United States Liability Insurance v. Selman

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

No. 95-1435

UNITED STATES LIABILITY INSURANCE COMPANY,

Plaintiff, Appellant,

v.

LIVINGSTONE R. SELMAN, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Boudin, Circuit Judge.

Alice Olsen Mann, with whom Mark P. Bailey and Morrison,

Mahoney & Miller were on brief, for appellant.

Kenneth H. Soble and Soble, Van Dam, Pearlman and Gittelsohn

on brief for appellee Livingstone R. Selman.
Clyde D. Bergstresser, with whom Angela M. Vieira and

Bergstresser and Associates were on brief, for appellee Robin

Razza.

November 28, 1995

SELYA, Circuit Judge. In this appeal, plaintiff-
SELYA, Circuit Judge.

appellant United States Liability Insurance Company (USLIC)

strives to extricate itself from coverage obligations owed to its

insured, Livingstone R. Selman, vis-a-vis personal injury claims

brought by Robin Razza on behalf of her minor daughter. The

district court ruled that USLIC had a duty to indemnify Selman

with respect to those injuries that occurred while the subject

policies were in force. See USLIC v. Selman, 882 F. Supp. 1163

(D. Mass. 1995). USLIC appeals. We affirm.

I. BACKGROUND
I. BACKGROUND

The chronology of events is not in dispute. Selman

owned an apartment house situated at 2 North Avenue, Roxbury,

Massachusetts. In 1982, he rented apartment #3A to Robin Razza.

On May 6, 1983, Robin gave birth to Carol Ann Razza. In the fall

of 1984, a physician discovered that Carol Ann had contracted

lead poisoning. On February 5, 1985, an inspector from the

Massachusetts Child Lead Poisoning Prevention Program (the

Agency) found that both the Razzas' apartment and the building's

common areas contained lead paint. The Agency informed Selman of

its findings. Shortly thereafter, a fire damaged apartment #3A,

and Selman, responding to his tenant's expressed desire to

relocate, moved the Razzas to apartment #1A. He also requested

that the Agency inspect the apartment.

The inspection occurred on March 7, 1985, and disclosed

the presence of lead paint. The Agency notified Selman and he

made arrangements to purge the entire building (including

2

apartment #1A).1 Inspection reports reveal that by March 29 lead

removal in apartment #1A was "95% complete." Beyond that date,

the pace of lead removal in the Razzas' apartment is unclear:

all that we can tell from the record is that, by September of the

following year (when the Razzas departed), Selman had rid the

entire building of the residue of lead paint.

At all times material hereto, Selman purchased

insurance coverage annually. For four consecutive one-year

periods commencing May 4, 1981, Selman insured the apartment

house with Mutual Fire & Marine Insurance Company. In May of

1985, his allegiance shifted.2 Coincident with the expiration

of the latest Mutual Fire policy, Selman bought a one-year policy

from USLIC, effective May 4, 1985. The next year, USLIC issued a

renewal policy effective May 4, 1986. Each policy covered claims

for bodily injuries arising out of Selman's ownership,

maintenance, and use of the property. The policies define

"bodily injury" as "bodily injury, sickness or disease sustained

by any person which occurs during the policy period," and define

an "occurrence" as "an accident, including continuous or repeated

exposure to conditions, which results in bodily injury or

property damage neither expected nor intended from the standpoint

1Selman eliminated the hazard by scraping lead paint from
the walls in some locations and covering over lead paint in other
locations. Since the method of abstersion is not important for
present purposes, we refer to both processes as "removal."

2The record contains no hint either that Mutual Fire
canceled Selman's coverage or that the change in carriers was
somehow connected to the discovery of lead paint on the premises.

3

of the insured."

Long after the second of USLIC's two one-year policies

lapsed, Robin Razza asserted a claim against Selman for Carol

Ann's lead paint poisoning. Bent on exonerating itself from all

responsibility under its policies in regard to this claim, USLIC

brought a declaratory judgment action against Selman and the

Razzas in the United States District Court for the District of

Massachusetts.3 See 28 U.S.C. 2201-2202 (1988); Fed. R. Civ.

P. 57. It premised jurisdiction on diversity of citizenship and

the existence of a controversy in the requisite amount. See 28

U.S.C. 1332(a).

