Public Service Mutual Insurance Company v. Cape Cod Distributors, Inc. et al
Filing
61
Judge Denise J. Casper: ORDER entered. MEMORANDUM AND ORDER - Public Service Mutual's motion for summary judgment is DENIED; Cape Cod Ddistributor's motion for cross-summary judgment is GRANTED in part and DENIED in part; Donut II's Cross-Motion for Summary Judgment is GRANTED in part and DENIED in part; Dunkin' Brands' cross-motion for summary judgment is GRANTED.(Hourihan, Lisa)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
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PUBLIC SERVICE MUTUAL INSURANCE
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COMPANY,
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Plaintiff,
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v.
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Civil Action No. 09-11872-DJC
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CAPE COD DISTRIBUTORS, INC., JEAN
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PAUL ARTEAGA, DONUT II REALTY LLC, )
MCCARTHY MANAGEMENT CO., INC.,
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and DUNKIN’ DONUTS CORP., INC.,
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Defendants.
)
__________________________________________)
MEMORANDUM AND ORDER
CASPER, J.
I.
March 8, 2012
Introduction
Public Service Mutual Insurance Company (“PSM”) has brought this action against Cape
Cod Distributors, Inc. (“CCD”), Jean Paul Arteaga (“Arteaga”), Donut II Realty, Co. (“Donut II”),
McCarthy Management Co., Inc. (“McCarthy Management”) and Dunkin’ Brands, named in the
complaint as “Dunkin’ Donuts Corp., Inc.,” (collectively, the “Defendants”) seeking a declaratory
judgment that its insurance policies provide no coverage for claims arising out of injuries CCD
employee Arteaga sustained when he fell from the roof of a building at CCD’s facility. Three of the
Defendants and PSM have now moved for summary judgment. For the reasons set forth below,
PSM’s motion for summary judgment is DENIED; CCD’s cross-motion for summary judgment is
GRANTED in part and DENIED in part; Dunkin’ Brands’ cross-motion for summary judgment is
GRANTED; and Donut II’s cross-motion for summary judgment is GRANTED in part and DENIED
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in part.
II.
Burden of Proof and Standard of Review
A party moving for summary judgment bears the burden of “show[ing] that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). A fact is “material” if it “might affect the outcome of the suit under governing
law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is “genuine” where the
evidence with respect to the material fact in dispute “is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
Once the moving party has satisfied its burden, the burden shifts to the non-moving party to
set forth specific evidence showing that there is a genuine, triable issue of fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986). The Court views the record in the light most favorable to the
non-moving party and draws all reasonable inferences in that party’s favor. O’Connor v. Steeves,
994 F.2d 905, 907 (1st Cir.1993). If after viewing the record in this light the Court determines that
there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law, summary judgment is appropriate. Fed. R. Civ. P. 56(a).
III.
Factual Background
Unless otherwise indicated, the following are the undisputed facts.1
1
For the purposes of this Memorandum and Order, the parties’ filing are abbreviated as
follows: PSM’s memorandum of law in support of its motion for summary judgment (“PSM
Mem.”); CCD’s opposition and memorandum of law in support of its cross-motion for summary
judgment (“CCD Mem.”); Dunkin’ Brands opposition and memorandum of law in support of its
cross-motion for summary judgment (“Dunkin’ Mem.”); Donut II’s opposition and cross-motion
for summary judgment (“Donut II Mot.”); PSM’s statement of material facts (“PSM Statement of
Facts”); CCD’s statement of material facts (“CCD Statement of Facts”); CCD’s response to
PSM’s statement of facts (“CCD Resp. to PSM Statement of Facts”); affidavit of James Kossuth
in support of CCD’s cross-motion for summary judgment (“Kossuth Aff.”); and affidavit of Jose
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A.
The Accident and State Court Litigation
In December 2007, Arteaga was working as an employee of CCD at its location at 17
Kendrick Road in Wareham, Massachusetts (the “Premises”). (PSM Statement of Facts ¶ 14; CCD
Resp. to PSM Statement of Facts ¶ 14). Arteaga was a production manager responsible for ensuring
proper operations of all kitchen machines. (PSM Statement of Facts ¶ 14; CCD Resp. to PSM
Statement of Facts ¶ 14). On the evening of December 4, 2007, Arteaga alleges that while working
for CCD and servicing a piece of equipment on the roof of CCD’s facility, he sustained serious
injuries when he fell from the roof in his attempt to repair a piece of equipment. (PSM Statement
of Facts ¶ 15; CCD Resp. to PSM Statement of Facts ¶ 15).
Arteaga received workers’
compensation benefits for his injuries under a workers’ compensation policy issued by PSM to CCD.
(PSM Statement of Facts ¶ 16; CCD Resp. to PSM. Statement of Facts ¶ 16).
On August 26, 2009, Arteaga filed a “complaint for discovery” in Plymouth Superior Court
against CCD, Donut II, Dunkin’ Brands (named in the complaint as Dunkin’ Donuts Corp.) and
McCarthy Management, among others, seeking certain information to frame his complaint for
damages arising out of his personal injury and premises liability claims. (PSM Statement of Facts
¶¶ 17-18, Ex. 1 (2009 complaint); CCD Resp. to PSM Statement of Facts ¶¶ 17-18). When CCD,
Donut II, Dunkin’ Brands and McCarthy Management made a demand upon PSM for insurance
coverage, PSM denied coverage. Kossuth Aff., ¶ 5, Ex. 3 (August 5, 2008 letter), ¶ 6, Ex. 4 (August
26, 2009 letter), ¶ 7, Ex. 5 (October 30, 2009 letter). The Superior Court subsequently dismissed
Arteaga’s lawsuit as to all defendants, but allowed him to inspect the Premises and have his
S. Couto (“Couto Aff.”) attached as an exhibit to the Kossuth affidavit.
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deposition taken to preserve his testimony. (PSM Mem., Ex. 6 (docket); CCD Statement of Facts
¶ 7).
More than one year later, on December 2, 2010, Arteaga filed a second lawsuit in Plymouth
Superior Court on behalf of himself and his family against Donut II, Dunkin’ Brands, McCarthy
Management, among others, but not CCD. (PSM Mem., Ex. 2 (2010 complaint); PSM Statement
of Facts ¶ 20; CCD Resp. to PSM Statement of Facts ¶ 20; CCD Statement of Facts ¶ 8). In the
2010 complaint, Arteaga alleges that multiple defendants, including Donut II, Dunkin’ Brands and
McCarthy Management, negligently failed to warn of hazards, negligently failed to train its
employees or negligently failed to inspect the premises, among other allegations. (PSM Mem., Ex.
2 at ¶ 89 (allegations against Donut II), ¶ 107 (same with respect to Dunkin’ Brands), ¶ 113 (same
with respect to McCarthy Management).
B.
PSM Policies and Other Relevant Agreements
1.
Lease Agreement Between CCD and Donut II
At the time of the accident in December 2007, CCD had a lease agreement whereby it leased
the Premises from the property owner, Donut II. (CCD Statement of Facts ¶ 18; Couto Aff. ¶ 14).
The lease required CCD to obtain an insurance policy protecting CCD and Donut II against any
“loss, liability, or expense whatsoever from (without limitation) fire, personal injury, theft, death,
property damage or otherwise arising or occurring upon or in connection with the Premises . . .”
(Lease of Dunkin’ Donuts Kitchen Facility between Donut II and CCD at § 12(c) (Aug. 15, 2002)
(“Lease Agreement”) attached as Ex. 6 to Kossuth Aff. ¶ 8).
2.
