Proceedings Below            B.  Proceedings Below            _____________________                      Subsequent  to their  zero-sum settlement  with the            SAMA,  the  insureds sought  indemnification from  several of            their insurers.   Because the insureds  could not obtain  the            relevant insurance at the time the SAMA's  claim actually was            made, coverage depended  upon operation of  discovery clauses            in various of  the insurance  contracts.   The insureds  were            able  to obtain  a $600,000  recovery  from Lloyd's  for that            portion of the settlement attributable to supervision claims;            the  design  insurers,  however,  contested  coverage.    The            insureds therefore initiated the instant action.                         In  their  complaint,  the  insureds  alleged  that            Northbrook's  failure to  provide indemnification (up  to the                                         -8-                                          8            Policy's   limit)   for  that   portion  of   the  settlement            attributable  to negligence in the design of the HVAC systems            constituted  a   breach  of  contract  and   a  violation  of            Massachusetts' unfair  trade practices  statute.   See  Mass.                                                               ___            Gen. L.  ch. 93A,    2  and 11 (1993).   The same allegations            were  made  with  regard  to General  Accident's  failure  to            provide indemnification  for that  portion of  the settlement            attributable  to  negligence  in  the design  of  the  banks'            electrical systems.   After a four-day bench trial, the court            ruled in  favor of the  insurers on the  Ch. 93A claims,  and            also  ruled  that  the  insureds' breach  of  contract  claim            against General Accident failed because of inadequate notice.            See  Brown Daltas,  844 F.  Supp. at  66-68.   None  of these            ___  ____________            rulings is challenged on appeal.                      The court also  ruled that Northbrook had  breached            the Policy  in failing  to indemnify  the insureds under  the            Policy for their settlement of the SAMA's claim of negligence            in the design of the HVAC systems.  Id. at 67.   In so doing,                                                ___            the  court  found BDA's  November  25, 1981  letter  to Shand            sufficient to  invoke coverage  under the  Policy's discovery            clause.   See id.  Of critical importance, the court rejected                      ___ ___            Northbrook's assertion that the  insureds had notice prior to                                                                 _____            the  policy period of  the circumstances  subsequently giving            rise to the SAMA's  HVAC claim.  Id. at 62  n.3.  The court's                                             ___            finding on this issue reads:                                         -9-                                          9                      Defendants maintain that LWA noticed [the                      HVAC]  problem to  BDASA in  1979.   They                      cite a  July 19, 1981 letter  from LWA to                      BDASA that states:                             This  company   has  no  design                           obligations.   The error within                           your specification was  pointed                           out in 1979 and at no time were                           revised on/off  coil conditions                           placed  with  us.     We  would                           confirm  your  designers  [sic]                           own   words   at   the   recent                           meetings where he stated that a                           "mistake was made."                      This    letter    reference   alone    is                      insufficient to prove  that BDA or  BDASA                      had notice in 1979.            Id.             ___            C.  Evidence Relating to the Insureds' "Notice of            C.  Evidence Relating to the Insureds' "Notice of            _________________________________________________            Circumstances"            Circumstances"            ______________                      Although the  portion of  the July 19,  1981 letter            from LWA to BDASA  quoted by the district court  is certainly            relevant to the notice question,  it is not the only part  of            the  letter that pertains to  the issue.   Moreover, there is            significant  other evidence  -- including  the April  6, 1982            notice of  circumstances from BDASA to Lloyd's,  see supra at                                                             ___ _____            6-7 --  relating to notice in  this record.   Because this is            the  basis upon which we  resolve the dispute,  we believe it            important to relate the evidence in some detail.                      1.  The July 19, 1981 Letter                      1.  The July 19, 1981 Letter                      ____________________________                      In addition  to the  passage cited by  the district            court,  the  lengthy  July  19,  1981 letter  from  LWA  (the            contractor) to BDASA contains several other passages which at            least suggest  that the  conflict over alleged  negligence in                                         -10-                                          10            the design  of the HVAC  systems predated May 5,  1981 -- the            effective date of the Policy.  