Brown Daltas & Associates, Inc. v. General Accident Insurance

                UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                         

No. 94-1576

           BROWN DALTAS & ASSOCIATES, INC., ET AL.,

                    Plaintiffs, Appellees,

                              v.

    GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, ET AL.,

                     Defendant, Appellee,

                                         

          NORTHBROOK EXCESS & SURPLUS INSURANCE CO.,

                    Defendant, Appellant.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Morton A. Brody,* U.S. District Judge]
                                                                

                                         

                            Before

                     Selya, Circuit Judge,
                                                     
                Bownes, Senior Circuit Judge,
                                                        
                  and Stahl, Circuit Judge.
                                                      

                                         

Erik  Lund,  with  whom  Sibley  P.  Reppert,  Jon  C.  Cowen, and
                                                                         
Posternak, Blankstein & Lund were on brief for appellant.
                                    
William Shields, with  whom Day, Berry  & Howard was on  brief for
                                                            
plaintiffs-appellees.

                                         

                      February 21, 1995
                                         
                 

* Of the District of Maine, sitting by designation.


          BOWNES, Senior Circuit  Judge.  This appeal  arises
                      BOWNES, Senior Circuit  Judge.
                                                   

out  of  an  insurance  coverage  dispute between  defendant-

appellant  Northbrook  Excess  &  Surplus  Insurance  Company

("Northbrook"),  and  plaintiffs-appellees  Brown   Daltas  &

Associates,  Inc. ("BDA"),  Brown Daltas  &  Associates Saudi

Arabia Ltd.  ("BDASA"), Benjamin  I. Brown, and  Spero Daltas

(collectively,  "the  insureds").1     At  issue  is  whether

Northbrook must indemnify  the insureds  under the  discovery

clause  of a $1,000,000  claims-made architects and engineers

professional  liability  policy ("the  Policy")  covering the

period May 5,  1981 through June 4, 1982.   The Saudi Arabian

Monetary  Authority ("SAMA")  made  an  underlying  claim  of

architectural design  negligence in April 1987;  the insureds

and the  SAMA settled  it in  February 1990.   After  a jury-

waived  trial,  the  district  court  resolved  the  coverage

dispute in favor  of the insureds, entering judgment for them

in the amount of $788,637.57.

          Although  Northbrook asserts  that this  ruling was

infected  by  several deficient  factual  determinations, its

flagship appellate  argument is that the  court clearly erred

in finding  that the insureds  first became aware  during the
                                                

policy period of  the circumstances subsequently giving  rise

                    
                                

1.  Individual plaintiffs Brown and Daltas are architects and
the  founders of BDA.   They also hold  significant stakes in
BDASA.  Both were  named insureds on the insurance  policy at
the heart of this litigation.

                             -2-
                                          2


to  the SAMA's  claim.   Such  awareness on  the part  of the

insureds is one of the conditions precedent to coverage under

the  Policy's discovery  clause --  the only  means by  which

coverage  under the  Policy  was possible.   After  carefully

reviewing the record and  considering the parties'  arguments

on this question, we agree with Northbrook.   Accordingly, we

reverse.

                              I.
                                          I.
                                            

          The  background of this  litigation has  been fully

set  forth in a published opinion by the district court.  See
                                                                         

Brown Daltas & Assocs. Inc. v.  General Acc. Ins. Co. of Am.,
                                                                        

844  F.  Supp.  58  (D.  Mass.  1994).    The facts  will  be

reiterated here  only to the extent necessary  to explain and

resolve the  dispositive issue -- i.e.,  whether the insureds

first  became   aware  during   the  policy  period   of  the

circumstances subsequently giving rise to the SAMA's claim of

design negligence.

A.  General Background
            A.  General Background
                                  

          In  1974,  BDA,  which  was  then  operating  as  a

partnership,  entered into a contract with the SAMA to design

branch bank buildings  in the Saudi cities  of Riyadh, Jedda,

Damman, Mecca, and Medinah.  BDA completed the designs during

the  period 1974-1978.    In 1978,  BDA  (which was  by  then

incorporated)  and Xenel, a Saudi company,  formed BDASA as a

joint venture.  That same year, BDASA entered into a contract

                             -3-
                                          3


with the SAMA to administer and supervise the construction of

the banks.  In 1983, BDASA and the SAMA entered into a second

supervision contract.  

          From 1979  through  1986,  BDASA  was  insured  for

liability  arising  out  of  its supervision  of  the  banks'
                                                        

construction under consulting  engineer's indemnity  policies

issued  by  underwriters at  Lloyd's  of London.    From 1978

through 1985, BDA  and, at  least in some  cases, BDASA  were

insured for  liability arising  out of  their  design of  the
                                                                 

banks   under   professional   liability    policies   issued

consecutively  by  Lloyd's   underwriters,  Northbrook,   the

Evanston  Insurance  Company  ("Evanston"), and  the  General

Accident Insurance Company  of America ("General  Accident").