Franchise Agreement Between CCD and Dunkin’ Brands
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CCD also had a franchise agreement with Dunkin’ Donuts, Inc. (Dunkin Donuts Franchise
Agreement for a Co-operative Production Location (“Franchise Agreement”) between Dunkin
Donuts, Inc. and CCD, attached as Ex. 7 to Kossuth Aff. ¶ 9). The Franchise Agreement similarly
required CCD to obtain an insurance policy protecting Dunkin’ Brands from “any loss, liability, or
expense whatsoever from, without limitation, fire, personal injury . . . or otherwise arising or
occurring upon or in connection with the [the leased premises] or by reason of FRANCHISEE’s
[CCD] operation or occupancy of the CPL.” Id. at § 5.3.
The Franchise Agreement included an indemnity provision, which provided:
Without limitation, [CCD] shall save, defend, exonerate, indemnify
and hold harmless Dunkin’ Donuts, and its subsidiaries, and their
respective officers, directors, employees, agents successors and
assigns, from and against (i) any and all claims based upon, arising
out of, or in any way, related to the operation or condition of any part
of the [Co-operative Production Location] or the Premises, the
conduct of business thereupon, the ownership or possession of real or
personal property and any negligent act, misfeasance or nonfeasance
by [CCD] or any of its . . . employees, or licensees, and including
without limitation, all obligations of [CCD] incurred pursuant to any
provisions of this Agreement, and (ii) any and all fees (including
reasonable attorney’s fees), costs and other expenses incurred by or
on behalf of Dunkin’ Donuts in the investigation of or defense against
any and all such claims.
Id. at § 11.1
CCD obtained two liability insurance policies issued by PSM which were in effect at the time
of the December 4, 2007 incident: the Future Builder Business Owners Policy (“Primary Policy”)
and the Commercial Umbrella Liability Policy (“Umbrella Policy”). (PSM Mem., Exs. 4 & 5).
3.
Primary Policy
Under the Primary Policy, PSM agreed to “pay any amounts up to [CCD’s] Limit of
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Coverage for which you or anyone else covered under [CCD’s] Liability Coverages becomes liable
as a result of ‘bodily injury’ . . . that is caused by an accident.” PSM Mem., Ex. 4 at 32. The
Primary Policy “explains the coverage [PSM] offers for liability to others for injury and property
damage” and the restrictions on that coverage. PSM Mem., Ex. 4 at 31.
a.
Insured Contracts provision
The Primary Policy does not cover certain liability assumed by CCD. The policy states that
“[PSM] will not cover liability that you or anyone else covered under your Liability Coverages
assumed under contract or other agreement.” PSM Mem., Ex. 4 at 34. However, PSM agreed to
“cover liability: assumed in contract or agreement that is an ‘insured contract’; or that [CCD] or
anyone else covered under [CCD’s] Liability Coverages would have in absence of the contract or
agreement.” Id. The Primary Policy defines an “insured contract” among other things, as “a lease
of premises” or “that part of any other contract or agreement pertaining to [CCD’s] business under
which [CCD] assume[s] the tort liability of another to pay damages because of ‘bodily injury’ or
‘property damage’ . . . Tort liability means a liability that would be imposed by law in the absence
of any contract or agreement.” Id. at 34-35.
b.
“Compensation Plans” exclusion
The Primary Policy contains a “Compensation Plans” exclusion, which states that “[PSM]
will not cover any obligation for which [CCD] or anyone else covered under [CCD’s] Liability
Coverages or any of [CCD’s] insurers are liable under any workers’ compensation, unemployment
compensation, disability benefits or similar laws.” Id. at 37.
c.
“Bodily Injury to Employees” exclusion
The Primary Policy also contains a “Bodily Injury to Employees” exclusion, which states,
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in relevant part:
If an employee of [CCD] or anyone else covered under [CCD’s]
Liability Coverages receives a “bodily injury” arising out of and in
the course of their employment, we will not cover the following:
[CCD’s] liability for the ‘bodily injury’ as an employer or in any
other capacity; [CCD’s] liability for “bodily injury” to a spouse,
child, parent, brother or sister of [CCD’s] employee as a consequence
of [CCD’s] employee’s “bodily injury;” any obligation to share
damage with or indemnify someone else for damages that arise from
the “bodily injury”; any damages claimed for care and loss of
services.
Id. The exclusion further states, “[h]owever, [PSM] will cover liability that [CCD] or anyone else
covered under [CCD’s] Liability Coverage’s assumes under an ‘insured contract’ that is covered by
this policy.” Id. The Primary Policy defines “bodily injury” as an “injury, sickness or disease that
occurs while your policy is in effect . . . .” Id. at 53. The term “employee” means an individual “(a)
employed by [CCD] in the ordinary course of [its] business; and (b) whom [CCD] compensate[s]
by salary, wages, or commissions; and (c) whom [CCD] govern[s] and direct[s] in [its] business; and
(d) whom is not a broker, factor, commission merchant, consignee, contractor or other agent or
representatives of the same general character.” Id.
d.
“Intra-Insured” Exclusion
In addition, the Primary Policy contains an “Intra-Insured” exclusion. Pursuant to this
exclusion, “[l]iability coverage provided by this form or policy does not apply to Bodily Injury,
Property Damage, Personal Damages or Advertising Damages sustained by [CCD] or any other
insured described in this form or policy. [PSM] will have no duty to defend or indemnify any insured
against a claim, suit or lawsuit by any other insured.” Endorsement in Primary Policy, Ex. 8 to the
Kossuth Aff.
The Primary Policy named Donut II, Dunkin’ Donuts Corp. and McCarthy Management as
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additional insureds. (PSM Mem., Ex. 5 at 64 (endorsement FB3407, “Liability Coverage for
Additional Persons and Organizations)) and 6 (listing Dunkin’ Donuts, Donut II and McCarthy
Management for this coverage); id. at 65 (endorsement FB3590, “Additional Coverage for Grantor
of Franchise”) and 5 (Dunkin’ Donuts listed for this coverage).
4.
The Umbrella Policy
PSM also issued CCD the Umbrella Policy, effective August 15, 2007 to August 15, 2008
(“Umbrella Policy”). (PSM Statement of Facts ¶ 13; PSM Mem., Ex. 5 (Umbrella Policy); CCD
Resp. to PSM Statement of Facts ¶ 13). The policy applies as “excess insurance, not contributory,
to other collectible insurance available to [CCD] . . . .” PSM Mem., Ex. 5 at 4. Pursuant to the
Umbrella Policy, PSM agreed to pay the “ultimate net loss amount for occurrences during the policy
period in excess of the underlying insurance or for occurrences covered by the policy which are
either excluded or not covered by underlying insurance because of Personal injury, Property Damage
or Advertising Liability anywhere in the world.” Id. at 2.2
The Umbrella Policy states that “if there is no underlying insurer obligated to do so, [it] shall
have the right and duty to defend any suit against [CCD] seeking damages on account of personal
injury, property damage or advertising liability, even if any of the allegations of the suit are
groundless, false or fraudulent and [PSM] may make such investigation and settlement of any claim
or suit as we deem expedient, but [PSM] shall not be obligated to defend any suit after the applicable
limit of [its] liability has been exhausted.” Id. at 3. The limit of liability under the policy is
“$4,000,000 as the result of any one occurrence on account of personal injury, property damage or
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“Occurrence” is defined as “an accident, or a happening or event, or a continuous or
repeated exposure to conditions which occurs during the policy period which unexpectedly or
unintentionally results in personal injury, property damage, or advertising liability.” Id. at 1.
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advertising offense, or any combination thereof.” Id. at Declarations (Item Two: Limits of
Liability).
