Coverage Analysis
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MASSACHUSETTS

  ACCIDENTS OR OCCURRENCES

   Under Massachusetts law, an insurer may avoid coverage either by establishing that an injury was expected or intended or, in the alternative, by showing the insured “intended, or knew with substantial certainty, that some injury would result from his conduct.”  Hanover Ins. Co. v. Talhouni, 413 Mass. 781, 784 (1992) and Utica Mutual Ins. Co. v. Hamel, 46 Mass. A’pp. Ct. 622, 708 N.E.2d 145 (1999), petition for further review denied, 429 Mass. 1108, 712 N.E.2d 99 (1999). 

  Where the issue is one of intent, a "subjective" standard will be applied to determine whether an "occurrence" has taken place, requiring that the insured have actually intended to cause harm or knew that harm was substantially certain to result from its deliberate acts. Rideout v. Crum & Forster Ins. Co., 417 Mass. 757 (1994); Quincy Mutual Fire Ins. Co. v. Abernathy, 393 Mass. 81, 84, 469 N.E.2d 797 (1984).  

  It is not necessary that the insured intend the specific injury that actually results, so long as it is of the same general type that was deliberately caused.  City of Newton v. Norfolk and Dedham Mutual Fire Ins. Co., 404 Mass. 682, 686, 536 N.E.2d 1078 (1989) (vandalism incident caused school to burn down).  An insured may be collaterally estopped from disputing intent to injure where operative facts have been adjudicated in a related case.  Kowalski v. Aetna, 914 F.2d 299 (1st Cir. 1990)(insured's homicide conviction implied finding of malice) and General Host v. Liberty Mutual, No. 90-12357-Z (D. Mass. March 3, 1990)(related DJ estopped insured from relitigating issue of intent to pollute).  

  Proof of subjective intent is not necessary where the acts in question are inherently injurious.  Rideout, supra (plaintiffs' claims of sex discrimination and retaliatory discharge necessarily implied an intent to injure). See also Worcester Ins. Co. v. Fells Acres Day School, Inc., 408 Mass. 393, 558 N.E.2d 958, 964 (1990)(sexual assault) and Terrio v. McDonough, 383 Mass. 81, 83 (1984)(insured pushed plaintiff down the stairs). Intent will be inferred in any case of sexual misconduct involving a minor and is not limited to case of forcible assault.  John Doe v. Liberty Mutual Ins. Co., 423 Mass. 366, 667 N.E.2d 1149 (1996).

  Claims for sexual harassment in which a football player lewdly displayed himself to a sports reporter following the game were held not to allege an "occurrence" in Timpson v. Transamerica Ins. Co., 669 N.E.2d 1092 (Mass. App. 1996).

  A finding of intent to injure is not allowed, however, if where the acts in question are clearly likely to result in injury, if the insured is unable to form a capacity to intent injury, whether because the insured is insane (Baker v. Commercial Union Ins. Co., 383 Mass. 347, 350, 416 N.E.2d 187 (1981)), under the influence of psychoactive drugs (Hanover Ins. Co. v. Talhouni, 413 Mass. 781, 785, 604 N.E.2d 689 (1992)) or otherwise lacks the mental capacity to intend harm.  In Talhouni, the SJC refused to draw a distinction on the basis of whether the insured's incapacity was voluntary or not.

  Consistent with these cases, the Appeals Court has ruled that an assault committed by a patient while on antidepressant medication was an “occurrence” and not subject to a homeowner’s exclusion for “criminal acts.”  In Swift v. Fitchburg Mut. Ins. Co., 45 Mass. App. Ct. 617 (1998), the court declared that the exclusion was ambiguous in that it could be understood as applying both to acts of a criminal nature, as the carrier contended, and to acts for which the insured was criminally convicted.  As the court perceived the purpose of this exclusion as discouraging insureds from committing crimes, it held that nothing would be gained by applying it to individuals who are legally incapable of forming a criminal intent.

  An exclusion for intentional acts has been limited to situations in which the insured also expected or intended to cause injury. Preferred Mutual Ins. Co. v. Gamache, 426 Mass. 93, 686 N.E.2d 989 (1997).

  Separate allegations of negligence (e.g. failure to provide security) did not create coverage for assault claims under a policy that excluded assault and battery.  In such circumstances,  Massachusetts courts has ruled that the claims “arose out of” the assault and are therefore subject to an assault and battery exclusion since, without the assault, “there would have been no personal injuries and therefore no basis for a suit against the insured for negligence.”  United National Ins. Co. v.  Parrish,  48 Mass. App. Ct. 67, 68 (1999).  This analysis was adopted by the Supreme Judicial Court a few months later.  In Bagley v. Monticello Ins. Co., 07779 (Mass.  December 15, 1999), the court ruled that an “illegal acts” exclusion precluded any obligation on the part of a motel’s insurer to provide coverage for liability claims by a guest who was assaulted and raped on the premises.  Even though the trial court had ruled that the exclusion was limited to illegal acts committed by the insured and its employees, the SJC ruled that the “arising out of” language extended to all injuries suffered as a consequence of illegal acts and cannot be avoided because the underlying complaint alleged negligence on the part of the insured in failing to prevent the assault.   The court ruled that the issue of coverage is controlled by the circumstances of the underlying plaintiff’s injuries, not the theory of liability alleged against the insured.  See also  First Financial Insurance Company v. Salvatore Larosa, No. 97-P-234 (Mass. App. Ct. April 14, 2000)(allegations that property owner failed to safeguard the premises or prevent an uninvited visitor from shooting the plaintiff were excluded as “arising out of” assaulty and battery).

  Even the intentional destruction of property will be deemed to constitute an "occurrence" if the conduct was undertaken under the mistaken belief that the acts were authorized.  J. D'Amico, Inc. v. Boston, 186 N.E.2d 716, 719 (Mass. 1962) (intentional trespass deemed covered since insured was mistaken concerning location of property line). 

  Coverage may also sometimes be limited by M.G.L. c.175 §47 (6)(b), which prohibits insuring "any person against legal liability for causing injury, other than bodily injury, by his deliberate or intentional crime or wrongdoing."  This statute has been interpreted as only barring coverage for personal injury or property damage that result from an insured's knowing violation of the law.  Andover Newton Theological School, Inc. v. Continental Cas. Co., 409 Mass. 350, 566 N.E.2d 1117 (1991)(willful firing of professor in reckless disregard of EEOC standards not uninsurable as a matter of law).
 

  ALLOCATION AND SCOPE ISSUES

  The Appeals Court ruled in Rubenstein v. Royal Ins. Co., 44 Mass. App. Ct. 842, 694 N.E.2d 381 (1998), review denied (Mass. 1999) that a trial court had not erred in refusing to apportion the insureds' damages among all of the years in which pollution occurred.  As the trial court had concluded that property was continuously being contaminated by the leakage of oil during Royal's 1969-72 policy, the Appeals Court ruled that it was this continuous exposure to contaminants that was decisive and that Royal's claim for allocating damage awards among other years of coverage must fail.  See also  High Voltage Eng'g Corp. v. American Employers Ins. Co., 1995 WL 809577 (Mass. Super. July 7, 1995) (holding insurer jointly and severally liable for entire amount of pollution damage) and Chicago Bridge & Iron Co.  v.  Certain Underwriters at Lloyds, Middlesex No.  94 07495 (Mass.  Super. January 7, 1999)(applying Illinois law, court refused to find that the insurer’s policy obligations are limited to liability property damage occurring during the policy period or that the policies required proration among triggered policies).

  In A.W. Chesterton Company v. Northbrook Excess and Surplus Ins.  Co., 96-4871 (Mass. Super. Ct. September 29, 1999) , a state trial court imposed a “joint and several” defense obligation but that indemnity should be pro-rated on an “equal shares” basis among the insurers in light of the “other insurance” wordings in their policies.   The court refused to find that the insured itself must contribute a share of defense or indemnity for years in which it did not have insurance.

  Where an insurer was found to have wrongfully refused to defend, it was deemed to have the burden of paying the entire verdict, including damages that might relate to uncovered claims, unless it could establish what amount related solely to covered matters.  Palermo v. Firemans Fund Ins. Co., No. 95-P-1690 (Mass. App. 1997).  In such circumstances, the court found that the insurer should have asked the trial court to have a special jury verdict form that would have permitted allocation.

  If an insurer wrongfully refuses to provide a defense to a lawsuit and the insured subsequently enters into a settlement comprising both covered and uncovered claims, a state trial court has ruled that the insurer has the burden of proving the allocation between covered and uncovered damages.  Alan Corp. v. National Union Fire Ins. Co., Worcester No. 942376 (Mass. Super. January 1998) (8 Mass. L. Rptr. No. 2, 44).  
 

  APPELLATE PROCEDURES

  Massachusetts has both an intermediate appellate court (the Appeals Court) and a state supreme court (the Supreme Judicial Court).
 