In due course, the parties tried the case to the court

on stipulations of fact, documentary submissions, and the live

testimony of the Razzas' expert witness, Dr. John Graef. The

district judge determined that USLIC had no duty to indemnify

Selman in respect to claims for injuries resulting from the

ingestion of lead paint prior to May 4, 1985 (the inception date

of its first policy), and the defendants do not challenge this

determination on appeal. The judge also concluded, however, that

USLIC had a duty to indemnify Selman with respect to claims

arising out of Carol Ann's ingestion of lead paint while USLIC's

3While pretrial discovery was ongoing, Robin Razza sued
Selman to her daughter's behoof in a Massachusetts state court,
seeking damages for injuries allegedly sustained as a result of
Carol Ann's exposure to lead paint in the apartment building.
That suit is still pending.

4

policies were in force, that is, from May 4, 1985 until May 3,

1987.4 After the district court entered a declaratory judgment

to this effect,5 USLIC appealed.

II. STANDARD OF REVIEW
II. STANDARD OF REVIEW

We face a preliminary dispute as to the applicable

standard of review. Citing Pallet v. Gallagher, 725 F.2d 131,

134 (1st Cir. 1984), the appellant insists that, inasmuch as its

claims require construction of the terms of an insurance policy,

appellate review is plenary. This generalization oversimplifies

the matter, and, in the end, is wide of the mark.

To be sure, it is for the court to determine whether

the terms of an integrated agreement are unambiguous and, if so,

to construe them according to their plain meaning. See Allen v.

4In reality, the cutoff date is probably September 27, 1986
(when the Razzas moved from 2 North Avenue).

5The district court's holding, while obvious from its
reasoning, is not explicitly articulated in the text of its
opinion. The final judgment cured this omission. There, the
court declared that:

[I]n regard to the lawsuit filed against
Livingstone Selman by Robin Razza, as mother
and next friend of Carol Ann Razza . . .:

1. The plaintiff has no duty to
indemnify Livingstone Selman with respect to
injuries to Carol Ann Razza resulting from
ingestions of lead paint prior to May 4,
1985;

2. The plaintiff has a duty to
indemnify Livingstone Selman with respect to
injuries to Carol Ann Razza resulting from
ingestions of lead paint on and after May 4,
1985, and;

3. The case is closed.

5

Adage, Inc., 967 F.2d 695, 698 (1st Cir. 1992); RCI Northeast

Servs. Div. v. Boston Edison Co., 822 F.2d 199, 202 (1st Cir.

1987); Robert Indus., Inc. v. Spence, 291 N.E.2d 407, 409-10

(Mass. 1973). In this sense, questions about the meaning of

contractual provisions are questions of law, and we review the

district court's answers to them de novo. See ITT Corp. v. LTX

Corp., 926 F.2d 1258, 1261 (1st Cir. 1991). However, when the

district court's answers rest not on plain meaning but on

differential findings by the trier of fact, derived from

extrinsic evidence as to the parties' intent with regard to an

uncertain contract provision, appellate review proceeds under the

"clearly erroneous" standard. See RCI Northeast, 822 F.2d at

202. The same standard pertains whenever the trial court decides

factual matters that are essential to ascertaining the parties'

rights in a particular situation (though not dependent on the

meaning of contractual terms per se). See, e.g., Reliance Steel,

880 F.2d 575, 576-77 (1st Cir. 1989). In these types of cases,

the issues are ordinarily fact-dominated rather than law-

dominated, and, to that extent, the district court's resolution

of them is entitled to deference. See In re Howard, 996 F.2d

1320, 1328 (1st Cir. 1993) ("Many cases involve what courts term

`mixed' questions questions which, if they are to be properly

resolved, necessitate combining factfinding with an elucidation

of the applicable law. The standard of review applicable to

mixed questions usually depends upon where they fall along the

degree-of-deference continuum: the more fact-dominated the

6

question, the more likely it is that the trier's resolution of it

will be accepted unless shown to be clearly erroneous."); Roland

M. v. Concord Sch. Comm., 910 F.2d 983, 990-91 (1st Cir. 1990)

(similar), cert. denied, 499 U.S. 912 (1991).