Similar to the Primary Policy, the Umbrella Policy contains a number of exclusions. The
Umbrella Policy sets forth an identical “Intra Insured Exclusion” to that provided in the Primary
Policy. In addition, the Umbrella Policy does not apply “to any obligation for which [CCD] or any
of its Insurers may be held liable under any worker’s or unemployment compensation, disability
benefits or similar law; provided however, that this exclusion does not apply to liability of others
assumed by you under any valid contract in being at the time of an occurrence . . . .” Id. at 2.
Under the “Employers Liability Exclusion,” the Umbrella Policy affords no coverage for
“bodily harm or injury, sickness . . . mental injury including care, loss of services or death arising
out of these by: 1. An employee of the insured arising out of and in the course of employment by
the insured; 2. The spouse, child, parent, brother or sister of that employee as a consequence of (1)
above.” PSM Mem., Ex. 5 (Endorsement to the Umbrella Policy). “This exclusion applies . . .
whether the insured may be liable as an employer or in any other capacity and . . . [t]o any obligation
to share damages with or repay someone else who must pay damages because of the injury.” Id.
The exclusion does not apply “to liability assumed by the insured under a written contract if such
liability is covered by valid and collectible Underlying Insurance at the limits shown in the schedule
of underlying insurance.” Id. The policy defines “insured” to include the following:
The named Insured as shown in the Declarations and if such
organization is a corporation also includes . . . If the Named Insured
designated in the declaration is an individual, if you are an insured
but only for the conduct of a business which you are the sole
proprietor, and your spouse is an insured for the conduct of such
business . . . [a]ny person, organization, trustee, or estate with
respect to which you are obligated by virtue of a written contract to
provide insurance such as is afforded by this policy, but only with
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respect to operations by or on behalf of, or to facilities of, or used by
you . . . [a]ny executive officer, director, other employee or
stockholder of yours while acting within the scope of his duties as
such . . . .
Id. at 9.
IV.
Procedural History
On November 2, 2009, PSM filed the instant complaint seeking a declaratory judgment that
PSM’s Primary Policy and Umbrella Policy do not provide coverage for any claims arising out of
the December 4, 2007 incident. (D.1). In its answer, CCD submitted a counterclaim seeking a
declaratory judgment that under both the Primary Policy and Umbrella Policy, PSM has a duty to
indemnify (Counts I-II) and defend (Count III) it for any claims arising out of the incident and
asserted claims for breach of contract (Count IV), breach of implied good faith and fair dealing
(Count V) and violation of Mass. Gen. L. c. 93A, §§ 2 and 11 as well as Mass. Gen. L. c. 176D
(Count VI). (D. 10). Donut II filed a similar counterclaim seeking a declaration that PSM has a
duty to indemnify (Counts I - II) and defend (Count III) it for any claims arising out of the incident
under both the Primary Policy and Umbrella Policy and asserted causes of action for breach of
contract (Count IV), breach of implied good faith and fair dealing (Count V) and violation of Mass.
Gen. L. C. 93A, §§ 2 and 11 as well as Mass. Gen. L. c. 176D (Count VI). (D. 12).
Dunkin’ Brands submitted a counterclaim against PSM seeking a declaratory judgment that
Dunkin’ Brands is entitled to coverage under the insurance policies issued by PSM to CCD. (D. 17).
Dunkin’ Brands also filed a cross-claim in its answer against CCD for a declaratory judgment that
if the insurance policies do not provide coverage to CCD, CCD is obligated to defend and indemnify
Dunkin’ Brands with respect to claims arising from the incident, due to its failure to obtain the
required insurance policies in accordance with the Franchise Agreement. (D. 17).
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CCD and Dunkin’ Brands subsequently moved to stay Dunkin’ Brands’ cross-claim until the
Court rendered a decision on PSM’s complaint for a declaratory judgment. (D. 23). After the Court
(Wolf, C.J.) allowed the motion (3/4/10 D. Entry), Dunkin’ Brands moved to amend its cross-claim
and CCD and Dunkin’ Brands moved to stay the amended cross-claim. (D. 28, 29). After granting
the parties’ motions, the Court stayed the case on May 11, 2010, due to the uncertainty of whether
Arteaga would file the underlying lawsuit against the parties and ordered the parties to file a status
report when Arteaga filed the lawsuit. (D. 33). Once Arteaga did so on December 2, 2010, the
parties submitted status reports in December 2010 (D. 35-37) and the matter was subsequently
transferred to this session. (D. 38). In light of the parties’ status reports, this session ruled that
PSM could then move for summary judgment. (2/7/11 D. Entry). After PSM filed its motion, Donut
II, Dunkin’ Brands and CCD opposed the motion and cross-moved for summary judgment (D. 48)
and the Court has now heard oral argument on these motions.
V.
Discussion
A.
General Principles
Under Massachusetts law, the interpretation of an insurance policy is a question of law for
the court and appropriately decided on summary judgment. Valley Forge Ins. Co. v. Field, ___ F.3d
___, 2012 WL 556221, at *2 (1st Cir. Feb. 22, 2012); Scottsdale Ins. Co. v. Torres, 561 F.3d 74, 77
(1st Cir. 2009).3 The court “begins with the actual language of the polic[y], given its plain and
ordinary meaning.” Brazas Sporting Arms, Inc. v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1,
4 (1st Cir. 2000). In doing so, the Court must “consider ‘what an objectively reasonable insured,
reading the relevant policy language, would expect to be covered.’” GRE Ins. Grp. v. Metro.
3
The parties do not dispute that Massachusetts law applies.
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Boston Housing P’ship, Inc., 61 F.3d 79, 81 (1st Cir. 1995) (quoting Trustees of Tufts Univ. v.
Commercial Union Ins. Co., 415 Mass. 844, 849 (1993)). The insured claiming coverage “generally
bears the burden of proving that a particular claim falls within a policy’s coverage . . . while an
insurer has the burden of proving the applicability of a particular exclusion.” Allmerica Fin. Corp.
v. Certain Underwriters at Lloyd’s, London, 449 Mass. 621, 628 (2007).
“[A] liability insurer owes a broad duty to defend its insured against any claims that create
a potential for indemnity.” Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 368 (1996). Thus, a
liability insurer would be required to defend an insured if the allegations in the underlying suit were
reasonably susceptible of an interpretation that they stated a claim covered by the insurance policy.
See Brazas, 220 F.3d at 4. The duty to defend is broader than the duty to indemnify: “the obligation
to defend turns on the facts alleged in the complaint rather than the facts proven at trial.” Id.
A liability insurer has no obligation to defend a claim that is excluded from coverage under
the policy. Metro. Prop. & Cas. Ins. Co. v. Fitchburg Mut. Ins. Co., 58 Mass. App. Ct. 818, 820
(2003). A liability insurer claiming such an exclusion under the policy bears the burden of
establishing that it applies. Brazas, 220 F.3d at 4. “Consistent with the Massachusetts general rule
favoring insureds in policy interpretation, any ambiguities in the exclusion provision are strictly
construed against the insurer.” Id.; see Hakim v. Mass. Insurers’ Insolvency Fund, 424 Mass. 275,
282 (1997).
B.
PSM’s Duty to Defend
Under the Primary Policy, PSM agreed to “pay any amounts up to [CCD’s] Limit of
Coverage for which you or anyone else covered under [CCD’s] Liability Coverages becomes liable
as a result of ‘bodily injury’ . . . that is caused by an accident.” PSM Mem., Ex. 4 at 32. The
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Primary Policy states that “[i]f a claim is made or a lawsuit is brought which is covered by this
policy, [PSM] will defend the claim or suit even if the claim or lawsuit proves to be groundless, false
or fraudulent. In defending a claim or suit, we may conduct any investigations we consider
necessary, and make any settlements we consider advisable.” Id. at 46. The Primary Policy further
states that “[i]n addition to paying for liability up to your Limits for Coverage, we will pay . . . court
costs charged to you or anyone else covered under your Liability Coverages in any lawsuit we
defend; prejudgment interests awarded against you or anyone else covered under your Liability
Coverages . . .; [and] reasonable expenses that you or anyone else covered under your Liability
Coverages [incurs] . . . .” Id. at 46-47.
