United States Court of Appeals
For the First Circuit
Nos. 18-1588, 18-1593
SCOTTSDALE INSURANCE COMPANY,
Plaintiff, Appellee/Cross-Appellant,
v.
UNITED RENTALS (NORTH AMERICA), INC.,
Defendant, Appellant/Cross-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Barron, Selya, Boudin,
Circuit Judges.
Barbara A. O'Donnell and David E. Schroeder, with whom
Sulloway & Hollis, P.L.L.C and Tribler Orpett & Meyer, P.C. were
on brief, for appellant/cross-appellee.
Gary S. Kull, with whom Joanna L. Young, Kennedys CMK, LLP,
Bradford N. Louison, and Louison Costello Condon & Pfaff, LLP were
on brief, for appellee/cross-appellant.
October 2, 2020
BOUDIN, Circuit Judge. The present appeals concern an
insurance coverage dispute stemming from a personal injury
lawsuit. On June 22, 2007, Gomes Services, Inc. ("Gomes")
contracted with United Rentals (North America), Inc. ("United
Rentals") to rent an electric boom lift. Gomes used that lift at
a trade show in Rhode Island, and, four days later, while operated
by a Gomes employee, the lift struck and injured Guy Ayotte
("Ayotte"), a trade show attendee.
Ayotte and his wife sued United Rentals, Gomes, and
others in Rhode Island state court asserting one count of vicarious
liability against United Rentals for Gomes' negligence in
operating the lift and two counts of direct liability for United
Rentals' own negligence in maintaining the lift and renting the
lift to Gomes. Ayotte ex rel. Ayotte v. Perez, C.A. No. 10-2164
(R.I. Super. Ct., amended complaint filed Mar. 11, 2011) ("the
Ayotte Action"). The gist was that the lift's "travel alarm"
failed to emit any audible sound to warn Ayotte that he was about
to be run over by the lift.
At the time of the accident, United Rentals was insured
by ACE American Insurance Company ("ACE") under two relevant
policies, the ACE CGL Policy and the ACE Ultimate Net Loss Policy,
described below, and Gomes was insured by Scottsdale Insurance
Company ("Scottsdale") under the Scottsdale Policy. The
Scottsdale Policy extended coverage to any party that Gomes was
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required by written contract to add as an "additional insured."
The rental contract between Gomes and United Rentals obligated
Gomes to carry adequate liability insurance and, upon request, to
supply United Rentals with "proof of such insurance" by a
certificate of insurance "naming United [Rentals] as loss payee
and additional insured." Joint Record Appendix ("JRA") at 95.
On August 24, 2011, United Rentals requested that
Scottsdale defend and indemnify United Rentals, as an additional
insured, against the claims raised in the Ayotte Action. After
correspondence between Scottsdale and United Rentals--including a
September 25, 2012 letter that described United Rentals as an
additional insured--the parties sought a declaratory judgment in
federal court on Scottsdale's duty to defend and indemnify United
Rentals in the Ayotte Action.
On December 23, 2015, the Massachusetts district court
held, on summary judgment, that United Rentals was entitled to
defense costs from Scottsdale as an additional insured under the
Scottsdale Policy. The court declined to rule on Scottsdale's
duty to indemnify United Rentals because the issue was not yet
ripe. After the Ayotte Action settled, Scottsdale and United
Rentals again cross-moved for summary judgment on Scottsdale's
duty to indemnify. On March 30, 2018, the district court held
that the Scottsdale Policy affords additional insured coverage to
United Rentals for both its direct and vicarious liability in the
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Ayotte Action but that this coverage was excess above United
Rentals' own coverage under the ACE CGL Policy.
Both parties now appeal. Scottsdale challenges the
district court's findings that United Rentals qualifies as an
additional insured under the Scottsdale Policy and that additional
insured coverage extends to both United Rentals' direct liability
and vicarious liability for Gomes' acts. United Rentals appeals
from the district court's priority-of-coverage determination.
A grant or denial of a motion for summary judgment is
reviewed de novo, Cooper v. D'Amore, 881 F.3d 247, 249 (1st Cir.