These principles resonate here. The appellant attempts

to escape from its contractual obligations on three alternative

grounds. First, it denies that coverage was ever triggered,

taking the position that Carol Ann sustained no discernible

injuries while its insurance policies were in force. Second, the

appellant says that, because Carol Ann's injuries were bound up

with her earlier ingestion of lead paint (first diagnosed in

1984), they fell outside the scope of its policies (which were

written in 1985 and 1986, respectively). Both of these defenses

have sizeable factual components, hinging, as they do, on whether

the evidence shows that discrete injuries occurred during the

relevant coverage periods. Third, the appellant says that,

because Selman knew about the looming liability on the inception

date of the first policy, the known loss doctrine precludes him

from insuring against the Razzas' claims. The potency of this

defense likewise depends on the facts: what Selman knew and when

he knew it. At bottom, then, USLIC's appeal challenges the

district court's factfinding; Fed. R. Civ. P. 52(a) applies in

full flower; and appellate review is circumscribed by the

jurisprudence of clear error.

This is of appreciable importance because clear error

review ordinarily heralds a rocky road for an appellant. Under

7

this standard, "appellate courts cannot presume to decide factual

issues anew." Cumpiano v. Banco Santander P.R., 902 F.2d 148,

152 (1st Cir. 1990). Rather, "Rule 52(a) commands, and our

precedents ordain, that deference be paid to the trier's

assessment of the evidence." Id. (citing representative cases).

Moreover, the clearly erroneous rule loses none of its vigor

"when the [lower] court's findings do not rest on credibility

determinations, but are based instead on physical or documentary

evidence or inferences from other facts." Anderson v. City of

Bessemer City, 470 U.S. 564, 574 (1985); accord In re Tully, 818

F.2d 106, 108-09 (1st Cir. 1987).

In the last analysis, an appellate tribunal "ought not

to upset findings of fact or conclusions drawn therefrom unless,

on the whole of the record, [the judges] form a strong,

unyielding belief that a mistake has been made." Cumpiano, 902

F.2d at 152. As long as the district court's rendition of the

record is plausible, our inquiry is at an end.

III. ANALYSIS
III. ANALYSIS

We divide our analysis into four segments, adding to

the three grounds of appeal just mentioned a matter that speaks

to the interrelationship of the liability ceilings contained in

USLIC's two insurance policies.

A. Was Coverage Triggered?
A. Was Coverage Triggered?

Massachusetts law supplies the basis for decision in

this diversity case. See Erie R. Co. v. Tompkins, 304 U.S. 64,

78 (1938). Under Massachusetts law, the insured bears the

8

initial burden of proving that an injury occurred within the

coverage ambit of the insurance policy. See, e.g., Trustees of

Tufts Univ. v. Commercial Union Ins. Co., 616 N.E.2d 68, 74

(Mass. 1993). Once the insured establishes basic risk coverage,

the devoir of persuasion shifts to the insurer to prove a defense

to coverage, say, the applicability of a policy exclusion or the

insured's failure to comply with conditions precedent. See

Gusson v. Boston Mut. Life Ins. Co., 95 N.E.2d 670, 672 (Mass.

1950).

The court below understood these rules and applied them

appropriately. After reviewing the documentary evidence and

considering Dr. Graef's erudite testimony on the nature of lead

poisoning and its manifestations in Carol Ann Razza's case, the

court found that "at least a portion" of Carol Ann's claimed

damages arose as a result of exposure to lead paint at the

apartment building during the currency of the appellant's

policies. USLIC, 882 F. Supp. at 1164. If sustainable, this

finding evinces that the coverage trigger had been pulled: Selman

had met his entry-level burden by making a prima facie showing

that some part of the injury claimed falls within the coverage

ambit of the subject policies. Although the appellant attacks

this finding hammer and tongs, we believe it is adequately

supported by the record.

The nisi prius roll includes a summary of Carol Ann's

blood toxicity levels (which, after lead paint poisoning was

first diagnosed, remained abnormally high throughout her stay at

9

2 North Avenue). In explaining the significance of the data, Dr.

Graef testified that the sharp increases which occurred from time

to time (sometimes called "spikes") were directly traceable to

the child's sporadic ingestion of lead paint chips. The data

showed and Dr. Graef confirmed that several such episodes

occurred during the interval when the appellant's policies were

in force. Judge Tauro queried Dr. Graef as to whether he

regarded the spikes as "a manifestation of lead that [Carol Ann]

had in her system" before May 4, 1985. The witness responded

negatively, indicating that such levels were "spontaneously

reportable." Moreover, in the doctor's opinion the

roentgenographic evidence demonstrated that Carol Ann consumed

additional chips of lead paint during the currency of the

appellant's policies.