The Umbrella Policy similarly imposes on PSM a duty to defend CCD, Dunkin’ Brands and
Donut II against Arteaga’s underlying claims. The Umbrella Policy applies as “excess insurance
. . . .” PSM Mem., Ex. 5 at 4. Pursuant to the Umbrella Policy, PSM agreed to pay the “ultimate
net loss amount for occurrences during the policy period in excess of the underlying insurance or
for occurrences covered by the policy which are either excluded or not covered by underlying
insurance because of Personal injury . . . anywhere in the world.” Id. at 2. The Umbrella Policy
further states that “if there is no underlying insurer obligated to do so, [it] shall have the right and
duty to defend any suit against [CCD] seeking damages on account of personal injury, property
damage or advertising liability, even if any of the allegations of the suit are groundless, false or
fraudulent and [PSM] may make such investigation and settlement of any claim or suit as we deem
expedient, but [PSM] shall not be obligated to defend any suit after the applicable limit of [its]
liability has been exhausted.” Id. at 3. The Umbrella Policy further provides that PSM “will pay,
in addition to the applicable limit of liability: (1) all expenses incurred by us, all costs taxed against
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the insured in any suit defended by us, and all interest on the entire amount of any judgment therein
. . . (3) reasonable expenses incurred by the insured at our request[.]” Id.
It is undisputed that Arteaga sustained serious bodily injuries on the evening of December
4, 2007 when he fell from the roof of CCD’s facility and that Arteaga’s claims for premises liability
against Donut II, Dunkin’ Brands and McCarthy Management arise from such injuries. The parties
also do not dispute that Donut II, Dunkin Brands and McCarthy Management are expressly named
as additional insureds under both the Primary Policy and Umbrella Policy. Accordingly, these
claims are covered under the policies unless, as PSM argues, the exclusions from coverage apply.
PSM argues that despite the Primary Policy’s language regarding coverage for the insured
contracts for bodily injuries caused by an accident on CCD’s premises, PSM owes no duty to defend
or indemnify the Defendants against Arteaga’s claims because the claims related to the December
4, 2007 accident fall within several exclusions contained in the Primary Policy:
(1) the
“Compensation Plans” exclusion; (2) the “Bodily injury to Employee” exclusion; and (3) the “IntraInsured” exclusion. PSM contends that the claims are excluded from coverage under the Umbrella
Policy due to substantially similar exclusions. In their oppositions and cross-motions for summary
judgment, Defendants argue that these exclusions do not apply to preclude coverage. The Court will
address the applicability of each exclusion in turn.
C.
Exclusions
1.
“Compensation Plans” Exclusion Does Not Apply
The compensation plans exclusion states that PSM “will not cover any obligation for which
you or anyone else covered under your Liability Coverages or any of your insurers are liable under
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any worker’s compensation, unemployment . . . or other similar laws.” PSM Mem., Ex. 4 at 37.
PSM argues that in light of the Workers Compensation Act (“WCA”), Mass. Gen. L. c. 152, § 24,
this exclusion “explicitly precludes coverage for claims arising out of injuries for which an
employee would be entitled to workers’ compensation” and that since Arteaga is receiving such
compensation through another PSM policy issued to CCD, the compensation exclusion applies here.
PSM Mem. at 14-15. The Court finds this argument unavailing.
On its face, the provision excludes coverage of an insured’s obligation for which the insured
is liable under workers’ compensation, unemployment, disability or other similar laws. Whether
this exclusion applies to the instant case requires a determination of the “nature of the ‘obligation’
that form[s] the basis” of Arteaga’s claims against Donut II and Dunkin’ Brands in the underlying
lawsuit. Great Sw. Fire Ins. Co. v. Hercules Bldg. & Wrecking Co., 35 Mass. App. Ct. 298, 305
(1993). Great Sw. is instructive on this point. There, an employee, who was injured in the course
of his employment brought claims against his employer and the owner of the company for
negligence in failing to secure workers’ compensation insurance and in failing to use reasonable care
to create and maintain a safe workplace. Id. at 299. The Court held that the insurance policy
provision excluding coverage for “any obligation for which the insured or any carrier as his insurer
may be held liable under any workmen’s compensation, unemployment compensation or disability
benefits law, or under any similar law,” excluded coverage of the employer and its owner (named
as an additional insured under the policy) for an employee’s bodily injury. Id. at 303. The workers’
compensation exclusion barred coverage of the company’s owner because the nature of his
obligation to secure workers’ compensation insurance for the company’s employees was “so far
derived from, and integral to the workers’ compensation statute that it fell within the [compensation]
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exclusion” and the “risk that [he] would negligently fail in fulfilling that obligation was an excluded
risk” under the exclusion. Id. at 305.
Unlike the plaintiff in Great Sw., Arteaga’s underlying lawsuit asserts no claims against any
of the Defendants regarding their obligations to him with respect to workers’ compensation. Donut
II and Dunkin’ Brands are not seeking coverage from PSM for any claims related to any obligations
under workers compensation or similar laws; rather, they seek coverage under PSM policies based
on the indemnification provisions in their insured contracts. Dunkin’ Brands seeks coverage based
on the Franchise Agreement in which CCD agreed to, among other things, indemnify it for claims including for bodily injury - related to the operation of CCD’s business. Donut II seeks coverage
under the Lease Agreement in which CCD agreed to obtain and maintain an insurance policy to
protect Donut II from any loss, liability, or expense “without limitation” from personal injury and
other occurrences arising in connection the premises. Thus, it cannot be said that the compensation
plans exclusion applies here. See Cowan Sys. v. Harleysville Mut. Ins. Co., 457 F.3d 368, 374 (4th
Cir. 2006) (finding that the workers’ compensation exclusion applies only when the injured
employee seeks workers’ compensation (or other statutory compensation) from the named insured
or additional insured, but not when the injured employee makes common-law claims against an
additional insured).
PSM further contends that Arteaga’s underlying claims are independently barred by the
WCA, Mass. Gen. L. c. 152, § 24.4 “Common law actions are barred by the exclusivity provision
4
Mass. Gen. L. c. 152, § 24, provides, in relevant part: “[a]n employee shall be held to
have waived his right of action at common law . . . in respect to an injury that is compensable
under this chapter, to recover damages for personal injuries . . . .”
16
of the workers’ compensation act where: the plaintiff is shown to be an employee; his condition is
shown to be a personal injury within the meaning of the workers’ compensation act; and the injury
is shown to have arisen out of and in the course of . . . employment.” Green v. Wyman-Gordon Co.,
422 Mass. 551, 558 (1996) (internal quotation marks and citation omitted). That is, the “WCA
provides the exclusive remedy for an employee’s claim of personal injuries against an employer if
the injury arises out of and in the course of employment.” Mason v. Mass. Dep’t of Env’t
Protection, 774 F. Supp. 2d 349, 357 n. 68 (D. Mass. 2011) (citing Foley v. Polaroid Corp., 381
Mass. 545, 548-49 (1980); Mass. Gen. L. c. 152, § 24). Here, however, Arteaga has asserted no
claims in the underlying lawsuit against his employer, CCD, from whom he currently receives
workers’ compensation benefits.
The WCA explicitly provides that a recipient of workers’
compensation benefits “may [ ] bring a tort action against responsible third parties” in addition to
its receipt of workers compensation benefits. Gaeta v. Nat’l Fire Ins. Co. of Hartford, 410 Mass.