  BAD FAITH

  Claims for unfair or deceptive practices against insurers are governed by M.G.L. c.176D, whereas the remedy for unfair or deceptive consumer practices are set forth in M.G.L. ch. 93A (West 1984).  Section 9(i) of Ch. 93A provides that "any person whose rights are affected by another person violating the provisions of M.G.L. c. 176D may bring an action."  Whereas a private individual may seek under Section 9, businesses may only recover under Section 11 of Chapter 93A.  The Supreme Judicial Court has ruled that a 176D may not be brought under §11.  Jet Line Servs., Inc. v. American Employers Ins. Co., 404 Mass. 706, 717 (1989); Transamerica Ins. Group v. Turner Construction Co., 33 Mass. App. Ct. Ct. 446 (1992) and Spencer Press, Inc. v. Utica Mutual Ins. Co., No. 95-P-2017 (Mass. App. Ct. May 16, 1997).

  “Good faith” has been defined as the insurer making settlement decisions without regard to the policy limits and the insurer’s exercise of common prudence to discovery the facts as to liability and damages upon which an intelligent decision may be based.  Hartford Casualty Insurance Company v. New Hampshire Insurance Company, 417 Mass. 115, 119 (1994).  “So long as the insurer acts in good faith, the insurer is not held to standards of omnisciense or perfection; it has leeway to use, and should consistently employ, its honest business judgment.   Peckham v. Continental Casualty Company, 895 F.2d 830, 835 (1st Cir. 1990).

  The Supreme Judicial Court ruled in Clegg v. Butler, SJC-07216 (Mass. March 12, 1997) that even tort claimants had a right to pursue a Section 9 claim for violations of Chapter 176D.

  Section 9 damages under Chapter 93A may be trebled for a knowing or willful violation.  In 1989, the legislature amended Section 9 to specify that the amount trebled would encompass the entire underlying judgment, not just the damages directly attributable to the insured's conduct.  However, the Supreme Judicial Court has more recently ruled that this only applies in cases where the claims against the insured go to a verdict; it does not apply where they are settled. Clegg v. Butler, 07216 (Mass. March 12, 1997).

  Massachusetts courts have not fully resolved the issue of what “actual damages” constitute in the context of c. 93A.  In Cohen v. Liberty Mutual Insurance Company, 41 Mass. App. Ct. 748, 755 (1996), the Appeals Court ruled that even when bad faith is found in a c. 176D action, the “actual damages” are those losses which were the foreseeable consequence of the insurer’s unfair or deceptive conduct.  In Bolden, the court went on to suggest that the amount of “actual damages” might not necessarily be the amount of the underlying excess verdict in a failure to settle within policy limits case and might be limited to those damages that foreseeably resulted from the insurer’s bad faith failure to settle.

  An insurer may not be liable to a claims investigation that, while flawed in certain respects, was on the whole "conscientious."  Spencer Press, Inc. v. Utica Mutual Ins. Co., No. 95-P-2017 (Mass. App. Ct. May 16, 1997)

  A third party claimant can sue a tortfeasor's liability insurer under M.G.L. c.93A §9 for refusing to settle after the insured's liability has become clear. Clegg v. Butler, 07216 (Mass. March 12, 1997).  

  A reinsurer was held liable under 93A in Commercial Union Ins. Co. v. Seven Provinces Ins. Co., No. 99-1258 (1st Cir. July 18, 2000) based upon a pattern of evasive claims handling that raised a series of constantly shifting defenses and objections to payment of Commercial Union’s ceded environmental settlement.  The First Circuit ruled that Seven Province’s bad faith tactics “were wholly alien to the usual course of dealings between an insurer and a reinsurer.”  

  An insurer is not liable for a coverage position where little or no legal precedent exists or which is otherwise reasonable even if the court ultimately rules that coverage, in fact, exists. Polaroid Corp. v. The Travelers Indemnity Co., 414 Mass. 747, 610 N.E.2d 912 (1993).

  If there is no coverage, there is no basis for a Section 9 claim under Chapter 93A.  Alan Corp. v. ISLIC, 22 F.3d 339 (1st Cir. 1994).  However, in John Doe v. Liberty Mutual Ins. Co., 423 Mass. 366 (1996), the SJC left open the issue of whether there could be extracontractual liability under Section 11 independent of contractual liability, merely holding that the insured had not shown that it suffered any prejudice as a result of the insurer's six month delay in responding to its request for coverage.

  The Appeals Court has ruled that it is a violation of c.176D for an insurer to demand a release from its policyholder in return for a payment of policy limits.  Thaler v. American Ins. Co., 34 Mass. App. Ct. Ct. 639 (1993).

  A primary insurer may be held liable for a negligent failure to settle within its policy limits. Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 628 N.E.2d 14 (1994)(abandoning prior standard of "objective good faith" for measuring insurer's conduct). While recognizing the excess insurer's equitable subrogation rights, the court declined to find that the primary insurer owed any direct duty of care to the excess insurer.

  Massachusetts courts have recognized the right of policyholders to enter into agreements with tort claimants wherein they assign their contractual and bad faith rights in return for an agreement by the plaintiff not to execute upon a judgment against them.  Bolden v. O’Connor Café of Worcester, Inc., 98-P-1817 (Mass. App. September 8, 2000), and Campione v. Wilson, 422 Mass. 185, 190-194 (1996).  In such circumstances, the defendant is free to challenge the claim on the basis of collusion.  

  Whereas a violation of Chapter 176D creates a right of action under Section 9 of Chapter 93A, such claims are not automatically incorporated in Section 11 claims by businesses.  Kiewit Constr. Co. v. Westchester Fire Ins. Co., 878 F.Supp. 298 (D. Mass. 1995).

  A federal district court has ruled that the two-year statute of limitations in a first-party policy precluded coverage for contractual and extra-contractual claims arising out of the insurer’s failure to accept coverage for a pollution loss.  In Nunheimer v. Continental Insurance Company, No. 98-10956 (D. Mass. November 1, 1999), Judge Young declared that the insured’s claim under the contract ran from the date that the original loss occurred, not the point in time when the insurer denied coverage.  Further, although the court ruled that the insured’s separate claim for unfair and deceptive claims handling practices did not accrue until the date when the insurer denied coverage, he nonetheless ruled that these claims were subject to the policy’s two year statute of limitations, not the four-year limitations period that would otherwise apply to such claims.

  Massachusetts law is unsettled as to the availability of a claim for reverse bad faith.   A federal magistrate predicted in Schulz v. Liberty Mut. Ins. Co., No. 92-10312 (D. Mass. September 25, 1996) that the Supreme Judicial Court of Massachusetts would not recognize such a claim against a tort plaintiff.

  A claim for recovery under MGL c.93A requires proof that the unfair and deceptive practices occurred "substantially and primarily" in Massachusetts.  The First Circuit has ruled that this question should be addressed by balancing the location of (1) the defendant's deceptive conduct; (2) the location of the plaintiff when deceived; and (3) the location of the plaintiff's losses.  Clinton Hospital Assn. v. Corson Group, Inc., 907 F.2d 1260 (1st Cir. 1990) and Roche v. Royal Bank of Canada, No. 96-1748 (1st Cir. 1997).
 

  "BODILY INJURY"

  Held not to encompass claims for mental distress in Allstate Ins. Co. v. Diamant, 401 Mass. 654, 656, 518 N.E.2d 1154 (1988)(damage to teacher's reputation caused by letter that parents of pupil wrote).  The Supreme Judicial Court ruled that "bodily injury" is "a narrow term and encompasses only physical injuries to the body and the consequences thereof."

  A trial court has since extended Diamant to include allegations of physical manifestations of injury accompanying the claim for emotional distress, declaring in Massachusetts Medical Professional Insurance Association v. Anna Jaques Hospital, No. 94-2845 (Mass. Super. July 1, 1997) (Hinkle, J.), that the relaxation of the liability standard for emotional distress claims effected by the SJC in Sullivan v. Boston Gas Co., 414 Mass. 129 (1993) was not intended to change the standard for determining the meaning of "harm" or "injury" in other areas of the law.  Rather, the court ruled that the new standard was solely for evidentiary purposes and did not make emotional distress itself a bodily injury.  Accordingly, the court ruled that where the plaintiff's alleged physical ailments were the result of her emotional distress and not its cause, the claims were not for "bodily injury."  

  The Appeals Court of Massachusetts has ruled that allegations of emotional distress do not set forth a claim for “bodily injury.”  In Richardson v. Liberty Mutual Insurance Company, 1999 Mass. App. LEXIS 1018 (Mass. App. September 10, 1999), the court ruled that “bodily injury” only encompasses actual physical injuries to the human body and the consequences thereof and therefore does not include humiliation and mental anguish.  
 

  BREACH OF POLICY CONDITIONS

  Insurer must prove prejudice in order to avoid coverage on the basis of most policy condition, including late notice.  M.G.L. c.175 §112.  Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 409 N.E.2d 185 (1980).  Note that this requirement only applies to claims arising after 1977, when the common law was amended.   Spooner v. General Accident Fire & Life Ins. Corp., 379 Mass. 377 (1979); Powell v. Fireman's Fund Ins. Co., 26 Mass. App. Ct. 508, further review denied, 403 Mass. 1106 (1990) and Fireman's Fund Ins. Co. v. Valley Manufactured Products Co., Inc., 765 F.Supp. 1121 (D. Mass. 1991), aff'd mem., 960 F.2d 143 (1st Cir. 1992).
  An insured's failure to give notice under the proper policy has been held not to invalidate a claim under a second policy where the insurer had actual notice of the claim.  Duggan v. Travelers Indemnity Co., 383 F.2d 871 (1st Cir. 1967). 