The district court's finding that these new incidents

caused further injury, see id. at 1165, is also supportable. Dr.

Graef spelled out in considerable detail the effects of ingesting

lead on neurological development in early childhood, and

testified that Carol Ann had suffered brain damage, including

"significant gaps" in her auditory and verbal performance, as the

direct result of ingesting lead while USLIC was on the risk.

When Judge Tauro pressed Dr. Graef about whether a tie existed

between the spikes in Carol Ann's toxicity levels and her

resulting injuries, the doctor responded in the affirmative. He

testified, among other things, that the predictable consequence

of each major ingestion of lead paint "probably is that some

10

damage is done to the brain," and that increases in toxicity

levels measurable by standard tests "reflect[] injury."6

Given this dialogue and certain other insights for

example, the appellant neither impeached Dr. Graef's testimony

nor adduced any contradictory evidence we cannot impute clear

error to the judge's finding that Carol Ann Razza suffered new

and further injuries during the relevant coverage periods.

Accordingly, coverage was triggered and the district court

correctly shifted the burden to the appellant to demonstrate that

some contractual exclusion or other policy defense foreclosed

indemnification.

The appellant claims to have carried that burden twice

over. The district court disagreed. It is to those disputed

defenses that we now turn.

B. The Post-Manifestation Doctrine.
B. The Post-Manifestation Doctrine.

The appellant raises no contractual provision as a

defense to coverage here. Instead, it contends that what it

euphemistically terms the "post-manifestation doctrine" has the

same inhibitory effect. Under the guise of this euphemism, USLIC

hypothesizes that when a disease process of a certain type

manifests itself before an insurance policy incepts, all future

injury of the same genre should be deemed to relate back to the

original condition even if the victim incurs subsequent injury

6There is nothing unorthodox about these views. Courts have
found in other (similar) cases that each ingestion of lead paint
leads to discrete injury. See, e.g., USLIC v. Farley, 626

N.Y.S.2d 238, 239-40 (App. Div. 1995); General Accident Ins. Co.

v. Idbar Realty Corp., 622 N.Y.S.2d 417, 419 (Sup. Ct. 1994).

11

from continued exposure to the causative agent during the policy

period. As applied in this case, the hypothesis holds that if a

person contracts lead poisoning prior to the inception of the

tortfeasor's insurance policy but continues to be exposed to lead

paint and thereby suffers further injury while the policy is in

force, any claim that she may assert against the tortfeasor will

not be covered because lead poisoning constitutes a single injury

"occurring" before the policy incepted.

As doctrines go, this one has very little in the way of

a pedigree. The appellant cites no reported case discussing

anything that resembles such a doctrine,7 and our independent

research has come up equally dry. In any event, we need not

tarry over the hypothesis. As we have already indicated, see

supra Part III(A), the district court had before it compelling

evidence that Carol Ann Razza ingested several "big meals" of

lead paint chips while the appellant's policies were in force,

and Dr. Graef testified that each such ingestion caused (or

potentially could cause) discrete injury. On this basis, the

district court warrantably found a "clear nexus" between Carol

Ann's "big meals" and the spikes in her toxicity levels. USLIC,

882 F. Supp. at 1165. Each exposure can, therefore, reasonably

be seen as a separate, injury-producing occurrence. No more is

7The appellant does direct us to an opinion of a Maryland
state court, Hartford Mut. Ins. Co. v. Jacobson, 536 A.2d 120

(Md. App. 1988), and two unpublished dispositions of trial judges
(one federal and one state), as "authority" for the "doctrine."
But none of these cases involves comparable issues or facts, and
none of them adverts by name to the elusive doctrine.

12

exigible.

C. The Known Loss Doctrine.
C. The Known Loss Doctrine.

The appellant next asseverates that the known loss

doctrine renders the risk of further injury to Carol Ann

uninsurable because Selman knew prior to the inception date of

the initial policy that his apartment building contained lead

paint and that Carol Ann was suffering from lead poisoning. The

argument takes the following form. The purpose of insurance is

to protect against misfortune by permitting an actor to whom the

law assigns the risk of a particular kind of loss to shift the

burden of it to an institution better able to assume and manage

the particular risk through diversification across risk

categories. See Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205, 211 (1979); see also 1 Ronald A. Anderson & Mark S.