592, 593 (1991). As discussed above, Arteaga brought negligence claims against Donut II, Dunkin’
Brands and McCarthy Management only (PSM Mem., Ex. 2), who have no obligations to Arteaga
under workers’ compensation, unemployment, disability or similar laws. Any application of the
WCA to preclude Arteaga from bringing claims arising out of his December 4, 2007 accident against
his employer, CCD, therefore does not extend to his claims against the other defendants.
2.
“Bodily Injury to Employee” Exclusion Does Not Apply
PSM further contends that the Primary Policy’s “Bodily Injury to Employee” Exclusion
applies to exclude coverage for all the Defendants. Although CCD concedes that the Primary Policy
excludes coverage against CCD (that is not named in Arteaga’s pending state court lawsuit) (CCD
Mem. at 23-24)–where the exclusion precludes coverage for “[CCD’s] liability for the ‘bodily
17
injury’ as an employer or in any other capacity; [CCD’s] liability for ‘bodily injury’ to a spouse,
child, parent, brother or sister of [CCD’s] employee as a consequence of [CCD’s] employee’s
‘bodily injury’; any obligation to share damage with or indemnify someone else for damages that
arise from the ‘bodily injury’; any damages claimed for care and loss of services,” PSM Mem., Ex.
4 (“Restrictions On Your Policy’s Liability Coverages”) at 37–the Defendants argue that it does not
exclude coverage for “insured contract[s].” Id. The exception for “insured contracts” states that
PSM agrees to “cover liability that [CCD] or anyone else covered under [CCD’s] Liability
Coverage[s] assume[d] under an ‘insured contract’ that is covered by this policy.” Id. “Insured
contract” is defined as, among other things,“a lease of premises” or “that part of any other contract
or agreement pertaining to your business under which you assume the tort liability of another to pay
damages because of ‘bodily injury’ or ‘property damage.’ Tort liability means a liability that would
be imposed by law in the absence of any contract or agreement.” Id. at 34-35.
To demonstrate that the exclusion, precluding coverage of bodily injury to an employee
arising from actions undertaking during the course of his employment, is inapplicable, the employer
(CCD) must have entered into an agreement to insure another party for its tort liability.
The
Primary Policy insures liability that CCD has “assumed in contract or agreement that is an ‘insured
contract’; or that [CCD] or anyone else covered under [CCD’s] Liability Coverages would have in
absence of the contract or agreement.” PSM Mem., Ex. 4 at 34 (emphasis in original). In the
underlying complaint, Arteaga alleges tort liability against Donut II and Dunkin’ Brands, asserting
a number of allegations of negligence, related to the Premises. (PSM Mem., Ex. 2 at ¶¶ 88-90
(Donut II), ¶¶ 106-108 (Dunkin’ Brands)).
The insured contracts in which CCD assumed this tort liability was its lease and franchise
18
agreements with Donut II and Dunkin’ Brands, respectively. In the Franchise Agreement, CCD
agreed “[w]ithout limitation . . . [to] defend . . . indemnify and hold harmless [Dunkin’ Brands] . .
. against . . . any and all claims based upon, arising out of, or in any way related to the operation or
condition of any party of the CPL or the Premises, the conduct of business thereupon . . . and any
negligent act . . . .” Dunkin’ Brands Opp., Ex. 7 (Franchise Agreement) § 11.1. CCD also agreed
to obtain insurance to protect Dunkin’ Brands “against any loss, liability or expense whatsoever
from, without limitation . . . personal injury . . . arising or occurring upon in connection with the
CPL or by reason of [CCD’s] operation or occupancy of the CPL.” Id. at § 5.3. Similarly, in its
Lease Agreement with Donut II, CCD agreed to obtain an insurance policy to protect Donut II
“against any loss, liability or expense whatsoever from (without limitation) . . . personal injury . .
. arising or occurring upon or in connection with the Premises or be reason of the [CCD’s] operation
or occupancy of the Premises from personal injury and other occurrences arising in connection the
premises.” Dunkin’ Brands Opp., Ex. 6 (Lease Agreement) § 12(c). The lease and franchise
agreements protecting Donut II and Dunkin’ Brands from premises liability are “insured contract[s]”
within the meaning of the Primary Policy. PSM does not dispute that these agreements are indeed
“insured contracts” as defined in the Primary Policy. Because the exclusion in the Primary Policy
contains an exception for liability assumed under these insured contracts, it cannot be said that the
“Bodily Injury to Employees” exclusion operates to preclude coverage of the insured contracts here
(namely, the liability CCD assumed under the lease and franchise agreements with Donut II and
Dunkin’ Brands). See Garnet Constr. Co., Inc. v. Acadia Ins. Co., 61 Mass. App. Ct. 705, 708
(2004) (noting that the insured did not dispute that under a similar bodily injury to employees
exclusion, where the injured individual was insured’s employee, the insurer would be “obliged to
19
defend only if the fourth-party complaint could be said to raise a claim of liability assumed under
an ‘insured contract,’ thereby triggering the exception to the exclusion”); Cowan, 457 F.3d at 374
(concluding that a similar employer’s liability exclusion did not preclude coverage where the
exclusion included an exception for insured contracts).
The cases upon which PSM relies to support its argument that the “Bodily Injury to
Employees” exclusion precludes coverage, (PSM Mem. at 18-20), contain no exception for insured
contracts in its bodily injury exclusion and are therefore inapplicable. See, e.g., Interco Inc. v.
Mission Ins. Co., 808 F.2d 682, 685 (8th Cir. 1987) (affirming in part and reversing in part district
court’s decision that two insurance carriers had a duty to defend an employer in a suit arising out
of its termination of an employee); Davis v. Oilfield Scrap & Equip. Co., Inc., 503 So. 2d 674, 676
(La. Ct. App. 3d Cir. 1987) (applying bodily injury exclusion in affirming summary judgment in
favor of employer’s insurer in a tort suit an employee brought against an employer for damages
allegedly sustained as a result of an intentional act by co-employee); Santiago v. Equip. Leasing of
Cal., 437 So.2d 971, 972-73 (La. Ct. App. 3d Cir. 1983) (affirming summary judgment and finding
that bodily injury exclusion precluded coverage where an employee received fatal injuries during
the course of his employment); Truck Ins. Exch., Inc. v. Vassholz, 839 S.W.2d 22, 22 (Mo. App.
1992) (similar).
3.
“Intra-Insured” Exclusion Does Not Bar Coverage
PSM contends that any indemnity obligations CCD may have to Donut II and Dunkin’
Brands fall squarely within the terms of the “Intra-Insured” exclusion in the Primary Policy, which
provides that “[l]iability coverage . . . does not apply to Bodily Injury . . . sustained by you or any
other insured described in this form or policy. We will have no duty to defend or indemnify any
20
insured against a claim, suit or lawsuit by any other insured.” Endorsement in Primary Policy, Ex.
8 to the Kossuth Affidavit, D. 51. Specifically, PSM argues that since Donut II and Dunkin’ Brands
are “additional insureds” and CCD and Arteaga are “insureds” under the Primary Policy, the intrainsured exclusion excludes the indemnity liability owed from CCD to Donut II and Dunkin’ Brands
for any liability arising out of Arteaga’s injuries sustained on the Premises. The Defendants contend
that reading the intra-insured exclusion to preclude such coverage would be contrary to the
expectation of CCD when it obtained the policies with PSM, having entered into the insured
contracts with Dunkin’ Brands and Donut II to cover premises liability, and having added these
entities as additional insureds to the Policy to cover precisely these types of bodily injuries on the
Premises.
When interpreting an insurance policy, the Court must read the policy language as a whole.