The letter is a point-by-point            response to nine assertions made to LWA by BDASA in a July 6,            1981  letter  that  is  not  in  evidence;  understanding  it            therefore is not particularly easy.                        In paragraph  one, LWA details a  series of undated            "recent meetings" between  LWA and BDASA.  The paragraph then            states:   "This recent meeting [sic], we were advised, was to            finally agree  [sic] the  solutions to your  long outstanding            problems."  Similarly, paragraph six asserts:                      Please  advise on what  basis your [sixth                      point in  the July 6, 1981  letter] to be                      correct.    Condensing  Unit  No.  5  was                      clearly  specified  by  yourselves.   The                      machine   on   site   was   approved   by                      yourselves  and  we   confirm  that   the                      compressor  is  larger than  standard for                      this package.                      The   possibilities   of   the   problems                      actually experienced on site  were raised                      by us in late 1978.  We have on file your                      telexed reply dated 12 October 1978 which                      refutes   our  concern   and  effectively                      advises us to proceed without concern.                      We categorically refute any allegation of                      responsibility in this matter.                      Finally, after  responding to the  ninth and  final            point in the July 6, 1981 letter, LWA states:                      We fail  to see  how this company  having                      brought to your attention  these problems                      as   early   as   1978  and   continually                      throughout   the   contract  and   having                      demonstrated  the  problems  and  offered                      workable solutions, can be of more help.                                         -11-                                          11                      Your  apparent wish to ignore, reject and                      refute our assistance continually  is the                      major factor  with  regard to  the  total                      situation and all consequent delays.                      We   must   insist  that   the  financial                      consequences and liabilities are resolved                      prior to the placement of any orders.                      2.  Testimonial Evidence                      2.  Testimonial Evidence                      ________________________                      In addition  to the July 19,  1981 letter, evidence            pertaining to  plaintiffs' notice  of  circumstances came  in            through the testimony  of Benjamin I.  Brown, a principal  of            BDA  and plaintiffs'  most  significant witness.   Mr.  Brown            touched  on the notice issue three times during the course of            his extensive testimony.                      Mr. Brown  first  gave testimony  relating to  this            issue on direct examination:                      Q    (By  [Plaintiffs'  Counsel]):    Mr.                      Brown,  in  the  insurance   policies  we                      looked  at  there  was   notification  to                      [Shand]  of a potential claim or incident                      under the name of  [LWA], can you tell us                      what that was all about[?]                      A  During  the first year-and-a-half, two                      years,  the  contractor  for  the  Riyadh                      branch  named [LWA]  brought  it  to  the                      attention  of  the  client and  ourselves                      that  their  view  of  the   HVAC  system                      indicated  that  it  would  not  function                      satisfactorily.                           And they  said  that on  account  of                      this, they could foresee that there would                      be additional costs to make revisions and                      corrections in the equipment  before they                      could guarantee that the  equipment would                      function properly.                           In Saudi Arabia the  contractors are                      rather  like  in  Europe are  responsible                      [sic] for producing  a workable  project,                                         -12-                                          12                      consultants  don't  have  quite  as  much                      leeway there  as they  do here.   So they                      would hold the contractors [sic]  feet to                      the fire before they would ours.                      Q.   Now,  Mr. Brown,  are you  sure that                      they were '78 or '71 [sic]?                      [DEFENDANTS' COUNSEL]:  Objection.                      THE  WITNESS:  I am  not -- I  am sure it                      was -- it wasn't.                      THE COURT:  Just a moment, please.                      THE WITNESS:  I don't think I said --                      THE COURT:   Just  a moment.   Mr. Brown,                      when you  hear an objection  if you  just                      sort  of pause  and give  me a  chance to                      address it.                      [DEFENDANTS'  COUNSEL]:   I think  it's a                      key factual issue here, and he  is trying                      to lead the witness in my opinion.                      THE COURT:  Well, what I am interested in                      is  what  is indeed  the  fact.   I  will                      overrule the objection.                      