United States Court of Appeals

For the First Circuit

No. 09-1156

FEDERAL INSURANCE COMPANY,

as subrogee of Berkshire Health Systems, Inc.,

Plaintiff, Appellant,

v.

COMMERCE INSURANCE COMPANY, ESTATE OF LUCIA A. ROBERTS

and KITTY HOWARD, as Trustee of the D. EVOR ROBERTS

and LUCIA A. ROBERTS REVOCABLE TRUST,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Kenneth P. Neiman, U.S. Magistrate Judge]

Before

Torruella, Boudin, and Howard,

Circuit Judges.

Mark J. Albano, with whom Dalsey, Ferrara & Albano, was on

brief for appellant.

Eric S. Goldman, with whom Byrne & Drechsler, L.L.P., was on

brief for appellees.

March 3, 2010
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TORRUELLA, Circuit Judge. In this appeal, based on

diversity jurisdiction, appellant Federal Insurance Company

("Federal"), the insurer of Berkshire Retirement Community, Inc.

("Berkshire Retirement"), challenges the district court's decision

to grant summary judgment on its subrogation claim in favor of

defendants Commerce Insurance Company ("Commerce") and the Estate

of Lucia A. Roberts ("Roberts").

After Federal had reimbursed Berkshire Retirement for its

loss from a fire negligently started by Roberts, Federal sued in

the U.S. District Court of Massachusetts, arguing that the implied

coinsured doctrine did not bar its subrogation claim against

defendants. The district court granted summary judgment in favor

of the defendants, and Federal now appeals. After careful

consideration, we affirm the district court's judgment.

I. Background

On April 4, 2007, Roberts, an elderly resident,

negligently started a fire in her unit at the Kimball Farms

retirement community, which is owned by Berkshire Retirement. The

fire damaged Berkshire Retirement's property, and Federal, which

had insured Berkshire Retirement, reimbursed Berkshire Retirement

over $75,000 for its loss. Roberts had her own individual

liability policy provided by Commerce.

When Roberts first moved to Berkshire Retirement's

Kimball Farms in 1999, she signed the Residence and Care Agreement
The implied coinsured doctrine provides that the landlord's 1

liability insurance is held "for the mutual benefit of both

parties," that is landlord and tenant, unless an express provision

states otherwise. Seaco Ins. Co. v. Barbosa, 761 N.E.2d 946, 948

(Mass. 2002).

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("RCA"), which both parties characterize as a lease. The RCA is at

the core of this dispute. In addition to accommodations, dining,

medical, and housekeeping services, Article VIII, § B, entitled

"Responsibility for Damages," of the RCA provided, in relevant

part, as follows:

Any loss or damage to the real or personal

property owned by KIMBALL FARMS caused by the

negligence of RESIDENT will be charged to and

paid for by RESIDENT. If any negligence of

anyone other than KIMBALL FARMS or its

personnel results in injury, illness, or

damage to RESIDENT or to RESIDENT'S personal

property, RESIDENT hereby releases and

discharges KIMBALL FARMS from all liability or

responsibility for such injury or damage to

RESIDENT'S personal property. RESIDENT shall

have the responsibility of providing any

insurance desired to protect against such

loss.

Federal, as a subrogee of Berkshire Retirement, paid

Berkshire Retirement for its loss from the fire and filed suit

against the estate of Roberts and against Commerce in the district

court, claiming that this provision in the RCA, along with other

evidence, provided an exception to the Massachusetts implied

coinsured doctrine, which otherwise would protect defendants from

reimbursing Federal for its loss from a negligently started fire.1

The parties filed cross-motions for summary judgment. On
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November 6, 2008, the district court granted summary judgment in

favor of defendants after it determined that the implied coinsured

doctrine controlled the outcome in this case and precluded Federal

from pursuing a subrogation claim against defendants.