Rhodes, Couch on Insurance (Second) 1:3, 2:7 (rev. 2d ed.

1984). Thus, the presence of risk runs to the very essence of an

insurance contract. Where there is no risk of loss as where a

loss has already occurred before a policy takes effect

insurance ceases to serve its socially utile purpose of risk-

spreading. Hence, the law, embodied in the known loss doctrine,

precludes coverage when the insured knows in advance of the

policy's effective date that a specific loss has already happened

or is substantially certain to happen.

There are two iterations of the known loss doctrine.

The doctrine exists both as a function of the standard general

liability insurance contract and at common law. We discuss the

13

first iteration briefly, mainly for the sake of completeness.

Since 1966, the insurance industry has defined an

"occurrence" as that word is used in the standard general

liability policy to include only accidents that result in bodily

injury or property damage that is "neither expected nor intended

from the standpoint of the insured." See Barry R. Ostrager &

Thomas R. Newman, Handbook on Insurance Coverage Disputes

8.03[a] (7th ed. 1994); 11 Couch, supra, 44:289. Under this

policy provision (which graces the policies in question here), it

has been held that if an insured "knew . . . that there was a

substantial probability that certain consequences" would result

from his acts or omissions, there is no "occurrence" within the

meaning of a general liability policy, and, hence, no coverage.

City of Carter Lake v. Aetna Cas. & Sur. Co., 604 F.2d 1052,

1058-59 (8th Cir. 1979). In this case, the appellant did not

brief a contract-based coverage defense on appeal, and at oral

argument appellant's counsel expressly disclaimed any reliance on

such a defense. Accordingly, we do not pursue this iteration of

the known loss doctrine.

The common law version of the known loss doctrine is

part of the warp and woof of Massachusetts insurance law. The

Massachusetts Supreme Judicial Court (SJC) recently inspected its

composition in SCA Servs., Inc. v. Transportation Ins. Co., 646

N.E.2d 394, 397-98 (Mass. 1995). There, the insured operated a

chemical waste site in Illinois. Local residents brought a

nuisance action, alleging that its activities on the site were

14

contaminating the local water supply, causing subsidence, filling

the air with dust, and permitting the escape of noxious gasses.

See Village of Wilsonville v. SCA Servs., Inc., 426 N.E.2d 824,

828-30 (Ill. 1981). The trial court declared the site to be a

public nuisance and closed the plant. The Illinois Supreme Court

affirmed. See id. at 827.

Subsequently, SCA purchased an insurance policy.

Several of the same residents then brought a class action seeking

damages for personal injuries suffered as the result of exposure

to the conditions limned in the initial nuisance action. SCA

sought a declaration that its insurer had a duty to defend and

indemnify with respect to the class action. The SJC determined

that, because the prior adjudication in Illinois put SCA on

actual notice that the class members had suffered injuries as the

result of the same conduct and conditions that led to the

shutdown of the site, it had "full knowledge" of its probable

liability for their damages prior to purchasing the insurance

policy. SCA, 646 N.E.2d at 398. Thus, the known loss doctrine

barred coverage inasmuch as the concept of insurable risk becomes

a fiction "where an insured knows there is a substantial

probability that it will suffer or has already suffered a loss."

Id. at 397.

Before we can measure the case at bar against the

specifications of the common law doctrine as elucidated in SCA,

we must address two threshold questions. The first concerns the

standard objective or subjective by which the insured's state

15

of mind is to be gauged. Though Massachusetts law is not

explicit on the point, there is spoor for the cognoscenti. SCA

strongly suggests the use of a subjective standard to determine

whether a given loss was "known." See id. (stating that

"insurance risk is eliminated . . . where an insured knows, when

it purchases a policy, that there is a substantial probability

that it will suffer or has already suffered a loss"). The quoted

language is almost identical to that used (and more fully

explicated) in Quincy Mut. Fire Ins. Co. v. Abernathy, 469 N.E.2d

797 (Mass. 1984). There, dealing with the contract-based

iteration of the known loss doctrine, the SJC explicitly adopted

a subjective test. See id. at 800. Moreover, SCA and all the

cases relied on in SCA deal with insureds that had actual

knowledge of a probable loss prior to securing coverage.8 See,

e.g., Bartholomew v. Appalachian Ins. Co., 655 F.2d 27, 28 (1st

Cir. 1981) (insured had actual knowledge of probable loss based

on its own intentional misuse of a machine that had on prior

occasions caused injury); Gloucester v. Maryland Cas. Co., 668 F.

