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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