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13-P-1240 Appeals Court
ONEBEACON AMERICA INSURANCE COMPANY vs. NARRAGANSETT ELECTRIC
COMPANY; AMERICAN HOME ASSURANCE COMPANY & others,1 third-party
defendants.
No. 13-P-1240.
Suffolk. June 3, 2014. - August 31, 2016.
Present: Kantrowitz, Hanlon, & Carhart, JJ.2
Conflict of Laws. Insurance, Comprehensive liability insurance,
Excess Liability Insurance, Pollution exclusion clause.
Contract, Insurance, Choice of law clause. Real Property,
Environmental damage.
1
Century Indemnity Company; Certain Underwriters at
Lloyd's, London, and Certain London Market Insurance Companies;
National Union Fire Insurance Company of Pittsburgh, PA
(National Union); Johns Does 1-200; American International
Specialty Lines Insurance Company (AISLIC); and Chartis
Specialty Insurance Company (Chartis). During the course of the
proceedings below, AISLIC was succeeded by Chartis. Subsequent
to the proceedings, American Home Assurance Company, Chartis,
and National Union were apparently succeeded by American
International Group, Inc. For the sake of clarity, we refer to
the parties as their names appear in the pleadings.
2
The case was argued before Justices Kantrowitz, Hanlon,
and Carhart. Following the retirement of Justice Kantrowitz,
Justice Kinder was added to the panel and participated in this
decision.
2
Civil action commenced in the Superior Court Department on
July 25, 2005.
Motions for summary judgment regarding choice of law issues
were heard by Allan van Gestel, J., and a motion for
reconsideration was considered by him; motions for summary
judgment were heard by Margaret R. Hinkle, J., and Peter M.
Lauriat, J.; the remaining issues were tried in two phases
before them; and entry of final judgment was ordered by Lauriat,
J.
Jay T. Smith, of the District of Columbia (A. Hether Cahill
with him) for Narragansett Electric Company.
Kevin J. O'Connor for OneBeacon America Insurance Company.
David B. Chaffin for Century Indemnity Company.
Eileen T. McCabe, of New York, & John T. Harding, for
Certain Underwriters at Lloyd's, London, & others, were present
but did not argue.
Michael F. Aylward, for American Home Assurance Company &
others, was present but did not argue.
CARHART, J. This matter is before us pursuant to the
December 28, 2015, order of the Supreme Judicial Court,
remanding to this court for express consideration the
substantive law to be applied to the interpretation of the
insurance contracts at issue in OneBeacon America Ins. Co. v.
Narragansett Elec. Co. (No. 2), 87 Mass. App. Ct. 1126 (2015)
(OneBeacon No. 2). The plaintiff, OneBeacon America Insurance
Company (OneBeacon), along with third-party defendants Certain
Underwriters at Lloyd's, London and Certain London Market
Insurance Companies (collectively, London), American Home
Assurance Company (American Home), and Century Indemnity Company
(Century) argued in their respective appeals that a Superior
3
Court judge erred in determining that Rhode Island law would
apply both in deciding whether the insured, Narragansett
Electric Company (NEC), was entitled to coverage for
environmental contamination at several Rhode Island sites, and
in the allocation of damages on the jury's verdicts as to one of
the sites.
For background, we refer to OneBeacon America Ins. Co. v.
Narragansett Elec. Co. (No. 1), 87 Mass. App. Ct. 417 (2015)
(OneBeacon No. 1). Early in the litigation, a judge of the
Superior Court ruled that the law of Rhode Island would apply to
interpretation of the insurance contracts, reasoning that the
sites involved were operated by a Rhode Island public utility
(NEC) and were almost all located in Rhode Island (see OneBeacon
[No. 1], 87 Mass. App. Ct. at 420; note 7, infra), and that
Rhode Island utility customers had an interest in who would bear
the clean-up costs. On appeal, OneBeacon presses for
application of Massachusetts law,3 as the State having the most
significant contacts with the primary policies issued to the
insured by OneBeacon's predecessor,4 while London and American
3
All of NEC's claims against OneBeacon were dismissed
below. On appeal, OneBeacon argued that, in the event we were
to remand any of the claims, Massachusetts law should apply.
Century joined OneBeacon's argument as to the J.M. Mills site,
discussed infra.