As we have stated,  at issue here is a  $1,000,000 Northbrook

professional  liability claims-made  contract issued  for the

period May 5,  1981 through June 4, 1982.  The underwriter of

the Policy was Shand, Morahan & Company ("Shand").

          Because  of its  "claims-made"  nature, the  Policy

generally  provided  coverage  only  for  claims  first  made

against  the  insureds  during   the  coverage  period.    An

exception to this general rule was, however, set forth in the

Policy's  discovery clause.   In  relevant part,  this clause

provided:

          If during  the policy period  the Insured
          shall   first   become   aware   of   any
                                                               
          circumstances which may subsequently give
                                                               
          rise to a  claim against  the Insured  by
                                                           

                             -4-
                                          4


          reasons   [sic]  of  any  act,  error  or
          omission  for  which  coverage  would  be
          afforded  hereunder  and  if the  Insured
          shall  during  the  policy period  herein
          give  written  notice to  [Northbrook] of
          such circumstances, any  claim which  may
          subsequently be made against  the Insured
          arising  out   of  such  act,   error  or
          omission shall be deemed for  the purpose
          of  this Policy to  have been made during
          the   policy   period   stated   in   the
          declarations. 

(Emphasis supplied.)

          Because the  underlying claim here was  not made by

the  SAMA until  April 1987  -- nearly  five years  after the

expiration  of  the  Policy  --  coverage  for  the  insureds

depended upon  operation of  the discovery  clause.  And  the

discovery clause establishes as  a condition precedent to its

operation  that the  insureds first  become aware  during the
                                               

policy period of  the circumstances subsequently  giving rise

to any claim for which they might seek coverage. 

          Construction of the Riyadh  and Damman branch banks

began in late 1978 or early 1979.  Construction  at the other

three sites began later.  At some point between 1978 and 1981

(the  evidence relating  to  exactly when  will be  set forth

below), Laing Wimpey Alireza  Ltd. ("LWA"), the contractor at

the  Riyadh, Damman, and Jedda sites, told BDA and BDASA that

the  heating,  ventilation,  and  air  conditioning  ("HVAC")

system  was  defectively designed.    On  November 25,  1981,

following meetings  with LWA  in October 1981,  BDA wrote  to

Shand  and advised  it  of the  possibility  of a  claim  "in

                             -5-
                                          5


connection with  the mechanical  services in the  building in

Riyadh now nearing completion."   In the first part  of 1982,

Shand  wrote BDA  and requested  additional information.   By

letter  dated June  30,  1982,  BDA  responded that  (1)  the

potential claim was  at the Riyadh branch;  (2) the potential

claimant was  LWA; (3) "the  areas of  conflict surround  the

mechanical   services,   more   particularly   the   heating,

ventilation  and  air conditioning  (HVAC)  system";  and (4)

"[i]t is important to understand that the Riyadh and Damma[n]

Branches are identical designs."  

          Meanwhile,  on  April  6,  1982,  BDASA  also  gave

written notice to its Lloyd's underwriters of the possibility

of  a claim involving the air conditioning system.  The April

6, 1982 notice  did not specify the Riyadh plant  as the site

of  the potential  claim; nor  did it  explain how  the claim

might  be covered under BDASA's  supervision policy.  It did,

however,  state   that  LWA  was   the  potential   claimant.

Moreover, it  listed "October  1981" as  "the  date on  which

[BDASA] first  became aware  of circumstances which  may give

rise  to a  claim  being  made  against  [it]."    This  date

corresponds to the following  assertions, which were included

in   a  statement   attached   to   the   circumstances/claim

notification form:

          1.  [BDASA] was informed by [LWA] in May 
              1981 that there were certain problems
              in commissioning the airconditioning 
              [sic] plant.

                             -6-
                                          6


          2.  BDASA convened a meeting in Riyadh in
              June 1981 together with [LWA] and the
              representative of York International 
              the equipment supplier, with the     
              design mechanical engineer and the   
              Rome project manager also present.

          3.  The next meeting was on 21 October   
              1981, when [LWA] said that he [sic]  
              was not responsible, but had only to 
              install the specified equipment.  We 
              replied that it was their            
              responsibility to install a workable 
              system.    At  this point  we  became
          aware       that there was  a possibility
          of a          claim being made.

          Although the controversy involving the  banks' HVAC

systems never completely subsided,  no claim was made against

BDA or BDASA  for the next  several years.   In the  interim,

several attempts were made to commission the air conditioning

systems  at several of the banks.   For a variety of reasons,

none enjoyed sustained success.  During this same period, BDA

and BDASA periodically submitted to the SAMA requests for the

payment of fees (monthly payments  on design work) and claims

(extra costs  that arose during design) owed  for their work.

The SAMA was not very responsive to these requests.

