Court Opinion

ID: 2826717
Source: CourtListenerOpinion
Date Created: 2015-08-12 19:00:30.200893+00
Date Added: 2024-06-11T09:15:35.567692
License: Public Domain

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

                                      -2-
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.

                                   -3-
               [(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".

                                        -4-
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).

                                  -5-
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).

                                   -6-
             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

                                  -7-
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.

                                     -9-
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

                                         -10-
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.

                                  -11-
           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

                                        -13-
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)

                                -14-
(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)).

                                   -15-
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.

                                     -16-
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,

                                      -17-
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.

                                         -18-
          Reversed and remanded for entry of judgment consistent

with this opinion.

                              -19-