Nascimento v. Preferred Mutual Insurance

United States Court of Appeals
For the First Circuit

No. 07-1792

JACK NASCIMENTO,

Plaintiff, Appellant,

v.

PREFERRED MUTUAL INSURANCE COMPANY,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Michael A. Ponsor, U.S. District Judge]

Before

Boudin, Chief Judge,
Selya, Senior Circuit Judge,
and Gelpí,* District Judge.

Kevin D. Withers, with whom Robert L. Quinn and Egan, Flanagan
& Cohen, P.C. were on brief, for appellant.
Michael J. Case, with whom Mark R. Freitas, Robert D.
Sullivan, Jr., and Wilson, Elser, Moskowitz, Edelman & Dicker LLP
were on brief, for appellee.

January 18, 2008

*
Of the District of Puerto Rico, sitting by designation.
 GELPÍ, District Judge. Jack Nascimento appeals a

district court judgment declaring that Preferred Mutual Insurance

Company (“Preferred Mutual”) is under no contractual obligation to

defend him in an environmental liability suit brought against him

by his neighbors, Tiago and Maria Leal. We affirm, albeit on

slightly different grounds than those relied upon by the district

court.

I. Relevant Factual and Procedural Background

On January 9, 1964, Nascimento purchased the property at

239 Hubbard Street, Ludlow, Massachusetts (“Nascimento’s

property”). Nascimento’s property had been part of a larger lot

that included the premises at 235 Hubbard Street (“the 235

property”). The 235 property contained an underground storage tank

(“UST”) with a fuel line connecting to the oil furnace at

Nascimento’s property. The UST was located immediately adjacent to

the foundation of Nascimento’s garage. Nascimento was the sole

user of the UST, which stored the home heating oil used to heat his

automotive repair business. In November of 1982, Nascimento

retired, sold his business, and leased his property. From 1982 to

1997, the lessee purchased heating oil and stored it in the UST for

continued heating of Nascimento’s property.

In 1979, the Leals purchased the 235 property. In

September of 1997, they applied for a refinancing mortgage loan.

The lender instructed the Leals to remove the UST or render it

-2-
inactive as a condition to financing. The Leals hired an

excavating company to remove the UST. During the October 15, 1997

excavation, the Leals discovered that oil had leaked through a hole

in the UST causing substantial contamination of the soil. On

October 20, 1997, the Massachusetts Department of Environmental

Protection issued a Notice of Responsibility to the Leals and

Nascimento ordering them to clean up the spill. The Leals asked

Nascimento to take responsibility for the loss, but he refused.

Therefore, the Leals undertook the clean-up of the oil spill

themselves, thereby incurring expenses for investigation,

assessment, reporting, and remediation of the property damage.

On February 15, 2005, the Leals sued Nascimento in

Massachusetts Superior Court, Hampden County (the “Leal suit” or

the “Leal complaint”), on various counts:

Count I - Continuing Trespass,

Count II - Continuing Nuisance,

Count III - Negligence,

Count IV - Response Costs Pursuant to Mass. Gen. Laws
ch. 21E, §§ 4 and 4A,

Count V - Damage to Real Property Pursuant to Mass. Gen.
Laws ch. 21E, §5, and

Count VI - Declaratory Judgment Pursuant to Mass. Gen.
Laws ch. 231A.

The Leals’ allegations and prayer as to each Count

were as follow:

-3-
 I. Defendants’ conduct constitutes trespass on
Plaintiffs’ property.

II. Defendants’ actions and inaction has
infringed upon Plaintiffs’ use and enjoyment
of their property.

III. Defendants, and each of them, deviated from
the standard of care owed Plaintiffs and
proximately caused injuries to Plaintiffs.

IV. Defendants, and each of them, caused or are
otherwise legally responsible for a release
of fuel oil at the premises of Plaintiffs,
which required performance of response
actions.

V. As a result of such release, the Leals
sustained significant damage to their real
property.

VI. [D]eclaring that Defendants, and each of
them, are liable jointly and severally for
all response costs incurred, or to be
incurred, in connection with the performance
of response actions to address the release
of fuel oil occurring at the property and
discovered on October 15, 1997.

On March 25, 2005, Nascimento placed a claim with

Preferred Mutual requesting it to defend and indemnify him under

his Commercial General Liability policy No. CG 03 00 01 96,

effective from November 9, 1996 to November 9, 1997 (“the CGL

policy”). On April 15, 2005, Preferred Mutual denied coverage

under the CGL policy’s total pollution exclusion, which reads in

pertinent part:

This insurance does not apply to: . . .

f. Pollution

-4-
 1) “Bodily injury” or “property damage” arising
out of the actual, alleged or threatened
discharge, dispersal, seepage, migration,
release or escape of pollutants:

a) At or from any premises, site, or
location which is or was at any time
owned or occupied by, or rented or
loaned to, any insured;

b) At or from any premises, site or
location which is or was at any time
owned or occupied by any insured or
others for the handling, storage,
disposal, processing or treatment of
waste; . . .