Fireman’s Fund Ins. Co. v. Special Olympics Int’l, 346 F.3d 259, 261 (1st Cir. 2003); USM Corp.
v. Arthur D. Little Sys., Inc., 28 Mass. App. Ct. 108, 116 (1989) (noting that “[t]he object of the
court is to construe the contract as a whole, in a reasonable and practical way, consistent with its
language, background, and purpose”). The court considers “what an objectively reasonable insured,
reading the relevant policy language, would expect to be covered.” Franklin v. Professional Risk
Mgmt. Servs., Inc., 987 F. Supp. 71, 75 (D. Mass. 1997). “[A]ny ambiguities in the exclusion
provision are strictly construed against the insurer.” Brazas, 220 F.3d at 4. “Ambiguity does not
exist simply because the parties disagree about the proper interpretation of a policy provision; rather,
‘[a]mbiguity exists when the policy language is susceptible to more than one rational
interpretation.’” Valley Forge, 2012 WL 556221, at *2 (quoting Brazas, 220 F.3d at 4-5). If there
are any ambiguities, the Court must “construe the policy in favor of the insured and against the
21
drafter, who is invariably the insurer, unless specific policy language is controlled by statute or
prescribed by another authority.” Metro. Prop. and Cas. Inc. Co. v. Morrison, 460 Mass. 352, 363
(2011). Accordingly, “if ‘there are two rational interpretations of policy language, the insured is
entitled to the benefit of the one that is more favorable to it.’” GRE Ins. Group, 61 F.3d at 81
(quoting Hazen Paper Co. v. United States Fidelity & Guaranty Co., 407 Mass. 689, 700 (1990)).
“This rule of construction applies with particular force to exclusionary provisions.” Hakim, 424
Mass. at 282.
In the instant case, both the Primary Policy and the Umbrella Policy provided coverage for
“insured contracts” which, as discussed above, includes those agreements entered into between CCD
and Donut II and Dunkin’ Brands, respectively. These insured contracts between CCD and Dunkin’
Brands and Donut II indemnify Donut II and Dunkin’ Brands against liability for personal injury
connected to the Premises. Dunkin’ Brands and Donut II were also added to the Policy, which
afforded them coverage as additional insureds under the Policy. In light of the coverage for the
insured contracts and coverage for Dunkin’ Brands and Donut II as additional insureds under the
Primary Policy, CCD would reasonably have expected that the intra-insured exclusion would not
operate to bar coverage for liability it assumed in these contracts for Arteaga’s injury on the
Premises and, accordingly, it is rational to interpret the intra-insured exclusion as inapplicable.
According to PSM’s interpretation of the exclusion that PSM has “no duty to defend or
indemnify any insured against a claim, suit or lawsuit by any other insured,” the exclusion precludes
coverage for all claims among and between insureds. (PSM Mem. at 16). PSM specifically
contends that because Arteaga, Donut II, Dunkin’ Brands and McCarthy Management all qualify
as “any other insured” as that term is used in the exclusion and because they are “insureds,” any
22
claims they have against “other insureds” like Donut II or Dunkin’ Brands are excluded from
coverage. (PSM Mem. at 17). Under PSM’s reading of the exclusionary language, indemnitees
such as Dunkin’ Brands and Donut II named as additional insureds are never covered under the
Primary Policy because the indemnity obligation is owed from the insured (CCD as indemnitor) to
an additional insured (Donut II and Dunkin Brands as indemnitees) and would fall within the intrainsured exclusion. PSM’s reading would only allow coverage for liability assumed in insured
contracts if the additional insured is not also an indemnitee under the insured contract. Yet, the
insured contract provision in the Primary Policy contains and contemplates no such limitation – i.e.,
whereby an insured contract that also includes an indemnitee as an additional insured is not covered.
PSM’s contention that the intra-insured exclusion does not operate to eliminate all coverage
intended for additional insureds under the insured contract provision and that instead, it provides
coverage to Defendants where a third party (who is not an insured) brings suit against them, does
not address the critical issue here: whether the language of the intra-insured exclusion can be
reconciled with that of the insured contract provision where the indemnitee is an additional insured
under the policy. Nothing in the policies indicates the parties intended the insured contract provision
or the additional insured coverage to be limited in this manner.5
Because the exclusion is susceptible to more than one reasonable interpretation (PSM’s
5
PSM cites Morgan v. Am. Family Mut. Ins. Co., 2007 WL 1624753, at * 2-3 (D. Ariz.
June 5, 2007), PSM Mem. at 16, for the proposition that the intra-insured exclusion is
enforceable in this case, but it lends support to the Defendants’ position. There, in applying
Arizona’s doctrine of reasonable expectations, the Court concluded that the intra-insured
exclusion was in fact unenforceable. Id. In affirming summary judgment on this basis, the Ninth
Circuit noted that “[w]here … one section would lead a reasonably intelligent person to conclude
that he is covered under the policy, but another section inconspicuously eviscerates that
coverage, the section limiting the coverage is invalid.” Morgan ex rel. Clark v. Am. Family Mut.
Ins. Co., 336 Fed. Appx. 644, 645 (9th Cir. 2009).
23
interpretation that the exclusion applies whenever one insured asserts claims against any other
insured regardless of the existence of an insured contract provision and CCD’s interpretation that
the exclusion does not apply because of the existence of an insured contract provision and coverage
of additional insureds) the Court finds this exclusionary provision is ambiguous. In strictly
construing the exclusion against PSM, the insurer who has the burden of establishing that the
exclusion applies, Hakim, 424 Mass. at 281-82, the Court concludes that it does not preclude
coverage here.6
The parties extensively discuss and the Defendants heavily rely on Parker v. John Moriarty
& Assocs., Inc., 2007 WL 2429719, at *7-8 (Mass. Super. July 29, 2007) to support their argument
that applying the intra-insured exclusion would defeat CCD’s expectation of coverage in adding
Dunkin’ Brands and Donut II as additional insureds to the Primary Policy in light of the insured
contracts and insured contract provision in the Primary Policy (CCD Mem. at 14-18; Dunkin’
Brands Mem. at 13-15). The Court, however, finds more instructive the reasoning in Twin City Fire
Ins. Co., Inc. v. Ohio Cas. Ins. Co., Inc., 480 F.3d 1254, 1262 (11th Cir. 2007) because it construed
a cross-suit exclusion containing similar language to the intra-insured exclusion here. There, the
6
With respect to PSM’s argument that CCD is not entitled to coverage for claims asserted
by Arteaga as an “insured-employee” directly against CCD as an “insured-employer”(PSM
Mem. at 16-17), the Court notes that CCD is not named as a defendant in the underlying lawsuit,
whereas Donut II, McCarthy Management and Dunkin’ Brands are named defendants. (PSM
Mem., Ex. 2 (complaint)). CCD seeks coverage only to the extent Dunkin’ Brands and Donut II
have sought indemnification from CCD under the policies (by virtue of their insured contracts).
As discussed above, the exclusions do not apply to preclude such coverage. To the extent that
PSM argues that all of the exclusions should be interpreted to deny coverage to Dunkin’ Brands
and Donut II for any liability that would not have been covered if Arteaga’s claims had been
brought directly against CCD, PSM Mem at 23-24 (relying on Simco Enters., Ltd. v. James
River Ins. Co., 566 F. Supp. 2d 555 (E.D. Tex. 2008)), the Court declines to adopt this position.
