          United States Court of Appeals
                     For the First Circuit

No. 00-2072

               LIBERTY MUTUAL INSURANCE COMPANY,

                      Plaintiff, Appellee,

                               v.

              METROPOLITAN LIFE INSURANCE COMPANY,

                     Defendant, Appellant.


         APPEAL FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Robert E. Keeton, U.S. District Judge]


                             Before

                      Boudin, Chief Judge,

                 Bownes, Senior Circuit Judge,

                 and Torruella, Circuit Judge.


     Alan L. Briggs with whom James P. Wehner, Amy L. Easton,
Squire, Sanders & Dempsey L.L.P., George W. Walker, III, Lee H.
Copeland and Copeland, Franco, Screws & Gill, P.A. were on brief
for appellant.
     Mariann Zampano Malay, Dwight D. Valentine, Niarchos,
Sullivan, Valentine & Malay, Walter Andrews, Lon Berk, Paul
Janaskie, Lara Ramsey and Shaw Pittman on brief for St. Paul
Surplus Lines Insurance Company, Amicus Curiae.
     Erik Lund, Vincent M. Amoroso and Posternak, Blankstein &
Lund, LLP on brief for First State Insurance Company, Amicus
Curiae.
      James E. Harvey, Jr. with whom Kevin D. McElaney, John F.
Brosnan and O'Malley and Harvey, LLP were on brief for appellee.
                                   August 15, 2001

                BOUDIN, Chief Judge.            This appeal grows out of a

lengthy and complex dispute over commercial liability insurance

coverage.           At odds are the insured, Metropolitan Life Insurance

Co.    ("MetLife")1        and    one   of     its   insurers,   Liberty   Mutual

Insurance Co. ("Liberty").               MetLife claims that Liberty had a

duty       to   defend    and    indemnify     MetLife    in   numerous   lawsuits

relating to the marketing of life insurance policies and real

estate investments.             Liberty refused       coverage and prevailed in

the district court.             MetLife now appeals.

                                   I. BACKGROUND

                The    origins    of    this    dispute   lie    in   twenty-seven

lawsuits brought against MetLife by dissatisfied customers.                    The

lawsuits fall into three groups:

                •        Sixteen individual "vanishing premium" lawsuits
                         in Alabama state courts (the "Alabama cases");

                •        Nine nationwide "vanishing premium" class
                         actions in federal court (the "class actions");
                         and

                •        Two real estate investment cases arising out of
                         dealings with Copley Real Estate Advisors, a
                         MetLife subsidiary (the "real estate cases").


       1
     MetLife is the successor corporation to the original
insured, New England Mutual Insurance Co. MetLife merged with
New England Mutual in 1996 and, for simplicity's sake, this
decision refers throughout to MetLife.

                                          -2-
MetLife claims that the Commercial (previously "Comprehensive")

General    Liability    Insurance        ("CGL")       and   Umbrella     Excess

Liability Insurance ("UEL") policies that it purchased from

Liberty require that Liberty defend and indemnify MetLife.                      We

describe each group of lawsuits in turn.

            The   Alabama     Cases.      From   late    1994   through      1996,

sixteen individuals filed suit against MetLife in Alabama state

courts     claiming    that     MetLife       sales     representatives        had

negligently or intentionally made misrepresentations concerning

MetLife's life insurance policies.             In particular, the lawsuits

charged    that   representatives       had    told    buyers   that    if    they

reinvested    their    yearly     life       insurance       dividends,      their

obligation to pay premiums would "vanish" after eight to ten

years.    In fact, the buyers' payment obligations continued.                  The

Alabama plaintiffs claimed that as a result of MetLife's actions

they suffered monetary damages and mental anguish.

            Beginning in December 1994, MetLife began tendering

the Alabama cases to Liberty.          Based on the plaintiffs' "mental

anguish" claims, MetLife argued that Liberty had a duty to

defend and indemnify MetLife because its CGL policy included

coverage    for   "personal     injury"      claims.     Initially,       Liberty

agreed to defend the claims, but eventually it concluded that




                                       -3-
the policies did not afford any coverage and notified MetLife

that it would neither defend nor indemnify.

            In the litigation with the Alabama plaintiffs, MetLife

eventually paid legal fees of approximately $450,000 and settled

15 of the 16 suits for roughly $2.7 million.              The last suit was

still   pending     when    the   present    federal    action     was   heard.

MetLife seeks to hold Liberty liable for both the defense costs

and the settlement payments.

            The Class Actions.         The second group of suits also

arose     from   customer    complaints      about     vanishing    premiums.

Beginning in October 1995, class actions were filed in various

federal and state courts against MetLife; all recited claims

that were similar to those in the Alabama cases.                 The federal

class actions were consolidated in the federal district court in

Massachusetts.      The consolidated complaint alleged inter alia

that MetLife's misdescription of the vanishing premium concept

comprised    "unfair   competition,"        violating    the   Massachusetts

Consumer Protection Act, Mass. Gen. Laws ch. 93A, §§ 2, 9

(2000).