The district court held that under the Massachusetts

Supreme Judicial Court's ("SJC") decision in Peterson v. Silva, the

exception to the implied coinsured doctrine would apply only if the

resident's lease expressly provided for a "tenant's liability for

loss from a negligently started fire." 704 N.E.2d 1163, 1165

(Mass. 1999). Thus, because the RCA did not specifically impose

liability on residents for fire damage, the exception to the

implied coinsured doctrine did not apply. The district court

barred the subrogation claim and held that the fact that Roberts

had chosen to purchase her own liability insurance was irrelevant

to the application of the implied coinsured doctrine.

Federal now appeals.

II. Discussion

A. Standard of Review

We review a district court's grant of summary judgment de

novo. Sullivan v. City of Springfield, 561 F.3d 7, 14 (1st Cir.

2009). "We will affirm entry of summary judgment if the record --

viewed in the light most favorable to the nonmoving party,

including all reasonable inferences drawn in favor of the nonmoving

party -- discloses no genuine issue of material fact, and the
 Massachusetts law governs construction of the lease. 2

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moving party is entitled to judgment as a matter of law." Kunelius

v. Town of Stow, 588 F.3d 1, 8-9 (1st Cir. 2009).

B. Applicable Law

1. Lease Interpretation

If the terms of a contract are unambiguous, then it must

be enforced according to those terms in accordance with their

ordinary and usual sense. See Bukuras v. Mueller Group, LLC, No. 2

08-2160, 2010 WL 175085, at *5 (1st Cir. Jan. 20, 2010); Cady v.

Marcella, 729 N.E.2d 1125, 1129-30 (Mass. App. Ct. 2000). However,

if an ambiguity exists, and the court is called to interpret it, we

must avoid "constructions that render contract terms meaningless."

Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d 9, 12 (1st

Cir. 2001); see also Lexington Ins. Co. v. All Regions Chem. Labs,

Inc., 647 N.E.2d 399, 400 (Mass. 1995). Furthermore, "ambiguous

terms are usually to be construed against the drafter." Nadherny

v. Roseland Prop. Co., 390 F.3d 44, 49 (1st Cir. 2004); see also

Air Plum Island, Inc. v. Soc'y For Preservation of New England

Antiquities, 873 N.E.2d 1159, 1165 (Mass. App. Ct. 2007).

2. The Implied Coinsured Doctrine

In insurance matters, a subrogation claim sometimes

allows an insurer to recover what it pays to an insured under a

policy, even in the absence of an express provision for such a

claim, by standing in the shoes of the insured and suing the
 Subrogation is an equitable doctrine that is based on a theory 3

of restitution and unjust enrichment, where the party who paid for

the loss is made whole by being able to collect that debt from the

wrongdoer. See Money Store/Mass., Inc. v. Hingham Mut. Fire Ins.

Co., 708 N.E.2d 687, 691 (Mass. App. Ct. 1999).

 This doctrine was acknowledged in Alaska Insurance Co. v. RCA 4

Alaska Communications, Inc., where the court denied the landlord

and its subrogee the right to pursue damage actions against

negligent tenant when the lease required the landlord to carry fire

insurance on the property. 623 P.2d 1216, 1218 (Alaska 1981). As

this doctrine developed in Massachusetts, the SJC in Peterson

explained that the landlord has to make explicit the tenant's

obligation to obtain property insurance and concluded that a

landlord's insurer may not pursue a subrogation claim against a

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wrongdoer. See Frost v. Porter Leasing Corp., 436 N.E.2d 387, 389 3

(Mass. 1982).

Massachusetts, however, in cases involving subrogated

claims against residential tenants, has departed "from the commonlaw principle that a person is liable for his own negligent acts,

absent an express agreement to the contrary." Seaco, 761 N.E.2d at

948. In Peterson, the SJC interpreted the terms of the lease to

determine whether the parties intended that the negligent tenant be

relieved of liability for fire damage and found that the landlord

and tenant were coinsureds, thereby defeating the insurer's

subrogation claim. See 704 N.E.2d at 1166. The SJC's approach to

the implied coinsured doctrine differs from other jurisdictions and

creates a presumption that the tenant is an implied coinsured when

a landlord fails to make explicit in its lease that the tenant

needs to obtain its own insurance to cover the landlord's property

in case of a negligently started fire.4
tenant unless there is an express provision to the contrary. 704

N.E.2d at 1165.