2) Any loss, cost or expense arising out of

any:

a) Request, demand or order that any
insured or others test for, monitor,
clean up, remove, contain, treat,
detoxify or neutralize, or in any way
respond to, or assess the effects of
pollutants; or

b) Claim or suit by or on behalf of a
governmental authority for damages
because of testing for, monitoring,
cleaning up, removing, containing,
treating, detoxifying or neutralizing,
or in any way responding to, or
assessing the effects of pollutants.

Pollutants means any solid, liquid, gaseous or
thermal irritant or contaminant including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled,
reconditioned or reclaimed.

Nascimento asked for reconsideration on two subsequent occasions,

but Preferred Mutual reaffirmed its denial.

-5-
 On March 28, 2006, Nascimento filed this action in the

Massachusetts Superior Court, Hampden County, seeking a declaratory

judgment against Preferred Mutual regarding his policy and the Leal

suit. Nascimento also sought damages for breach of contract and

for violation of Mass. Gen. Laws ch. 93A. On April 26, 2006,

Preferred Mutual removed this action to federal court invoking

diversity jurisdiction and filed a motion to dismiss pursuant to

Fed. R. Civ. P. 12(b)(6). On September 19, 2006, the district

court heard oral arguments, and the parties agreed to treat the

motion as one for summary judgment. On March 20, 2007, the

district court granted the motion holding that: (1) the home

heating oil is a pollutant; (2) all of the Leals’ claims against

Nascimento involved remediation costs incurred by the Leals in

cleaning up the oil spill; and (3) since the loss is not covered,

Preferred Mutual has no duty to defend or indemnify Nascimento in

the Leal suit. Nascimento v. Preferred Mut. Ins. Co., 478 F. Supp.

2d 143 (D. Mass. 2007). The district court based its decision

solely on section f(2)(a) of the total pollution exclusion.1 On

March 28, 2007, Nascimento filed a motion to amend factual

findings, reconsider allowance of defendant’s motion for summary

judgment, and vacate judgment (“motion for reconsideration”). The

1
Nascimento disputes the ownership of the UST, but the
district court held that the dispute was not material to the
insurance coverage question. We agree. The uncontested facts show
that Nascimento occupied the UST. Therefore, the ownership issue
does not affect our analysis.

-6-
district court denied the same on April 17, 2007. Nascimento now

appeals.

II. Discussion

On appeal, we consider whether the district court erred

in holding that the total pollution exclusion bars coverage for

Nascimento’s pollution cleanup cost claim and property damage

claim. We hold that the district court did not err.

The district court treated Preferred Mutual’s motion to

dismiss as one for summary judgment. Therefore, we review the

district court’s decision de novo. See Anderson v. Comcast Corp.,

500 F.3d 66, 71 (1st Cir. 2007); Brooks v. AIG SunAmerica Life

Assurance Co., 480 F.3d 579, 586 (1st Cir. 2007). “This standard

of review permits us to embrace or reject the rationale employed by

the lower court and still uphold its order for summary judgment.”

Houlton Citizens’ Coal. v. Town of Houlton, 175 F.3d 178, 184 (1st

Cir. 1999). “[I]t is within our discretion to affirm the district

court’s entry of summary judgment on any ground revealed by the

record.” Morales-Vallellanes v. Potter, 339 F.3d 9, 18 (1st Cir.

2003); see also Geffon v. Micrion Corp., 249 F.3d 29, 35 (1st Cir.

2001); Burns v. State Police Ass’n, 230 F.3d 8, 9 (1st Cir. 2000).

Massachusetts law controls in this diversity action. See

B&T Masonry Constr. Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36,

38 (1st Cir. 2004). Under Massachusetts law, the interpretation of

an insurance policy and the application of policy language to known

-7-
facts pose questions of law for the court to decide. Herbert A.

Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387, 394, 788

N.E.2d 522, 530 (2003); Specialty Nat’l Ins. Co. v. OneBeacon Ins.

Co., 486 F.3d 727, 732 (1st Cir. 2007). In the absence of an

ambiguity, we must construe the words of the policy in their usual

and ordinary sense. See Home Ins. Co. v. Liberty Mut. Fire Ins.

Co., 444 Mass. 599, 602, 830 N.E.2d 186, 189 (2005); Specialty

Nat’l, 486 F.3d at 732.