          Finally, in November 1986, BDA and  BDASA completed

their design  and supervision work,  and requested  financial

resolution  meetings with  the SAMA.   Contemporaneously, BDA

issued a comprehensive report  documenting SR 13,192,3372  in

unpaid fees and claims.  On April 7, 1987, the SAMA responded

                    
                                

2.  The applicable exchange rate  between the Saudi Riyal and
the dollar is SR 3.75 per $1.00.

                             -7-
                                          7


to  this report with a  letter stating its  intention to make

claims of  its own against BDA and BDASA in the amounts of SR

9,000,000  for negligence  in  the design  of the  electrical

systems;  SR 4,139,249  for negligence in  the design  of the

HVAC  systems;  and  over   SR  5,000,000  for  other  errors

(including supervision errors).   The letter also stated that

the SAMA was willing  "to renounce all claims against  BDA in

return  for  a  zero   settlement  of  your  final  account."

Although  it took  several years  to consummate,  the parties

eventually  entered into  a  zero-sum settlement  in February

1990.    The  settlement  was reached  without  either  party

initiating an adversarial proceeding.

B.  Proceedings Below
            B.  Proceedings Below
                                 

          Subsequent  to their  zero-sum settlement  with the

SAMA,  the  insureds sought  indemnification from  several of

their insurers.   Because the insureds  could not obtain  the

relevant insurance at the time the SAMA's  claim actually was

made, coverage depended  upon operation of  discovery clauses

in various of  the insurance  contracts.   The insureds  were

able  to obtain  a $600,000  recovery  from Lloyd's  for that

portion of the settlement attributable to supervision claims;

the  design  insurers,  however,  contested  coverage.    The

insureds therefore initiated the instant action.   

          In  their  complaint,  the  insureds  alleged  that

Northbrook's  failure to  provide indemnification (up  to the

                             -8-
                                          8


Policy's   limit)   for  that   portion  of   the  settlement

attributable  to negligence in the design of the HVAC systems

constituted  a   breach  of  contract  and   a  violation  of

Massachusetts' unfair  trade practices  statute.   See  Mass.
                                                                  

Gen. L.  ch. 93A,    2  and 11 (1993).   The same allegations

were  made  with  regard  to General  Accident's  failure  to

provide indemnification  for that  portion of  the settlement

attributable  to  negligence  in  the design  of  the  banks'

electrical systems.   After a four-day bench trial, the court

ruled in  favor of the  insurers on the  Ch. 93A claims,  and

also  ruled  that  the  insureds' breach  of  contract  claim

against General Accident failed because of inadequate notice.

See  Brown Daltas,  844 F.  Supp. at  66-68.   None  of these
                             

rulings is challenged on appeal.

          The court also  ruled that Northbrook had  breached

the Policy  in failing  to indemnify  the insureds under  the

Policy for their settlement of the SAMA's claim of negligence

in the design of the HVAC systems.  Id. at 67.   In so doing,
                                                   

the  court  found BDA's  November  25, 1981  letter  to Shand

sufficient to  invoke coverage  under the  Policy's discovery

clause.   See id.  Of critical importance, the court rejected
                             

Northbrook's assertion that the  insureds had notice prior to
                                                                      

the  policy period of  the circumstances  subsequently giving

rise to the SAMA's  HVAC claim.  Id. at 62  n.3.  The court's
                                                

finding on this issue reads:

                             -9-
                                          9


          Defendants maintain that LWA noticed [the
          HVAC]  problem to  BDASA in  1979.   They
          cite a  July 19, 1981 letter  from LWA to
          BDASA that states:  
               This  company   has  no  design
               obligations.   The error within
               your specification was  pointed
               out in 1979 and at no time were
               revised on/off  coil conditions
               placed  with  us.     We  would
               confirm  your  designers  [sic]
               own   words   at   the   recent
               meetings where he stated that a
               "mistake was made."
          This    letter    reference   alone    is
          insufficient to prove  that BDA or  BDASA
          had notice in 1979.

Id. 
               

C.  Evidence Relating to the Insureds' "Notice of
            C.  Evidence Relating to the Insureds' "Notice of
                                                             
Circumstances"
            Circumstances"
                          

          Although the  portion of  the July 19,  1981 letter

from LWA to BDASA  quoted by the district court  is certainly

relevant to the notice question,  it is not the only part  of

the  letter that pertains to  the issue.   Moreover, there is

significant  other evidence  -- including  the April  6, 1982

notice of  circumstances from BDASA to Lloyd's,  see supra at
                                                                      

6-7 --  relating to notice in  this record.   Because this is

the  basis upon which we  resolve the dispute,  we believe it

important to relate the evidence in some detail.