 A "yield-up" clause is a provision in a lease which states that 5

the tenant must peacefully vacate the premises and leave them in a

good state of repair at the end of the lease term. For example, in

Lexington, the "yield-up" clause provided that at the expiration of

the lease tenants will "peaceably yield up the Demised Premises

. . . in the same condition and repair as the same were in at the

commencement of the term[,] . . . damage by fire or other casualty

. . . only excepted." 647 N.E.2d at 400.

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The SJC developed its approach through a trilogy of key

cases. In Lumber Mutual Insurance Co. v. Zoltek Corp., the SJC

held, in a commercial setting, that based on the language of the

lease together with an accompanying letter in which the landlord

informed the tenant that the tenant need not carry insurance

because of his contribution to the premium, tenant would be treated

as an implied coinsured of the landlord, and thus landlord's

insurer could not pursue subrogation claim against tenant for a

loss from a negligently started fire. 647 N.E.2d 395, 396 (Mass.

1995). In Lexington, the SJC held that based on a "yield-up"

clause alone, the commercial tenants were exempt from liability to 5

the landlord and landlord's fire insurance carrier for negligent

fire damage. 647 N.E.2d at 400. In Peterson, the SJC found,

despite a general residential lease provision requiring the tenants

to indemnify the landlord for their "carelessness, neglect[,] or

improper conduct," that "absent an express provision in a lease

establishing a tenant's liability for loss from a negligently

started fire, the landlord's insurance is deemed held for the
 In Commercial Union Insurance Co. v. North American Paper Co., 6

the district court interpreted Lumber, Peterson, and Lexington to

suggest that the implied coinsured doctrine should be applied even

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mutual benefit of both parties." 704 N.E.2d at 1165. Thus, the

tenant stands in the shoes of the insured landlord for the purpose

of defeating the insurer's subrogation claim. See id.

C. Application

In this appeal, Federal argues that the "Responsibility

for Damages" provision of the RCA, unlike the provision in

Peterson, unequivocally establishes tenant liability for any loss

or damage to the real or personal property of Kimball Farms caused

by the negligence of the tenant. Federal emphasizes that the RCA

requires the tenant to obtain insurance. While Federal

acknowledges that the last sentence of the provision granted some

discretion to Roberts about her choice of insurers, Federal argues

that the RCA did not state that Berkshire Retirement would provide

coverage for a fire on the premises that Roberts may have

negligently caused or that part of the rent would be allocated to

insurance coverage.

In our view, even drawing all reasonable inferences in

Federal's favor, we find that the Massachusetts coinsured doctrine

applies and that the landlord's insurance in this case was held for

the mutual benefit of both parties.

In applying the Massachusetts coinsured doctrine, we

first must determine whether the RCA is a residential lease and, 6
in commercial settings. 138 F. Supp. 2d 222, 226-27 (D. Mass.

2001). However, a later decision, Seaco, did not extend "the rule

of Peterson v. Silva . . . to commercial tenancies," noting that

commercial tenants tend to be more sophisticated than residential

tenants. 761 N.E.2d at 950-51.

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second, whether the Peterson exception applies. "[A] residential

lease is a contract between a landlord and a tenant . . . [where]

landlord promises to provide and maintain residential premises in

a habitable condition," and the tenant "promises to pay the agreed

upon rent for the habitable premises." Jablonski v. Casey, 835

N.E.2d 615, 618 (Mass. App. Ct. 2005). According to the

"Preliminary Statement" of the RCA, Kimball Farms provides for its

tenants, in consideration for rent, "comfortable living

accommodations and associated facilities, services[,] and

amenities, together with certain medical and nursing care

facilities." We agree with the district court, and both parties

appear to agree, that the RCA is clearly a residential lease,

which, in addition to accommodations, included other services and

amenities, and not a commercial lease, which is "[a] lease for

business purposes." Black's Law Dictionary (8th ed. 2004). Based

on the reasoning underlying the decision to apply Peterson only to

residential leases, which is the lack of sophistication and the

reasonable expectations of the residential tenants, we are even

more inclined to find that the lease for this retirement community

for elderly residents is a residential lease. See Seaco, 761

N.E.2d at 949-50.
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Next, we must determine whether the Peterson exception

applies, that is whether in this case there is "an express

provision in the lease establishing a tenant's liability for loss

from a negligently started fire." 704 N.E.2d at 1165. While

recognizing that the lease in Peterson is not identical to the

lease in the instant case, we are persuaded that the reasoning in

Peterson is equally applicable here.