A court must further determine whether a liability

insurer has the initial duty to defend third-party actions against

the insured by matching the third party’s complaint with the policy

provisions. Herbert A. Sullivan, 439 Mass. at 394, 788 N.E.2d at

530. “[I]f the allegations of the complaint are ‘reasonably

susceptible’ of an interpretation that they state or adumbrate a

claim covered by the policy terms, the insurer must undertake the

defense.” Id. “The scope of an insurer’s duty to defend is based

on ‘the facts alleged in the complaint and those facts which are

known to the insurer.’” Id. (quoting Boston Symphony Orch., Inc. v.

Commercial Union Ins. Co., 406 Mass. 7, 10-11, 545 N.E.2d 1156,

1158 (1989)); see also Open Software Found., Inc. v. U.S. Fid. &

Guar. Co., 307 F.3d 11, 14-15 (1st Cir. 2002) (holding that, under

Massachusetts law, insurer must examine plaintiff’s allegations in

conjunction with facts it knows or readily should know when

determining whether coverage exists under policy).

-8-
 In the absence of a complaint that might trigger

coverage, an insured cannot force its insurer to defend him by

simply providing to the insurer facts which, if proven, would

create coverage. See Boston Symphony, 406 Mass. at 15, 545 N.E.2d

at 1160; Open Software, 307 F.3d at 16. The duty to defend

analysis is a process of “envisaging what kinds of losses may be

proved as lying within the range of the allegations of the

complaint, and then seeing whether any such loss fits the

expectation of protective insurance reasonably generated by the

terms of the policy.” Herbert A. Sullivan, 439 Mass. at 394, 788

N.E.2d at 530-31 (quoting Sterilite Corp. v. Cont’l Cas. Co., 17

Mass. App. Ct. 316, 318, 458 N.E.2d 338, 341 (1983)). The

complaint only needs to show a possibility that the liability claim

falls within the coverage of the insurance policy. See id. at 394,

788 N.E.2d at 531. However, when the allegations in the complaint

lie plainly outside the coverage, then the insurer is relieved of

the duty to investigate and defend the insured. See id. at 394-95,

788 N.E.2d at 531.

Under Massachusetts law, the insured bears the burden of

proving coverage under a CGL policy. Markline Co. v. Travelers

Ins. Co., 384 Mass. 139, 140, 424 N.E.2d 464, 465 (1981); Mt. Airy

Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997). If the

insured satisfies his burden, then the insurer must prove that an

exclusion applies in order to avoid coverage. See Great Sw. Fire

-9-
Ins. Co. v. Hercules Bldg. & Wrecking Co., 35 Mass. App. Ct. 298,

302, 619 N.E.2d 353, 356 (1993); Mt. Airy, 127 F.3d at 19.

In this case, Preferred Mutual does not contest that the

Leal suit falls within the CGL policy’s general provisions but

instead asserts that the total pollution exclusion bars coverage.

Therefore, the burden falls upon Preferred Mutual to prove that the

exclusion applies. We hold that it does apply, although we rely

upon a different section of the total pollution exclusion than the

district court.

The district court held that all of the damages claims

set out in the Leal complaint involved remediation costs. Relying

solely upon section (f)(2)(a), the district court held that the CGL

policy excluded coverage for such remediation damages. Nascimento,

478 F. Supp. 2d at 149. On appeal, Nascimento challenges the

district court’s holdings. He concedes that section (f)(2)(a) bars

remediation damages. He avers, however, that the Leal complaint

seeks both remediation and non-remediation damages. Nascimento

argues that, under Utica Mutual Insurance Co. v. Weathermark

Investments, Inc., 292 F.3d 77 (1st Cir. 2002),2 Preferred Mutual

2
In Utica, this court analyzed the same exclusionary language
as appears in Nascimento’s CGL policy. See Utica, 292 F.3d at 79.
Applying Massachusetts law, the court held that the term “respond”
in the f(2)(a) exclusionary language was ambiguous and thus
construed it against the insurer which drafted the policy. See id.
at 83. The court held that the section f(2)(a) exclusionary
language does not bar coverage for non-remediation costs. See id.
at 84. The non-remediation damages in Utica included compensation
for permanent injury to the property or diminution of value. See

-10-
must defend him in the Leal suit because the Leal complaint

includes claims for non-remediation damages.

In conducting our duty to defend analysis, the parties

agree that we may review the documents Nascimento submitted to

Preferred Mutual when he requested coverage under the CGL policy.

See Boston Symphony, 406 Mass. at 11, 545 N.E.2d at 1158 (noting

duty to defend based on facts alleged in complaint and those facts

known by insurer). These documents include the Leal complaint, its

cover sheet, and Nascimento’s attorney’s correspondence with

Preferred Mutual. Section f(1)(a) of the CGL policy excludes

“‘property damage’ arising out of the actual . . . discharge,

dispersal, seepage, migration, release or escape of pollutants . .