24
cross-suit exclusion precluded “[a]ny liability of any ‘Insured’ covered under this policy to any other
‘Insured’ covered under this policy.” Id. The Eleventh Circuit rejected the insurer’s argument that
the cross-suit exclusion operated to preclude coverage of its insured’s indemnity liability owed to
an additional insured by virtue of an insured contract. Id. at 1262-63. The Court explained that
applying the exclusion in the manner advanced by the insurer would effectively nullify the
additional insured coverage, insofar as “[t]he party ordinarily named as an additional insured by
virtue of an indemnity contract is the indemnitee . . . [b]ut . . . an indemnitee named as an additional
insured would not be covered, because the indemnity obligation would thereby be owed from one
insured to another and fall under the cross-suit exclusion.” Id. at 1262. To apply the exclusion
would not only eliminate the additional insured provision, but would also conflict with its terms as
well as those of the insured contract provision, which did “not say that a contract that also happens
to include the indemnitee as an additional insured is not covered.” Id. at 1263. The Court noted
that nothing in the policy contemplated the result sought by applying the cross-suit exclusion,
namely that “a named insured who adds an indemnitee as an additional insured in such a contract
also loses insured contract coverage.” Id. In light of the conflicts and inconsistencies within the
policy, the Court found the cross-suit exclusion “at best ambiguous with respect to obligations owed
from an insured to an additional insured” and that “it would make little sense to apply the cross-suit
exclusion to indemnity obligations owed by a named insured to an additional insured.” Id. at 1262.
The Twin City panel construed the ambiguity against the insurer and in favor of coverage, thereby
refusing to apply the cross-suits exclusion. Id. at 1263.
Similarly, applying the intra-insured exclusion here would effectively bar coverage for an
indemnitor’s obligation (CCD) to an indemnitee (Defendants) under the insured contracts (Lease
25
and Franchise Agreements). The principle underlying the Court’s decision in Twin City is
persuasive here, where, as here, Defendants are “additional insureds” and indemnitees by virtue of
their insured contracts with the insured (CCD) and coverage as an additional insured would be
eviscerated by applying the intra-insured exclusion to them.7
4.
Exclusions under the Umbrella Policy
The Umbrella Policy provides that PSM will “pay on behalf of the insured the ultimate net
loss for occurrence during the policy period in excess of the underlying insurance or for occurrences
by this policy which are either excluded or not covered by underlying insurance because of Personal
Injury, Property Damages, or Advertising Liability anywhere in the world.” PSM Mem., Ex. 5 at
8. To the extent that the damages claimed by Arteaga exceed CCD’s policy limits under the Primary
Policy, the Umbrella Policy provides excess coverage, unless an exclusion applies.
The exclusions at issue under the Umbrella Policy are substantially similar to the exclusions
under the Primary Policy. First, because the language of the intra-insured exclusion is identical to
that contained in the Primary Policy, PSM Mem., Ex. 5; PSM Mem. at 30, as discussed above, the
intra-insured exclusion does not apply to preclude coverage. Second, to the extent that PSM argues
that the exclusion under the Umbrella Policy regarding worker’s compensation precludes coverage,
7
PSM also relies on Ohio Casualty Ins. Co. v. Holcim, Inc., 744 F. Supp. 2d 1251 (S.D.
Ala. 2010), construing a similar cross-suits exclusion to that at issue in Twin City and this case.
In Ohio Casualty, however, the insurer did not ask the Court to enforce the cross suits exclusion
in a manner that eliminated coverage for indemnity liability. 744 F. Supp. 2d at 1268. In finding
that the cross-suits exclusion applied to exclude coverage, the Court explained that applying the
cross-exclusion would not eliminate the “additional insured” coverage for indemnity obligations;
“rather, the ‘additional insured’ coverage would remain viable and intact for
indemnitor/indemnitee liability under that ‘insured contract.’” Id. That, as explained more fully
above, would not be result in this case.
26
PSM Mem. at 31, the Court concludes that it does not bar Arteaga’s claims against Donut II and
Dunkin’ Brands for the reasons discussed supra in regard to the Primary Policy. Third, the
“Employers Liability Exclusion” under the Umbrella Policy also does not preclude coverage. This
exclusion affords no coverage for “bodily harm or injury, sickness . . . mental injury including care,
loss of services or death arising out of these by: 1. An employee of the insured arising out of and
in the course of employment by the insured . . . .” PSM Mem., Ex. 5 (Endorsement to the Umbrella
Policy). “This exclusion applies . . . whether the insured may be liable as an employer or in any
other capacity and . . . [t]o any obligation to share damages with or repay someone else who must
pay damages because of the injury.” Id. The exclusion does not apply “to liability assumed by the
insured under a written contract if such liability is covered by valid and collectible Underlying
Insurance at the limits shown in the schedule of underlying insurance.” Id. The parties agree that
the Employers Liability Exclusion is substantively identical to the Bodily Injury Exclusion in the
Primary Policy which contains an exception for insured contracts. Id.; PSM Mem. at 30; CCD Mem.
at 28. Thus, for the reasons discussed above, the Employers Liability Exclusion in the Umbrella
Policy does not operate to preclude coverage.
Because PSM has failed to meet its burden to show that any of the exclusions apply to deny
coverage under the Primary Policy and Umbrella Policy, the Court finds that PSM has a duty to
defend CCD and the additional insureds, Donut II and Dunkin’ Brands, in the underlying lawsuit.
Although CCD, Dunkin’ Brands and Donut II also seek summary judgment that PSM has
a duty to indemnify them in the lawsuit, the duty to indemnify “arises only after the insured’s
liability has been established.” Wilkinson v. Citation Ins. Co., 447 Mass. 663, 671 (2006). As
previously noted, the duty to indemnify is narrower than the duty to defend, Home Ins. Co. v. St.
27
Paul Fire & Marine Ins. Co., 229 F.3d 56, 66 (1st Cir. 2000). Unlike the duty to defend, the duty
to indemnify is determined by the facts as they unfold at trial or in a settlement agreement, rather
than simply the pleadings. See Travelers Ins. Co. v. Waltham Indus. Labs. Corp., 883 F.2d 1092,
1099 (1st Cir. 1989).
Because the underlying lawsuit has not reached its conclusion or been
otherwise resolved, the Court cannot determine at this time whether PSM has a duty to indemnify
CCD, Dunkin’ Brands and Donut II.
Accordingly, PSM’s motion for summary judgment is DENIED; CCD’s cross-motion for
summary judgment is GRANTED as to Count III (duty to defend) of its counterclaim and DENIED
as to Counts I-II (duty to indemnify) of same; Donut II’s cross-motion for summary judgment is
GRANTED as to Counts III (duty to defend) of its counterclaim and DENIED as to Counts I-II (duty
to indemnify) of same; and Dunkin’ Brands’ cross-motion for summary judgment is GRANTED
only to the extent that it sought summary judgment as to PSM’s duty to defend.
D.
Cross-Motions For Summary Judgment of CCD and Donut II
In addition to their request for a declaratory judgment that PSM has a duty to defend and
indemnify them under its policies in the underlying litigation, CCD and Donut II bring three
additional causes of action against PSM in their counterclaims: breach of contract (Count IV);
breach of covenant of good faith and fair dealing (Count V); and unfair and deceptive practices
under Mass. Gen. L. c. 176D and Mass. Gen. L. c. 93A (Count VI).8 The Court will address each
in turn.
1.
Breach of Contract (Count IV)
8
The causes of action in the counterclaims submitted by CCD and Donut II are identical.
Compare D. 10 (CCD Answer and Counterclaim) with D. 12 (Donut II Answer and
Counterclaim).
28
Initial wrongful denial of coverage, even where the insurer has some justification for its
denial, constitutes a breach of the insurance contract. Middlesex Mut. Assur. Co. v. Puerta de la
Esperanza, LLC, 2011 WL 1361552, at *3 (D. Mass. Apr. 11, 2011). “It is immaterial whether the
insurer proceeds in good faith or in bad faith to avoid the duty to defend under a liability insurance
policy because ‘to impose upon the insured the cost of compelling his insurer to honor its contractual
obligation is effectively to deny him the benefit of his bargain.’” Hanover Ins. Co. v. Golden, 436
Mass. 584, 587 (2002) (quoting Rubenstein v. Royal Ins. Co., 429 Mass. 355, 360 (1999)). Given
the Court’s ruling that PSM has a contractual obligation to provide a defense to the insureds in
relation to the underlying litigation, the cross-motions for summary judgment of CCD and Donut
II as to the breach of contract claim against PSM is GRANTED.