            MetLife tendered the class action cases to Liberty on

the ground that the CGL policy provided coverage for claims of

unfair competition arising out of advertising.              The advertising

to   which       MetLife    pointed     were    the      computer-generated


                                      -4-
illustrations      it    used    during    the   vanishing      premium       sales

meetings with customers.           Liberty declined to defend the class

actions    or    indemnify      MetLife.      MetLife   spent   more   than      $4

million in legal fees to defend the suits.                 Subsequent to its

decision    in    this   case,    the   district   court    approved      a    $155

million settlement for the class actions.

            The Real Estate Cases.            The final group of lawsuits

stemmed from MetLife's sale of commercial real estate interests

to two state pension fund boards.              In 1987, Copley Real Estate

Advisors, a MetLife subsidiary, sold $450 million worth of

commercial real estate to the Washington State Investment Board

(the "Washington board") and $50 million worth of real estate to

the Ohio State Teachers Retirement Board (the "Ohio board").

Washington also bought other real estate interests controlled by

MetLife--one set of investments between 1984 and 1990 for about

$185 million and another set between 1986 and 1988 for about $65

million.

            As national real estate markets declined in the late

1980s, the investments quickly lost much of their value.                         In

1993, Washington and Ohio sued MetLife in state court suits

alleging numerous wrongs; one set of claims was that MetLife had

misrepresented the risks, fees, and other material aspects of

the investments.         In June 1995, MetLife notified Liberty of the


                                        -5-
Washington and Ohio lawsuits.         Because the false statements

complained of by the Washington and Ohio boards appeared in

MetLife's written promotional material, MetLife said that the

suits were covered by both the CGL and UEL policies' advertising

injury clauses.

         Liberty concluded that it would not defend or indemnify

MetLife as to any of these real estate suits; it said that the

promotional materials were not advertising and, further, that

coverage was excluded under the policies' "insurance and related

operations exclusion" ("IROE").       MetLife subsequently incurred

nearly $7.75 million in legal expenses in the two suits and

settled both actions; the Washington claim settled for almost

$120 million.     The record does not indicate the amount of the

Ohio settlement.

         The Policies.     MetLife purchased eleven separate CGL

policies (1985-96) and three separate UEL policies (1986-89);

each policy covered a single year.        The UEL policies provide

higher liability limits.   The coverage provisions are, so far as

pertinent here, the same except where otherwise indicated.      The

key policy provisions in dispute are included in an appendix to

this opinion.

         The UEL and CGL policies provided coverage, subject to

exclusions, for several broad categories of liability.           As


                                -6-
already noted, the liabilities for which MetLife sought coverage

stemmed from MetLife's alleged misrepresentations in selling

vanishing    premium   insurance    to   consumers   and   its   alleged

misrepresentations in the sale of real estate interests to the

Washington and Ohio boards.         To establish coverage, MetLife

mainly relied on provisions covering so-called "advertising

injury," a phrase defined slightly differently in the CGL and

UEL policies.     Further, in the Alabama cases, MetLife also

relied on a coverage provision for "personal injury," which was

contained in the CGL policies, but not the UEL policies.

            In addition to disputing initial coverage, the main

exclusion invoked by Liberty was the multi-part IROE exclusion

from both personal injury and advertising liability, captioned

"insurance and related operations."       The IROE, which was present

in the CGL policies between 1985 and 1988 and all of the UEL

policies, contains two paragraphs pertinent here:          one excluding

claims concerning insurance or annuities, and another excluding

injury or liability resulting from professional services in

effecting insurance, the conduct of an investment or acting as

a fiduciary for pension or welfare funds.

            The District Court Proceedings.      In June 1997, after

Liberty had refused to defend or indemnify in all three sets of

suits against MetLife, MetLife brought a state-court declaratory


                                   -7-
judgment action against Liberty in Alabama seeking defense and

indemnification      for       the   twenty-seven    lawsuits.      Liberty

countered by filing its own declaratory judgment action in the

federal district court in Massachusetts, asserting that it had

no duty to defend or indemnify MetLife.               After the district

court denied MetLife's motion to dismiss or stay the federal

action in deference to MetLife's Alabama action, MetLife filed

a counterclaim in federal court to establish coverage in all

three groups of suits.

            Over the next two years, the district court supervised

extensive discovery, heard numerous motions, and conducted a

lengthy trial.      Although the trial began with MetLife ready to

try its claims as to all three sets of lawsuits, in the end the

claims submitted to the jury were greatly narrowed by two sets

of rulings by the district court during trial--rulings that give

rise to two of the three main issues pressed by MetLife on this

appeal.

