Filed: Aug. 12, 2015
Latest Update: Mar. 02, 2020
Summary: 2, The parties do not dispute that Bailey was Egan's employee, or that Bailey's alleged injuries would satisfy the policy's, definition of bodily injury.Boazova, 968 N.E.2d at 390.6, Since contractor is ambiguous, USLIC's argument that, Benchmark's interpretation rewrites the policy is misguided.
United States Court of Appeals
For the First Circuit
No. 14-1832
UNITED STATES LIABILITY INSURANCE COMPANY,
Plaintiff, Appellee,
v.
BENCHMARK CONSTRUCTION SERVICES, INC.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Barron, Circuit Judge,
Souter,* Associate Justice,
and Lipez, Circuit Judge.
Michael P. Sams, with whom Ryan P. Menard and Kenney & Sams,
P.C. were on brief, for appellant.
John B. DiSciullo, with whom Mitchell & DeSimone was on brief,
for appellee.
August 12, 2015
*
Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
LIPEZ, Circuit Judge. In this declaratory judgment
action, Benchmark Construction Services, Inc. ("Benchmark") and its
insurer, United States Liability Insurance Company ("USLIC"),
debate the scope of an employer's liability exclusion in a dispute
over the insurer's duty to defend and indemnify Benchmark in an
underlying personal injury lawsuit. Ruling on cross motions for
summary judgment, the district court concluded that USLIC had no
duty to defend or indemnify Benchmark in the personal injury
lawsuit. Given ambiguities in the exclusion, which must be
construed in the insured's favor, we reverse.
I.
In July 2009, homeowners Tom and Sue Ghezzi hired general
contractor Benchmark to renovate their Newton, Massachusetts home.
The homeowners had hired architect Thomas Huth to design the
renovation plans. Huth, in turn, hired Sara Egan d/b/a Painted
Design to apply decorative painting to one of the interior walls,
and Egan set her employee, Meghan Bailey, to the task.
Uncontestedly, Benchmark had no contractual relationship with Huth,
Egan, or Bailey; neither was Bailey's work performed under a
contract with any of Benchmark's contractors or subcontractors. On
March 5, 2010, while Bailey was applying the decorative paint, she
fell from a ladder that was positioned on top of scaffolding.
Bailey sued Benchmark in the Massachusetts Superior
Court, alleging that she was injured in the fall, that Benchmark
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owed her a duty of care, and that Benchmark negligently erected and
maintained the ladder and scaffolding.1 Benchmark sought a defense
from its insurer, USLIC, but USLIC determined that Bailey's claims
are not covered under Benchmark's insurance policy and, hence, that
USLIC has no duty to defend or indemnify Benchmark against those
claims. According to USLIC, an endorsement to the policy excludes
Bailey's injuries from coverage.
At the time of the accident, Benchmark was insured under
USLIC's Commercial General Liability Coverage policy. The policy
confers broad coverage for "bodily injury" and "property damage,"
as well as for "personal and advertising injury" and medical
expenses. These coverages are then refined through numerous
exclusions. Twenty-five endorsements are appended to the policy,
many of which provide additional exclusions or alter the contours
of existing exclusions. One of these endorsements, "Bodily Injury
Exclusion – All Employees, Volunteer Workers, Temporary Workers,
Casual Laborers, Contractors, and Subcontractors" (the "L-500
Endorsement"), entirely replaces the "Employer's Liability"
exclusion from the original policy and is at the heart of this
appeal. As modified by the L-500 Endorsement, the insurance does
not apply to:
1
The parties contest whether Benchmark or Egan was
responsible for the scaffolding, but that dispute is immaterial to
the present appeal.
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[(I)(2)(e)](2) "Bodily injury" to any
contractor, subcontractor or any "employee",
"volunteer worker", "temporary worker" or
"casual laborer" of any contractor or
subcontractor arising out of or in the course
of rendering or performing services of any
kind or nature whatsoever by such contractor,
subcontractor or "employee", "volunteer
worker", "temporary worker" or "casual
laborer" of such contractor or subcontractor
for which any insured may become liable in any
capacity[.]