2018), and may be affirmed on any available ground, Cahoon v.
Shelton, 647 F.3d 18, 22 (1st Cir. 2011). On cross-motions for
summary judgment, each motion is reviewed separately, drawing
facts and inferences in favor of the non-moving party. Fadili v.
Deutsche Bank Nat'l Tr. Co., 772 F.3d 951, 953 (1st Cir. 2014).
As the parties agree that Massachusetts law governs in this
diversity case and there is "at least a 'reasonable relation'"
between the dispute and Massachusetts, we "forego an independent
analysis of the choice-of-law issue and apply Massachusetts law."
Bird v. Centennial Ins. Co., 11 F.3d 228, 231 n.5 (1st Cir. 1993)
(citing Com. Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047,
1048 n.1 (1st Cir. 1993)).
This set of appeals presents three different questions,
mainly difficult because of the multiple documents engineered in
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the obscure and parochial jargon most familiar to the rest of us
from reading the waivers and acceptances on cell phones (for which
only a brief pause is allowed to digest fifty pages of jargon,
more sinister because seemingly made obscure). The questions are
addressed in turn.
Additional Insured Status. Scottsdale contests the
district court's December 23, 2015 ruling that United Rentals is
an additional insured under the Scottsdale Policy. First, United
Rentals says that Scottsdale waived the right to challenge this
ruling. On April 19, 2018, the parties entered into a partial
settlement agreement (the "Settlement Agreement"), paragraph four
of which provides in part:
In exchange for United Rentals
agreement not to re-file its Fee
Petition and to waive all claims for
attorney's fees, costs and expenses
incurred in defense of the Ayotte
Lawsuit and the Coverage Action,
over and above Scottsdale's
$510,000.00 payment, Scottsdale
agrees to forego any appeal of the
court's Memorandum and Order dated
December 23, 2015 granting United
Rentals' motion for partial summary
judgment on Scottsdale's duty to
defend and shall release any claim
Scottsdale might have to recover the
$510,000.00 paid to United Rentals
under the terms of this Partial
Settlement Agreement and Release.
Supplemental Appendix ("SA") at 3 (emphasis added).
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A party who agrees in writing to settle a lawsuit in
return for certain obligations has a "right to expect a fairly
literal interpretation of the bargain that was struck and approved
by the court," Brown v. Gillette Co., 723 F.2d 192, 192-93 (1st
Cir. 1983) (internal citations omitted), and where the wording is
unambiguous, its terms will be strictly enforced, see, e.g., Alison
H. v. Byard, 163 F.3d 2, 5 (1st Cir. 1998).
Here, paragraph four contains two separate promises from
Scottsdale: (1) to "forego any appeal" of the district court's
December 23, 2015 decision; and (2) to release any claim to recover
the monies paid under the Settlement Agreement. Because
Scottsdale's challenge to United Rentals' status as additional
insured violates the first promise, this challenge is barred.
Scope of Additional Insured Coverage. Scottsdale also
appeals from the district court's March 30, 2018 ruling that
Scottsdale must indemnify United Rentals for the settlement costs
of resolving United Rentals' direct and vicarious liability in the
Ayotte Action. Scottsdale insists that the Scottsdale Policy only
covers United Rentals' vicarious liability for Gomes' negligence
and that Ayotte had no viable vicarious liability claim against
United Rentals under Rhode Island law.
The Scottsdale Policy's Additional Insured Endorsement
("AI Endorsement") provides additional insured coverage "only with
respect to liability for 'bodily injury,' . . . caused, in whole
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or in part, by [Gomes'] acts or omissions[] or [t]he acts or
omissions of those acting on [Gomes'] behalf." JRA at 487. The
parties' dispute centers on the phrase "caused, in whole or in
part, by" and whether it modifies the word "liability" or the words
"bodily injury."
Scottsdale argues that the AI Endorsement insures United
Rentals against liability "caused, in whole or in part, by"
Gomes--such that only United Rentals' vicarious liability for
Gomes' negligence is covered--whereas United Rentals contends that
coverage extends when bodily injury is "caused, in whole or in
part, by" Gomes--meaning that United Rentals' direct negligence is
covered too.