            For the class action cases, MetLife asserted coverage

on the ground that the misrepresentations charged in those cases

fell within the advertising injury coverage of the Liberty

policies.    Its theory of coverage under the CGL policies relied

on   the   fact   that   the    master   complaint   in   the   consolidated

Massachusetts class action against MetLife included a cause of


                                       -8-
action for unfair competition under chapter 93A, and the CGL

policies included "unfair competition" within the definition of

"advertising injury."2

          In a motion for summary judgment, Liberty asserted that

the CGL policy only covered claims of unfair competition when

they involved injury to an insured's competitors, and it invoked

Massachusetts case law interpreting similar insurance clauses.

The district court denied Liberty's motion for a variety of

reasons, but its decision did not squarely address the merits of

Liberty's claim regarding unfair competition.         Liberty Mut. Ins.

Co. v. Metro. Life Ins. Co., 53 F. Supp. 2d 529, 533-34 (D.

Mass. 1999).   Liberty also failed in other efforts to forestall

trial on coverage for the class action suits.

          On January 24, 2000, the first day of trial, Liberty

renewed its argument in a motion in limine to preclude MetLife

from claiming any coverage for, or presenting any evidence

relating to, the unfair competition claim arising from the class

action   suits.   To   MetLife's    surprise,   the    district   court

provisionally agreed with Liberty and prohibited MetLife from


    2 The UEL policies did not include "unfair competition" as a
form of advertising injury, but included in the definition other
language not appearing in the CGL, namely, coverage for any
"negligent act, error or omission in the use of advertising or
merchandising ideas." As to the UEL policies, MetLife relied on
this latter language to establish coverage.

                                   -9-
making any mention of unfair competition coverage in its opening

argument.    MetLife was never able to persuade the court to alter

its position, so no evidence relating to unfair competition

coverage           was       presented           at       trial.

            The district court's other contested ruling, which cut

even deeper, concerned MetLife's failure to allocate its damages

in a manner satisfactory to the district court.    The issue first

arose when MetLife made a proffer of testimony of its in-house

counsel, Robert Jordan.      In cross examining Jordan, Liberty

elicited the fact that some of the damages presented by MetLife

might be attributed to defense and settlement costs paid by

MetLife on behalf of its independent sales agents, who were not

covered by Liberty's insurance.       The court expressed concern

that MetLife did not intend to allocate its damages between

these uninsured agents and the insured principal or between

c o v e r e d      a n d     u n c o v e r e d    c l a i m s .

            On the fifth day of the trial, the district judge

returned to this issue when he discussed the parties' proposed

jury instructions.    The district judge advised the parties that:

            [I]f MetLife is only able to establish that there
            is a policy coverage for a small minority of the
            total of the claims within a particular lawsuit,
            the idea that that triggers a duty to defend the
            whole   lawsuit  at   Liberty  Mutual's   expense
            entirely and also a duty to bear the costs of



                             -10-
           settlement         is,    I    think,       going   to     be     out    of
           bounds.

Because MetLife had not yet attempted to present its damages

evidence, the district court did not rule on whether and how

MetLife would have to allocate its damages.

           On     two   occasions          thereafter,         the    district        court

prohibited MetLife from presenting evidence of damages.                              On the

first    occasion,      the   district          court    disallowed         evidence       of

defense costs in the real estate cases on the ground that it did

not properly allocate costs between the Washington and Ohio

lawsuits and between covered and uncovered claims within the

Washington case; it also disallowed evidence of the Washington

settlement on the ground that the settlement figure did not

allocate between covered and uncovered claims.                             On the second

occasion, the district court did not allow evidence of MetLife's

legal bills for the Alabama cases and the class actions on the

ground    that    the   bills       were    not    relevant          until     they      were

established as necessary by an expert witness.

           At    the    close       of    all    evidence      the     district       court

suggested that MetLife might reopen its case for the purpose of

presenting       damages      evidence          that     allocated         defense        and

settlement      costs   between          covered    and    not       covered       matters.

However, when MetLife continued to proffer damages evidence in



                                          -11-
unallocated form, the district court ultimately refused to allow

MetLife to reopen the damages issue.       As a result of the

district court's preclusion of damages evidence, none of the

damage claims as to any of the three sets of lawsuits were

submitted to the jury.

         In the end, because of the district court's rulings,

the jury was asked to determine only whether Liberty had a

future duty to defend or indemnify a single Alabama lawsuit

(Loudermilch) that had not yet been resolved and whether it had

a future duty to defend or indemnify the still pending class

action lawsuits under the UEL policy (but not under the CGL

policy, since the court had already rejected coverage based on

its reading of the unfair competition language).    None of the

claims based on the real estate cases were submitted to the jury

because MetLife conceded that it had not made out its prima

facie case since its damages evidence had been excluded.

         After deliberating for several days, the jury found

that Liberty did not have a duty to defend or indemnify MetLife

on any of the claims submitted to the jury regarding Loudermilch

or the class action cases.   In doing so, the jury answered 133

special questions that detailed its reasoning.   The jury found

inter alia that the Loudermilch case was not covered by the CGL

policy's "personal injury" clause, that the class actions were


                              -12-
not covered by the UEL policy's "advertising injury" clause, and

that numerous exclusions barred MetLife from recovering defense

or settlement costs for both sets of lawsuits.