Stripped of language not relevant here, this provision excludes:
"Bodily injury" to any . . . "employee" . . .
of any contractor . . . arising out of . . .
rendering services of any kind . . . for which
any insured may become liable in any
capacity[.]
"Contractor" is not a defined term under the policy.2 The policy
provides that USLIC has a duty to defend Benchmark against suits
seeking damages "because of 'bodily injury' . . . to which this
insurance applies."
On June 27, 2013, USLIC filed a declaratory judgment
action in the Massachusetts district court to establish that the
insurance policy does not provide coverage for Bailey's claims, and
that USLIC consequently has no duty to defend or indemnify
Benchmark against those claims. Benchmark counterclaimed for a
declaratory judgment establishing that Bailey's claims are, indeed,
covered under the policy and that USLIC has a duty to defend and
2
The parties do not dispute that Bailey was Egan's "employee"
or that Bailey's alleged injuries would satisfy the policy's
definition of "bodily injury".
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indemnify its insured, Benchmark, in the underlying personal injury
action. The parties submitted cross motions for summary judgment.
On July 8, 2014, the district court entered judgment for
USLIC. The court held that the policy excludes Bailey's claims
because the L-500 Endorsement excludes injuries to contractors'
employees who are injured while performing services. Although the
insurance policy does not provide a definition of "contractor," the
court held that "contractor" unambiguously means "anyone with a
contract." Since Bailey's boss, Egan, had contracted to do the
decorative painting, Bailey was a contractor's employee and her
claims are subject to the exclusion. Benchmark appealed.
II.
We review the district court's disposition on cross
motions for summary judgment de novo. OneBeacon Am. Ins. Co. v.
Commercial Union Assurance Co. of Can., 684 F.3d 237, 241 (1st Cir.
2012). Summary judgment is appropriate where there are no genuine
issues of material fact and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a).
Under Massachusetts law,3 "[t]he proper interpretation of
an insurance policy is a matter of law to be decided by a court,
not a jury." Boazova v. Safety Ins. Co., 968 N.E.2d 385, 390
(Mass. 2012). As with any contract, the court "must construe the
3
Massachusetts law applies because this is a diversity
action. B & T Masonry Constr. Co., Inc. v. Pub. Serv. Mut. Ins.
Co., 382 F.3d 36, 38 (1st Cir. 2004).
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words of the policy in their usual and ordinary sense." Bos. Gas
Co. v. Century Indem. Co., 910 N.E.2d 290, 304 (Mass. 2009)
(internal quotation marks omitted). If a term is "susceptible of
more than one meaning and reasonably intelligent persons would
differ as to which meaning is the proper one," the term is
ambiguous. Citation Ins. Co. v. Gomez,
688 N.E.2d 951, 953 (Mass.
1998). Ambiguities are to be construed against the insurer and in
favor of the insured.
Boazova, 968 N.E.2d at 390. "This rule of
construction applies with particular force to exclusionary
provisions."
Id. (quoting Hakim v. Mass. Insurers' Insolvency
Fund,
675 N.E.2d 1161, 1165 (Mass. 1997)). However, an ambiguity
does not exist simply because the parties disagree about how to
interpret the policy.
Id.
When there is doubt over the meaning of a term, it is
"appropriate 'to consider what an objectively reasonable insured,
reading the relevant policy language, would expect to be covered.'"
Trs. of Tufts Univ. v. Commercial Union Ins. Co.,
616 N.E.2d 68, 72
(Mass. 1993) (quoting Hazen Paper Co. v. U.S. Fid. & Guar. Co.,
555
N.E.2d 576, 583 (Mass. 1990)); see also Bos. Gas
Co., 910 N.E.2d at
305. But an insured can have no reasonable expectation of coverage
if the unambiguous terms of the policy preclude coverage. Clark
Sch. for Creative Learning v. Phila. Indem. Ins. Co.,
734 F.3d 51,
57 (1st Cir. 2013) (applying Massachusetts law).
