Court Opinion

ID: 203836
Source: CourtListenerOpinion
Date Created: 2011-02-07 06:24:09+00
Date Added: 2024-06-11T17:27:39.907335
License: Public Domain

United States Court of Appeals
                        For the First Circuit

Nos. 08-1602, 08-1603

                     INSITUFORM TECHNOLOGIES, INC,

                 Plaintiff, Appellee/Cross-Appellant,

                                  v.

                   AMERICAN HOME ASSURANCE COMPANY,

                 Defendant, Appellant/Cross-Appellee.

             APPEALS FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. George A. O'Toole, Jr., U.S. District Judge]

                                 Before
                  Boudin, John R. Gibson,* and Howard,
                            Circuit Judgees.

     William T. Corbett with whom Mark D. Sheridan, Laura A. Brady,
Jeffrey M. Beyer, Drinker Biddle & Reath LLP, Gregory P. Deschenes,
Kurt M. Mullen and Nixon Peabody LLP were on brief for defendant,
appellant/cross-appellee.
     Charles L. Philbrick with whom Sarah E. Pace, Stanley A.
Martin and Holland & Knight LLP were on brief for plaintiff,
appellee, cross-appellant.

                             May 22, 2009

     *
         Of the Eighth Circuit, sitting by designation.
             BOUDIN, Circuit Judge.     This appeal stems from a dispute

between Insituform Technologies, Inc. ("Insituform"), a Missouri-

based contractor, and American Home Assurance Company ("American

Home"), an insurer that issued an "excess umbrella" policy to

Insituform.     The dispute centers on the reading of the policy in

relation to an underlying primary coverage policy issued by another

insurer.     The background events are easily recounted.

             Insituform entered into a subcontract with D'Alessandro

Corporation to rehabilitate roughly 5,400 feet of an East Boston

sewer owned by the Massachusetts Water Resources Authority ("MWRA")

using cured-in-place pipe technology.              The project called for

installing a tube within the existing MWRA pipe and heating resins

to cure the tube; this is said to be less costly than replacing the

existing pipe.       Insituform performed the installation between

August and September 2003.

             The tube had fins and wrinkles, and Insituform trimmed

the fins at MWRA's request.         There was leakage from both the fins

that   had   been   trimmed   and   elsewhere.         Ultimately    MWRA   told

Insituform that the work did not meet contract specifications and

had to be repaired or replaced.              On what was originally a $1

million    subcontract,   Insituform        incurred   expenses     of   over   $7

million in attempted repair and, when its repair efforts were

unsuccessful, replacing the pipe.

                                      -2-
          Insituform filed claims with both Liberty Mutual (its

primary insurer) and American Home, seeking coverage of the repair

and replacement costs.     Liberty Mutual had issued Insituform a

commercial general liability ("CGL") policy for the relevant time

period; it determined that the MWRA repair work was covered under

its policy and paid its applicable policy limit, $1 million less a

$250,000 deductible.   American Home denied coverage, citing policy

exclusions for Insituform's work and product.

          CGL policies are primarily directed at liability sought

to be imposed by a third party and often exclude coverage for

mistakes in the insured's own product or work.          See Am. Home

Assurance Co. v. AGM Marine Contractors, Inc., 467 F.3d 810, 812-13

(1st Cir. 2006).   The Liberty Mutual policy had a number of such

exclusions (e.g., for "your product" and "your work" and for recall

or replacement of "your product" or "your work").      But the policy

contained--among   many   separately   paginated   amendments   (called

endorsements)--one titled "contractor rework coverage amendment"

which overrode those exclusions to provide coverage in this case

(or so Liberty Mutual concluded).1

     1
      The amendment states in relevant part: "We will pay those
sums which you become legally obligated to pay for the required
removal or repair of 'your product' or 'your work' including
concrete, cement, sand or aggregate, concrete blocks, concrete
products or other products manufactured, sold, handled or
distributed by or on behalf of the Insured which are defective,
subject to the limits of liability and deductible and the
provisions specified below."