              On April 12, 2000, the district court issued a judgment

in favor of Liberty on all counts, including those that had not

been submitted to the jury.              In an accompanying unreported

opinion, the court explained why certain questions had not been

submitted to the jury and why it had ruled against MetLife on

those issues.      In particular, the court further explicated its

ruling on the class action lawsuits' unfair competition claim,

the need to allocate damages, and the general scope of Liberty's

duty to defend.

                               II. DISCUSSION

              MetLife now appeals and makes three claims of error:

that    the    district    court   incorrectly       placed     the   burden   of

allocating defense and indemnity costs between covered and non-

covered matters on the insured, thus effectively preventing

MetLife from presenting its damages evidence; that the district

court erred by not permitting MetLife to seek coverage for the

class actions' unfair competition claims; and that the district

court   erroneously       instructed    the   jury    as   to   how   it   should

interpret exclusionary clauses in the insurance policies.




                                       -13-
           We address MetLife's arguments in turn, applying de

novo review to questions of law.         Speen v. Crown Clothing Corp.,

102 F.3d 625, 628 (1st Cir. 1996), cert. denied, 520 U.S. 1276

(1997).    Included in this category is the interpretation of the

insurance policies where relevant facts are not in dispute.

U.S. Liab. Ins. Co. v. Bourbeau, 49 F.3d 786, 787 (1st Cir.

1995).    The parties agree that this diversity action is governed

by the substantive law of Massachusetts.

           The Alabama Cases.         Two of MetLife's three claimed

errors are implicated in the Alabama cases:             the exclusion of

damages evidence because of the district court's ruling on

allocation     and   the   district   court's    jury     instruction   on

interpreting    exclusionary    clauses.      Yet   the   jury's   special

verdict specifically rejected coverage for the single Alabama

lawsuit that it did consider (Loudermilch).          There is no reason

to think that the result would have been any different if claims

based on the other fifteen Alabama lawsuits had been submitted

to the jury.

           The Loudermilch case was decided by the jury because,

unlike the other fifteen Alabama lawsuits, the exclusion of

MetLife's damages evidence did not undermine MetLife's claim

that Liberty had a continuing duty to defend and indemnify.

Thus, the jury was asked:


                                  -14-
                 With respect to the duty to defend, was any
          of the claims that a policyholder made against
          MetLife in any of the lawsuits that various
          policyholders brought against MetLife a claim
          within the scope of a liability insurance
          coverage as defined in the coverage provisions of
          any of the various policies in evidence that
          Liberty Mutual issued to MetLife (or New
          England)?


To this, the jury answered "no," thus rejecting any coverage for

the Loudermilch lawsuit independent of the exclusionary clauses.

Because   the   duty     to     defend   is    broader   than     the    duty   to

indemnify, Ruggerio Ambulance Serv., Inc. v. Nat'l Grange Mut.

Ins. Co., 724 N.E.2d 295, 298 (Mass. 2000), the jury's finding

also negates a duty to indemnify.               Bagley v. Monticello Ins.

Co., 720 N.E.2d 813, 817 (Mass. 1999).

          The Loudermilch jury verdict against MetLife makes

MetLife's claimed errors harmless.             See Brandt v. Wand Partners,

242 F.3d 6, 16-17 (1st Cir. 2001); Fite v. Digital Equip. Corp.,

232 F.3d 3, 6 (1st Cir. 2000).                 As MetLife conceded in its

proposed jury instructions, all of the Alabama suits involved

"substantially        similar    claims."       A   review   of    the   sixteen

complaints confirms this:            many are identical and all charge

MetLife with the same improper conduct and rely on the same

legal theories for recovery.             And, since      Loudermilch failed

inter   alia    for    lack     of   initial    coverage,    the    result      is



                                      -15-
unaffected by any alleged error in instructing the jury as to

exclusions.

             In its reply brief, MetLife argues that Liberty has

failed to show that the Alabama cases "are so similar that some

form of estoppel should apply."              Its sole support for this

position is to say:       "Indeed, they are not."          In any event,

estoppel is not the issue; the question is whether there is any

reason to believe that the claims as to the fifteen lawsuits

would have been resolved differently than the sixteenth lawsuit.

Fed. R. Civ. P. 61; Fed. R. Evid. 103;             Nieves-Villanueva v.

Soto-Rivera, 133 F.3d 92, 102 (1st Cir. 1997).              We have been

given no reason to think that they would.

             The Class Actions.      In the case of the class action

lawsuits, two of MetLife's three claims of error are relevant:

the district court's decision not to allow MetLife to invoke

unfair competition and the jury instruction on interpreting

exclusionary clauses.      However, as with the Alabama lawsuits,

the   jury    verdict   saves   us    from   juxtaposing   state   unfair

competition law with policy coverage because any supposed error

made by the district court was (once again) harmless.