Supp. 394, 403 (D.N.J. 1987) (insured had actual knowledge of

probable loss due to environmental contamination based on the

closure of its landfill by state authorities); Outboard Marine

Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1209-11 (Ill.

1992) (insured had actual knowledge of probable loss due to

8The SJC repeatedly emphasized the presence of actual
knowledge both in the case before it and in its discussion of the
precedents on which it relied. See, e.g., SCA, 646 N.E.2d at

397, 398.

16

environmental contamination based on receipt of an EPA

administrative order citing it as the source of the

contamination).

Guided by these clearly visible signposts, we hold that

the applicability vel non of the known loss doctrine, in its

common law form, depends on the insured's actual knowledge of the

looming loss. The test, therefore, is subjective, not objective.

The remaining threshold issue relates to the devoir of

persuasion. The SJC apparently placed the burden of proof on

this issue on the insurance company in a suit invoking the

contract-based interaction of the known loss doctrine, see, e.g.,

City of Newton v. Krasnigor, 536 N.E.2d 1078, 1081-82 (Mass.

1989), and we see no reason why the court would take a different

tack in allocating the burden of proof on the counterpart issue

in the common law setting. Moreover, Massachusetts courts

generally place the burden of proof on the party seeking to

invalidate or avoid the application of a contract on analogous

grounds, such as when an insurer raises the defense of fraud in

the procurement of insurance. See, e.g., Roger Williams Grocery

Co. v. Sykes, 258 N.E.2d 553, 555 (Mass. 1970). Finally, the SJC

appears to have treated the known loss doctrine as an affirmative

defense in SCA, mimicking a majority of other courts, see, e.g.,

Gloucester, 668 F. Supp. at 402-03, and the usual rule, honored

by Massachusetts as by most jurisdictions, is to place the burden

of proving affirmative defenses on the party asserting them, see

19 Couch, supra, 79:368 (discussing various affirmative

17

defenses and assigning burden of proof to insurer).

For these reasons, we hold that, under Massachusetts

law, the common law version of the known loss doctrine only

applies when the insured actually knows on or before the

effective date of the policy either that a loss has occurred or

that one is substantially certain to occur. Relatedly, we hold

that the common law version of the known loss doctrine is an

affirmative defense to a suit on a Massachusetts policy.

Accordingly, the insurer bears the burden of proving the

insured's actual knowledge.

The district court seems to have anticipated these

rulings. It treated the known loss doctrine as an affirmative

defense. After reviewing the evidence, it found the defense not

proven. See USLIC, 882 F. Supp. at 1164. The court concluded

that a "significant portion" of the injuries asserted arose after

May 4, 1985, and therefore could not be classified as "known" on

that date. Extrapolating from this finding, the court held that,

to the extent Carol Ann's injuries stemmed from ingestions of

lead paint occurring after May 4, 1985, but before the expiration

of appellant's second (and last) policy, Selman had not sought to

insure against a known loss. See id. While there was ample room

for the court to come down the other way, we think that its

crucial finding withstands scrutiny.

To be sure, the matter is not open and shut. Selman

knew by the spring of 1985 that his building contained lead

paint. He also knew that Carol Ann Razza was suffering from lead

18

poisoning. But these two facts, naked and unadorned, do not

necessarily prove that Selman insured against a known loss.

Three critical elements are lacking. First, there is nothing in

the record to show definitively that the lead paint in Selman's

building constituted the source of Carol Ann's lead poisoning

(and, more to the point, that Selman knew of the connection).

Without such a showing, the known loss doctrine does not apply.

Second, nothing in the record establishes that Selman actually

knew that Carol Ann would suffer further injury from continued

exposure to lead paint, and the trial court found in essence that

he lacked any such appreciation of the disease process. See id.

Third, by late March of 1985 six weeks before the first of the

USLIC policies became effective the Razzas were living in an

apartment in which lead removal was at least 95% complete.