THE WITNESS:   I am not  sure I said  '78                      when  LWA discovered  it, it  was several                      months,  maybe  a year-and-a-half  or two                      after construction started in '78 when we                      received the first very serious criticism                      of  the  HVAC  system  from  a  reputable                      contractor   who   [sic]   we    had   to                      investigate very seriously.                      The  question of  notice was  extensively revisited            during Mr. Brown's cross-examination:                      Q.   (By [Defendants' Counsel]):  I would                      like to move to the HVAC claim.                           The  notification as to that claim I                      believe  you testified  was  in 1981,  to                      Northbrook, is that right?                      A.  As I recall, yes.                                         -13-                                          13                      Q.   Now, the  problem that gave  rise to                      the   notification    was   low   suction                      pressure; is that correct?                      A.  Your memory is better than mine.                      THE COURT:  Are  we talking now about the                      claim with regard to Riyadh  or the claim                      in general?                      [DEFENDANTS' COUNSEL]:   Yes [sic].  This                      is the  notification  that was  given  in                      1981 regarding the HVAC  in Riyadh.  I am                      going  to  show you  [the  July 19,  1981                      letter from LWA  to BDASA]  . . .  .   It                      appears  to  be  a letter  from  [LWA] to                      [BDASA].                      A.  I am sure the letter is authentic.  I                      don't  recall  it  specifically,  but  it                      looks --                      Q.   [LWA] was  the contractor from  whom                      the notification of potential claim came,                      right?                      A.   Yes, and Mr. Wilson  was the project                      manager on  the site at that  time as the                      signer of the letter.                      After  taking  Mr.  Brown  through  several of  the            specific  problems alluded to  in the  July 19,  1981 letter,            defendants' counsel continued his cross-examination:                      Q.   Now,  isn't it  correct to  say that                      [LWA] criticized the design back as early                      as 1978?                      A.  Certainly before this letter in '81.                      Q.    First reference  to  the  timing of                      their criticisms  of the design is on the                      first page,  as I  see it, the  last, the                      second    paragraph,    the     paragraph                      indicating No. 2 on the first page  where                      it states, "The company, this company has                      no  design obligations.  The error within                      your specification" --                                         -14-                                          14                      A.  Sorry, I've lost you.                      Q.   If you look at the first page of the                      document, sir, down at the bottom.                      A.  Okay.                      Q.   The  second  numbered paragraph,  it                      states,  "This  company  has   no  design                      obligations.    The  error   within  your                      specification  was  pointed out  in 1979,                      and at  no time were  revised on/off coil                      conditions placed with us."                           Do you see that?                      A.  Yes, I do.                      Q.   And  isn't  it correct  to say  that                      [LWA]  did notify  the company  about its                      objections about the design back in 1979?                      A.  That's correct.                      Q.  And the --  on Page 3 under  numbered                      Paragraph  6, there  is a  paragraph that                      says, "The possibilities of  the problems                      actually experienced on site  were raised                      by us in late 1978.  We have on file your                      telex reply  dated 12 October  1978 which                      refutes  our   concern,  and  effectively                      advises us to proceed without concern."                           Do you see that?                      A.  Yes.                      Q.  And  do you have knowledge  regarding                      that telex?                      A.  I don't recall that incident.                      Q.   Do  you have  any reason  to believe                      that there was no such telex --                      A.  No.                      Q.  -- Back in 1978 from your company?                      A.  I am sure if he said it in writing it                      occurred.                                         -15-                                          15                      Q.  So it's fair to say that the problems                      asserted  by  LWA,   regarding  the   air                      conditioning were asserted back in '78 to                      '79 time period?                      A.  Yes.                      The  notice   question  arose  again   on  redirect            examination:                      Q.       (By    [plaintiffs'   counsel]):                      [Defendants'  counsel]  raised  with  you                      Exhibit 105,  Mr.  Brown.    This  was  a                      letter  from [LWA],  dated 19  July 1981.                      Do  you recall  talking  with  him  about                      that?                      A.  Yes, I do.                      