  Prejudice is not required to bar coverage for expenses or liabilities that are voluntarily incurred by the insured without the knowledge or consent of the carrier, however.  Augat, Inc. v. Liberty Mutual Ins. Co., 410 Mass. 117 (1991)(breach of cooperation clause).  Accord   Atlas Tack Corporation v. Liberty Mutual Insurance Company, 721 N.E.2d 8 (Mass. App. Ct. 1999).   The First Circuit has relied on Augat in finding that such conduct constitutes prejudice.  Safety Mut. Cas. Co. v. Liberty Mut. Ins. Co., 1992 WL 60187 (1st Cir. 1992)(insured's assumption of liability was prejudicially untimely notice as a matter of law).
 

  "BROAD FORM COVERAGES"

  The First Circuit ruled in Dryden Oil Co. of New England, Inc. v. The Travelers Indemnity Co., 91 F.3d 278 (1st Cir. 1996) that coverage for "wrongful entry, eviction or other invasion of the right of private occupancy" is limited to suits by tenants against landlords.  Accord  Girling v. Lumbermen's Mutual Casualty Company, 97-10721-(D. Mass.  May 3, 1999).

  Earlier, Judge Keeton had ruled in Interex Corporation v. Atlantic Mutual Insurance Company, C.A. No. 88-1380-K (D. Mass. June 15, 1992) that coverage would not extend to a waste site clean up claim by the government under CERCLA.  See also Wakefield v. Royal Ins. Co., Middlesex No. 94-1579 (Mass. Super. July 20, 1995)(damage to MWRA treatment plant caused by discharge from insured's facility did not allege a "personal injury" outside of pollution exclusion.

  A state trial ruled in John F. Baer v. Western World Insurance Company, Middlesex No. 98-2309 (Mass. Super. December 19, 2000) that a tenant’s allegations that his child suffered lead poisoning because of the insured landlord’s  breach of  the implied covenant of habitability was potentially within the scope of the policy’s coverage for “personal injury,” finding ambiguity in the meaning of “right of private occupancy.”  
 

  BURDEN OF PROOF

  Insured has initial burden of showing that its claim is within the scope of coverage.  Beacon Textiles Corp. v. Employers Mutual Ins. Co., 279 N.E.2d 703, 361 Mass. 847 (1972) and Camp, Dresser & McKee, Inc. v. The Home Ins. Co., 568 N.E.2d 631, 30 Mass. App. Ct. Ct. 318 (1991).   Once a claim for coverage is established, the burden shifts to the insurer to demonstrate the applicability of an exclusion.  Camp Dresser, supra.  The Supreme Judicial Court ruled in Tufts University v. Commercial Union, 415 Mass. 844, 616 N.E.2d 68 (1993) that the insured has the burden of establishing that harm has occurred in any given policy year. 

  Massachusetts court have ruled that insured has the burden of proof on exceptions to exclusions, such as the "sudden and accidental" exception to the pollution exclusion. Highlands Ins. Co. v. Aerovox, Inc., 424 Mass. 226, 676 N.E.2d 801 (1997); Employers Ins. Co. of Wausau v. Charles George, 41 Mass. App. Ct. 719, 673 N.E.2d 572 (1996), review denied, 424 Mass. 1104, 676 N.E.2d 55 (1997); Great Northern Industries, Inc. v. Hartford Accident & Indemnity Co., 666 N.E.2d 1320 (Mass. App. Ct. 1996); A. Johnson & Co., Inc. v. The Aetna Cas. & Surety Co., 741 F.Supp. 298 (D. Mass. 1990), affirmed, 933 F.2d 66 (1st Cir. 1991); Interex Corp. v. Atlantic Mut. Ins. Co., 874 F.Supp. 1406 (D. Mass. 1995).  The Supreme Judicial Court had expressly avoided ruling on this question in Polaroid Corp. v. The Travelers Indemnity Co., 610 N.E.2d 912 (Mass. 1993). 

  The federal district court ruled in American Home Assur. Co. v. Libbey-Owens-Ford Co., C.A. No. 81-1635-Y (D. Mass. October 16, 1987) that an insured had the burden of showing what portion of a settlement related to covered claims.  A state trial court has also ruled that an insurer is not obliged to afford coverage for the entirety of a claim and may apportion liability between covered and non-covered claims.  Mobil Oil Corp. v. Continental Ins. Co., Suffolk No. 91-0766 (Mass. Super. December 14, 1993)

  An insured claiming under a policy has the burden of proving its existence and  material terms.  Liberty Mutual Ins. Co. v. Hoechst Celanese Corp., 43 Mass. App. Ct. 465, 684 N.E.2d 600 (1997).  Massachusetts courts have differed on the standard of proof that the insured must satisfy, however.  Compare, SCA Disposal Services of New England v. Central National Ins. Co., 1994 WL 879687 (Mass. Super. April 12, 1994) and Eastern Enterprises v. Hanover Ins. Co., 1995 WL 499386 (Mass. Super. August 18, 1995)(adopting "clear and convincing" standard) with Continental Ins. Co. v. Roman Catholic Bishop of Fall River, No. 92-12016 (D. Mass. August 12, 1993)(rejecting "clear and convincing" standard) and State Mut. Life Assur. Co. of America v. Lumbermens Mut. Cas. Co., 874 F.Supp. 451 (D. Mass. 1995)(adopting "preponderance" standard).  But see Liberty Mutual Ins. Co. v. Hoechst Celanese Corp., 43 Mass. App. Ct. 465, 684 N.E.2d 600 (1997)(expressing skepticism that a "clear and convincing" standard should be used as the SJC had restricted the use of this higher standard to cases in which "the most important rights or interests of individuals are at stake”).  In any event, the court found that the insured had brought forward sufficient facts to merit the lower court's denial of summary judgment.  

  Whatever the standard, the insured may satisfy its burden based on the insurer's internal documents and correspondence that admit the existence and terms of coverage.  See Federal Pacific Electric Co. v. Aetna Casualty & Surety Co., No. 95-CV-11289 (D. Mass. September 16, 1997). 

  The rules that ordinarily apply concern an insured’s burden of proof have been held not apply in cases where the insurer wrongfully failed to defend. Polaroid Corp. v. The Travelers Indemnity Co., 414 Mass. 747, 610 N.E.2d 912 (1993).  See also  Palermo v. Firemans Fund Ins. Co., No. 95-P-1690 (Mass. App. 1997).

        
  CHOICE OF LAWS

  Massachusetts has adopted the Second Restatement interest analysis, determining choice of law disputes on the basis of "choice-influencing considerations."  Bushkin Associates, Inc. v. Raytheon Co., 393 Mass. 622, 631 (1985); Travenol Laboratories v. Zotal, Ltd., 394 Mass. 95 (1985).  The Supreme Judicial Court noted in W.R. Grace & Co. v. Hartford Acc. & Ind. Co., 555 N.E.2d 214 (Mass. 1990) that it disfavored having the law of more than one state apply to a single case, even where multiple sites or claims might be at issue.  Most recently, the court ruled in American Country Ins. Co. v. Bernhard Woodwork, Ltd., 412 Mass. 734 (1992) that Illinois law should apply to a dispute involving the availability of worker's compensation coverage for an accident in Massachusetts since the parties were both "Illinois companies, the insurance contract was negotiated and executed in Illinois and the relationship between the parties was centered there."  

  The First Circuit ruled in Millipore Corp. v. The Travelers Indemnity Co., 115 F.3d 21 (1st Cir. 1997) that the law of Massachusetts should apply to a multi-state pollution DJ involving a Massachusetts insured, rejecting the insured's contention that New Jersey law should apply to the sites in  New Jersey.  The court agreed with the District Court that the law of a single jurisdiction should control.  Nevertheless, the court found that New Jersey law would apply to New Jersey site claims involving a New Jersey subsidiary of Millipore's that had been separately insured prior to being acquired by Millipore.

  Earlier, a federal district court has ruled that the "law of the waste site" should be controlling in environmental coverage disputes.  Instant Disposal Service, Inc. v. Liberty Mut. Ins. Co., 1993 U.S. Dist. LEXIS 14738 (D. Mass. October 1, 1993).  
 

  CLAIMS MADE ISSUES

  A failure to report a claim within the period specified in a "claims made" policy defeats coverage without regard to whether it prejudiced the insurer.  Charles T. Main v. Fireman's Fund Insurance Company, 406 Mass. 862, 865 (1990).

  Failure to report a claim within the period provided for in a "claims made" policy will bar coverage, whether or not the delay causes prejudice to the insurer.  Charles T. Main, supra.  Further, the Supreme Judicial Court has extended this holding to all notice requirements, whether or not they specifically require that a claim be reported during the policy period, on the theory that such requirements are essential to confining the nature of the risk insured. Tenovsky v. Alliance Ins. Co., 424 Mass. 678 (1997)(insured's failure to give notice "as soon as practicable" held to bar E&O coverage even absent prejudice).
 