          1.  The July 19, 1981 Letter
                      1.  The July 19, 1981 Letter
                                                  

          In addition  to the  passage cited by  the district

court,  the  lengthy  July  19,  1981 letter  from  LWA  (the

contractor) to BDASA contains several other passages which at

least suggest  that the  conflict over alleged  negligence in

                             -10-
                                          10


the design  of the HVAC  systems predated May 5,  1981 -- the

effective date of the Policy.  The letter is a point-by-point

response to nine assertions made to LWA by BDASA in a July 6,

1981  letter  that  is  not  in  evidence;  understanding  it

therefore is not particularly easy.  

          In paragraph  one, LWA details a  series of undated

"recent meetings" between  LWA and BDASA.  The paragraph then

states:   "This recent meeting [sic], we were advised, was to

finally agree  [sic] the  solutions to your  long outstanding

problems."  Similarly, paragraph six asserts:

          Please  advise on what  basis your [sixth
          point in  the July 6, 1981  letter] to be
          correct.    Condensing  Unit  No.  5  was
          clearly  specified  by  yourselves.   The
          machine   on   site   was   approved   by
          yourselves  and  we   confirm  that   the
          compressor  is  larger than  standard for
          this package.

          The   possibilities   of   the   problems
          actually experienced on site  were raised
          by us in late 1978.  We have on file your
          telexed reply dated 12 October 1978 which
          refutes   our  concern   and  effectively
          advises us to proceed without concern.

          We categorically refute any allegation of
          responsibility in this matter.

          Finally, after  responding to the  ninth and  final

point in the July 6, 1981 letter, LWA states:

          We fail  to see  how this company  having
          brought to your attention  these problems
          as   early   as   1978  and   continually
          throughout   the   contract  and   having
          demonstrated  the  problems  and  offered
          workable solutions, can be of more help.

                             -11-
                                          11


          Your  apparent wish to ignore, reject and
          refute our assistance continually  is the
          major factor  with  regard to  the  total
          situation and all consequent delays.

          We   must   insist  that   the  financial
          consequences and liabilities are resolved
          prior to the placement of any orders.

          2.  Testimonial Evidence
                      2.  Testimonial Evidence
                                              

          In addition  to the July 19,  1981 letter, evidence

pertaining to  plaintiffs' notice  of  circumstances came  in

through the testimony  of Benjamin I.  Brown, a principal  of

BDA  and plaintiffs'  most  significant witness.   Mr.  Brown

touched  on the notice issue three times during the course of

his extensive testimony.

          Mr. Brown  first  gave testimony  relating to  this

issue on direct examination:

          Q    (By  [Plaintiffs'  Counsel]):    Mr.
          Brown,  in  the  insurance   policies  we
          looked  at  there  was   notification  to
          [Shand]  of a potential claim or incident
          under the name of  [LWA], can you tell us
          what that was all about[?]

          A  During  the first year-and-a-half, two
          years,  the  contractor  for  the  Riyadh
          branch  named [LWA]  brought  it  to  the
          attention  of  the  client and  ourselves
          that  their  view  of  the   HVAC  system
          indicated  that  it  would  not  function
          satisfactorily.
               And they  said  that on  account  of
          this, they could foresee that there would
          be additional costs to make revisions and
          corrections in the equipment  before they
          could guarantee that the  equipment would
          function properly.
               In Saudi Arabia the  contractors are
          rather  like  in  Europe are  responsible
          [sic] for producing  a workable  project,

                             -12-
                                          12


          consultants  don't  have  quite  as  much
          leeway there  as they  do here.   So they
          would hold the contractors [sic]  feet to
          the fire before they would ours.

          Q.   Now,  Mr. Brown,  are you  sure that
          they were '78 or '71 [sic]?

          [DEFENDANTS' COUNSEL]:  Objection.

          THE  WITNESS:  I am  not -- I  am sure it
          was -- it wasn't.

          THE COURT:  Just a moment, please.

          THE WITNESS:  I don't think I said --

          THE COURT:   Just  a moment.   Mr. Brown,
          when you  hear an objection  if you  just
          sort  of pause  and give  me a  chance to
          address it.

          [DEFENDANTS'  COUNSEL]:   I think  it's a
          key factual issue here, and he  is trying
          to lead the witness in my opinion.

          THE COURT:  Well, what I am interested in
          is  what  is indeed  the  fact.   I  will
          overrule the objection.

          THE WITNESS:   I am not  sure I said  '78
          when  LWA discovered  it, it  was several
          months,  maybe  a year-and-a-half  or two
          after construction started in '78 when we
          received the first very serious criticism
          of  the  HVAC  system  from  a  reputable
          contractor   who   [sic]   we    had   to
          investigate very seriously.

          The  question of  notice was  extensively revisited

during Mr. Brown's cross-examination:

          Q.   (By [Defendants' Counsel]):  I would
          like to move to the HVAC claim.
               The  notification as to that claim I
          believe  you testified  was  in 1981,  to
          Northbrook, is that right?

          A.  As I recall, yes.

                             -13-
                                          13


          Q.   Now, the  problem that gave  rise to
          the   notification    was   low   suction
          pressure; is that correct?