4
For ease of reference, we refer to OneBeacon and its
predecessor collectively as "OneBeacon."
4
Home argue that New York law should apply to the excess policies
issued by them. We resolve the choice-of-law debate in favor of
the law of Massachusetts.
1. Massachusetts choice-of-law principles. We begin with
the conflict-of-law rules of the forum State. Clarendon Natl.
Ins. Co. v. Arbella Mut. Ins. Co., 60 Mass. App. Ct. 492, 495
(2004). Massachusetts has adopted a functional choice-of-law
analysis, guided by the Restatement (Second) of Conflict of Laws
(1971) (Restatement). Bushkin Assocs. v. Raytheon Co., 393
Mass. 622, 631-632 (1985). When dealing with insurance
contracts, we look to Restatement § 193, as well as § 188 and
the principles delineated in § 6. Clarendon Natl. Ins. Co. v.
Arbella Mut. Ins. Co., 60 Mass. App. Ct. at 496.
"Section 193 [of the Restatement] provides that the rights
created by a contract of casualty insurance are to be determined
by the local law of the State that the parties to the insurance
contract understood would be the principal location of the
insured risk during the term of the policy, unless some other
State has a more significant relationship under the principles
of § 6." Ibid. Section 193 further provides that "[t]he
location of the insured risk will be given greater weight than
any other single contact in determining the state of the
applicable law provided that the risk can be located, at least
principally, in a single state." Restatement § 193 comment b.
5
The insured risk generally will be located in the State where
the policy holder is domiciled. Ibid.
The identity of the policy holder in this case is not clear
cut. NEC is a Rhode Island public utility. The first policy
issued by OneBeacon, a primary comprehensive general liability
policy for the period of October, 1972, to October, 1973, listed
the "named insured" and address as follows:
"Eastern Utilities Associates, EUA Service Corporation,
Brockton Edison Company, Blackstone Valley Electric Company
and/or any Subsidiary, Associated, Allied or Affiliated
Company which is Majority owned and now existing or which
may hereafter appear. P.O. Box 2333, Boston,
Massachusetts."5
NEC contends that its predecessor, Blackstone Valley
Electric Company (BVEC), headquartered for many years in
Providence, Rhode Island, should be considered the insured risk,
since BVEC is identified in the policy as a named insured. NEC
additionally points to language in the OneBeacon policy
providing that "[t]he insurance afforded applies separately to
each insured against whom claim is made or suit is brought,
except with respect to the limits of the company's liability."
5
OneBeacon issued thirteen primary policies to Eastern
Utilities Associates and its operating companies covering the
period of October, 1972, to January 1, 1985. Blackstone Valley
Electric Company (BVEC) was NEC's predecessor. The first
OneBeacon policy for 1972 covered Brockton Edison Company and
BVEC, with Fall River Electric Light Company and Montaup
Electric Company added to the coverage in 1973. Fall River
Electric Light Company and Montaup Electric Company are located
in Massachusetts.
6
OneBeacon counters that Eastern Utilities Associates (EUA), a
Massachusetts business trust that owned the stock of BVEC and
the other subsidiaries listed in the policy at the time,6 should
be deemed the insured risk, since EUA and EUA Service
Corporation (EUA Service) procured coverage with OneBeacon for
all its companies, under a single policy, in order to provide
uniformity. It is undisputed that EUA, along with EUA Service
and the entities other than BVEC that were covered by the
policies, were domiciled in Massachusetts, as were the insurance
agent and OneBeacon.
At first blush, Rhode Island might seem the obvious place
of the insured risk, given the location of NEC and the affected
sites there.7 But while an underlying tort claim might properly
be resolved under the laws of the State where the injury
occurred, the obligation of an insurer to defend and indemnify
against that claim is more appropriately determined by reference
to the insurance contract itself and the circumstances of its
issuance. W.R. Grace & Co. v. Hartford Acc. & Indem. Co., 407
Mass. 572, 585-586 (1990).
6
EUA's successor is National Grid USA, a Delaware
corporation and a registered holding company, with its principal
place of business in Westborough.
7
We note that part of the so-called Lawn Street site was
located in Massachusetts. See OneBeacon (No.1), 87 Mass. App.