             Although the district court prohibited MetLife from

arguing that the class action lawsuits were covered by the CGL

policy's advertising injury clause, it permitted MetLife to


                                     -16-
claim coverage under the same clause in the UEL policy because,

as already noted (see note 2, above), the two policies included

different     definitions          of   advertising      injury.       One       of   the

questions the jury was asked was whether:

             the use of [MetLife] illustrations by sales
             agents of [MetLife], as alleged in the underlying
             class     action    complaints,     constitute[d]
             advertising as used in the 1986-1989 [UEL]
             policies.

To this, the jury answered "no."

             Where    there        is   no   advertising       there       can   be   no

advertising injury.          The policy language expressly requires that

an injury arise from the "insured's advertising activities."

MetLife conceded as much when it said in its proposed jury

instructions that the first element of advertising injury under

both   the    CGL    and     UEL    policies       was   the    existence        of   "an

advertising activity" "committed by" MetLife.                        See also N.H.

Ins. Co. v. R.L. Chaides Constr. Co., Inc., 847 F. Supp. 1452,
1455 (N.D. Cal. 1994).

             The problem for MetLife is that the jury's conclusion--

that   the    illustrations         used     by    MetLife's     agents      were     not

"advertising" under the UEL policies--applies with equal force

to   MetLife's       claim    for       coverage    under      the   CGL    policies.

Although the CGL claim did not go to the jury, the illustrations

in question are the same as those in the UEL claim.                          The only



                                          -17-
difference between the two claims was the type of wrong alleged

to have been caused by the illustrations; under the CGL the

wrong was unfair competition, whereas under the UEL it was a

"negligent             act,        error           or      omission."

              Thus, even if we assume that the district court misread

Massachusetts unfair competition law and mistakenly precluded

MetLife's claim for coverage under the CGL policy, that error

was harmless because there is no practical likelihood that the

CGL   claim    could   have    succeeded    when    the   UEL   claim   failed.

Brandt, 242 F.3d at 16-17.             The jury's verdict shows that

MetLife's CGL claim would not have satisfied the first element

of advertising coverage, and this failure would have doomed

MetLife's claim without regard to exclusions.

              The Washington and Ohio Lawsuits.           As to the insurance

claims based on the Washington and Ohio lawsuits, the district

court directed a verdict for Liberty after concluding that the

damages evidence offered by MetLife failed to allocate amounts

between   covered      and    non-covered    claims.       MetLife   says   the

district court got the rules on allocation exactly backward and

that its evidence on damages should have been admitted and the

claims submitted to the jury.               Liberty defends the district

court's allocation ruling and says that, in any case, none of

the claims are covered under the policy.


                                     -18-
            It is not uncommon for a lawsuit against an insured to

assert some claims that are covered by the insurance policy and

others that are not.     In Massachusetts, as elsewhere, an insurer

must defend the entire lawsuit if it has a duty to defend any of

the underlying counts in the complaint.          Mt. Airy Ins. Co. v.

Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) (citing Aetna Cas. &

Sur. Co. v.    Cont'l Cas. Co., 604 N.E.2d 30, 32 n.1 (Mass.

1992)).   And the general rule under Massachusetts law is that if

the insurer fails to defend the lawsuit, it is liable for all

defense   costs    and   (assuming    policy    coverage)     the   entire

resulting    judgment    or   settlement,   unless   liability      can   be

allocated among covered and uncovered claims.               Liquor Liab.

Joint Underwriting Ass'n of Mass. v. Hermitage Ins. Co., 644

N.E.2d 964, 968-69 (Mass. 1995); Palermo v. Fireman's Fund Ins.

Co., 676 N.E.2d 1158, 1163-64 (Mass. App. Ct. 1997).

            Massachusetts courts have not expressly decided which

party bears the burden of allocating defense costs, but when

allocation    of   defense    costs   is    possible,   the   burden      of

allocation generally falls on the insurer.           This is certainly

the rule as to allocation of indemnity costs, Liquor Liab. Joint

Underwriting Ass'n, 644 N.E.2d at 969; Palermo, 676 N.E.2d at

1163, and this approach likely applies to defense costs, since

the insurer should have been in a position to properly allocate


                                  -19-
both types of costs had it defended the lawsuit.                  See Aerojet-

Gen. Corp. v. Transp. Indem. Co., 948 P.2d 909, 928 (Cal. 1998);

Windt, Insurance Claims & Disputes § 4.13 at 204 (3d ed. 1995).

           The district court may not have been wrong in thinking

that there must be limits to this general approach.                 Here, for

example, the district court thought some of the claimed expenses

relating    to   the     vanishing    premium   suits      were     to     defend

independent agents who were not insured and others were for

sales outside the period covered by Liberty's policy.                    Possibly

an insured who needlessly conflates expenses not covered by the

policy with expenses that arguably are covered would forfeit any

claim that the insurer should bear the burden of disaggregating

the asserted damage figures.