  CONCURRENT CAUSATION

  Losses will be covered if the "efficient proximate cause" was not an excluded peril and the excluded peril subsequently occurred in the "train of events."  However, concurrent causation may not be used as basis for rewriting the insurance contract and will therefore not create coverage if exclusions are stated as applying if a loss results "directly or indirectly" from such a cause.  Jussim v. Maine Bonding Ins. Co., 415 Mass. 24 (1993).  But see, Hanover New England Ins. Co. v. Smith, 35 Mass. App. Ct. Ct. 417, 621 N.E.2d 382 (1993)(oil spill that was caused by a malfunction in the defendant's heating system indirectly resulted from release of pollutants but was nonetheless subject to "ensuing loss" language and therefore not covered under Jussim). 

  CONFLICTS OF INTEREST

  “When an insurer seeks to defend its insured under a reservation of rights, and the insured is unwilling that the insurer do so, the insured may require the insurer either to relinquish its reservation or rights or relinquish its defense of the insured and reimburse the insured for its defense costs.”  Three Sons, Inc. v. Phoenix Insurance Company, 357 Mass. 271, 274 (1970), cited in Sarnafil, Inc. v. Peerless Insurance Company, 418 Mass. 295, 314 (1994).  The SJC explained in Three Sons that:

Control of the case by the insurer, when it may later disclaim liability under the policy, means that the insured’s rights may be adversely affected.  He has no opportunity to control aspects of  the case essential to determination of liability or settlement.  If liability is established, or a settlement reached, and the insurer has a valid ground for disclaimer, the insured is left with a liability which, had he been able to defend or settle on other terms, might never have existed.
 

  "DAMAGES"

  Under Massachusetts law, “damages” unambiguously limits the scope of coverage to monies that are paid to compensate a plaintiff for the injuries suffered. 116 Commonwealth Condominium Trust v. Aetna Casualty & Surety Company, 433 Mass. 373, 742 N.E.2d 76 (2001).  Furthermore, the Supreme Judicial Court has twice ruled that “damages” do not encompass the cost of complying with an injunctive remedy with respect to future activities.   Hazen Paper v. USF&G, 407 Mass. 687, 555 N.E.2d 576 (1990) and 116 Commonwealth Condominium Trust, supra.
 
  In Hazen Paper, the SJC ruled that demands received from the U.S. EPA to reimburse Superfund "response costs" for pollution that had already occurred were “damages,” despite insurer arguments that this was an equitable remedy.  As with 116 Commonwealth, however, the court refused to find coverage for prophylactic measures to avert future damage.

  Earlier, a federal district court had ruled in Tiernan v. North River Ins. Co., No. 86-16970-MA (D. Mass. November 25, 1986) that an action by the IRS to force an accountant to "disgorge" improperly held sums was not a claim for "money damages".  Similarly, the Appeals Court ruled in Jillian's Billiard Club of America v. Beloff's Billiards, Inc., 35 Mass. App. Ct. Ct. 372, 375 (1993) that a claim for injunctive relief and attorney's fees did not demand "damages."

  The Appeals Court of Massachusetts has ruled that pre-judgment interest is "damages" subject to an insurer's policy indemnity limit.  In Mayer v. Medical Malpractice Joint Underwriting Association of Massachusetts, No. 94-P609 (Mass. App. April 5, 1996), the court ruled that a medical malpractice insurer had no obligation to pay interest in excess of its policy limit, rejecting the insured's contention that prejudgment interest should be treated as a "cost" within the scope of the policy's Supplementary Payments section.  
 

  DECLARATORY JUDGMENT ACTIONS
  An insurer that has a duty to defend must defend its insured until the underlying claims are clearly outside the scope of its coverage or until it secures a declaration that it has no coverage obligation. Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. Ct. 316, 318 (1983) and Lumbermens v. Belleville, 555 N.E.2d 568 (Mass. 1990).

  However, a liability insurer can withdraw its defense once the basis for defending ceases without the necessity of bringing a declaratory judgment action to confirm that right.  In Conway Chevrolet Buick, Inc. v. Travelers Ind. Co., 136 F.3d 210 (1st Cir.  1997), the court ruled that Travelers had not breached its duty to defend or act unreasonably or in bad faith when it withdrew from the defense of a wrongful termination action after the allegations of negligent infliction of emotional distress and invasion of privacy which it had relied on in accepting the defense under reservation of rights, were dismissed.

  In a sharp break with past practice, the Supreme Judicial Court has also declared that insureds are entitled to recover their fees in coverage litigation to compel insurers to provide a defense.  In Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 686 N.E.2d 989 (1997), the court ruled that the insurer's wrongful refusal to defend required it to reimburse the insured for both the fees incurred in defending the underlying suit as well as those legal costs that the insured incurred in vindicating its rights under the insurance contract.  The court justified this deviation from the general rule that litigants should bear their own fees based a "special relationship" that it perceived between homeowners and their liability insurers.  The court did not express any opinion as to whether it would recognize a similar rule for commercial insureds but did note in a footnote that an excess insurer that brought an equitable subrogation claim against a primary insurer based on the primary carrier's wrongful refusal to defend would not be entitled to recover its fees for prosecuting the coverage suit.

  Two years later, the court ruled that Rubenstein v. Royal Ins. Co.,  429 Mass.  355, 708 N.E.2d 639 (1999) that the same rule should apply to commercial insurers.  The court noted that policyholders purchase liability insurance “to avoid the prospect of being burdened by significant legal expenses.”  As such, the benefit to the insured is not so much the indemnity premised in the event of an adverse judgment but the guarantee that this  “litigation insurance” will protect “the insured from the expense of defending suits brought against it.”  The Supreme Judicial Court reasoned that insureds would not have this peace of mind if insurers were free to contest their defense obligations knowing that, even if the insured chose to contest their claim and sued for coverage, they would at most have to reimburse the policyholder for its own defense costs after the fact.  The Supreme Judicial Court favorably noted a comment from a West Virginia case in which the state Supreme Court had declared that “when an insured purchases a contract of insurance, he buys insurance–not a lot of vexatious, time-consuming expensive litigation with his insurer.”   

  This rule was further expanded by the Appeals Court of Massachusetts in Hanover Insurance Company v. Golden, No. 99-P-38 (Mass. App. May 4, 2001).  The court ruled that Gamache fees are awardable not only in cases where the insured is forced to bring a DJ to obtain a defense but also in DJs where the insured is forced to incur fees to defend an action brought by an insurer who is defending under a reservation of rights but is seeking to terminate its coverage obligations (in this case by claiming a right to exhaust the limits by tendering payment).  

  Fees may also be awarded pursuant to a statutory claim for unfair or deceptive claims practices (M.G.L. c.176D) or where the opposing party has acted vexatiously or in bad faith. Pella Products, Inc. v. Kemper Group, Franklin County No. 89-144 (Mass. Super. December 28, 1992)(finding that insurer's failure to either defend its insured or commence a declaratory judgment action was sufficiently vexatious as to entitle the insured to an award of fees).
  
  The First Circuit has ruled that a clause in a maritime policy requiring the arbitration of any coverage dispute in England is valid and enforceable, notwithstanding a Massachusetts statute prohibiting insurers from relying on policy provisions that would deprive Massachusetts courts of jurisdiction over insurance disputes.  DiMercurio v. Sphere Drake Insurance Company, 2000 WL 72083 (1st Cir. January 31, 2000).
 

  DISCOVERY ISSUES

   --Claims Manuals
 

   --Drafting History
 

   --Other Policyholder Claims
 

   --Reinsurance Information
 

   --Reserves
 

  DUTY TO DEFEND

  The duty to defend is based on the facts alleged in the complaint and those facts which are known by the insurer.  Ruggerio Ambulance Service, Inc. v. National Grange Insurance Company, 430 Mass. 794 (2000) citing Boston Symphony Orchestra, Inc. v. Commercial Union Insurance Company, 406 Mass. 7, 10 (1989).   The question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by comparing the third-party complaint with the policy provisions.  Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct.  316, 318 (1983) and Lusalon, Inc. v. Hartford Accident & Indem. Co., 400 Mass. 767, 772 (1987).  

  The extent to which an insurer may look beyond the allegations in a complaint has not been clearly set forth by the Supreme Judicial Court.  Recent decisions such as Ruggerio has suggested that they should but have not defined when or how this should happen.   In Liberty Mutual v. SCA Services, 412 Mass. 330, 588 N.E.2d 1346 (1992), the court ruled that insurers should not look beyond suit pleadings in determining whether pollution discharges are "sudden and accidental."  In John Doe v. Liberty Mutual Ins. Co., 423 Mass. 366 (1996), the court ruled that a duty to defend could not be created based on "stilted, artificial reading" of isolated allegations in a complaint, noting that the claims must be read in context.

