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
- 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?
- 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?
- 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.