           However, so far as we can tell, the gravamen of the

district court's misallocation objection in the real estate

suits was that some of the expenses incurred in defending claims

by Washington were going to benefit MetLife's future defense of

the Ohio suit.      It is hard to view such a collateral benefit as

a misallocation:         so long as those costs were necessary for

covered    claims   in    the   Washington   suit,   the    fact     that     the

research and discovery might be useful in some later case would

hardly defeat full recovery.




                                     -20-
          The district court was apparently also concerned that

many of the complaint's theories of recovery in the Washington

suit could not conceivably come within the advertising coverage

of the UEL policy.     However, where the theories relate to a

common core of facts, defense costs are often hard to separate

between theories--the witnesses and documents are often the

same--and this is ordinarily the classic case for imposing the

allocation burden on the insurer who refused to defend a covered

theory.   See, e.g., Home Ins. Co. v. St. Paul Fire & Marine Ins.

Co., 229 F.3d 56, 65-66 (1st Cir. 2000).

          However, any mistake by the district court on this

allocation issue is irrelevant unless some real estate claim

against MetLife was arguably covered by a Liberty policy--an

issue to which we now turn.    An insurer has a duty to defend its

insured "if the allegations in the third-party complaint are

reasonably susceptible of an interpretation that they state or

adumbrate a claim covered by the policy terms."      Mt. Airy Ins.

Co., 127 F.3d at 18-19 (quoting Sterilite Corp. v. Cont'l Cas.

Co., 458 N.E.2d 338, 340 (Mass. App. Ct. 1983)).     Here, Liberty

has two separate arguments against coverage.

          The first argument is that the real estate suits do not

even   arguably   involve   "advertising   activities"   within   the

meaning of the coverage provisions of the policies, an issue on


                                -21-
which   MetLife   bears   the   burden.      Hakim   v.   Mass.    Insurers'

Insolvency Fund, 675 N.E.2d 1161, 1166 n.13 (Mass. 1997).                   The

CGL and UEL definitions of advertising injury contain slightly

different language; but in both cases, Liberty says that the

promotional materials given to the Washington and Ohio boards,

essentially    prospectuses     describing    the    multi-million-dollar

real estate packages, are not "advertising" in any common sense

of the term.

             There is a basic split in authority on this issue.

Some courts have taken the term "advertising" in its ordinary

usage   to   suggest   public    dissemination,      usually      to   a   wide

audience; on this view, a prospectus tailored to one customer

and one transaction, setting forth the terms of the proposed

deal and its supposed advantages, is not advertising but part of

the negotiation.       Other courts have said that advertising can

occur in individual transactions, at least where the customer

base is small or where this is the customary practice in the

industry.     Peerless Lighting Corp. v. Am. Motorists Ins. Co., 82

Cal. App. 4th 995, 1008-09 (Cal. Ct. App. 2000) (collecting

cases).

             In Massachusetts there is only one leading case on

point and it very much adopts the former view.            Smartfoods, Inc.

v. Northbrook Property & Casualty Co., 618 N.E.2d 1365 (Mass.


                                   -22-
App. Ct. 1993), concerned a letter from one company to another

proposing terms for the latter to act as distributor of products

for the former; when litigation arose between the two companies,

the insured producer relied inter alia on an advertising injury

clause similar to the CGL policy in this case.                       The Appeals

Court said that "advertising means a public announcement to

proclaim the qualities of a product or point of view" and that

advertising's        objective   is    the     "[w]ide     dissemination"         of

information about a product.           Id. at 1368.       It deemed the letter

so unrelated to "advertising" as to defeat even a duty to

defend.   Id. at 1369.

          MetLife counters that this case is distinguishable on

its facts, because in the present real estate cases there were

"brochures     and     a   marketing    program      directed        at    multiple

institutional investors."         Yet aside from Smartfoods's broad

language, Smartfoods is fairly close on its facts:                        apparently

the producer sent similar letters to six other distributors.

Furthermore,     MetLife      concedes        that   it    had   a        continuing

relationship with the two state boards, making a proposal for a

particular transaction even less like advertising and more like

continuing business.

          MetLife also asserts that its UEL policy is broader in

defining advertising injury that the CGL language used both in


                                       -23-
the Liberty policy and the Smartfoods case.                It is true that the

latter two do not extend protection to claims for "any negligent

act,     error     or   omission   in     the    use      of   advertising     or

merchandising ideas"; but the UEL policy, like the CGL and

Smartfoods policies, has a prior condition, namely, that the

act, error or omission grow out of "advertising activities."

The former is a pre-condition of any coverage under this part of

the policy and, if Smartfoods is followed, then this condition

has not been met.