Q.   All right.   In October,  in October                      1981, do you  recall attending a  meeting                      with [LWA] or anybody on your staff?                      A.   I  am sure  I did  not.   I couldn't                      swear to the exact dates of meetings, but                      [LWA]  had, had many  questions about the                      design  from the  beginning which  we had                      been  able to  satisfy  until, I  suppose                      it's the letter that was the -- that they                      sent  to  the  SAMA  where  they said  we                      believe,  we,  [LWA],  believed that  it,                      that  the corrections to  the system will                      cost so many millions  of rials [sic] for                      this that  and the  other,  and the  cost                      implications made us begin to worry about                      it that  it may  be a serious  problem if                      they are --                      Q.  Did you notify your insurance carrier                      when that happened?                      A.  I'm sure that's the point at which we                      asked on our notification.                                         II.                                         II.                                         ___                      In  reviewing a  factual finding  of a  trial court            made in connection  with a bench trial,  we almost invariably                                         -16-                                          16            apply the clear-error standard  of review.  See Fed.  R. Civ.                                                        ___            P. 52(a).   Thus, we must  give the finding  effect unless we            are  "`left with  the  definite and  firm  conviction that  a            mistake  has been  committed.'"    See  Anderson v.  City  of                                               ___  ________     ________            Bessemer  City,  470 U.S.  564,  573  (1985) (quoting  United            ______________                                         ______            States  v.  United  States  Gypsum  Co.,  333  U.S. 364,  395            ______      ___________________________            (1948)); accord  Dedham Water Co. v.  Cumberland Farms Dairy,                     ______  ________________     _______________________            Inc., 972 F.2d 453,  457 (1st Cir. 1992).   "Where there  are            ____            two  permissible  views  of  the  evidence, the  factfinder's            choice between them cannot  be clearly erroneous."  Anderson,                                                                ________            470 U.S. at 573.                      If, however,  an appellant can demonstrate that the            trial court  based its finding upon a  mistaken impression of            applicable legal principles, the reviewing court is not bound            by  the clearly  erroneous  standard.   Inwood Labs.  v. Ives                                                    ____________     ____            Labs.,  456 U.S.  844, 855  n.15 (1982);  accord  Cumpiano v.            _____                                     ______  ________            Banco Santander  Puerto  Rico, 902  F.2d 148,  153 (1st  Cir.            _____________________________            1990) ("It is  settled that one way around  the rigors of the            `clearly  erroneous'  rule is  to show  that the  trial court            mistook the  applicable law."  (Citations omitted.)).   "[T]o            the  extent that findings of  fact can be  shown to have been            predicated upon, or induced  by, errors of law, they  will be            accorded diminished  respect on  appeal."  Dedham  Water, 972                                                       _____________            F.2d at 457.                                         -17-                                          17                      The  parties  have  treated  Massachusetts  law  as            controlling in this  dispute.   Because there is  at least  a            "reasonable relation"  between this litigation  and the forum            whose  law has  been selected (plaintiffs  BDA and  Mr. Brown            were  citizens of  Massachusetts at  all relevant  times), we            shall forego an independent choice-of-law inquiry and look to            Massachusetts law for  our rules  of decision.   See Bird  v.                                                             ___ ____            Centennial  Ins. Co., 11 F.3d  228, 231 n.5  (1st Cir. 1993).            ____________________            Thus, in  deciding whether  legal error infected  the crucial            finding, we will be guided by Massachusetts law.                                         III.                                         III.                                         ____                      Here,  we think  it  clear that  the trial  court's            finding  regarding  when the  insureds  first  had notice  of            circumstances subsequently  giving rise  to the  SAMA's claim            was predicated upon an  error of law.  Northbrook  makes much            of the fact that, in making  its finding, the court seems  to            have  relied upon  only the  paragraph of  the July  19, 1981            letter  discussing  the   defectively  designed  on/off  coil            conditions.    See  Brown Daltas,  844  F.  Supp.  at 62  n.3                           ___  ____________            (setting  forth  the  paragraph  at issue  and  finding  that            "[t]his letter reference alone  is insufficient to prove that                                     _____            BDA or BDASA had notice in 1979") (emphasis added).  