  In Peerless Ins. Co. v. Hartford Ins. Co., 34 Mass. App. Ct. Ct. 534 (1993), the Appeals Court criticized an insurer for reading the allegations of a complaint "abstractly" so as to "shut out reality of which it has become aware" that the claims in question were within the scope of its coverage.

  Under the law of Massachusetts, an insurer's duty to pay defense costs only extend to "reasonable" defense work, both as regards hourly charges, the number of attorneys working on a file and the tasks performed.  Liberty Mutual Ins. Co. v. Continental Cas. Co., 771 F.2d 579, 588 (1st Cir. 1983) and Magoun v. Liberty Mutual Ins. Co., 346 Mass. 677, 19 N.E.2nd 514 (1964).

  An insurer that has a duty to defend based upon the underlying allegations must defend the suit against its insured until it can "get clear" of this obligation.  In Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. Ct. 316, 318 (1983), the Appeals Court stated that an insurer should commence a declaratory judgment action to "get clear" under these circumstances.  However, a trial court has found that an insurer may refuse to defend outright and need not bring a DJ to resolve its coverage dispute if it had duty to defend in the first instance to "get clear" of. Roche Brothers Barrel & Drum Co. v. American Employers Ins. Co., Middlesex No. 91-6120 (Mass. Super. January 13, 1994).   Further, an insurer may properly withdraw from the defense of a pending lawsuit if and when the original claims triggering its defense obligation are dismissed or withdrawn.  Conway-Chevrolet Buick, Inc.v. Travelers Ind.  Co., 136 F.3d 210 (1st Cir.  1997).

  The duty to defend has been held to terminate upon the payment of policy limits even if the injured party that had settled with the policyholder subsequently filed suit seeking additional recoveries.  Fitchburg Mutual Insurance Company v. Renaud, Middlesex No. 99-3118L2 (Mass. Super. February 12, 2001).   Likewise, a state trial court ruled in Medical Professional Mutual Insurance Company v. Newton-Wellesley Hospital, (Mass. Super. February 2000)   that the insured’s effort to pay its policy limits did not relieve the insurer of its duty to pay for an appeal from an adverse verdict where the limits were tendered following an adverse verdict and reasonable grounds existed for appealing the verdict.

  “An insurer’s duty to defend generally encompasses an obligation to appeal from an adverse judgment against its insured, but only if reasonable grounds exist to believe that the insured’s interest might be served by the appeal.” Davis v. Allstate Insurance Company, No. 8402 (Mass. May 18, 2001).

  While the payment of a judgment or settlement that exhausts an insurer’s policy limits also terminates any further duty to defend, an insurer cannot  prematurely terminate its defense obligation by tendering its policy limits.  Aetna Cas. & Sur. Co. v. Sullivan, 597 N.E.2d 62 (Mass. App. Ct. 1992). In Sullivan, the Appeals Court suggested that an insurer's duty to defend might also have a duty to appeal an adverse verdict exhausting its policy limits "depending on the reasonable likelihood of success on appeal."  Subsequent cases have found that an insurer seeking to terminate its defense obligation may do so following the entry of a judgment against its insured by paying its limits into court.  Davis v. Allstate Insurance Company, No. 8402 (Mass. May 18, 2001), and Fratus v. Republic Western Insurance Company, 147 F.3d 25 (1st Cir. 1988).  In Davis, the court declared that although there might be a general distinction between the tender of policy limits and a mere offer to pay, the terms were nonetheless “virtually synonymous.”
  
  An insurer that wrongfully refuses to defend a suit against its insured is liable to the insured for the natural consequences of the breach, including sums expended in payment or settlement of the claim, defense costs (including attorneys’ fees and expenses), court costs, and any other costs incurred because of the refusal of the insurer to defend. Premier Homes, Inc. v. Lawyers Title Ins. Corp., 76 F.Supp.2d 110, 119 (D. Mass. 1999) and   Jefferson Ins. Co. of New York v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 677 N.E.2d 225, 231 (Mass. App. Ct. 1997).  Compare Polaroid Corp. v. The Travelers Indemnity Company, 610 N.E.2d 912, 919-923 (Mass. 1993)(refusing to adopt a rule that insurer is automatically liable for amount of settlement if it fails to defend; policyholder must show that failure by insurer to defend caused it to settle the case on terms to which it would not otherwise have agreed).   

  In general, there is no duty to defend mere claims. Brown Daltas & Assoc. v. General Accident Ins. Co., 844 F.Supp. 58 (D. Mass. 1994), rev'd on other grounds (1st Cir. 1995) and Marvel Heat Corp. v. Travelers Ind. Co., 325 Mass. 682, 685, 92 N.E.2d 233, 234 (1950).  Where the claim has independent legal consequences, such that it is the formal equivalent of a law suit, however, a defense obligation may arise if it sets forth covered claims. Hazen Paper v. USF&G, 407 Mass. 687 (1990)(EPA "PRP" letter).  But see Zecco, Inc. v. Travelers Ind. Co., 938 F.Supp. 65 (D. Mass. 1996)(private "PRP" claim was not a "suit").  Otherwise, pre-suits defense costs will only be covered where litigation is inevitable and early legal work is necessary to preserve evidence or otherwise secure an advantage that would be lost if the party waited for the commencement of the formal law suit.  Liberty Mutual Ins. Co. v. Continental Cas. Co., 771 F.2d 579 (1st Cir. 1985). 

  Massachusetts has not yet ruled how the cost of defense should be apportioned among multiple policies.  In Aetna Cas. & Sur. Co. v. Continental Cas. Co., 413 Mass. 730, 604 N.E.2d 30 (1992), the court cited with favor the "weight of authority" that required an insurer to defend the entirety of a complaint if any individual count was covered.  However, a Massachusetts trial court has since ruled that this does not mean that an insurer must defend claims by multiple plaintiffs where only one of the claimants has asserted a covered cause of action. Electric Ins. Co. v. Zuzelo, Norfolk (Mass. Super. March 1995).

  Where an insurer has paid defense costs under a reservation of rights, it may not recoup those costs after a court ruled that it had no duty to defend, even if it reserved this specific right in its letter.  See Millipore Corp. v. Travelers Ind. Co., No. 91-13060 (D. Mass. May 30, 1996), aff'd, 115 F.3d 21 (1st Cir. 1997)(no right of recoupment unless insured expressly assents).  The Supreme Judicial Court ruled in Medical Malpractice Joint Underwriting Association v. Goldberg, 425 Mass. 46, 680 N.E.2d 1121 (1997) that an insurer's unilateral assertion of a right to reimbursement does not give rise to any obligation on the part of the policyholder absent some express agreement on the part of the insured to do so or a policy provision compelling reimbursement.  The court indicated, however, that an insurer could obtain reimbursement for a non-covered settlement, despite its policyholder's opposition, if it first obtained court approval to proceed.

  ESTOPPEL AND WAIVER

  Coverage cannot be created by waiver.  Merrimack Mutual Fire Ins. Co. v. Nonaka, 414 Mass. 187, 606 N.E.2d 904 (1993)(insurer's defense of case for several months did not give rise to finding of waiver or estoppel without proof of actual prejudice to insured).  Accord Nashua Corp. v. American Home Assurance Co., 420 Mass. 196, 648 N.E.2d 1272 (1995)(insurer's prior payments did not estop it from subsequently disputing claim). An insurer's delay in raising a coverage defense or in supplementing an earlier denial letter will not create an estoppel unless the insured is thereby prejudiced. Jimmy's Diner, Inc. v. Liquor Liability Joint Underwriting Association, 410 Mass. 61, 64 (1991).

  A letter issued by a liability insurer early in its claims investigation conceding that some of its policy provisions might be interpreted as providing coverage for the insured's claim did not give rise to a finding of estoppel where the same letter had specifically advised the insured that it would be personally responsible for any judgment pertaining to the costs of the catalogs inasmuch as the insured had not changed its position in reliance on such statements.  Spencer Press, Inc. v. Utica Mutual Ins. Co., No. 95-P-2017 (Mass. App. Ct. May 16, 1997).

  A federal district court has ruled that an insurer’s ongoing investigation of a first party loss did not justify a finding of estoppel with respect to the running of the statute of limitations.  Riverdale Mills Corp. v. Firemans Fund Insurance Company, 2000 WL 1773250 (D. Mass. December 1, 2000).

  The Supreme Judicial Court of Massachusetts has ruled that the insured's breach of the voluntary payment clause and untimely notice was waived by reason of the insurer's alleged breach of an implied obligation to make a timely investigation of claims against its policyholder.  Sarnafil, Inc. v. Peerless Ins. Co., 418 Mass. 295, 636 N.E.2d 247 (1994).
 

  EXCESS INSURERS

  "Drop down" may be required where an excess policy speaks of "collectible" insurance.  Gulezian v. Lincoln Ins. Co., 399 Mass. 606, 609 (1987) and Massachusetts Insurers Insolvency Fund v. Continental Cas. Co., 399 Mass. 598, 600 (1987).  Drop down has not been required where the obligations of the excess insurer are keyed to the payment of a specific underlying amount, however.  Vickodil v. Lexington Ins. Co., 412 Mass. 132 (1992) and Northmeadow Tennis Club, Inc. v. Northeastern Fire Ins. Co., 26 Mass. App. Ct. Ct. 329 (1988); Metropolitan Leasing, Inc. v. Pacific Employers Ins. Co., 36 Mass. App. Ct. Ct. 536 (1994).