Selman could easily have assumed that Carol Ann was no longer

exposed to any significant dose of lead paint, and would

therefore suffer no further injury. These are not merely

theoretical possibilities.

The deposition testimony contained in the record

strongly suggests that Selman had not drawn any connection in his

mind between the ongoing removal of lead paint at 2 North Avenue

and the future medical risks that the condition of the premises

portended to Carol Ann Razza. The court had the right to credit

that testimony, see Anthony v. Sundlun, 952 F.2d 603, 606 (1st

Cir. 1991) (explaining that in a bench trial, credibility choices

are for the trier); FDIC v. La Rambla Shopping Ctr., Inc., 791

19

F.2d 215, 222 (1st Cir. 1986) (similar), especially since many

familiar diseases, once contracted measles, mumps, the HIV

virus, to name a few do not result in further injury based on

repeated exposure to the causative agent. There is nothing in

the record to show that Selman knew that, unlike these diseases,

lead poisoning was a cumulative disease.

The district court's finding is strengthened by the

utter lack of any evidence that Selman attempted to conceal or

misrepresent the presence of lead paint in his apartment house

when he applied for insurance. To the extent that the

appellant's application form did not request such information,

the appellant was the author of its own misfortune. See Vappi &

Co. v. Aetna Cas. & Sur. Co., 204 N.E.2d 273, 276 (Mass. 1965).

It does not seem unfair to hold an insurance company,

knowledgeable about the prevalence of lead paint in older

buildings and hardened by the rough and tumble of the business

world, to the consequences of which King Solomon long ago warned.

See Proverbs 11:15 ("He that is surety for a stranger shall smart

for it.").

The short of it is that the appellant had the burden to

prove that its insured knew of a probable loss, and the district

court's finding that he did not, viewed in light of the record

evidence, is not clearly erroneous.

The appellant attempts to steer the appeal into a

different channel by way of two expedients. First, it asks us to

treat this case and SCA as a matched pair of ponies. But SCA is

20

a horse of a much different hue. The Agency's informal

notification that Selman's apartment building contained lead

paint is at a considerable remove from the adjudication of a

nuisance. The agency action here at issue lacks both the

finality and the preclusive effect of a court judgment.

Moreover, the nature and causes of the injuries alleged in the

class action against SCA were identical to those alleged in the

prior nuisance suit. As the SJC observed, the insured actually

knew on the basis of the earlier litigation that the class action

plaintiffs claimed to have been injured and it also knew that

those claims had already been adjudicated (unfavorably to it).

The scenario here is not the same. The Agency in this case only

informed Selman that his apartment building contained lead paint;

it did not conclude that any particular injuries, much less Carol

Ann's injuries, had been caused by the lead in Selman's building.

In a nutshell, accepting the appellant's view that, as

a matter of law, the known loss doctrine encompasses this

situation would take us several steps beyond the holding in SCA.

We are unwilling to take those steps. The appellant, presumably

to suit its own convenience, selected a federal forum in

preference to an available state forum. It has no right to

grouse if a federal court, sitting in diversity jurisdiction,

declines to push state law past previously established frontiers.

See Martel v. Stafford, 992 F.2d 1244, 1247 (1st Cir. 1993);

Porter v. Nutter, 913 F.2d 37, 41 (1st Cir. 1990). The organic

growth of state law is best left to state courts, particularly in

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areas that traditionally have been committed to, and regulated

by, the states. Insurance is such a field.

The appellant's second effort to skirt the district

court's factfinding involves its contention that the court

applied the wrong legal standard in determining whether Selman

knew of his likely liability to Carol Ann Razza for injuries

related to future ingestions of lead paint. This gambit is

conceptually sound in the sense that a "finding of fact

predicated upon, or induced by, a misapprehension of law is

robbed of its customary vitality." RCI Northeast, 822 F.2d at

203. The concept is inoperative, however, when a party attempts

to play the artful Dodger, cf. Charles Dickens, Oliver Twist

(1838), recasting its objections to the district court's findings

of fact as disputes about the governing law. See Reliance Steel,

880 F.2d at 577 (declaring that litigants may not "profit by

dressing factual disputes in `legal' costumery"). So it is here.