While it            is unfortunate that  the court failed to  mention the balance            of  the evidence on this issue, we think that another serious            error lurks in the challenged finding:  an erroneous shift to                                         -18-                                          18            Northbrook  of the burden of proof.  And although the parties            have   largely  skirted  burden   questions  throughout  this            litigation, we think that proper  resolution of the burden of            proof question effectively disposes of this appeal.3                      Although we  cannot find a Massachusetts case which            discusses the  burden of proof  in a  discovery clause  issue            like  the  one here,  a  general  principle of  Massachusetts            insurance law settles the question:                      "[A]  plaintiff  seeking  to recover  for                      breach of a duty or obligation created by                      a  general  clause of  a  contract, which                      also contains  an exception descriptively                      limiting  such  duty or  obligation, must                      allege and prove that his cause of action                      is  within the  contract and  outside the                      exception; but . . . where  the exception                      is  in  another  separate   and  distinct                      clause of the  contract defining the duty                                            ____________________            3.  Although Northbrook  has not specifically argued  that an            erroneous  shift in the burden  of proof was  implicit in the            court's  notice of circumstances finding, it can in no way be            seen as having conceded that the burden was its own.   In its            appellate  briefs and  throughout  the course  of this  case,            Northbrook  has treated  the  burden of  proving coverage  as            being properly placed upon the insureds.  The insureds  never            disputed this position.   Moreover, at oral argument, counsel            for  the insureds  acknowledged  that the  insureds bore  the            burden  of proof on another issue -- the question whether the            November  25,  1981  letter  from BDA  to  Shand  constituted            adequate  notice  under  the  Policy's  discovery  clause  --            analytically  analogous to  the instant  question.   Thus, we            discern no procedural bar to our analyzing the correctness of            the trial court's finding  through the lens of the  burden of            proof.   Contrast  Dedham Water, 972 F.2d at  458-59 (party's                     ________  ____________            acquiescence in the application of a rule of law in the trial            court precludes it from  subsequently challenging the  rule);            Templeman v. Chris  Craft Corp.,  770 F.2d  245, 247-48  (1st            _________    __________________            Cir.) (party's failure to  object below to magistrate judge's            choice-of-law ruling  barred appeals court  challenge to  the            ruling), cert. denied, 474 U.S. 1021 (1985).                     _____ ______                                         -19-                                          19                      or  obligation, then  the burden  is upon                      the party relying upon the exception."            Ratner v. Canadian  Universal Ins. Co.,  269 N.E.2d 227,  230            ______    ____________________________            (Mass.  1971) (quoting  Murray  v. Continental  Ins. Co.,  48                                    ______     _____________________            N.E.2d 145, 147 (Mass.  1943)).  In this case,  the coverage-            limiting provision  upon which  Northbrook relies is  not set                                                                  ___            forth as a distinct exclusion in the Policy; it  is the first            sentence   of  the   coverage-providing  clause   (i.e.,  the            discovery  clause)   upon  which  the  insureds'  claims  are            anchored.   It therefore was  incumbent upon the  insureds to            prove   the   non-applicability   of  the   coverage-limiting            provision  found  in  the  first sentence  of  the  discovery            clause.  Put in  concrete terms, it was the  insureds' burden            to  prove that  they  first became  aware  during the  policy                                  _____            period of  the circumstances subsequently giving  rise to the            SAMA's claim that the HVAC systems were negligently designed.                      As we have  stated, the trial court  found that the            quoted portion of the July 19, 1981 letter was  "insufficient            to prove  that BDA or BDASA  had notice in 1979."   See Brown                                                                ___ _____            Daltas, 844 F.  Supp. at 63 n.3.  Implicit  in this statement            ______            was  an erroneous  view that  Northbrook bore  the  burden of                                          __________            proving prior  notice.   Thus,  the deference  usually due  a            factual finding under Fed. R. Civ. P.  52(a) does not bind us            in this instance.  See Inwood Labs., 456 U.S. at 855 n.15.                               ___ ____________                      Mindful of our limited  role as an appellate court,            we ordinarily would remand this  matter to the district court                                         -20-                                          20            for a determination of  the notice question under  the proper            legal standard.  