In a residential lease case with multiple unit dwellings,

it would be an undue hardship to require all tenants to insure

against their own negligence when they are paying, through their

rent or, in Roberts' case, a monthly service fee, for the fire

insurance which covers the premises in favor of the landlord. In

this retirement community case, the elderly Roberts could

reasonably expect that Kimball Farms, which could establish its

adjustable monthly service fee based on the insurance premium,

would provide fire protection for the building. In this regard, as

the SJC noted in Peterson:

Prospective tenants ordinarily rely upon the

owner of the dwelling to provide fire

protection for the realty (as distinguished

from personal property) absent an express

agreement otherwise. Certainly it would not

likely occur to a reasonably prudent tenant

that the premises were without fire insurance

protection or if there was such protection it

did not inure to his benefit and that he would

need to take out another fire policy to

protect himself from any loss during his

occupancy.
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Peterson, 704 N.E.2d at 1165 (quoting Sutton v. Jondahl, 532 P.2d

478, 482 (Okla. Ct. App. 1975)).

In Seaco, the SJC also considered, as an important factor

in a residential tenancy, "the insurable interest that the landlord

and the tenant each had in the premises, and the common business

practice of passing insurance premium costs along to tenants when

determining rental rates such that the tenant pays that portion of

the premium that is attributable to the rented premises." 761

N.E.2d at 949 (quoting Sutton, 532 P.2d at 482). We agree that in

the case of a retirement community, which provides more services

than a residential apartment building in Peterson, it is not in the

public interest to require all of the senior residents to insure

Kimball Farms, causing the building to be fully insured by each

resident and by the landlord. If this is what Berkshire Retirement

intended, it needed to be crystal clear in requiring that tenants

maintain fire insurance; otherwise, the tenants could reasonably

expect that their monthly service fee included Berkshire

Retirement's cost for fire insurance.

The language of the lease in this case is general, and

although the first sentence mentions specific liability for damages

caused by the resident to the real and personal property owned by

Kimball Farms, there is no express language establishing liability

for fire damages, as required by Peterson. Commerce argues that

since the "Responsibility for Damages" provision does not
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specifically reference insurance for fire loss, it does not support

Federal's conclusion that this provision falls under the Peterson

exception and establishes a tenant's liability.

The sentence requiring insurance, which does not mention

fire, is inartfully drawn and could imply that the tenants are

liable only for losses to their personal property, and that

Berkshire Retirement is responsible for all other property damage.

Ultimately, the insurance clause, similarly to the first sentence,

does not reference fire liability, and to the extent that there is

any ambiguity, the lease must be strictly construed against the

drafter. This conclusion is supported by the clear drafting of the

other insurance provisions of the lease. The clauses dealing with

insurance specifically mention other required insurance, including

health and automobile insurance, but not fire insurance.

While this is a strict approach, the SJC in Peterson

emphasized the burden on the landlord to make explicit the tenant's

obligation to maintain fire insurance, stating that the landlord

could have but did not "insist[ ] that the [tenants] maintain fire

insurance." 704 N.E.2d at 1166. In this case, Kimball Farms could

have insisted in the lease that the residents maintain fire

insurance covering real property, in addition to the required auto

and health insurance.
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III. Conclusion

We are not persuaded that Federal has met its burden of

proving that the "Responsibility for Damages" provision of the RCA

overcomes the presumption that the landlord's insurance is held for

the mutual benefit of both parties. For the reasons stated above,

then, we affirm the district court's grant of defendants' motion

for summary judgment barring Federal's subrogation claim.

Affirmed.