                                 -3-
            American Home's policy is also of the CGL variety,

although    seemingly   framed   primarily   to   provide   second-layer

coverage for damages exceeding the maximum allowed by underlying

primary policies.    In many respects the coverage and exclusions of

the American Home policy echoed those of the Liberty Mutual policy.

But the American Home policy did not include a "contractor rework

coverage amendment" or other amendments comparable to the one

included in the Liberty Mutual policy.

            After American Home denied coverage, Insituform filed

suit in the Massachusetts district court seeking damages for breach

of contract (count I), a declaratory judgment that the policy

provides coverage (count II) and attorney's fees under Missouri law

(count III), Mo. Rev. Stat. § 375.420 (2002). On cross-motions for

summary judgment, the district court held American Home liable for

the cost of repairing and replacing Insituform's work but later

denied     consequential   damages     due   to   inadequate   discovery

disclosures.    Insituform Techs., Inc. v. Am. Home Assurance Co.,

364 F. Supp. 2d 3 (D. Mass. 2005).

            The parties then stipulated to the amount of compensatory

damages ($6,054,899.68), which the district court awarded together

with   prejudgment   interest    ($1,628,917.36).     On    this   appeal,

American Home challenges the district court's grant of summary

judgment as to coverage as well as its calculation of prejudgment

interest. Insituform cross-appeals as to the amount of prejudgment

                                     -4-
interest, and it claims that it should have been permitted to

present evidence of consequential damages.

            We review de novo the district court's grant of summary

judgment. Fireman's Fund Ins. Co. v. Special Olympics Int'l, Inc.,

346 F.3d 259, 261 (1st Cir. 2003).                      The parties agree that

relevant law in Missouri and Massachusetts is similar, and we

accept this view as reasonable.               Commonwealth Land Title Ins. Co.

v. IDC Props., Inc., 547 F.3d 15, 22 (1st Cir. 2008).                      The insured

must show coverage under the policy; the insurer, the applicability

of any exclusion on which it relies.               E.g., Highlands Ins. Co. v.

Aerovox Inc., 676 N.E.2d 801, 804 (Mass. 1997).

            As the case has been framed, American Home seems to

concede that at least some portion of the MWRA repair and rework

cost constitutes "property damage" falling within the broad initial

coverage    terms      of    its    policy    unless    otherwise    excluded;     and

Insituform appears to concede that the "your product," "your work"

and related exclusions in the American Home policy would in turn

defeat the property damage coverage--save for a separate amendment

in the American Home policy invoked by Insituform.

            That separate amendment to the American Home policy, the

subject    of   most    of    the    controversy       in   this   case,    is   titled

"contractor's endorsement."            The endorsement is a single page that

reads as follows:

                                             -5-
                      CONTRACTOR'S ENDORSEMENT
                          Excluded Hazards

This insurance does not apply to:

1.        Property Damage to any property or equipment leased by
          the Insured;

2.        Property Damage to property being installed, erected or
          worked upon by the Insured or by any agents or
          subcontractors of the Insured;

3.        Bodily Injury or Property Damage arising out of any
          project insured under a "wrap-up" or any similar rating
          plan; or

4.        Bodily Injury or Property Damage arising out of any
          professional services performed by or on behalf of the
          Insured, including but not limited to the preparation or
          approval of maps, plans, opinions, reports, surveys,
          designs   or  specifications,   and   any   supervisory,
          inspection or engineering services.

Following Form Hazards

It is further agreed that this insurance does not apply to:

1.        Property Damage arising out of:

          a.     Blasting or explosion other than the explosion of
                 air or steam vessels, piping under pressure,
                 prime movers, machinery or power transmitting
                 equipment;

          b.     The collapse of or structural       injury   to   any
                 building or structure due to:

                 1)      the grading of land, paving, excavating,
                         drilling, burrowing, filling, back-filling,
                         tunneling, pile driving, coffer-dam or
                         caisson work,

                 2)      the moving, shoring, underpinning, raising,
                         or demolition of any building or structure,
                         or the removal or rebuilding of any
                         structural support thereof, or

                                  -6-
           c.       Damage to or destruction of wires, conduits,
                    pipes, mains, sewers, tanks, tunnels, any similar
                    property, and any apparatus in connection
                    therewith, beneath the surface of the ground or
                    water, caused by and occurring during the use of
                    mechanical equipment for the purpose of grading
                    land, paving, excavating, drilling, burrowing,
                    filling, back-filling or pile driving; or

2.         Any liability assumed by the Insured under any contract
           or agreement.

However, if insurance for such Bodily Injury or Property Damage is
provided by a policy listed in the Schedule of Underlying
Insurance:

1.         This exclusion shall not apply; and

2.         The insurance provided by our policy will not be broader
           than the insurance coverage provided by the policy listed
           in the Schedule of Underlying Insurance.