On this record, however, such a remand would            be an empty exercise; no  rational factfinder could find that            the  insureds proved  that they first  had notice  during the            policy period of the  circumstances subsequently giving  rise            to  the SAMA's claim.  Accordingly, we will resolve the issue            ourselves.   See Williams v. Poulos, 11 F.3d 271, 280-81 (1st                         ___ ________    ______            Cir. 1993) (discussing  situations where  an appellate  court            may  decline to  remand for  resolution of factual  and mixed            fact/law issues) (collecting cases).                      As  an initial matter, there is a dispute as to the            standpoint  we  should  assume  in  deciding  the  notice  of            circumstances  question.   Citing cases  that apply  Illinois            law, Northbrook  asserts that  the question should  be viewed            from  an  objective  perspective,  and that  we  need  decide            whether, prior  to the  policy period,  the insureds knew  of            circumstances that  should  have put  them on  notice of  the                                ______            possibility  of a  claim.   The insureds, however,  treat the            issue  as  a subjective  one,  essentially  arguing that  the            question  simply is whether, prior to the policy period, they            were "aware of circumstances which [they] believed might give                                                ____  ________            rise  to a  claim in the  future."   We need  not resolve the            dispute in this case.                      Even  if we  assume arguendo  that the  question of                                          ________            notice should  be viewed  from a subjective  perspective, the                                         -21-                                          21            insureds still must show that they  first became aware during            the  policy period of the circumstances that did lead them to                                                         ___            notify  Northbrook of the possibility  of a claim.   In other            words,  the relevant  point in  time under  the terms  of the            Policy is not the point at  which the insureds first came  to            believe that a claim  was possible; it is the point  at which            they first became  aware of the  circumstances which in  fact                                             _____________            led  them to  file  their notice  of  potential claim.    The            distinction is critical in this case, because plaintiffs have            not  established  that they  first  became  aware during  the            policy  period  of  the  circumstances  which  led  to  their            November 25, 1981 letter to Northbrook.                      Northbrook  takes the position that LWA's criticism            of the  design of  the HVAC  systems constitutes  the notice-            triggering "circumstance" under  the Policy.   The  insureds,            however, have not  made entirely clear  their stance on  this            crucial  question.    On  redirect  examination,  Mr.   Brown            testified  that  the  notice-triggering  circumstance  was  a            letter  that  the contractor  (LWA)  sent to  the  SAMA which            allegedly stated  "we believe,  we, [LWA], believed  that it,            that the corrections to  the [HVAC] system will cost  so many            millions of  rials [sic] for this  that and the other."   See                                                                      ___            supra at  16.  This,  of course, conflicts with  the April 6,            _____            1982  notice from  BDASA  to Lloyd's,  which states  that the            notice-triggering  circumstances occurred  at an  October 21,                                         -22-                                          22            1981 meeting in Riyadh.  See supra at 6-7.  It also conflicts                                     ___ _____            with  the insureds'  brief, which  contends that  the notice-            triggering circumstances were "the  meetings in the summer of            1981  [between representatives  of BDA,  BDASA, LWA,  and the            HVAC equipment supplier], followed  by the October meeting in            London and LWA's claim to SAMA."  Regardless,  close scrutiny            of the  record reveals  that none  of the insureds'  theories            vindicates their baseline position.                      Mr. Brown's assertion that a letter from LWA to the            SAMA  was  the notice-triggering  circumstance  simply cannot            support a finding that the insureds first became aware of the            notice-triggering  circumstances  during  the policy  period.            The letter  to which  Mr. Brown  alludes is not  part of  the            record, and we  have no evidence that it was  sent during the            policy  period.     Even  more  fundamentally,   we  have  no            elaboration  from the insureds as  to how this letter altered            the  then-existing landscape in such a way that, after it was            sent, the insureds first  believed that a claim against  them                               _____            was possible.   One might  infer from  Mr. Brown's  testimony            that  this letter was  the first time LWA  attached a cost to            the design  errors, and  that this was  the notice-triggering                                          ____            circumstance; the insureds, however, have  made absolutely no            argument to this effect.                      The insureds'  contention that the  meetings in the            summer   and  fall   of  1981   constitute  notice-triggering                                         -23-                                          23            circumstances is similarly flawed.   