Scottsdale's reading nearly eliminates the meaning of
the phrase "for bodily injury" by reducing the coverage inquiry to
whether the "liability" was "caused by" Gomes' acts or omissions.
See Thunder Basin Coal Co., L.L.C. v. Zurich Am. Ins. Co., 943 F.
Supp. 2d 1010, 1014 (E.D. Mo. 2013). The phrase "in whole or in
part" also resists Scottsdale's reading because, as a form of
imputed liability, vicarious liability cannot be caused "in part."
See First Mercury Ins. Co. v. Shawmut Woodworking & Supply, Inc.,
48 F. Supp. 3d 158, 173 (D. Conn. 2014). And nothing in the AI
Endorsement expressly limits coverage to vicarious liability. See
WBI Energy Transmission, Inc. v. Colony Ins. Co., 56 F. Supp. 3d
1194, 1202 (D. Mont. 2014).
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In short, the plain language of the AI Endorsement cannot
support the limitation that Scottsdale now urges. And even if the
language were ambiguous, Massachusetts law would favor extending
coverage. See Brazas Sporting Arms, Inc. v. Am. Empire Surplus
Lines Ins. Co., 220 F.3d 1, 4 (1st Cir. 2000) ("[A]ny ambiguities
in the exclusion provision are strictly construed against the
insurer."); Hazen Paper Co. v. U.S. Fidelity & Guar. Co., 555
N.E.2d 576, 583 (Mass. 1990). Thus, Scottsdale had a duty to
indemnify United Rentals in the Ayotte Action for both its direct
and vicarious liability.
Priority-of-Coverage Determination. Lastly, United
Rentals appeals from the district court's March 30, 2018 ruling
that the Scottsdale Policy's coverage was excess over United
Rentals' own ACE CGL Policy. United Rentals argues that because
both of its ACE Policies are forms of self-insurance, neither
provides other "valid and collectible insurance" for the purposes
of a priority-of-coverage determination. We agree and find that
United Rentals has no other "valid and collectible" insurance, so
that the Scottsdale Policy affords primary coverage here.
We already determined that Scottsdale has a duty to
indemnify United Rentals as an additional insured for both direct
and vicarious liability. However, the Scottsdale Policy
explicitly states that additional insured coverage is "excess over
any other valid and collectible insurance available to the
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additional insured whether primary, excess, contingent, or on any
other basis." Applied here, the question is whether either of
United Rentals' relevant policies--(A) the ACE Ultimate Net Loss
Policy or (B) the ACE CGL Policy--qualify as "valid and collectible
insurance." This question boils down to whether United Rentals
has "insurance."
The ACE Ultimate Net Loss Policy has a $2M self-insured
retention ("SIR") and a $3M policy limit. Under this policy,
United Rentals is not entitled to any coverage from ACE until it
pays the full $2M SIR, and once the SIR is paid, United Rentals is
entitled to up to $3M of coverage. So, does the SIR (as a form of
self-insurance) qualify as insurance?
Black's defines "insurance" as "[a] contract by which
one party (the insurer) undertakes to indemnify another party (the
insured) against the risk of loss, damage, or liability arising
from the occurrence of some specified contingency." Black's Law
Dictionary (11th ed. 2019). The Massachusetts Supreme Judicial
Court ("SJC") has acknowledged that insurance involves "the
shifting of risk from insured to insurer," in addition to risk-
sharing among insureds. Liab. Investigative Fund Effort, Inc. v.
Mass. Med. Prof'l Ins. Ass'n, 636 N.E.2d 1317, 1324 n.11 (Mass.
1994). Conversely, "self-insurance" is a "plan under which a
business maintains its own special fund to cover any loss." Black's
Law Dictionary (11th ed. 2019).
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Courts are split on the question of whether in the
present context self-insurance is "insurance," but a clear
majority has held that it is not. See Stratford Sch. Dist., S.A.U.