  Massachusetts law has yet to recognize any implied or express obligation on the part of primary insurers to protect the interests of excess carriers. Interex Corp. v. Atlantic Mut. Ins. Co., No. 88-1380-K (D. Mass. June 28, 1989). 

  The Superior Court ruled in Hanover Insurance Company v. Penn-America Insurance Company, Norfolk No. 95-1805 (Mass. Super. August 1, 2000) that a primary insurer had no right of action to bring a claim for equitable contribution, subrogation or assignment against another primary insurer for its alleged negligent handling of a claim against the insurers’ mutual policyholder.  The court ruled that no direct duty exists between concurrent primary insurers.  Earlier in the case, Judge Butler had ruled on March 31, 1999 that Hanover was the primary insurer.

  Whatever rights of action an excess insurer may have against a primary carrier for negligently failing to settle a claim within its policy limits, damages may only be awarded if the excess insurer can show that it was ultimately forced to pay more to settle the claim than would have been the case if the primary carrier had acted properly in the first place. First State Ins. Co. v. Utica Mut. Ins. Co., 89-02494 (D. Mass. December 2, 1994).   

  An excess insurer has no obligation under Massachusetts law to make an explicit commitment to coverage until the primary insurer has acted.  Clegg v. Butler, SJC-07216 (Mass. March 12, 1997).

  A state trial court ruled in A.W. Chesterton Company v. Northbrook Excess and Surplus Ins.  Co., 96-4871 (Mass. Super. Ct. September 29, 1999) that excess insurers had no obligation to contribute to the defense of mass tort claims where the insured had only shown that it was “reasonably likely” that all available primary policies had been exhausted.

          
  KNOWN LOSS

  The Supreme Judicial Court ruled in SCA Services, Inc. v. Transportation Ins. Co., 419 Mass. 527, 646 N.E.2d 384 (1995) that a landfill operator could not claim coverage for a class action suit by citizens living near the landfill where, prior to the issuance of the policy, the insured had been sued by governmental entities for the same nuisance that was the subject of the citizens' suit.  See also Massachusetts Property Insurers Underwriting Assoc. v. Nichols, Suffolk No. 89-6470 (Mass. Super. September 26, 1991)(no coverage for continuation of lead paint claims after insured landlord was made aware of its potential liability) and Boston Housing Authority v. Atlanta International Ins. Co., 781 F.Supp. 80, 84 (D. Mass. 1992)(liability insurers have no obligation to defend or indemnify BHA for continuing racial discrimination claims that were already known to insured before the policies were issued).

  Subsequently, however, the U.S. Court of Appeals for the First Circuit ruled in U.S. Liability Ins. Co. v. Selman, 70 F.3d 684 (1st Cir. 1995) that a liability insurer that came on the risk after a landlord had already been made aware of a tenant's lead poisoning and had received and responded to a public health authority's order to abate was still entitled to coverage for further injuries caused by ingestion during its policy period.  The court ruled that the insured had established the existence of separate "occurrences" of lead poisoning based on expert testimony concerning "spikes" during the later period of coverage, rejecting as "euphemistic" the insurer's defense that it should not be liable for a "post-manifestation" claim, a doctrine which Judge Selya sarcastically described as lacking in "pedigree."  Finally, the court ruled that the application of the "known loss" doctrine required proof by the insurer that the insured had subjective knowledge that the landlord knew that the tenant's continued ingestion of lead from his building (which he had remediated in the interim) would cause injury. 
 

  NUMBER OF OCCURRENCES

  Massachusetts appears to have adopted the "cause" theory in determining the number of "occurrences" which will be deemed to have taken place under a given set of facts.   In Worcester Ins. Co. v. Fells Acres Day School, Inc., 408 Mass. 393, 558 N.E.2d 958 (1990) the Supreme Judicial Court ruled that claims against a day care center involved more than one "occurrence", since the sexual assaults giving rise to the various childrens' claims involved different assaults by various individuals at diverse locations.  Earlier, in Slater v. USF&G, 379 Mass. 801, 400 N.E.2d 1256 (1980), the court had ruled that several acts of embezzlement by an employee involved more than one "occurrence" since the embezzler could have stopped his course of illegal conduct at any time.  Note that the low limits of fidelity coverage would otherwise have minimized the available coverage.  Hundreds of claims against a utility for damages caused by the installation of defective foam insulation were held to be one "occurrence" in Colonial Gas v. Aetna Cas. & Sur. Co., 823 F.Supp. 756 (D. Mass. 1993).

  In Plymouth Rubber Co. v. Massachusetts Insurers Insolvency Fund, Plymouth No. 87-440 (Mass. Super. May 24, 1988), a state trial court ruled that the number of "covered claims" for the purpose of determining the Guaranty Fund's liability for underlying products liability/roofing claims should be calculated based on the number of underlying claimants.

  In a reinsurance dispute arising out of the insolvent American Mutual Liability Insurance Company's payment of several different asbestos manufacturer's claims, a state trial court has ruled that the underlying suits alleged multiple "occurrences," noting that, in the absence of a definition of "occurrence" incorporating "continous or repeated exposure" language, the decision to manufacture asbestos-containing products was not the sole cause of liabilities involving different types of products causing injuries in different places and times.  Further, Judge Cratsley ruled in Ruthardt v. Underwriters at Lloyd's London, Suffolk No. 91-7877 (Mass. Super. March 12, 1998) that the claims were subject to the "batch clause" retention in certain of the treaties, rejecting the Insurance Commissioner's argument on behalf of AMLICO that such clauses are inapplicable to cases involving "design defects" or inherently dangerous products. 
 

  POLLUTION EXCLUSION

  The Supreme Judicial Court has to date considered seven appeals concerning the exclusion, a record for state appellate courts.  In a series of rulings since 1990, the court has held that the exclusion in unambiguous; that "sudden" has a temporal meaning and bars coverage for gradual pollution.  Lumbermens v. Belleville, 407 Mass. 675, 555 N.E.2d 568 (1990); Hazen Paper, supra; Liberty Mutual Ins. Co. v. SCA Services, Inc., 412 Mass. 330, 588 N.E.2d 1346 (1992).  In SCA, the court next ruled that a landfill operator's disposal of wastes brought to a landfill over a period of months by the insured transporter was not "sudden."  the court ruled that there was no duty to defend such cases unless the underlying complaint alleged some "sudden and accidental" event.  The court ruled later in 1992, however, that the mere duration of a discharge does not rule out the possibility of it being "sudden" if the discharge commenced abruptly. Goodman v. Aetna Cas. & Surety Corp., 412 Mass. 807 (1992).  In 1993, the Supreme Judicial Court has ruled in Polaroid Corp. v. The Travelers Indemnity Co., 414 Mass. 747, 610 N.E.2d 912 (1993) that intentional discharges are not "accidental" whether caused by the insured or, in the case of a waste generator, some third party. More recently, the Appeals Court has affirmed that claims involving a landfill are not "sudden" and that mere "speculation" that a few discharges were "sudden and accidental" was insufficient to trigger a defense and, even if substantiated, could not contradict the fact that the "entire pattern of conduct" was not "sudden and accidental." Landauer, Inc. v. Liberty Mut. Ins. Co., 36 Mass. App. Ct. Ct. 177, 628 N.E.2d 1300 (1994), further review denied (Mass. 1994).  A U.S. District Court has ruled that subsequent events at a waste site, such as fires or explosions, do not reinstate coverage if the original placement of wastes was not "sudden and accidental."  Hussey Plastics v. Continental Cas., No. 90-13104 (D. Mass. June 17, 1993)(fire "arose out of" original dumping).

  To date, the SJC has not squarely addressed the issue of "drafting history" or regulatory estoppel.  In Belleville and Polaroid, the court declined to rely on voluminous briefs and drafting history documents, holding that such materials were not relevant to its considerations in light of its determination that the pollution exclusion was unambiguous.  In Employers Ins. of Wausau v. Charles George, Sr., Middlesex No. 86-1625 (Mass. Super. January 9, 1995), aff'd on other grounds, 41 Mass. App. Ct. 719, 673 N.E.2d 572 (1996), review denied, 424 Mass. 1104, 676 N.E.2d 55 (1997). Judge McHugh reasoned that Polaroid had mooted any attack any Morton-style attack on the exclusion.

  In 1995, the SJC ruled in Nashua Corp. v. American Home Assurance Co., 420 Mass. 196, 648 N.E.2d 1272 (1995) that an endorsement deleting the exclusion for "operations and occurrences" in New Hampshire was only intended to apply to discharges or spills occurring in New Hampshire, not manufacturing operations that resulted in the generation of wastes that were later disposed of out of state.  

  However, the SJC also ruled in Nashua that specific evidence of a fire and an explosion created an issue of fact sufficient to preclude summary judgment on the exclusion, since such events were not so usual or ordinary as to fall within the scope of routine business operations even at a "pollution prone" facility.  The court distinguished its earlier ruling in SCA I, in which it had refused to microanalyze the causes of pollution at a landfill based on a "barrel by barrel" review.

