## Facts

- Tom and Sue Ghezzi hired Benchmark Construction Services, Inc. (Benchmark) as the general contractor to renovate their home in Newton, Massachusetts.
- The Ghezzis separately hired architect Thomas Huth.
- Huth retained decorative painter Sara Egan (doing business as Painted Design) to perform decorative work; Egan assigned her employee, Meghan Bailey, to the project.
- On March 5, 2010, while Bailey was painting, she fell from a ladder positioned on top of scaffolding and was injured.
- Bailey sued Benchmark in Massachusetts Superior Court, alleging Benchmark owed her a duty of care and negligently erected and maintained the ladder and scaffolding.
- Benchmark was insured under a commercial general liability (CGL) policy issued by United States Liability Insurance Company (USLIC).
- Benchmark tendered the defense of the Bailey suit to USLIC. USLIC denied defense and indemnity, relying on Endorsement L-500, which replaced the policy’s standard employer’s-liability exclusion.
- L-500 excluded coverage for bodily injury to any “contractor, subcontractor or any ‘employee’ … of any contractor or subcontractor” arising out of rendering services “for which any insured may become liable in any capacity.” The policy did not define “contractor.”
- USLIC filed a federal declaratory-judgment action in the District of Massachusetts seeking a declaration of no duty to defend or indemnify; Benchmark counterclaimed for a declaration that USLIC owed both duties.
- On cross-motions for summary judgment, the district court ruled for USLIC; Benchmark appealed.

## Issues

1. Under Massachusetts law, did the undefined term “contractor” in the L-500 endorsement clearly include Egan (hired by the architect, not by Benchmark), making Bailey an “employee … of any contractor” whose injury was excluded?
2. If the exclusion was not clear, did USLIC nevertheless have a duty to defend Benchmark because Bailey’s complaint was reasonably susceptible of a covered reading?
3. Based on the same interpretation, did USLIC also owe a duty to indemnify Benchmark for the Bailey suit?

## Decision

- The First Circuit reversed the district court’s summary judgment for USLIC.
- The court held that, as applied to these facts, the L-500 “contractor employees” exclusion was ambiguous because “contractor” was undefined and could reasonably be read more narrowly than “anyone with a contract.”
- Because the ambiguity had to be construed against USLIC, Bailey’s claim was not clearly excluded, and USLIC owed Benchmark a duty to defend and (on the record presented) a duty to indemnify.

## Legal Principles

- Under Massachusetts law, interpretation of an insurance policy is a question of law for the court, applying ordinary contract rules and the policy’s “fair meaning” in context.
- The insurer bears the burden to show that an exclusion clearly applies; if exclusion language is ambiguous, it is read strictly against the insurer and in favor of coverage.
- A term is ambiguous when it is reasonably susceptible of more than one meaning when read in context, not merely because the parties disagree.
- The duty to defend is broader than the duty to indemnify and is triggered when the complaint’s allegations are reasonably susceptible of a reading that states or suggests a covered claim.
- Where an exclusion turns on an undefined term (here, “contractor”) and the insurer’s broad reading would sweep in people with only a remote relationship to the insured (such as a worker employed by a decorator retained by a separately hired architect), Massachusetts rules require resolving the doubt in the insured’s favor.

## Conclusion

Because “contractor” was undefined and could reasonably mean only contractors in Benchmark’s contracting chain (rather than any person who had a contract with someone on the project), the L-500 endorsement did not clearly bar coverage for Bailey’s injury claim, so USLIC had a duty to defend and indemnify Benchmark in the underlying negligence action.


United States Liability Insurance Company v. Benchmark Construction Services, Inc., 797 F.3d 116 (2015)