The insureds do  not say            much about what occurred at those meetings, let alone explain            how   the   communications   at   those   meetings   were  so            qualitatively  different  from  prior communications  between            themselves and LWA that it led  them, for the first time,  to            believe  that a  claim was  possible.   And the  scant record            evidence of  what occurred at those  meetings reveals nothing            beyond LWA informing BDA  and BDASA of its view that the HVAC            system was, at least  in some respects, incorrectly designed.            Essentially unrebutted, then,  is Northbrook's argument  that            LWA's  assertion  of  this  view  was  the  notice-triggering            circumstance.4  Therefore, the  question really boils down to            whether a reasonable factfinder  could find that the insureds            proved by a preponderance of the evidence that LWA's view was            first expressed during the policy period.  No such finding is            _____            possible on the record before us.                      We need  not reiterate all  the evidence  regarding            when LWA first criticized (or seriously criticized, see supra                                                                ___ _____            note 4) the design of the HVAC systems.  It  is sufficient to                                            ____________________            4.  In stating in their  brief that "[g]eneralized criticisms            of the design by a contractor, far from being  unusual in any            construction setting,  are simply not events  which require a            designer to put his  carrier on notice," the insureds  may be            implying  that  no sufficiently  serious  or  specific design            criticisms  were lodged  against  them by  LWA  prior to  the            policy period.    Without further  explication  (including  a            statement  as  to  where   and  when  the  criticisms  became            sufficiently  serious  and  specific)  and  supporting record            evidence, however, such an implication is inadequate.                                         -24-                                          24            state that there  is significant  record evidence  indicating            that  such  criticism  predated  the  policy  period.    This            evidence includes the July 19, 1981 letter's indications that            problems with the design of the on/off coils had been pointed            out  in 1979, and that problems with the design of Condensing            Unit No. 5 had been pointed in 1978.   It also includes:  (1)            Mr.  Brown's  direct  testimony  that LWA  had  informed  the            insureds'  of  its  view  that  the  HVAC system  "would  not            function  satisfactorily"  within  a year-and-a-half  or  two            years of construction beginning (in late 1978 or early 1979);            (2)  Mr.  Brown's direct  testimony  that  LWA had  seriously            criticized the design of the HVAC systems within two years of            construction  beginning; and  (3) Mr.  Brown's concession  on            cross-examination that the problems asserted by LWA regarding            the air conditioning had  been asserted back in 1978-79.   To            the  extent  that the  insureds  wish  us  to  construe  this            testimony as involving careless guesswork on the  part of Mr.            Brown, we note that  no attempt at clarification was  made on            redirect examination.                        On  the other  hand, there  is  a total  absence of            evidence tending to indicate that LWA's criticism of the HVAC            system's  design  first occurred  during  the  policy period.            Because such criticism was apparently the "circumstance" that            prompted the insureds to notify Northbrook of the possibility            of a  claim of  design negligence,  and because the  insureds                                         -25-                                          25            bore  the  burden of  proving  that they  first  became aware                                                      _____            during  the policy period  of the  circumstances subsequently            giving  rise  to the  SAMA's  claim,  this ends  the  matter.            Judgment should have been entered in favor of Northbrook.                                         IV.                                         IV.                                         ___                      For the reasons stated  above, the district court's            finding in favor of the insureds on the question of notice is            premised upon an incorrect view of the burden of proof and is            not sustainable.   Moreover,  while we agree  completely that            generalized criticisms  of shortcomings in  a party's product            or performance will ordinarily be insufficient, without more,            to serve as a  notice-triggering circumstance for purposes of            claims-made coverage,  this is  not the  garden-variety case.            Here, the  insureds' lack of  proof is a  determining factor.            In short,  our reading  of  the record  in the  light of  the            proper burden  of proof  leads us  to conclude that  judgment            should properly enter in favor  of Northbrook.  The  district            court's contrary judgment is therefore reversed.                      Reversed.  Costs to appellant.                      Reversed.  Costs to appellant.                      ______________________________                                         -26-                                          26