The appellant derides the district court's finding that

Selman did not know Carol Ann Razza would sustain new injuries

after May 4, 1985. Embedded in this finding, appellant claims,

is the legal benchmark by which the district court evaluated the

evidence in determining Selman's state of knowledge. This

benchmark is wrong, appellant postulates, because the substantive

law that governs Selman's putative liability is based not on

knowledge but on strict liability. See Bencosme v. Kokoras, 507

N.E.2d 748, 749 (Mass. 1987).

This is a red herring. Whether Massachusetts law

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renders Selman strictly liable for Carol Ann's damages is

irrelevant to whether Selman knew he was virtually certain to

experience a loss as the inevitable result of his tenant's

continued exposure to lead paint during the policy periods. It

is the answer to this pivotal question that determines the

applicability of the known loss doctrine to this case and that

question, as we have said, is predominantly a question of fact.

To say more would be supererogatory. Because the

district court's findings of fact are not clearly erroneous, its

rejection of the appellant's known loss defense must be upheld.

D. Applicability of Policy Limits.
D. Applicability of Policy Limits.

In this instance, the appellant issued two consecutive

one-year policies to Selman. Each policy contains a stipulation

limiting the insurer's liability to $300,000 "per occurrence,"

and each policy states that "continuous or repeated exposure to

conditions" is to be treated as a single "occurrence." In its

complaint for declaratory relief, the appellant prayed that, if

it were found to have any obligation at all to indemnify Selman

vis-a-vis the Razza claims, then in such event, the limits of

liability contained in its two policies should be interpreted so

as to cap the insurer's total potential liability at $300,000.

The district court did not entertain this prayer for relief. The

appellant now invites us to do so. We decline the invitation.

In general, declaratory relief is discretionary. See,

e.g., Ernst & Young v. Depositors Economic Protection Corp., 45

F.3d 530, 534 (1st Cir. 1995); El Dia, Inc. v. Hernandez Colon,

23

963 F.2d 488, 493-94 (1st Cir. 1992). Thus, we view the district

court's withholding of a declaration in regard to the appellant's

"policy limit" question through a deferential glass. In the

process, we focus our inquiry on the whole of the circumstances

confronting the district court. See El Dia, 963 F.2d at 492.

The trial judge did not spell out his reasons for

declining to declare the parties' rights in this regard. While

courts should articulate grounds for their actions, see Pearson

v. Fair 808 F.2d 163, 165-66 (1st Cir. 1986) (per curiam), the

district court's failure to do so here is not fatal, as the basis

for the declination seems evident. The insurance policies

contain no definition of the operative terms (e.g., "continuous,"

"repeated," "conditions"); and the record suggests that there

were many conditions to which Carol Ann Razza might have been

exposed and which could have been sources of her deleterious

ingestion of lead paint. Consequently, the lack of development

in the record concerning the possible sources of the lead paint

ingested by Carol Ann placed the lower court at so great a

disadvantage that it reasonably could conclude that it was in no

position to rule intelligently on the appellant's request.9

9Furthermore, the appellant made no compelling demonstration
of a need for the declaration. For instance, there is no showing
that Carol Ann's claim against Selman for the injuries she
sustained within the coverage period could support a recovery of
more than $300,000, and, thus, insofar as the trial court was
concerned, the policy limit question may have appeared to be
academic. The Declaratory Judgment Act notwithstanding, courts
have no obligation to answer hypothetical questions. See El Dia,

963 F.2d at 494 (cautioning that courts should not issue
declaratory judgments when the need is remote or speculative);
Washington Pub. Power Supply Sys. v. Pacific N.W. Power Co., 332

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Accordingly, the court acted within the realm of its discretion

in refusing the declaration. See, e.g., Askew v. Hargrave, 401

U.S. 476, 478-79 (1971) (cautioning against grant of declaratory

judgment on the basis of sparse and inadequate record); Public

Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962) (per

curiam) (similar); A. L. Mechling Barge Lines, Inc. v. United

States, 368 U.S. 324, 330-31 (1961) (similar).

IV. CONCLUSION
IV. CONCLUSION

We need go no further. This case pivots on the facts,

not on the law and factual issues that are resolved in a bench

trial may not freely be relitigated on appeal. Discerning no

error, we hold the appellant to its contractual duty.

Affirmed.
Affirmed.

F.2d 87, 88 (9th Cir. 1964) (similar).

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