          A.  Your memory is better than mine.

          THE COURT:  Are  we talking now about the
          claim with regard to Riyadh  or the claim
          in general?

          [DEFENDANTS' COUNSEL]:   Yes [sic].  This
          is the  notification  that was  given  in
          1981 regarding the HVAC  in Riyadh.  I am
          going  to  show you  [the  July 19,  1981
          letter from LWA  to BDASA]  . . .  .   It
          appears  to  be  a letter  from  [LWA] to
          [BDASA].

          A.  I am sure the letter is authentic.  I
          don't  recall  it  specifically,  but  it
          looks --

          Q.   [LWA] was  the contractor from  whom
          the notification of potential claim came,
          right?

          A.   Yes, and Mr. Wilson  was the project
          manager on  the site at that  time as the
          signer of the letter.

          After  taking  Mr.  Brown  through  several of  the

specific  problems alluded to  in the  July 19,  1981 letter,

defendants' counsel continued his cross-examination:

          Q.   Now,  isn't it  correct to  say that
          [LWA] criticized the design back as early
          as 1978?

          A.  Certainly before this letter in '81.

          Q.    First reference  to  the  timing of
          their criticisms  of the design is on the
          first page,  as I  see it, the  last, the
          second    paragraph,    the     paragraph
          indicating No. 2 on the first page  where
          it states, "The company, this company has
          no  design obligations.  The error within
          your specification" --

                             -14-
                                          14


          A.  Sorry, I've lost you.

          Q.   If you look at the first page of the
          document, sir, down at the bottom.

          A.  Okay.

          Q.   The  second  numbered paragraph,  it
          states,  "This  company  has   no  design
          obligations.    The  error   within  your
          specification  was  pointed out  in 1979,
          and at  no time were  revised on/off coil
          conditions placed with us."
               Do you see that?

          A.  Yes, I do.

          Q.   And  isn't  it correct  to say  that
          [LWA]  did notify  the company  about its
          objections about the design back in 1979?

          A.  That's correct.

          Q.  And the --  on Page 3 under  numbered
          Paragraph  6, there  is a  paragraph that
          says, "The possibilities of  the problems
          actually experienced on site  were raised
          by us in late 1978.  We have on file your
          telex reply  dated 12 October  1978 which
          refutes  our   concern,  and  effectively
          advises us to proceed without concern."
               Do you see that?

          A.  Yes.

          Q.  And  do you have knowledge  regarding
          that telex?

          A.  I don't recall that incident.

          Q.   Do  you have  any reason  to believe
          that there was no such telex --

          A.  No.

          Q.  -- Back in 1978 from your company?

          A.  I am sure if he said it in writing it
          occurred.

                             -15-
                                          15


          Q.  So it's fair to say that the problems
          asserted  by  LWA,   regarding  the   air
          conditioning were asserted back in '78 to
          '79 time period?

          A.  Yes.

          The  notice   question  arose  again   on  redirect

examination:

          Q.       (By    [plaintiffs'   counsel]):
          [Defendants'  counsel]  raised  with  you
          Exhibit 105,  Mr.  Brown.    This  was  a
          letter  from [LWA],  dated 19  July 1981.
          Do  you recall  talking  with  him  about
          that?

          A.  Yes, I do.

          Q.   All right.   In October,  in October
          1981, do you  recall attending a  meeting
          with [LWA] or anybody on your staff?

          A.   I  am sure  I did  not.   I couldn't
          swear to the exact dates of meetings, but
          [LWA]  had, had many  questions about the
          design  from the  beginning which  we had
          been  able to  satisfy  until, I  suppose
          it's the letter that was the -- that they
          sent  to  the  SAMA  where  they said  we
          believe,  we,  [LWA],  believed that  it,
          that  the corrections to  the system will
          cost so many millions  of rials [sic] for
          this that  and the  other,  and the  cost
          implications made us begin to worry about
          it that  it may  be a serious  problem if
          they are --

          Q.  Did you notify your insurance carrier
          when that happened?

          A.  I'm sure that's the point at which we
          asked on our notification.

                             II.
                                         II.
                                            

          In  reviewing a  factual finding  of a  trial court

made in connection  with a bench trial,  we almost invariably

                             -16-
                                          16


apply the clear-error standard  of review.  See Fed.  R. Civ.
                                                           

P. 52(a).   Thus, we must  give the finding  effect unless we

are  "`left with  the  definite and  firm  conviction that  a

mistake  has been  committed.'"    See  Anderson v.  City  of
                                                                         

Bessemer  City,  470 U.S.  564,  573  (1985) (quoting  United
                                                                         

States  v.  United  States  Gypsum  Co.,  333  U.S. 364,  395
                                                   

(1948)); accord  Dedham Water Co. v.  Cumberland Farms Dairy,
                                                                         

Inc., 972 F.2d 453,  457 (1st Cir. 1992).   "Where there  are
                

two  permissible  views  of  the  evidence, the  factfinder's

choice between them cannot  be clearly erroneous."  Anderson,
                                                                        

470 U.S. at 573.

          If, however,  an appellant can demonstrate that the

trial court  based its finding upon a  mistaken impression of

applicable legal principles, the reviewing court is not bound

by  the clearly  erroneous  standard.   Inwood Labs.  v. Ives
                                                                         

Labs.,  456 U.S.  844, 855  n.15 (1982);  accord  Cumpiano v.
                                                                      