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The L-500 Endorsement excludes claims for work-related
bodily injury to contractors, subcontractors, and their various
workers and employees. The district court based its decision on
the scope of the word "contractor," which it held unambiguously
means "anyone with a contract." Thus, the court held, since Bailey
was a decorative artist working for Egan, who had a contract with
the architect, she was the employee of a "contractor" and the
exclusion applies to her claims.
We conclude that the undefined term, "contractor," is
ambiguous. We also conclude that there is an additional ambiguity
in the exclusion at issue not addressed by the district court:
whether the phrase "for which any insured may become liable" refers
to "services" or "bodily injury." Resolving these ambiguities in
favor of Benchmark removes the uncertainty about the scope of the
L-500 Endorsement exclusion and brings Bailey's claims squarely
within the coverage of the policy.
A. Ambiguous Antecedent
We begin with the ambiguity in the L-500 Endorsement that
the district court did not consider. Here, we focus not on the
meaning of the word "contractor" in the Endorsement, but rather on
the proper reading of a phrase: "'[b]odily injury' to any . . .
'employee' . . . of any contractor . . . arising out of . . .
rendering services of any kind . . . for which any insured may
become liable[.]" (Emphasis added.) The parties disagree about
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the proper antecedent of the phrase "for which any insured may
become liable" -- that is, whether it modifies "services" or
"bodily injury."
According to Benchmark, "[t]he phrase 'for which any
insured may become liable . . .' modifies the clause 'services of
any kind . . . ,' [indicating] that the policy excludes [the]
claims [of a contractor's employee] only if the contractor's
employee is injured while performing services for which the insured
has some responsibility." USLIC, on the other hand, contends that
the exclusion uses deliberately broad language to reflect "that an
insured might become liable to a worker on a job site with whom
[the insured] has no contractual relationship." Under that
interpretation, the phrase "for which any insured may become
liable" modifies "bodily injury," not "services."
Construing the provision as Benchmark suggests limits the
exclusion to bodily injury that befalls employees of "contractors
[Benchmark] hires or has some contractual responsibility to." Such
a limitation, Benchmark asserts, is consistent with Massachusetts
common law, which limits a general contractor's particular duty to
a subcontractor's employee according to whether the former "retains
the right to control the work in any of its aspects, including the
right to initiate and maintain safety measures and programs."
Kostrzewa v. Suffolk Constr. Co., 897 N.E.2d 1272, 1274 (Mass. App.
-8-
Ct. 2008) (quoting Corsetti v. Stone Co., 483 N.E.2d 793, 798
(Mass. 1985)).
Benchmark therefore contends that USLIC's duty to defend
and indemnify its insured turns on whether Benchmark retained the
right to exert any control over Bailey's decorative painting
"services" and could therefore be accountable for liabilities
arising from or related to her work.4 Here, "[t]he undisputed
facts show that Benchmark did not hire Bailey's employer, nor was
Bailey otherwise somehow performing work within Benchmark's general
contract." Hence, even if Bailey was a contractor's employee, as
the district court held she was, the exclusion does not apply to
Bailey's claims because Benchmark could not become liable for her
services.
In contrast, USLIC maintains that the exclusion applies
to bodily injury befalling any contractor, subcontractor, or
employee of a contractor or subcontractor injured on the job if
Benchmark may become liable for that injury. Reading the policy in
this way means that the relationship of the injured party to the
insured is simply inapposite. The irrelevancy of a contractual
relationship between the injured party and the insured is
underscored, USLIC argues, by the use of the word "any" in the
4
Liability for Bailey's "services" would include vicarious
liability for any torts she might commit in the course of her
employment, and liability to the homeowners for deficiencies in the
quality of her work.
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exclusion: as in, the policy excludes bodily injury to "any"
employee of "any" contractor arising out of rendering services of
"any" kind. To wit, USLIC asserts that the Endorsement "applies
with respect to 'any' contractor, not just [Benchmark's]
subcontractors."
