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.

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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

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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

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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

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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.

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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.

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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

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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:

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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

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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.

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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,

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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.

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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" --

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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.

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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

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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.

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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

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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).

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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

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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

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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,

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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

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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.

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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

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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.

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