Banco Santander  Puerto  Rico, 902  F.2d 148,  153 (1st  Cir.
                                         

1990) ("It is  settled that one way around  the rigors of the

`clearly  erroneous'  rule is  to show  that the  trial court

mistook the  applicable law."  (Citations omitted.)).   "[T]o

the  extent that findings of  fact can be  shown to have been

predicated upon, or induced  by, errors of law, they  will be

accorded diminished  respect on  appeal."  Dedham  Water, 972
                                                                    

F.2d at 457.

                             -17-
                                          17


          The  parties  have  treated  Massachusetts  law  as

controlling in this  dispute.   Because there is  at least  a

"reasonable relation"  between this litigation  and the forum

whose  law has  been selected (plaintiffs  BDA and  Mr. Brown

were  citizens of  Massachusetts at  all relevant  times), we

shall forego an independent choice-of-law inquiry and look to

Massachusetts law for  our rules  of decision.   See Bird  v.
                                                                     

Centennial  Ins. Co., 11 F.3d  228, 231 n.5  (1st Cir. 1993).
                                

Thus, in  deciding whether  legal error infected  the crucial

finding, we will be guided by Massachusetts law.

                             III.
                                         III.
                                             

          Here,  we think  it  clear that  the trial  court's

finding  regarding  when the  insureds  first  had notice  of

circumstances subsequently  giving rise  to the  SAMA's claim

was predicated upon an  error of law.  Northbrook  makes much

of the fact that, in making  its finding, the court seems  to

have  relied upon  only the  paragraph of  the July  19, 1981

letter  discussing  the   defectively  designed  on/off  coil

conditions.    See  Brown Daltas,  844  F.  Supp.  at 62  n.3
                                            

(setting  forth  the  paragraph  at issue  and  finding  that

"[t]his letter reference alone  is insufficient to prove that
                                          

BDA or BDASA had notice in 1979") (emphasis added).  While it

is unfortunate that  the court failed to  mention the balance

of  the evidence on this issue, we think that another serious

error lurks in the challenged finding:  an erroneous shift to

                             -18-
                                          18


Northbrook  of the burden of proof.  And although the parties

have   largely  skirted  burden   questions  throughout  this

litigation, we think that proper  resolution of the burden of

proof question effectively disposes of this appeal.3

          Although we  cannot find a Massachusetts case which

discusses the  burden of proof  in a  discovery clause  issue

like  the  one here,  a  general  principle of  Massachusetts

insurance law settles the question:

          "[A]  plaintiff  seeking  to recover  for
          breach of a duty or obligation created by
          a  general  clause of  a  contract, which
          also contains  an exception descriptively
          limiting  such  duty or  obligation, must
          allege and prove that his cause of action
          is  within the  contract and  outside the
          exception; but . . . where  the exception
          is  in  another  separate   and  distinct
          clause of the  contract defining the duty

                    
                                

3.  Although Northbrook  has not specifically argued  that an
erroneous  shift in the burden  of proof was  implicit in the
court's  notice of circumstances finding, it can in no way be
seen as having conceded that the burden was its own.   In its
appellate  briefs and  throughout  the course  of this  case,
Northbrook  has treated  the  burden of  proving coverage  as
being properly placed upon the insureds.  The insureds  never
disputed this position.   Moreover, at oral argument, counsel
for  the insureds  acknowledged  that the  insureds bore  the
burden  of proof on another issue -- the question whether the
November  25,  1981  letter  from BDA  to  Shand  constituted
adequate  notice  under  the  Policy's  discovery  clause  --
analytically  analogous to  the instant  question.   Thus, we
discern no procedural bar to our analyzing the correctness of
the trial court's finding  through the lens of the  burden of
proof.   Contrast  Dedham Water, 972 F.2d at  458-59 (party's
                                           
acquiescence in the application of a rule of law in the trial
court precludes it from  subsequently challenging the  rule);
Templeman v. Chris  Craft Corp.,  770 F.2d  245, 247-48  (1st
                                           
Cir.) (party's failure to  object below to magistrate judge's
choice-of-law ruling  barred appeals court  challenge to  the
ruling), cert. denied, 474 U.S. 1021 (1985).
                                 

                             -19-
                                          19


          or  obligation, then  the burden  is upon
          the party relying upon the exception."