To determine coverage under the L-500 Endorsement, then,
the relevant inquiry is limited to whether the injured party is a
contractor, subcontractor, or works for a contractor or
subcontractor, whether the injury "ar[ose] out of or in the course
of rendering or performing services," and whether Benchmark may
become liable for that injury. Here, USLIC contends that, although
Bailey did not have a contractual relationship with Benchmark, the
exclusion applies because she was employed by a contractor, she was
injured on the job, and Benchmark's alleged negligence in
maintaining the site may expose Benchmark to liability for her
injuries.
We are persuaded by these competing arguments that
reasonably intelligent people could differ as to the proper
antecedent of "for which the insured may become liable." The
exclusion is therefore ambiguous. Under Massachusetts law,
Benchmark is entitled to have the ambiguity resolved in its favor,
particularly where the ambiguity appears in an exclusion. See
Boazova, 968 N.E.2d at 390. We therefore adopt the interpretation
of the exclusion that Benchmark advances: the exclusion applies
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only if the insured may become liable for the injured party's
services. Since Benchmark could not have been liable for Bailey's
decorative painting, the exclusion does not apply to Bailey's
claims and USLIC has a duty to defend and indemnify Benchmark in
the underlying personal injury suit.
The reasonable expectations of the insured support this
outcome. The purpose of a commercial general liability insurance
policy, like the one Benchmark purchased from USLIC, is "to protect
the insured against losses to third parties arising out of the
operation of the insured's business." 9A Steven Plitt et al.,
Couch on Ins. § 129:2 (3d ed. 2014). The relationship of the
injured party to the insured is at the core of this type of "broad
coverage." See id. at § 129:1 (explaining that commercial general
liability insurance is "designed to provide coverage for tort
liability for physical damages to others" (emphasis added)); see
also
id. at § 129:10 (describing commercial general liability
insurance as "providing coverage for the employer's liability to
the general public for the negligence of the employer's
agents . . . and employees"). The distinction between an insured's
employees on the one hand and the public on the other is typically
maintained through two employment-related exclusions, the workers'
compensation exclusion and the employer's liability exclusion. See
id. at §§ 129:10-11.
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Here, the standard employer's liability exclusion from
the original policy has been replaced with the L-500 Endorsement,
although the parties dispute whether the Endorsement deleted the
exclusion heading, "Employer's Liability." Benchmark contends that
the heading was retained, thus providing a lens through which to
interpret the Endorsement's substantive provisions. At the very
least, Benchmark argues, it is reasonable to read the Endorsement
as a modification of the "Employer's Liability" exclusion "rather
than [as] a whole new set of unrelated exclusions." We conclude
that whether the heading persists is immaterial because, in light
of the content of the Endorsement, it is reasonable to read the
Endorsement as an employer's liability exclusion, even if the
heading was deleted. In other words, the Endorsement may
reasonably be read as an employer's liability exclusion that has
been modified by the insurer to reflect a particular type of
employer, namely, a contractor.
In its first provision, the Endorsement simply adds a
handful of worker classifications to the "employee" classification
used in the original policy's "Employer's Liability" exclusion.
The provision in the original policy excluded "Bodily injury to:
(1) An employee of the insured," whereas the Endorsement excludes
"Bodily injury to any employee, volunteer worker, temporary worker,
or casual laborer arising out of . . . [e]mployment by any
Insured[.]" Compare Add. 50 with Add. 51 (internal quotation marks
-12-
omitted). The added classifications reflect the different types of
workers that a contractor like Benchmark might engage, but they do
not upset the basic objective of the exclusion: to exclude injuries
to individuals who work directly for Benchmark.