2.
Breach of Covenant of Good Faith and Fair Dealing (Count V)
In Massachusetts, “[e]very contract implies good faith and fair dealing between the parties
to it.” Warner Ins. Co. v. Comm’r of Ins., 406 Mass. 354, 362 n. 9 (1990). “The implied covenant
of good faith and fair dealing provides that neither party shall do anything that will have the effect
of destroying or injuring the right of the other party to receive the fruits of the contract.” Anthony’s
Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471 (1991) (quotations and citations omitted).
CCD and Donut II argue that PSM breached the implied covenant of good faith and fair
dealing when it refused to defend and indemnify CCD and the additional insureds for a claim
expressly covered under the terms of PSM’s policies. (CCD Mem. at 31; Donut II Opp. at 2). CCD
and Donut II further argue that such breach of the implied covenant has caused them damages,
including the cost of the instant declaratory judgment action by PSM and the underlying suit. Id.
Apart from PSM’s denial of coverage for Arteaga’s underlying claims, no jury could reasonably
29
conclude that PSM breached the implied covenant of good faith and fair dealing since this case does
not involve any misbehavior beyond a breach of contract. Insurance companies have no general
duty to interpret its insurance contracts in favor of the insured. In Massachusetts, it is the court’s
role to interpret insurance contracts while being mindful that policy interpretation is to favor
insureds and that ambiguous terms must be resolved against the insurer. If insurance companies
were required to follow the same approach, a “potential for unfairness [ ] might arise if a violation
of the covenant of good faith and fair dealing were found to occur every time an insurer interpreted
a contract in a manner favorable to itself.” Middlesex Mut. Assur. Co., 2011 WL 1361552, at *4
(concluding that insured had no viable claim for breach of covenant of good faith and fair dealing
where insured argued that insurer wrongfully interpreted the policy in favor of itself to the detriment
of the insured).
CCD and Donut II are therefore not entitled to summary judgment as to Count V.
3.
Mass. Gen. L. c. 176D and Mass. Gen. L. c. 93A (Count VI)
Chapter 93A prohibits “[u]nfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce.” Mass. Gen. L. c. 93A, § 2(a). “‘Although
whether a particular set of acts, in their factual setting, is unfair or deceptive is a question of fact,
the boundaries of what may qualify for consideration as a [Chapter] 93A violation is a question of
law.’” Arthur D. Little, Inc. v. Dooyang Corp., 147 F.3d 47, 54 (1st Cir.1998) (quoting Ahern v.
Scholz, 85 F.3d 774, 797 (1st Cir. 1996) (citation and internal quotations omitted)). “[A] mere
breach of contract does not constitute an unfair or deceptive trade practice under 93A.” Commercial
Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 40 (1st Cir. 2000); see Gulezian v. Lincoln
Ins. Co., 399 Mass. 606, 613 (1987) (noting that “[a]n insurance company which in good faith denies
30
a claim of coverage on the basis of a plausible interpretation of its insurance policy is unlikely to
have committed a violation of G.L. c. 93A”).
CCD and Donut II contend that PSM violated Chapter 93A when it engaged in “unfair claim
settlement practices” under c. 176D. Mass. Gen. L. c. 176D was intended to “remedy a host of
possible violations in the insurance industry and to subject insurers committing violations to the
remedies available to an injured party under G.L. c. 93A.” Hopkins v. Liberty Mut. Ins. Co., 434
Mass. 556, 562 (2001). A violation of c. 176D, § 3 does not, alone, create a private right of action;
it outlines practices which violate c. 93A, § 2. Scott v. Vermont Mut. Ins. Co., 2011 WL 4436984,
at * 7 (D. Mass. Sept. 22, 2011). CCD and Donut II argue that PSM has committed an unfair claim
settlement practice under c. 176D, § 3 (9), in “[f]ailing to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably clear,” Mass. Gen. L. c. 176D, § 3
(9) (f), and in doing so, has also violated c. 93A.
To determine whether liability is reasonably clear depends on “‘whether a reasonable person,
with knowledge of the relevant facts and law, would probably have concluded, for good reason, that
the insurer was liable to the plaintiff.’” Nyer v. Winterthur Int’l, 290 F.3d 456, 461 (1st Cir. 2002)
(quoting Demeo v. State Farm Mut. Auto. Ins. Co., 38 Mass. App. Ct. 955, 956-57 (1995)). “[T]hat
liability encompasses both fault and damages.” Clegg v. Butler, 424 Mass. 413, 421 (1997). “This
is an objective standard . . . which takes into account the totality of the circumstances.” Scott v.
Vermont Mut. Ins. Co., 2011 WL 4436984, at *8 (D. Mass. Sept. 22, 2011). Massachusetts courts
have emphasized that c. 176D does not “penalize insurers who delay in good faith when liability is
not clear and requires further investigation.” Clegg, 424 Mass. at 421.
There is no genuine issue of material fact regarding PSM’s actions in regard to its denial of
31
the Defendants’ claims for coverage. On this undisputed record, no finder of fact could reasonably
conclude that PSM failed to negotiate a settlement in good faith on behalf of CCD, Donut II, and
Dunkin’ Brands. There is no evidence in the current record that PSM acted in bad faith in denying
coverage based on its own rational interpretation of the policy or in bringing a declaratory judgment
action to determine the contours of such coverage. The reasons for the Court’s finding that no
exclusions are applicable to deny coverage in light of CCD’s insured contracts with additional
insureds Donut II and Dunkin’ Brands, center on the interplay between the insured contract language
and the exclusions in the policies.
PSM interpreted the exclusionary language as precluding
coverage regardless of the existence of CCD’s insured contracts. Although the Court has concluded
that PSM has not met its burden to show the exclusions apply in such a manner, it does not follow
that PSM is liable under c. 176D and 93A merely for interpreting its policies in a way that denies
coverage, particularly when neither party has cited to any binding authority that answers the precise
legal issues raised in this case. “Liability under c. 176D and 93A does not attach merely because
an insurer concludes that it has no liability under an insurance policy and that conclusion is
ultimately determined to have been erroneous.” Pediatricians, Inc. v. Provident Life & Accident Ins.
Co., 965 F.2d 1164, 1173 (1st Cir.1992). An insurer who takes “[a] plausible, reasoned legal
position that may ultimately turn out to be mistaken-or simply . . . unsuccessful-is outside the scope
of the punitive aspects of the combined application of c. 93A and c. 176D.” Guity v. Commerce Ins.
Co., 36 Mass. App. Ct. 339, 343 (1994).
Accordingly, CCD and Donut II are not entitled to summary judgment as to Count VI of their
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counterclaims.9
VI.
Conclusion
For the foregoing reasons, PSM’s motion for summary judgment is DENIED; CCD’s motion
for cross-summary judgment is GRANTED in part and DENIED in part; Donut II’s Cross-Motion
for Summary Judgment is GRANTED in part and DENIED in part; Dunkin’ Brands’ cross-motion
for summary judgment is GRANTED.
So ordered.
/s/ Denise J. Casper
United States District Judge
9
Although McCarthy Management is named as an additional insured in the Primary
Policy, it has responded neither to PSM’s complaint nor its motion for summary judgment. The
Court, therefore, enters default for McCarthy Management’s failure to plead or otherwise defend
pursuant to Fed. R. Civ. P. 55(a) and does not otherwise address the merits of the case against
McCarthy Management.
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