Ct. at 421. According to NEC's records, BVEC also utilized a
site in Attleboro, referred to as Mendon Road, that is not a
part of this action.
7
In W.R. Grace & Co. v. Hartford Acc. & Indem. Co., supra,
W.R. Grace & Co. (Grace) was a New York-based conglomerate with
divisions located in various States. Grace had procured the
relevant insurance contracts in New York, through a New York
insurance broker, and had made premium payments to the insurers
in New York. Id. at 575-576. Faced with the question of
insurance coverage for asbestos-related claims arising from the
manufacture of Grace's products by one of its divisions located
in Cambridge, the Supreme Judicial Court ruled that New York law
would govern the insurers' obligations. Id. at 585. "Whether
. . . there is a duty to defend or to indemnify under a
nationwide comprehensive general liability policy as to such a
claim should not depend on the law of the jurisdiction governing
that particular claim but rather should be determined by the law
governing the interpretation of the insurance policy and its
issuance." Id. at 586.
This court reiterated the principle in W.R. Grace & Co. v.
Maryland Cas. Co., 33 Mass. App. Ct. 358, 360-363 (1992), a
liability insurance case also involving Grace, this time related
to environmental claims in connection with one of its divisions
located in Woburn. We determined that the law of New York,
where Grace had it principal place of business and where the
insurance policies were negotiated and issued, again should
apply to the insurance contracts, even though the claims
8
involved a Massachusetts company that disposed of toxic
chemicals, causing injury thereby, exclusively in Massachusetts.
We look, then, to the circumstances surrounding the
procurement and issuance of the OneBeacon policies. In so
doing, we think it useful to begin with the ownership and
managerial structure of the insured. EUA was established as a
Massachusetts voluntary trust and owned 95 to 100 percent of the
common stock of its operating companies at the time.8 The
companies owned by EUA and covered by the OneBeacon policies
were BVEC (NEC's predecessor), Brockton Edison Company, Fall
River Electric Light Company, and Montaup Electric Company. All
but BVEC were located in Massachusetts, and all were assisted in
significant respects by EUA Service, also located in
Massachusetts, which supervised their employee benefits and
insurance programs, among other things.9 EUA is listed first in
the OneBeacon policies as the named insured, followed by EUA
Service, and then followed by the subsidiaries, all of which
8
The structure was described in EUA's 1971 service contract
with EUA Service as a "holding-company system."
9
Also among the description of services listed in the
service contract between EUA and EUA Service, as of January,
1971, were accounting; corporate matters including financing,
regulation, contracts, claims, litigation and records; data
processing; engineering; sales promotion; property; rates;
regulatory matters; taxes; and financial and statistical
reports.
9
list a single Boston post office box as their address.10 EUA
Service negotiated the insurance contracts in Massachusetts
through a Massachusetts agent, OBrion, Russell & Co. The
decision to coordinate the insurance coverage for the EUA
entities originated with John F.G. Eichorn, the president of EUA
and EUA Service.11 Given the structure of the companies and the
interests that drove the acquisition of the OneBeacon policies,
it appears that Massachusetts is the State with the greater
connection to the insurance transactions at hand.
Section 188 of the Restatement provides further
clarification.12 Section 188, which deals with contract
disputes, instructs that we apply the law of the State that,
with respect to the issues, has the more significant
relationship to the transaction and the parties, under the
principles set forth in § 6 of the Restatement. Bushkin Assocs.
v. Raytheon Co., 393 Mass. at 632. Applying the § 188 factors
used in determining the choice of law to govern contract rights
10
NEC points out that BVEC incurred the largest premiums
for the OneBeacon policy, while OneBeacon counters that EUA's
Massachusetts companies, combined, paid the greater share of
premiums for the relevant years.
11
Eichorn also served as president of Montaup Electric
Company and vice-president of the remaining three subsidiaries
at the time the OneBeacon policies were issued.
12
When § 193 does not provide a definitive answer, we turn
to the principles outlined in Restatement § 188, regarding
contracts. Clarendon Natl. Ins. Co. v. Arbella Mut. Ins. Co.,
60 Mass. App. Ct. at 496.
10
"produces coherent interstate insurance coverage; appears to
conform to justified expectations; offers the prospect of
certainty, predictability, and uniformity of result; provides
relative ease in the determination and application of the
governing law; and looks to the law of the State which, as to
the legal issues involved, has the most significant relationship
with the transactions and the parties." W.R. Grace & Co. v.