The second provision in the L-500 Endorsement is the one
at issue: exclusion of "bodily injury to any contractor,
subcontractor or any employee, volunteer worker, temporary worker,
or casual laborer of any contractor or subcontractor arising out of
. . . rendering services . . . for which any insured may become
liable[.]" This provision does not have a direct counterpart in
the original "Employer's Liability" exclusion but, read in context,
it is reasonably interpreted as an extension of the Endorsement's
first provision. Here, the Endorsement responds to a situation,
common in Benchmark's line of work, in which there may be several
layers of subcontractors between any given worker and the general
contractor. By expanding the exclusion to "any contractor,
subcontractor or any employee, volunteer worker, temporary worker,
or casual laborer of any contractor or subcontractor," the
Endorsement builds upon the first provision so that the exclusion
encompasses not only those who work directly for Benchmark, but
also those who work for subcontractors of Benchmark. This is
nothing more than an adaptation of the "Employer's Liability"
exclusion to the particular circumstances that commonly arise when
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the insured is a general contractor who frequently contracts with
subcontractors.
Given that the purpose of the policy is to indemnify
Benchmark against third-party liability and that the Endorsement
may reasonably be read as an employer's liability exclusion, it
would be incongruous to exclude Bailey's claims on the basis of the
Endorsement. Bailey neither worked directly for Benchmark, nor was
Benchmark anywhere in her chain of employment. Dividing the world
into those who work for the insured and the general public, Bailey
is squarely in the latter camp. Hence, her claims are of the sort
that Benchmark could reasonably expect to be covered under the
policy.
B. Ambiguous Scope of "Contractor"
We also conclude that there is a second ambiguity in the
policy language: the definition of the word "contractor." The L-
500 Endorsement exclusion applies only to contractors,
subcontractors, and their various workers and employees. Benchmark
contends that the exclusion does not apply to Bailey's claims
because Bailey was not a contractor's employee within the meaning
of the exclusion when she was injured. "Contractor" is not a
defined term in the policy. If an undefined term is susceptible to
multiple reasonable definitions, then the court will apply a
reasonable definition that confers coverage, if one exists. See
Littlefield v. Acadia Ins. Co., 392 F.3d 1, 8 (1st Cir. 2004)
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(requiring that a policy provision "susceptible to more than one
reasonable interpretation" be construed against the insurer);
Hazen, 555 N.E.2d at 583 (same).
Looking to the dictionary, the district court held – and
USLIC contends on appeal – that "contractor" unambiguously means
"anyone with a contract." See U.S. Liab. Ins. Co. v. Benchmark
Constr. Servs., Inc., 31 F. Supp. 3d 315, 320 (D. Mass. 2014)
(citing Webster's New World College Dictionary (4th ed. 1999) for
a definition of "contractor" as "a person who contracts to supply
certain materials or do certain work for a stipulated sum, esp. one
who does so in any of the building trades"). USLIC argues that,
since Egan had a contract to apply decorative paint to the interior
wall, Egan was a contractor under this broad definition. Bailey,
as Egan's employee, was therefore a contractor's employee, bringing
her claims under the L-500 Endorsement's purview.5
Benchmark, however, contends that "contractor" means
someone with a contract with the insured. In other words,
"contractor" means someone Benchmark hires but who is not
5
Benchmark argues that defining "contractor" as "anyone with
a contract" is unreasonable because it renders the other classes of
excluded parties listed in the L-500 Endorsement superfluous.
After all, subcontractors, as well as the employees of contractors
and subcontractors, are all parties "with a contract," no less than
"contractors" are. However, the interpretive canon that urges us
to avoid surplusage in contracts is limited in its application to
insurance policies, where "redundancies abound." Ardente v.
Standard Fire Ins. Co., 744 F.3d 815, 819 (1st Cir 2014) (quoting
TMW Enters., Inc. v. Fed. Ins. Co.,
619 F.3d 574, 577 (6th Cir.
2010)).
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Benchmark's "employee." The reasonableness of that interpretation,
Benchmark argues, is evident from the structure of the exclusion.
Since the first part of the exclusion is confined to Benchmark's
"employees" and other workers that Benchmark hires, the second part
of the exclusion, which speaks of contractors, subcontractors, and
their workers, would logically be confined to contractors and
subcontractors Benchmark retains for work on a project and their
workers.