. at or from any premises, site, or location . . . which is or was

at any time . . . occupied by . . . any insured.” Leaked home

heating oil constitutes a pollutant. See McGregor v. Allamerica

Ins. Co., 449 Mass. 400, 403, 868 N.E.2d 1225, 1227 (2007).

Webster’s New World Collegiate Dictionary defines “occupy” as “to

take up or fill up” or “to take possession of.” Webster’s New

World Collegiate Dictionary 858 (11th ed. 2003). Nascimento was

the sole user of the UST. He continuously heated his property

using oil stored at the UST. Therefore, under the usual and

id. at 82. Such damages, the court noted, are recoverable pursuant
to Mass. Gen. Laws ch. 21E, §5(a)(iii). See id. at 83.
Ultimately, Utica is irrelevant to our decision here given that we
rely upon section f(1)(a) of the total pollution exclusion rather
than section f(2)(a).

-11-
ordinary sense of the word “occupy,” Nascimento occupied the

UST—the source of the oil leak that caused the property damage.

Consequently, any property damage sustained by the Leals because of

the oil leak is barred from coverage under section f(1)(a) of the

total pollution exclusion. This reasonable interpretation of

section f(1)(a) renders moot any distinction that Nascimento

asserts between remediation and non-remediation damages.

The McGregor decision further supports the conclusion

that, under section f(1)(a) of the total pollution exclusion, the

allegations in the Leal complaint fall outside the coverage of

Nascimento’s policy. Following the district court’s decision in

this case and during the pendency of this appeal, the Massachusetts

Supreme Judicial Court decided McGregor, in which it interpreted

the same total pollution exclusion clause as appears in

Nascimento’s policy. The McGregor plaintiff installed a furnace in

a residence owned by the Staeckers. McGregor, 449 Mass. at 401,

868 N.E.2d at 1226. Six years later, the supply line leaked oil,

and the Staeckers claimed the plaintiff was negligent while

installing the furnace. Id. The Massachusetts Department of

Environmental Protection issued a notice of responsibility to the

Staeckers directing them to remediate the environmental

contamination caused by the oil. Id. The Staeckers sued the

plaintiff seeking to recover clean-up costs and lost rental income

from the property during the clean-up. Id. The plaintiff had a

-12-
CGL policy with the defendant, who denied the claim under its total

pollution exclusion–the same language as in this case. Id. at 402,

868 N.E.2d at 1226-27.

The McGregor court held that home heating oil is a

pollutant under the policy. Id. at 403, 868 N.E.2d at 1227. In so

holding, the court “consider[ed] both claims, [lost rental income

and remediation costs], as did the [trial] judge, in determining

whether they involve[d] pollutants.” Id. at 403 n.2, 868 N.E.2d at

1227 n.2. The McGregor court went on to hold that the total

pollution exclusion barred coverage for all pollutant damages, both

remediation and non-remediation, and that the insurer did not have

to indemnify or defend the insured. Id. at 403, 868 N.E.2d at

1227. Additionally, the court noted that plaintiff’s bad faith

claim did not need to be addressed “given our conclusion that the

Staeckers’[remediation and non-remediation] claims are excluded

from coverage.” Id. at 405 n.4, 868 N.E.2d at 1228 n.4.

The McGregor decision binds this court sitting in

diversity. See B&T Masonry., 382 F.3d at 38; U.S. Liab. Ins. Co.

v. Bourbeau, 49 F.3d 786, 789 (1st Cir. 1995). Under McGregor, the

total pollution exclusion in Nascimento’s CGL policy bars all of

the Leals’ claims. McGregor clearly holds that, once the oil

leaks, it becomes a pollutant. Further, McGregor holds that once

the oil becomes a pollutant, the total pollution exclusion of the

CGL policy is triggered and coverage for remediation and non-

-13-
remediation claims is barred. In this case, the home heating oil

leaked from the UST Nascimento continuously used. The leak caused

the pollution damage for which the Leals seek reimbursement.

Therefore, section f(1)(a) of the total pollution exclusion was

triggered, and Preferred Mutual has no duty to defend Nascimento in

the Leal suit.3

After de novo review, we conclude that summary judgment

in favor of Preferred Mutual was proper because the allegations in

the Leal complaint lie expressly outside the coverage of the CGL

policy.4

Wherefore, the district court’s judgment is affirmed.

3
When the district court decided this case based on section
f(2)(a), it did not have the benefit of the McGregor decision.
4
In light of our conclusion that section f(1)(a) bars coverage
for the Leals’ claim, we need not address Nascimento’s challenge to
the district court’s ruling on his motion for reconsideration.

-14-