Ratner v. Canadian  Universal Ins. Co.,  269 N.E.2d 227,  230
                                                  

(Mass.  1971) (quoting  Murray  v. Continental  Ins. Co.,  48
                                                                    

N.E.2d 145, 147 (Mass.  1943)).  In this case,  the coverage-

limiting provision  upon which  Northbrook relies is  not set
                                                                     

forth as a distinct exclusion in the Policy; it  is the first

sentence   of  the   coverage-providing  clause   (i.e.,  the

discovery  clause)   upon  which  the  insureds'  claims  are

anchored.   It therefore was  incumbent upon the  insureds to

prove   the   non-applicability   of  the   coverage-limiting

provision  found  in  the  first sentence  of  the  discovery

clause.  Put in  concrete terms, it was the  insureds' burden

to  prove that  they  first became  aware  during the  policy
                                       

period of  the circumstances subsequently giving  rise to the

SAMA's claim that the HVAC systems were negligently designed.

          As we have  stated, the trial court  found that the

quoted portion of the July 19, 1981 letter was  "insufficient

to prove  that BDA or BDASA  had notice in 1979."   See Brown
                                                                         

Daltas, 844 F.  Supp. at 63 n.3.  Implicit  in this statement
                  

was  an erroneous  view that  Northbrook bore  the  burden of
                                                    

proving prior  notice.   Thus,  the deference  usually due  a

factual finding under Fed. R. Civ. P.  52(a) does not bind us

in this instance.  See Inwood Labs., 456 U.S. at 855 n.15.
                                               

          Mindful of our limited  role as an appellate court,

we ordinarily would remand this  matter to the district court

                             -20-
                                          20


for a determination of  the notice question under  the proper

legal standard.  On this record, however, such a remand would

be an empty exercise; no  rational factfinder could find that

the  insureds proved  that they first  had notice  during the

policy period of the  circumstances subsequently giving  rise

to  the SAMA's claim.  Accordingly, we will resolve the issue

ourselves.   See Williams v. Poulos, 11 F.3d 271, 280-81 (1st
                                               

Cir. 1993) (discussing  situations where  an appellate  court

may  decline to  remand for  resolution of factual  and mixed

fact/law issues) (collecting cases).

          As  an initial matter, there is a dispute as to the

standpoint  we  should  assume  in  deciding  the  notice  of

circumstances  question.   Citing cases  that apply  Illinois

law, Northbrook  asserts that  the question should  be viewed

from  an  objective  perspective,  and that  we  need  decide

whether, prior  to the  policy period,  the insureds knew  of

circumstances that  should  have put  them on  notice of  the
                                      

possibility  of a  claim.   The insureds, however,  treat the

issue  as  a subjective  one,  essentially  arguing that  the

question  simply is whether, prior to the policy period, they

were "aware of circumstances which [they] believed might give
                                                              

rise  to a  claim in the  future."   We need  not resolve the

dispute in this case.

          Even  if we  assume arguendo  that the  question of
                                                  

notice should  be viewed  from a subjective  perspective, the

                             -21-
                                          21


insureds still must show that they  first became aware during

the  policy period of the circumstances that did lead them to
                                                            

notify  Northbrook of the possibility  of a claim.   In other

words,  the relevant  point in  time under  the terms  of the

Policy is not the point at  which the insureds first came  to

believe that a claim  was possible; it is the point  at which

they first became  aware of the  circumstances which in  fact
                                                          

led  them to  file  their notice  of  potential claim.    The

distinction is critical in this case, because plaintiffs have

not  established  that they  first  became  aware during  the

policy  period  of  the  circumstances  which  led  to  their

November 25, 1981 letter to Northbrook.

          Northbrook  takes the position that LWA's criticism

of the  design of  the HVAC  systems constitutes  the notice-

triggering "circumstance" under  the Policy.   The  insureds,

however, have not  made entirely clear  their stance on  this

crucial  question.    On  redirect  examination,  Mr.   Brown

testified  that  the  notice-triggering  circumstance  was  a

letter  that  the contractor  (LWA)  sent to  the  SAMA which

allegedly stated  "we believe,  we, [LWA], believed  that it,

that the corrections to  the [HVAC] system will cost  so many

millions of  rials [sic] for this  that and the other."   See
                                                                         

supra at  16.  This,  of course, conflicts with  the April 6,
                 

1982  notice from  BDASA  to Lloyd's,  which states  that the

notice-triggering  circumstances occurred  at an  October 21,

                             -22-
                                          22


1981 meeting in Riyadh.  See supra at 6-7.  It also conflicts
                                              

with  the insureds'  brief, which  contends that  the notice-

triggering circumstances were "the  meetings in the summer of

1981  [between representatives  of BDA,  BDASA, LWA,  and the

HVAC equipment supplier], followed  by the October meeting in

London and LWA's claim to SAMA."  Regardless,  close scrutiny

of the  record reveals  that none  of the insureds'  theories

vindicates their baseline position.