We are persuaded that reasonably intelligent people may
differ about the meaning of the word "contractor," and hence the
word is ambiguous.6 "Anyone with a contract" is surely a
reasonable definition of the word "contractor," as the district
court found, but so is a more narrow definition focused on the
contractual relationship of the injured party and the insured.
In light of the ambiguity, we may once again look to the
reasonable expectations of the insured to discern the proper
meaning of the undefined term. See Trs. of Tufts Univ., 616 N.E.2d
at 72. Here, the reasonable expectations of the insured support
6
Since "contractor" is ambiguous, USLIC's argument that
Benchmark's interpretation rewrites the policy is misguided. Of
course, the court will not rewrite the unambiguous terms of an
insurance contract. Lexington Ins. Co. v. Gen. Accident Ins. Co.
of Am., 338 F.3d 42, 50 (1st Cir. 2003); see also Hakim v. Mass.
Insurers' Insolvency Fund,
675 N.E.2d 1161, 1165 (Mass. 1997) ("We
read the policy as written and are not free to revise it or change
the order of the words." (internal quotation marks omitted)).
Here, however, the ambiguity requires us to consider the full
breadth of reasonable alternative definitions that the parties
propose.
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the definition Benchmark advances. As Benchmark argues, defining
"contractor" as "anyone with a contract" "makes a dice roll of
every bodily injury claim, based on whether the injured party
happened to be working under any contract no matter how attenuated
to the insured's work." Although the district court felt
constrained to adopt the broader definition of "contractor," it
nevertheless conceded the folly of such a haphazard approach to
insurance:
[T]he Court can discern no reason why the
parties would choose ex ante to have coverage
depend on whether an injured party was
performing subject to a contract at the time
he or she was injured regardless of whether
that contract was with the insured or some
other entity and regardless of whether the
contract was related to the subject matter of
the Policy.
Benchmark, 31 F. Supp. 3d at 321. We are similarly unable to
discern any reason why the parties would have contracted for
coverage to depend on the coincidence of an injured party's
contractual obligations in the world at large.
The purpose of commercial general liability insurance
also supports the narrower definition of "contractor." As
discussed in the previous section, this type of policy provides
coverage for liability arising out of torts to third parties, as
distinguishable from injuries that befall the insured's own
employees. Since the word "contractor" is being used in a
provision we have described as an employer's liability exclusion,
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it makes sense to define "contractor" as someone with a contract
with the insured. A reasonable insured would expect the
contractual relationship between the insured and the injured party
to govern the applicability of an employer's liability exclusion to
a given injury.7
"Contractor," then, does not mean "anyone with a
contract," but is more narrowly defined and means "Benchmark's
contractor." Therefore, the L-500 Endorsement exclusion does not
apply to Bailey's claims. Bailey's boss, Egan, was not retained by
Benchmark, and so Bailey is not a contractor's employee within the
meaning of the exclusion.
III.
Construing ambiguities against the insurer, Bailey's
claims against Benchmark are not excluded by the L-500 Endorsement.
Instead, those claims fall within the bounds of insurance coverage.
Hence, USLIC has a duty to defend and indemnify Benchmark in the
underlying negligence suit.
7
Benchmark alternatively argues that "contractor" is limited
to someone in the "building trades," and that the term "building
trades" reasonably excludes artists like Egan and Bailey. The
reasonableness of that approach collapses when one considers that
the exclusion at issue is an employer's liability exclusion.
Although Benchmark did not hire Egan, there is nothing about
Benchmark's position as a general contractor that would have
precluded it from doing so. Landscape architects, gardeners,
artists, and other decorators might not work in the "building
trades," but Benchmark might well enter a contractual relationship
with them as part of its work as a general contractor. A
reasonable insured would expect the claims of such a worker to fall
within the scope of the Employer's Liability exclusion.
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Reversed and remanded for entry of judgment consistent
with this opinion.
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