  In February 1997, the court clarified the effect of its holding in Nashua. In Highlands Ins. Co. v. Aerovox, Inc., 424 Mass. 226, 676 N.E.2d 801 (1997) the court ruled that discrete "sudden and accidental" events could only be relied on to reinstate coverage if they were more than a de minimis source of the overall pollution on the property.  Thus, in order to avoid summary judgment, the court ruled that an insured must show in a case "where contaminants were regularly released over the course of decades" that the insured has "a reasonable prospect of showing that the [sudden and accidental event] caused an appreciable and compensable portion of the damages." 
 
  The SJC also held in Aerovox that policyholders have the burden of proving whether a "sudden and accidental" discharge has occurred.  However, the court refused to find that such discharges must occur during the carrier's policy in order to trigger coverage.  See also Employers Ins. Co. v. George, supra.  The same has not been held to be true of London Market policies that require that the discharge occur during the policy period.  See  Nashua Corp. v. First State Ins. Co., 90-3351-A (Mass. Super. February 19, 1999).

  Relying on these holdings, a state trial court ruled in Nashua Corp. v. First State Ins. Co., 90-3351-A (Mass. Super. February 19, 1999) that an insured could survive summary judgment by showing a likelihood that it would present evidence that the sudden and accidental release had caused an appreciable and compensable proportion of the damage for which it was liable and had no obligation to show that more than half of the pollution was the result of such a discharge.   

  For the most part, Massachusetts courts have upheld “absolute” and “total” pollution exclusions in environmental cases.  As may be seen, however, the Supreme Judicial Court of Massachusetts has refused to give a “literal” interpretation to the exclusion that might require its application to toxic tort claims involving indoor exposures to hazardous materials.

  The leading cases interpreting such exclusions in Massachusetts are Western Alliance Ins. Co. v. Gill, 426 Mass. 115, 686 N.E.2d 997 (1997) and Atlantic Mutual Ins. Co. v. McFadden, 595 N.E.2d 762 (Mass. 1992).  

  In McFadden, the Supreme Judicial Court of Massachusetts ruled that an “absolute” exclusion did not apply to lead poisoning claims against the insured landlord.  The court declared that whereas the exclusion might preclude coverage for industrial pollution or for claims involving the improper storage or disposal of hazardous substances it could not reasonably be understood as applying to indoor exposure to leaded materials in a private residence.  

  Expanding on McFadden, the SJC ruled a few years later in Gill that the exclusion also did not apply to injuries suffered by a restaurant patron who inhaled carbon monoxide fumes  that were not properly vented from the insured premises."the exclusion should not reflexively be applied to accidents arising during the course of normal business activities simply because they involve a discharge, dispersal, release or escape of an irritant or contaminant."  While conceding that the exclusion should defeat coverage for claims involving pollution in an environmental or industrial setting and that a reasonable policyholder would not expect coverage to be denied for claims arising out of normal business activities.

  Gill cited with favor two earlier rulings of the First Circuit that, in the SJC's view, properly applied the exclusion to industrial or environmental contamination.  See Dryden Oil Co. of New England v. The Travelers Ind. Co., 91 F.3d 1278 (1st Cir. 1996)(landlord's suit against tenant for spill of industrial chemicals); U.S. Liability Ins. Co. v. Bourbeau, 49 F.3d 786 (1st Cir. 1995) (property damage caused by paint deleading operations).  By contrast, the SJC criticized  the ruling of a U.S. District Court in Essex Ins. Co. v. Tri-Town Corp., 863 F.Supp. 38 (D. Mass. 1994) that had applied the exclusion to personal injuries caused by exposure to toxic fumes Zamboni machine.

  A federal district court has ruled that an absolute pollution exclusion in a contractor’s policy barred coverage for the cost of cleaning up a fuel oil spill resulting from the insured’s negligent repair of a pump on the plaintiff’s premises.  The court did rule, however, that the exclusion did not apply to the plaintiff’s claim for lost rental income or diminution in the value of the property, that did not take the form of clean-up costs or remedial measures.  In Utica Mutual Insurance Company v. Hall Equipment, Inc., 73 F.Supp.2d 83 (D. Mass. 1999), Judge Lasker declared that these forms of “permanent” property damage did not arise out of a clean-up request or demand by the property owner.  On the other hand, the Court rejected the insured’s contention that clean-up costs were outside the scope of the exclusion or that coverage was justified under a Jussim “train of events” theory as principles of concurrent causation do not apply to liability policies.  

  The federal district court has rejected an insured’s argument that “waste” should only be construed to mean “toxic waste.”   In Re Salem Suede, Inc, 1998 WL 347560 (D.  Mass. June 24, 1998).

 An insurer was held to owe a defense to lead poisoning claims, notwithstanding an exclusion for “for bodily injury arising out of lead paint poisoning” based on the fact that the underlying allegations  were not restricted to lead paint and also alleged that there were hazardous level of paint in the plaster and other accessible interior and exterior surfaces in the residence. John F. Baer v. Western World Insurance Company, Middlesex No. 98-2309 (Mass. Super. December 19, 2000). 
 

  PROPERTY DAMAGE

  Claims for lost profits and the diminished value of a third party's business were found to be "property damage" in Continental Cas. Co. v. Gilbane Building Co., 391 Mass. 143 (1984).  Please note that the definition of "property damage" in that case did not require that the "injury to tangible property" be "physical."  

  Claims for economic loss were held not covered in Aetna Cas. & Surety Co. v. Cotter, 26 Mass. App. Ct. Ct. 56, 522 N.E.2d 1013 (1988)(injury suffered by a third party in reliance on the insured's misrepresentations was inchoate in character and not a "bodily injury" or "property damage" for which coverage was afforded under the policy). 
 

  PROPERTY INSURANCE

  The Appeals Court has declared that the presence of lead paint in the insured’s apartment building did not cause “physical loss” to the premises.  In Pirie v Federal Insurance Co., No.  96-P-1930 (Mass. App. July 17, 1998), the court further found that the lead paint pre-existed the insured’s ownership of the premises therefore could not be a “loss” during the period of coverage.

  The Appeals Court of Massachusetts also ruled in Rymsha v. Trust Insurance Company, No. 98 P-1507 (Mass. App. May 1, 2001), that a homeowner’s refusal to provide financial statements concerning her businesses in the course of an examination under oath of a theft claim involving personal property materially breached her obligation to cooperate with the insurer in the investigation of the claim and therefore precluded any right to recovery.  The court ruled that the evidence of the insured’s financial position was relevant to her claim and that Trust was plainly prejudiced by reason of the insured’s refusal to cooperate in its investigation.  Further, the court refused to find that the insured, having failed in her initial essay, should now be permitted to provide the information to sustain her claim.

  PUNITIVE DAMAGES

  Not recognized.  Not insurable insofar as they are not compensatory in nature.  While leaving open the issue of whether coverage might be required under conventional policies, the SJC ruled in Santos v. Lumbermens Mutual Cas. Co., 408 Mass. 70,  (1990) that punitive damages recoverable in a wrongful death action were not insurable under a UIM policy  as such awards are not compensatory and are therefore contrary to the legislature’s intention in enacting UM statutes of providing a mechanism for compensating the victims of uninsured and underinsured drivers.   Further, the court found that requiring coverage for such awards would not serve the purpose of punitive awards, since the deterrent function would be eliminated.

  In CNA Insurance Companies v. James Sliski, No. 08276 (Mass. March 15, 2001), the SJC ruled that CNA was legally liable to pay double damages under the Massachusetts Worker’s Compensation Act where the employer that engaged in serious and willful misconduct within the scope of Section 28 of the Act was insolvent.  The court declined to find that the double damage provisions of Section 28 was a “punitive” award whose deterrent effect would be undermined if insurers were required to pay such awards.  Further, the court found that the worker’s compensation regime in Massachusetts placed the risk of employer insolvency upon the insurer, not the employee.  Two dissenting justices argued that double damages are punitive and therefore not insurable
 

  STANDARDS FOR POLICY INTERPRETATION

  Under Massachusetts law, the words of an insurance policy will be interpreted in "accordance with its fair meaning, as applied to the subject matter."  Jareda v. USF&G, 417 Mass. 75, 76 (1994).  Where the terms of a policy are unambiguous, they will be given their "usual and ordinary meaning."  Id.  "A reading rendering contract language meaningless is to be avoided."  Cohen v. Steebs Franchising Co., Inc., 927 F.2d 26, 29 (1st Cir. 1991).

  A policy may be deemed ambiguous where it is susceptible of more than one meaning.  However, ambiguity is not created simply because a controversy exists between parties, each favoring an interpretation contrary to the other."  Lumbermans Mutual Casualty Co. v. Offices Unlimited, Inc., 419 Mass. 462, 466 (1995).  

  Mere disagreement as to the meaning of a term does not necessarily make it ambiguous.  Jefferson Ins. Co. v. City of Holyoke, 503 N.E.2d 474, 476 (Mass. App. Ct. 1987).  Rather, ambiguity will only arise if two reasonably intelligent persons would differ as to which of the two meanings is the proper one.