          Mr. Brown's assertion that a letter from LWA to the

SAMA  was  the notice-triggering  circumstance  simply cannot

support a finding that the insureds first became aware of the

notice-triggering  circumstances  during  the policy  period.

The letter  to which  Mr. Brown  alludes is not  part of  the

record, and we  have no evidence that it was  sent during the

policy  period.     Even  more  fundamentally,   we  have  no

elaboration  from the insureds as  to how this letter altered

the  then-existing landscape in such a way that, after it was

sent, the insureds first  believed that a claim against  them
                                    

was possible.   One might  infer from  Mr. Brown's  testimony

that  this letter was  the first time LWA  attached a cost to

the design  errors, and  that this was  the notice-triggering
                                              

circumstance; the insureds, however, have  made absolutely no

argument to this effect.

          The insureds'  contention that the  meetings in the

summer   and  fall   of  1981   constitute  notice-triggering

                             -23-
                                          23


circumstances is similarly flawed.   The insureds do  not say

much about what occurred at those meetings, let alone explain

how   the   communications   at   those   meetings   were  so

qualitatively  different  from  prior communications  between

themselves and LWA that it led  them, for the first time,  to

believe  that a  claim was  possible.   And the  scant record

evidence of  what occurred at those  meetings reveals nothing

beyond LWA informing BDA  and BDASA of its view that the HVAC

system was, at least  in some respects, incorrectly designed.

Essentially unrebutted, then,  is Northbrook's argument  that

LWA's  assertion  of  this  view  was  the  notice-triggering

circumstance.4  Therefore, the  question really boils down to

whether a reasonable factfinder  could find that the insureds

proved by a preponderance of the evidence that LWA's view was

first expressed during the policy period.  No such finding is
                 

possible on the record before us.

          We need  not reiterate all  the evidence  regarding

when LWA first criticized (or seriously criticized, see supra
                                                                         

note 4) the design of the HVAC systems.  It  is sufficient to

                    
                                

4.  In stating in their  brief that "[g]eneralized criticisms
of the design by a contractor, far from being  unusual in any
construction setting,  are simply not events  which require a
designer to put his  carrier on notice," the insureds  may be
implying  that  no sufficiently  serious  or  specific design
criticisms  were lodged  against  them by  LWA  prior to  the
policy period.    Without further  explication  (including  a
statement  as  to  where   and  when  the  criticisms  became
sufficiently  serious  and  specific)  and  supporting record
evidence, however, such an implication is inadequate.

                             -24-
                                          24


state that there  is significant  record evidence  indicating

that  such  criticism  predated  the  policy  period.    This

evidence includes the July 19, 1981 letter's indications that

problems with the design of the on/off coils had been pointed

out  in 1979, and that problems with the design of Condensing

Unit No. 5 had been pointed in 1978.   It also includes:  (1)

Mr.  Brown's  direct  testimony  that LWA  had  informed  the

insureds'  of  its  view  that  the  HVAC system  "would  not

function  satisfactorily"  within  a year-and-a-half  or  two

years of construction beginning (in late 1978 or early 1979);

(2)  Mr.  Brown's direct  testimony  that  LWA had  seriously

criticized the design of the HVAC systems within two years of

construction  beginning; and  (3) Mr.  Brown's concession  on

cross-examination that the problems asserted by LWA regarding

the air conditioning had  been asserted back in 1978-79.   To

the  extent  that the  insureds  wish  us  to  construe  this

testimony as involving careless guesswork on the  part of Mr.

Brown, we note that  no attempt at clarification was  made on

redirect examination.  

          On  the other  hand, there  is  a total  absence of

evidence tending to indicate that LWA's criticism of the HVAC

system's  design  first occurred  during  the  policy period.

Because such criticism was apparently the "circumstance" that

prompted the insureds to notify Northbrook of the possibility

of a  claim of  design negligence,  and because the  insureds

                             -25-
                                          25


bore  the  burden of  proving  that they  first  became aware
                                                           

during  the policy period  of the  circumstances subsequently

giving  rise  to the  SAMA's  claim,  this ends  the  matter.

Judgment should have been entered in favor of Northbrook.

                             IV.
                                         IV.
                                            

          For the reasons stated  above, the district court's

finding in favor of the insureds on the question of notice is

premised upon an incorrect view of the burden of proof and is

not sustainable.   Moreover,  while we agree  completely that

generalized criticisms  of shortcomings in  a party's product

or performance will ordinarily be insufficient, without more,

to serve as a  notice-triggering circumstance for purposes of

claims-made coverage,  this is  not the  garden-variety case.

Here, the  insureds' lack of  proof is a  determining factor.

In short,  our reading  of  the record  in the  light of  the

proper burden  of proof  leads us  to conclude that  judgment

should properly enter in favor  of Northbrook.  The  district

court's contrary judgment is therefore reversed.

          Reversed.  Costs to appellant.
                      Reversed.  Costs to appellant.
                                                    

                             -26-
                                          26