Hartford Acc. & Indem. Co., 407 Mass. at 586, citing Bushkin
Assocs. v. Raytheon Co., 393 Mass. at 631-634 (discussing § 188
factors).
Those factors, again, point predominantly to the law of
Massachusetts. According to the record, in 1972, EUA turned to
an insurance broker to find comprehensive insurance with the
goal of eliminating separate policies for its operating
companies and integrating their coverage into a single program,
"underwritten as one risk." The stated objective was to provide
EUA and its operating companies "with one coordinated insurance
program designed to afford broad uniform coverages and limits at
the lowest possible costs." To that end, EUA and its operating
companies were insured under one policy, for each of the years
insured by OneBeacon.
Accordingly, even though EUA's subsidiaries were located in
two different States, EUA specifically sought and obtained
coverage under a single policy with OneBeacon in order to
11
promote uniformity among its several companies. As observed in
W.R. Grace & Co. v. Hartford Acc. & Indem. Co., supra at 585,
"to obtain uniform and practical coverage nationwide for a
multiState corporation . . . , it is desirable that the law of
one State govern the interpretation of all [the corporation's]
comprehensive general liability insurance policies." We think
the same holds true in this case, where, for example, NEC argues
in favor of Rhode Island law, OneBeacon argues for Massachusetts
law, and London and American Home argue for New York law.
As a result, despite the fact that the underlying claims
involved in this case arose in Rhode Island in connection with a
Rhode Island operating company, we believe the insurance
contracts as a whole, and the circumstances connected to their
issuance, point toward the application of Massachusetts law.
One consideration that gives us pause, however, is the fact that
NEC is a public utility. As the judge observed, Rhode Island
ratepayers have potential economic interest in application of
Rhode Island law, particularly as to who will bear the cost for
remedial efforts at the Rhode Island properties.
Nevertheless, protection of justified expectations in the
issuance of insurance contracts will tip the scale when other
factors do not point to a clear choice of law. "Where relevant
contacts and considerations are balanced, or nearly so, we are
inclined to resolve the choice by choosing that law 'which would
12
carry out and validate the transaction in accordance with
intention, in preference to a law that would tend to defeat
it.'" Bushkin Assocs. v. Raytheon Co., 393 Mass. at 636,
quoting from Boston Safe Deposit & Trust Co. v. Paris, 15 Mass.
App. Ct. 686, 691 (1983).
We conclude that the intention of the parties to the
OneBeacon insurance contracts was uniformity of coverage, so
that the operations of multiple companies were insured as a
single risk under a single policy, at a reduced cost. We think
application of Massachusetts law provides the uniformity that
was sought by EUA and its operating companies when they
contracted together for comprehensive insurance coverage.
For the reasons set forth above, we also reject the
arguments of London and American Home that New York law should
apply to the insurance contracts those companies issued to NEC.
In light of our analysis, the fact that the excess policies
issued by those insurers were written in New York is
insufficient to outweigh the considerations in favor of
Massachusetts law. Moreover, where multiple policies issued by
multiple insurers are involved, the Supreme Judicial Court has
expressed a preference that the law of one State govern their
interpretation. W.R. Grace & Co. v. Hartford Acc. & Indem. Co.,
407 Mass at 585.
13
2. Application of Massachusetts substantive law.
Application of Massachusetts substantive law, rather than that
of Rhode Island, changes our prior interpretation of the
relevant policies in two respects.13 First, Massachusetts and
Rhode Island substantive law differ with regard to the
interpretation of the "sudden and accidental release" exception
to an insurance contract's pollution exclusion. The issue
affects the coverage determinations as to the J.M. Mills site, a
landfill owned by a third party that received contaminated waste
from NEC.14 As discussed in OneBeacon (No. 2), we concluded that
application of Rhode Island law raised a question of fact as to
whether the release of contaminants at the J.M. Mills landfill
was sudden and accidental, Rhode Island construing the phrase to
mean "unintended and unexpected."