  While ambiguities will normally be interpreted against insurers, this is not the case where language is mandated by the legislature. McNeill v. Metropolitan Property & Liability Ins. Co., 420 Mass. 587 (1995); Royal-Globe v. Craven, 411 Mass. 629, 633, 585 N.E.2d 315, 318 (1992) and Bilodeau v. Lumbermens Mutual Cas. Co., 392 Mass. 537, 541, 467 N.E.2d 137 (1984).  There is also some suggestion that the rule of "contra proferentum" will not apply in disputes among insurers or that otherwise involve sophisticated parties.  See Affiliated FM Ins. Co. v. Constitution Reinsurance Corp., 416 Mass. 839 (1994)(finding ambiguity as to whether "expenses" covered DJ fees and remanding for fact finding as to extrinsic evidence of custom and usage).

  Further, ambiguity will not be ignored merely because the dispute is between two insurers.  In The Jefferson Ins. Co. of New York v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 95-P-1618 (Mass. App. January 27, 1997), the Appeals Court refused to interpret the exclusion based upon the knowledge and sophistication of the two insurers, holding instead that the ambiguity of the policy term must be considered on the basis of the objective understanding of the insured to whom the policy was issued. 

  Massachusetts has never formally adopted the "reasonable expectations" doctrine.  Jefferson Ins. Co. v. City of Holyoke, 23 Mass. App. Ct. 472, 503 N.E.2d 474 (1987).  However, more recent rulings have stated that it is appropriate for a court to take into account the objectively generated expectations of coverage resulting from policy language.  Tufts University v. Commercial Union Ins. Co., 415 Mass. 844, 616 N.E.2d 68 (1993).  The reasonable expectations doctrine may not be relied upon to create coverage in the face of an unambiguous policy exclusion.  Under such circumstances, an objectively reasonable insured could not expect coverage.  See, Spencer Press, Inc. v. Utica Mutual Ins. Co., No. 95-P-2017 (Mass. App. Ct. May 16, 1997)("reasonably informed" insured).  See also Preferred Mutual Ins. Co. v. Travelers Companies, 1997 U.S. Dist. LEXIS 2213 (D. Mass. February 24, 1997).  

  An insured cannot avoid clear policy wordings based upon its claimed reasonable expectation of coverage.  In Aguiar v. Generali Assicurazione Insurance Company, 1999 Mass. App. LEXIS 1016 (Mass. App. September 9, 1999).

  An exclusion is not ambiguous merely because of a claimed conflict between its title and the body of the exclusion.  In such circumstances, the body of the exclusion controls.   Ferrara & Dimercurio v.  St.  Paul Mercury Ins.  Co., No. 98-1094 (1st Cir.  March 4, 1999). 

  The fact that certain types of "insureds" were referred to in upper case in some parts of the policy and lower case in others was held not to provide a basis for ambiguity in Wyner v. North American Specialty Ins. Co., 78 F.3d 752 (1st Cir. 1996).

  The term "arising out of" means originating from or related to and is thus much broader than "caused by."  New England Mutual Life Ins. Co. v. Liberty Mutual Ins. Co., 40 Mass. App. Ct. 722 (1996).  The SJC has also ruled that “arising out of” indicates a wider range of causation than the concept of proximate causation in tort law.  However, the expression does not refer to all circumstances in which the injury would not have occurred “but for” something.  Ruggerio Ambulance Service, Inc. v. National Grange Insurance Company, SJC-08085 (Mass. February 16, 2000), citing Rischitelli v. Safety Insurance Company, 423 Mass. 703, 704 (1996).  The Appeals Court ruled in Callaghan v. Quincy Mutual Fire Ins. Co., 98-P-2311 (Mass. App. Ct. October 19, 2000) that a homeowner was entitled to coverage for a dog bite incident that occurred at the insured’s vacation home in New Hampshire, even though it was not listed as an insured location under the policy.  The policy’s exclusion for injuries “arising out of a premises owned by an insured that is not an insured location” was restricted to losses that are incident to ownership of the property in question, such as the physical condition of the premises, rather than to tortious personal acts involving a pet.  
 
  THEORIES OF ALTERNATIVE LIABILITY

  A market share theory of liability was rejected for DES claims in Payton v. Abbott Labs, 386 Mass. 540, 437 N.E.2d 171 (1982)  the court noted, however, that it might relax the traditional identification requirement in a more appropriate case so as to allow recovery against a negligent defendant according to its market share in the relevant period of time.  Subsequently, a federal district court ruled in McCormack v. Abbott Laboratories, 617 F.Supp. 1521 (D. Mass 1985) that the market share variation adopted by the Washington Supreme Court in Martin v. Abbott Laboratories, 689 P.2d 368 (Wash. 1984) was viable under Massachusetts law.  More recently, however, a federal court has ruled that market share does not apply to lead paint claims.  Santiago v. Sherwin-Williams Co., 794 F.Supp. 29 (D. Mass. 1992).
 

  TRIGGER OF COVERAGE

  Coverage is triggered on the date that the complaining party is "actually damaged."  Lumbermens Mutual Cas. Co. v. Belleville Industries, Inc., 407 Mass. 675, 687 (note 10), 555 N.E.2d 568, 575-576 (1990); Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 152, 461 N.E.2d 209, 215 (1984) and Colonial Gas v. Aetna Cas. & Sur. Co., 823 F.Supp. 756 (D. Mass. 1993).  

  In Trustees of Tufts University v. Commercial Union Ins. Co., 415 Mass. 844, 616 N.E.2d 68 (1993), the Supreme Judicial Court ruled that (1) "manifestation" is not the sole trigger of coverage in Massachusetts and (2) that coverage for an environmental clean-up claim may be triggered in years preceding the plaintiff's purchase of the polluted property if the insured can prove that the property itself was damaged then.  However, the court acknowledged that the burden of proving property damage in such policy years lies with the policyholder.  In rejecting "manifestation" as the sole trigger for pollution claims, the SJC implied that coverage should be triggered by "injurious exposure" but noted that different triggers may be applied to different types of injury and property damage.  The court declined to be more specific in this case, however, since it found that the insurers' policy obligations would be triggered under either "exposure," "injury in fact" or "continuous trigger."  See also  Eastern Enterprises v. Aetna Casualty & Surety Co., Middlesex No. 93-1458 (Mass. Super. June 3, 1994)(relying on Tufts in finding that continuing pollution triggered a duty to defend under policies issued after facility had closed).

  Some earlier state and federal cases had adopted the "manifestation" trigger first enunciated in Eagle-Picher Industries, Inc. v. Commercial Union Ins. Co., 682 F.2d 12 (1st Cir. 1982).  See,  Frohberg v. Merrimack Mut. Ins. Co., 34 Mass. App. Ct. Ct. 462 (1993)(BI and PD from UFFI in home) and Allstate Ins. Co. v. Quinn Construction Co., 713 F.Supp. 35 (D. Mass. 1989), opinion vacated, 784 F.Supp. 927 (D. Mass. 1990)(pollution for leaking underground storage tank).   However, in light of Tufts, it appears that Massachusetts courts will use an "injury in fact" or "actual injury" trigger, looking to each policy year in which harm can be shown to have occurred.  High Voltage Engineering Corp. v. Liberty Mutual Ins. Co., Norfolk No. 90-00566 (Mass. Super. January 24, 1992). But see Massachusetts Insurers Insolvency Fund v. Eastern Refractories Co. Inc., Suffolk No. 89-4811 (Mass. Super. July 18, 1991) and Hollingsworth & Vose Co. v. The Hartford Ins. Group, Norfolk No. 87-1951 (Mass. Super. April 9, 1991)(continuous trigger adopted for asbestos personal injury claims).

  A federal court has ruled that once harm is "manifest" coverage may not be triggered for the same injury under later policies.  Saab v. National Union Fire Ins. Co. of Pittsburgh, C.A. No. 92-12584-Z (D. Mass. May 28, 1993). 

  The Tufts court also ruled that claims by subsequent property owners can trigger liability policies in effect prior to the date of the plaintiff's acquisition of the damaged property.

  A parent corporation was permitted to claim coverage for a subsidiary that was not listed in Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd's, Middlesex No. 94-7495 (Mass. Super. April 30, 1998). the court rejected Lloyd's contention that its policies should not afford coverage for losses involving a former corporate subsidiary prior to the policy.  Rather, the court held that the issue was the insured's potential liability as a successor in interest, not the liability of the original subsidiary.  As CERCLA required active involvement, the court found that the insured's liability was based on more than a mere minority shareholder interest in the subsidiary.  The court agreed that insurers should not be found to owe coverage for liabilities acquired by the insured after the expiration of the policy.  However, the court held that this was not an "after acquired" case as CB&I's past ownership interest in AL&T was a known fact at the time that the policies were issued.  The mere fact that insurers may have been unaware of this interest is not the same as the fact that it could not be known nor did the court agree with the insurers that CB&I had an affirmative obligation to disclose this fact.

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