            Absent a decision by the state's highest court, we are

free   to   make    our   own   best   guess    as   to   Massachusetts      law,

Michelin Tires (Canada) Ltd. v. First Nat'l Bank of Boston, 666

F.2d 673, 682 (1st Cir. 1981), but there is no reason not to

consider Smartfoods as the prevailing rule in Massachusetts: it

is reasonably recent; it is not inconsistent with SJC precedent;

and it accords with what appears to be the majority view, albeit

by a small margin, among the courts that have spoken on the

issue, Peerless Lighting Corp., 82 Cal. App. 4th at 1008-09; 2

Windt, Insurance Claims & Disputes, § 11.29 at 339 n.404 (3d ed.

1995).

            Smartfoods was decided before the Washington and Ohio

cases were tendered to Liberty.                 Nothing in the complaints

identified advertising at all; indeed, MetLife tendered the


                                       -24-
cases only after it ascertained that the prospectuses would be

part of the boards' evidence.              But by this time Smartfoods had

made       clear   that   under   Massachusetts    law,   such   a   tailored

document setting out a proposal for an individual customer is

not "advertising activity" or even arguably so.            MetLife's claim

for coverage of the Washington and Ohio lawsuits thus fails

because there was no "advertising injury."

              Even if there was advertising activity and injury, we

think that MetLife's claim would still fail because of the

exclusions of the IROE.           The IROE was in all three of MetLife's

UEL policies, which are the pertinent policies for the real

estate cases.3        The critical language appears in subparagraphs

(c)(1), (5), and (6) of the IROE, which exclude coverage for

advertising liability where such liability "arise[s] out of the

rendering or failure to render professional services in" the

following activities:

              (1) advising, inspecting, reporting or making
              recommendations in the Insured's capacity as an
              insurance company, consultant, broker, agent or
              representative thereof, or
                          . . .
              (5) the conduct of an investment, loan or
              operation, or

       3
     On the first day of trial, MetLife conceded that the CGL
policy's unfair competition provision applied only to the
vanishing premium class actions and not to the real estate
cases. Moreover, MetLife's briefs--both at trial and on appeal-
-focus only on coverage under the UEL policy.

                                    -25-
            (6) any capacity as a fiduciary or trustee for
            mutual funds, pension or welfare funds or other
            similar activities. . . .4

            The    Washington        and   Ohio   complaints       alleged     that

MetLife, as the parties' investment adviser and manager, assumed

fiduciary duties to the pension funds and that MetLife breached

its fiduciary duties by misrepresenting and failing to disclose

aspects of the real estate transactions and by mismanaging the

board's investment portfolio.              It seems to us that on their

face,    such     claims    fall     directly     within    the     language     of

"advising"      and    "conduct[ing]"         investment    activities       under

subparagraphs (c)(1) and (5) and acting in "any capacity" as a

fiduciary    for      pension   or    welfare     funds    under    subparagraph

(c)(6).5

            Neither of MetLife's two counter-arguments to this

initial conclusion is persuasive.              It first says that the common

condition    for      the   exclusion--that       liability        arise   out   of



     4
     Liberty also relies upon paragraph (a) of the IROE
excluding advertising liability that relates to an annuity; but
while the principal transaction involved an annuity in certain
respects, the record does not adequately reveal just what role
it played, and we do not rely upon paragraph (a).
     5
     In Massachusetts, the term "arising out of" has been
interpreted to require merely that a claim be connected to an
excluded event. See Med. Records Assocs., Inc. v. Am. Empire
Surplus Lines Ins. Co., 142 F.3d 512, 516 n.4 (1st Cir. 1998)
(citing New England Mut. Life Ins. Co. v. Liberty Mut. Ins. Co.,
667 N.E.2d 295, 198 (Mass. App. Ct. 1996)).

                                       -26-
"professional services"--is not satisfied, because professional

services encompasses not mere business operations but activities

involving "the need for specialized learning or training."            The

latter is a supportable view, e.g., Roe v. Fed. Ins. Co., 587

N.E.2d 214, 217 (Mass. 1992), but it hardly excludes assistance

and   advice   provided   by   a    professional   financial   firm    in

assessing and purchasing a huge real estate portfolio.

          The other response offered by MetLife to subparagraphs

(c)(1), (5), and (6) is that the exclusion, where it applies,

only defeats the duty to indemnify and not the duty to defend.

MetLife notes that the introduction to the IROE states that

"[t]his policy does not apply to . . . Advertising Liability";

and it suggests that "advertising liability" refers not to all

damages incurred because of "advertising injury" but only to the

liability to the plaintiffs who sue the insured and then collect

a judgment or settlement.          In other words, by using the term

"liability," MetLife says that Liberty made the entire exclusion

inapplicable to defense costs.

          The duty to defend, in both the CGL and UEL policies,

is derivative; it requires that the claim of the plaintiff in

the underlying suit--whether valid or not--seek damages for some

injury that is arguably covered by the policy.        See Higgenbottom

v. Aetna Cas. & Sur. Co., 425 N.E.2d 370, 372 (Mass. App. Ct.