No. 58 v. Emps. Reinsurance Corp., 162 F.3d 718, 721 (1st Cir.
1998). The First Circuit confronted a similar question regarding
a policy with a $75,000 SIR in Stratford. There, interpreting New
Hampshire law, this court held that a "retained self-insurance
under a deductible, or in some analogous situation," does not
constitute "'insurance' for the purposes of a separate policy's
'other insurance' clause." Id. at 720.
Drawing upon Black's definitions of insurance and self-
insurance, the court wrote that "it seems obvious" that Stratford's
"retention of responsibility to pay for claims against it below
the limit of $75,000 was no 'insurance' at all" as its insurer
"lacked any responsibility within the $75,000 limits." Id. at
720-21. Nothing in Stratford was specifically informed by New
Hampshire law as opposed to general principles about how insurance
functions.
As the SJC explained in Morrison v. Toys "R" Us, Inc.,
the "status of being 'self-insured' means the assumption of one's
own risk, instead of transferring it to a third-party insurer by
means of purchasing insurance coverage." 806 N.E.2d 388, 390 n.1
(Mass. 2004). "The term 'self-insured' is a manner of referring
to a decision not to be insured by a third party . . . ." Id.
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However, the SJC later stated in Boston Gas Co. v.
Century Indemnity Co. that "[e]xcess . . . insurance over a
qualified purely self-insured retention of risk would not be
considered 'primary'; the self-insurance itself is the 'primary'
layer. The excess policies [issued] in this case provided the
first layer of excess coverage over Boston Gas's primary layer of
self-insurance." 910 N.E.2d 290, 294 n.7 (Mass. 2009) (internal
citation omitted). In our case, the district court concluded that
this footnote meant that self-insurance is insurance.
The reasoning of Stratford governs here: the ACE
Ultimate Net Loss Policy provides insurance coverage for claims
above $2M, but the SIR itself does not provide insurance coverage
because ACE has no obligation to pay any claim within the $2M
limit. Boston Gas confirms Stratford's approach of evaluating an
SIR and a policy limit within a single policy as two separate
layers of coverage. Moreover, Boston Gas stated that it was not
concerned with a priority-of-coverage determination and was not
interpreting an "other insurance" clause. The main point of
footnote seven was that when an excess policy contains an SIR, the
SIR must be exhausted before any coverage is triggered.
Law is to a large extent about words, their flexibility,
malleability and abuse. George Orwell's classic essay Politics
and the English Language is about politics and not law but more
instructive (to law students of all ages) than any casebook. For
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present purposes and in the context of our analysis, "insurance"
is about risk shifting and "self-insurance"--a perfectly good
phrase in other contexts--is the opposite of "insurance."
Turning to the ACE CGL Policy, that policy can be
properly termed a "fronting" arrangement with a $2M policy limit
and a $2M deductible. Under this arrangement, the first $2M of
any loss must be paid by United Rentals, and once United Rentals
has paid that first $2M, the $2M policy limit is considered
exhausted. If United Rentals cannot pay the deductible, ACE has
an obligation to pay damages of up to $2M to satisfy a judgment or
settlement, and ACE always has the right, at its discretion, to
pay damages on behalf of United Rentals. However, in either
scenario, United Rentals must reimburse ACE for any sums paid out.
So, is a fronting policy "valid and collectible insurance"?
This is a closer call than the SIR. Stratford is not a
perfect analogy here because ACE does have some responsibility
below the $2M policy limit--specifically in the case when United
Rentals cannot pay its deductible. But the ACE CGL Policy is not,
for practical purposes, an undertaking "to indemnify [United
Rentals] against the risk of loss, damage, or liability"; in any
scenario under which ACE would pay out under the policy, United
Rentals would still be obligated to pay ACE back for any money
spent.
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Because United Rentals has no "other valid and
collectible insurance," the Scottsdale Policy affords coverage to
United Rentals here, and no further analysis of each policy's
"other insurance" provision is needed.
The judgment of the district court is vacated and the
case is remanded for further proceedings consistent with this
decision. Costs shall be taxed in favor of United Rentals.
It is so ordered.
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