By contrast, Massachusetts cases interpret "sudden and
accidental" to connote a temporal element, so that only an
abrupt release of pollutants will fall within the exception.
See, e.g., Lumbermens Mut. Cas. Co. v. Belleville Indus., Inc.,
407 Mass. 675, 679-681 (1990); Polaroid Corp. v. Travelers
13
The insurers made no argument regarding the applicability
of Rhode Island law with respect to some of the issues discussed
in OneBeacon (No. 2). As to those issues, our application of
Rhode Island law in OneBeacon (No. 2) remains undisturbed, as
the arguments are waived. See Mass.R.A.P. 16(a)(4), as amended,
367 Mass. 921 (1975).
14
For further background on the J.M. Mills site, see
OneBeacon (No. 1), 87 Mass. App. Ct. at 423-424.
14
Indem. Co., 414 Mass. 747, 751-752 (1993). It follows that,
under Massachusetts law, the question whether NEC took
reasonable steps in arranging for the safe disposal of its
wastes at the J.M. Mills site, and whether the discharge of
contaminants there was thus unexpected or unintended, is not
material.
On the undisputed facts, the release of pollutants at the
J.M. Mills landfill cannot be characterized as sudden and
accidental, as that term is construed under Massachusetts law,
and so does not fall within the exception to the pollution
exclusion of the relevant policies. Accordingly, OneBeacon,
Century, and American Home were properly granted summary
judgment in their favor under the pollution exclusion in their
respective policies, as to the J.M. Mills site.
Second, our ruling that Massachusetts substantive law
should apply to all of the insurance policies issued for NEC
affects, in turn, the allocation of damages in the jury's
verdicts against London and Century regarding the Tidewater
site.15 Massachusetts, like New York, has adopted pro rata
allocation of damages, and does not utilize the all sums
approach to coverage that the policyholder would enjoy under
Rhode Island law. See, e.g., Boston Gas Co. v. Century Indem.
15
The Tidewater site was used as a manufactured gas plant
and power plant. For further background on the Tidewater site,
see OneBeacon (No. 1), 87 Mass. App. Ct. at 420-421, 424.
15
Co., 454 Mass. 337, 360-366 (2009); New England Insulation Co.
v. Liberty Mut. Ins. Co., 83 Mass. App. Ct. 631, 635-638 (2013).
We must therefore reverse so much of the final judgment as
determines damages against London and Century16 with respect to
the Tidewater site, and remand for further proceedings to
determine the proper allocation of damages in accordance with
Massachusetts law.
Conclusion. The following text shall supersede the final
paragraph of OneBeacon (No. 1), 87 Mass. App. Ct. at 436-437:
It was error (a) to grant summary judgment in favor of Century
and London on statute of limitations grounds with respect to
their duty of indemnification for Hamlet Avenue and PWSB; and
(b) to apply Rhode Island law rather than Massachusetts law in
construing the terms of the insurance contracts. Accordingly,
we reverse so much of the final judgment and declaratory decree
as (a) declares that Century and London have no duty to
indemnify NEC with respect to claims or liabilities at Hamlet
Avenue and PWSB and dismisses those claims; and (b) allocates
damages against Century and London pursuant to the verdicts in
the trial regarding the Tidewater site. We remand the matter of
16
Although Century advanced no argument that Rhode Island
law should not apply at the trial regarding the Tidewater site,
London argued that a pro rata approach to damages, rather than
Rhode Island's all sums approach should have been applied in
assigning the damages awards on the jury's verdicts in that
trial. Therefore, in providing a remedy to London, the award to
Century is necessarily included in our remand.
16
the damages awards in that trial to the Superior Court to
determine an allocation of damages on a pro rata basis, pursuant
to Massachusetts law. We vacate so much of the final judgment
and declaratory decree as dismisses with prejudice NEC's claims
as to High Street, Pond Street, and Exchange Street, and the
judgment shall be modified to dismiss those claims without
prejudice. In all other respects, the final judgment and
declaratory decree is affirmed. The orders denying Century's
motion for judgment notwithstanding the verdict or new trial and
London's motion for judgment notwithstanding the verdict are
affirmed. The order denying London's motion for new trial and
to alter or amend the judgment is affirmed as to the request for
new trial and reversed as to the request to alter or amend the
judgment.
So ordered.