                                    -27-
1981); Windt, Insurance Claims & Disputes § 4.01 at 149-50 (3d

ed. 1995).      If such a suit seeks on its face to impose a

liability excluded from coverage by the IROE, then the liability

is   not   insured    against   and    there    is   not   even   an     arguable

obligation to defend.        Terrio v. McDonough, 450 N.E.2d 190, 194

(Mass. App. Ct. 1983).6

            As matters stand, we think that Liberty had no duty to

defend or indemnify MetLife in the real estate suits because the

cases are not within the advertising injury coverage and, even

if they were, would be independently excluded by the IROE.

Either     ground    is   sufficient    for    affirmance.        Hope    Furnace

Assocs., Inc. v. FDIC, 71 F.3d 39, 42 (1st Cir. 1995).                      Given

the stakes, we have considered MetLife's arguments with great

care, but in the end, find no basis for reversal or remand.

            For the reasons stated, the judgment of the district

court is affirmed.

                                  APPENDIX

I. Coverage Clauses

Advertising Injury Coverage Under the 1985-91 CGL Policies:




      6
     The single case that MetLife cites in support of its
argument, United States v. U.S. Fid. & Guar. Co., 601 F.2d 1136
(10th Cir. 1979), is readily distinguishable on its facts. See
Jesko v. Am.-First Title & Trust Co., 603 F.2d 815, 817 & n.2
(10th Cir. 1979).

                                       -28-
         The company will pay . . . all sums which the
         insured shall become legally obligated to pay as
         damages because of . . . advertising injury to
         which this insurance applies, sustained by any
         person . . . and arising out of the conduct of
         the named insured's business, . . . and the
         company shall have the right and duty to defend
         any suit against the insured seeking damages on
         account of such injury, even if any of the
         allegations of the suit are groundless, false or
         fraudulent. . . . [JA 2367]


Definition of "Advertising Injury" for 1985-91 CGL Policies:

         injury arising out of an offense committed during
         the policy period occurring in the course of the
         named insured's advertising activities, if such
         injury arises out of libel, slander, defamation,
         violation of right of privacy, piracy, unfair
         competition, or infringement of copyright, title
         or slogan. [JA 2367].


Advertising Injury Coverage Under the 1986-89 UEL Policies:

         The company will pay . . . all sums . . . which
         the insured shall become legally obligated to pay
         . . . as damages . . . because of:
                . . .
                (c) advertising injury or damage

         with respect to which this policy applies and
         caused by an occurrence.


Definition of "Advertising Injury" for the 1986-89 UEL Policies:

         personal injury (other than bodily injury) and
         injury to intangible property sustained by a
         person . . . arising out of causes of injury
         first published in connection with the named
         insured's advertising activities during the
         policy period as the result of libel, slander,
         defamation, piracy, infringement of copyrights,


                           -29-
         invasion of the right of privacy or any negligent
         act, error or omission in the use of advertising
         or merchandising ideas. [JA 2470].


Personal Injury Coverage Under the 1992-96 CGL Policies:

         a. We will pay those sums that the insured
         becomes legally obligated to pay as damages
         because of "personal injury" . . . to which this
         coverage part applies.    We will have the right
         and duty to defend any "suit" seeking those
         damages. . . .
         b. This insurance applies to:
                (1) "Personal Injury" caused by an offense
                arising out of your business, excluding
                advertising, publishing, broadcasting or
                telecasting done by you or for you . . .
                but only if the offense was committed in
                the "coverage territory" during the policy
                period. [JA 2921].


Definition of Personal Injury for the 1992-96 CGL Policies:

         Injury to the feelings or reputation of a natural
         person other than "bodily injury" or "property
         damage". . . . [JA 2921].


II. Exclusions

Insurance and Related Operations Exclusion in All UEL Policies

and in CGL Policies until April 1988 (IROE):

         This policy does not apply to . . . Personal
         Injury or Advertising Liability:
                (a) resulting from or arising out of
                     (1) any obligation assumed by any
                     Insured under, or
                     (2) the failure to discharge, or the
                     improper discharge of, any obligation
                     or duty, contractual or otherwise
                     respecting


                          -30-
any   contract    or   treaty    of
insurance, reinsurance, suretyship,
annuity, endorsement or employee
benefit plan.

    . . .

(c) arising out of the rendering of or
failure to render professional services in
     (1) advising, inspecting, reporting
     or making recommendations in the
     Insured's capacity as an insurance
     company, consultant, broker, agent or
     representative thereof, or
     (2) effecting insurance

    . . .

    (5) the conduct of an investment,
    loan or operation, or
    (6) any capacity as a fiduciary or
    trustee for mutual funds, pension or
    welfare   funds  or   other  similar
    activities . . . [JA 2372].




             -31-