All other terms and conditions of this policy remain unchanged.

           The district court held that the endorsement is ambiguous

as   to   whether   the   "However"   provision   governs    the   entire

endorsement or merely the portion of the endorsement that follows

the subheading titled "Following Form Hazards."             Arguably the

endorsement is ambiguous on this point and so should be read in

favor of the insured.      Hakim v. Mass. Insurers' Insolvency Fund,

675 N.E.2d 1161, 1165 (Mass. 1997).     If so, none of the exclusions

in the endorsement would apply if insurance for the listed harms

were provided in the underlying Liberty Mutual policy.

           But what the district court said next--which we do not

accept--is that wherever Liberty Mutual provided coverage under its

own policy for hazards described in the endorsement, American Home

                                  -7-
became liable for excess damages under the American Home policy (up

to its own policy limit) for the same hazards.        The district

court's reasoning is nicely summed up in the following statement by

the district judge:

          Accordingly, as proposed by Insituform, I
          construe the However clause in Endorsement No.
          4 [the American Home contractor's endorsement]
          to modify both the Excluded Hazards and the
          Following Form Hazards sections of the
          endorsement.     Consequently, those hazards
          "follow form" (as that term is used in the
          parties' submissions) to the primary insurance
          policy issued by Liberty Mutual Insurance
          Company to Insituform, as it is uncontroverted
          that the Liberty policy is "a policy listed in
          the Schedule of Underlying Insurance."2

Insituform, 364 F. Supp. 2d at 6.

          The "accordingly" (as already noted) may well be sound

but we think the "consequently" is not.      The district court's

"consequently" and the "follow form" references rest on a half-

buried premise that is contrary to the language of the American

     2
      In granting summary judgment as to liability, the district
judge repeated: "Endorsement No. 4 follows form . . . to the extent
that the Liberty Mutual policy provides coverage for the specific
types of hazards explicitly listed in the Endorsement--that is, a
claim must fall within one of the eight enumerated hazards, matched
to a similar provision in the primary policy, in order to be
covered by the American Home policy. The crucial inquiries, then,
are whether the MWRA Claim fits within any of the hazards listed in
Endorsement No. 4, and whether Liberty Mutual's Rework Coverage
Amendment   provides   coverage   for   that  particular   hazard."
Insituform, 2007 WL 2900469, at *3.

                               -8-
Home policy and its contractor's endorsement.   Why the premise is

mistaken is argued by American Home only late in its brief on

appeal and after other complex arguments, which may also explain

why the premise was not focused upon by the district court; but the

argument against the premise was fully preserved in the district

court and is decisive in favor of American Home.

          The phrase "follow form" refers to the practice, common

in excess policies, of having the second-layer coverage follow

substantively the primary layer provided by the main insurer, 2

Ostrager & Newman, Handbook on Insurance Coverage Disputes, § 13.01

(11th ed. 2002), and it would be easy to write a short excess

policy that adopted all of the terms of the primary (except that

coverage cuts in after the primary layer is exhausted and cuts off

at the excess policy limit).   But "follow form" is a loose term,

and the American Home policy does not by any means "follow [the]

form" of the Liberty Mutual policy in all respects.3

          Rather, the American Home policy--although it provides

much secondary coverage in relation to Liberty Mutual--has a

lengthy set of coverage provisions and exclusions of its own. Many

of the American Home provisions, for and against coverage, mirror

     3
      Various phrases are used to describe second-layer policies,
among them "umbrella," "excess" and "follow form," but it is a
mistake to assume precision in such terminology; and even where a
policy is described as "follow form," it does not necessarily
provide coverage that is substantively identical to the underlying
one. Ostrager & Newman, supra, § 13.01.

                               -9-
those of the Liberty Mutual policy.             But--and this is critical

here--the    American   Home   policy       contains    the   Liberty   Mutual

exclusions    for   "your    product"   and     "your    work"   and    related

liabilities, but it does not contain the Liberty Mutual "contractor

rework coverage amendment" (note 1, above) that overrides those

exclusions as to Liberty Mutual.

            The   district   court   read     the   However   clause    in   the

American Home contractors endorsement as if it made American Home

liable for any of the hazards listed in the endorsement wherever

Liberty Mutual would be liable for the same hazard.              Thus, on the

district court's reading, because hazard 2 in the endorsement

relates to property damage and Liberty Mutual's policy covers such

damage under the "contractor rework coverage amendment," American

Home is liable to provide secondary coverage for the rework.

            But the American Home contractors endorsement does not

create new liability for American Home inconsistent with its other

basic coverage and exclusion provisions.               On the contrary, the

American Home endorsement at issue (in contrast to the Liberty

Mutual endorsement which expands liability) negates liability for

the named hazards over and above existing exclusions elsewhere.

The only role of the However clause is to limit these new negations

wherever Liberty Mutual would provide coverage.

            American Home need not and arguably cannot rely on the

endorsement to its policy to defeat Insituform's claim: it can and

                                     -10-
clearly does rely on the "your product" and "your work" exclusions

of its own policy which, unlike the Liberty Mutual policy, are not

overridden by the contractor's rework coverage amendment to which

Liberty Mutual (but not American Home) consented. Insituform makes

no effort to show that the your product and your work exclusions

are inapplicable. Its reliance on the rework amendment--which only

applies to "your work" or "your product"--implicitly recognizes

that they would apply but for the endorsement.

          On point is United National Ins. Co. v. Hydro Tank, Inc.,

497 F.3d 445, amended on other grounds by 525 F.3d 400 (5th Cir.

2007),   which   also    dealt   with    an   excess   policy's   limiting

endorsement that itself contained a savings clause akin to the

However clause here.4      The Fifth Circuit crisply dispatched an

insured's claim parallel to that of Insituform, saying (as we do)

that the savings clause created an exception to the exclusions in

the endorsement but did not override exclusions contained elsewhere

in the same policy.     Id. at 452.     The policy language in Hydro Tank

was different; the principle is the same.

          In an effort to get around this result, Insituform points

to other uses of the However clause elsewhere in the American Home

     4
      The contractors limitation endorsement in the excess policy
excluded contractually assumed liability "except insofar as
coverage is available to the insured in valid and collectible
'underlying insurance' . . . ." The underlying insurance did cover
the harm; but the court held that the "insofar as" qualifier left
intact a separate exclusion in the excess policy for pollution-
related harm.

                                  -11-
policy that it says are designed to create new coverage; in

particular, it says that endorsement no. 7, which governs employee

benefit liability, uses a However clause to create coverage that

follows form to a similar endorsement in the underlying Liberty

Mutual policy. It says that reading that endorsement as limited by

the American Home policy exclusions would make it meaningless.

           Even if this other endorsement were taken to cast light

on the contractor's endorsement, it does not cast the light that

Insituform attributes to it.          Insituform is not correct that

endorsement no. 7 would be meaningless if limited by American Home

policy's other exclusions.         Endorsement no. 7 creates limited

follow form coverage for negligent administration of such programs;

the   exclusions,    in   contrast,   defeat    coverage     for   violating

obligations imposed by the benefit laws themselves and are not

inconsistent with coverage created by endorsement no. 7.

           Our discussion renders as beside the point the parties'

lengthy discussion as to whether the harm in this case is within or

without one or another of the listed hazards in the American Home

contractor's endorsement.         This would matter here only if the

endorsement   were    read   to    override    independent     restrictions

elsewhere in the policy.          Such a reading is not tenable and

American Home is not liable for the rework.         This also means that

the interest and consequential damages issues are moot.

                                    -12-
          The judgment of the district court is vacated and the

case remanded for dismissal of the complaint.

          It is so ordered.

                         -13-