First Specialty Ins. Corp. v. Pilgrim Ins. Co.

83 Mass.App.Ct. 812

990 N.E.2d 86

FIRST SPECIALTY INSURANCE CORPORATION

v.PILGRIM INSURANCE COMPANY.

No. 12–P–1281.

Appeals Court of Massachusetts, Suffolk.

Argued April 4, 2013.

Decided June 26, 2013.

David A. White for the defendant.

Barbara O'Donnell for the plaintiff.

Present: KANTROWITZ, BROWN, & KAFKER, JJ.

KAFKER, J.

The instant case involves a dispute between a general liability insurer, First Specialty Insurance Corporation (FSIC), and an automobile insurer, Pilgrim Insurance Company (Pilgrim), regarding the scope of an automobile exclusion in a commercial general liability insurance policy (CGL policy). By its express terms, this “exclusion applies even if the claims against any insured allege negligence ... in the supervision[ ] [or] hiring [ ] ... of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’ ... involved the ... use ... of any ... ‘auto’ ... owned or operated by ... any insured.” The question presented is whether FSIC had a duty to defend and indemnify its insureds for negligent supervision claims relating to an automobile accident involving an intoxicated employee of the insureds. Pilgrim, which settled the underlying claims in their entirety, argues that the principles of Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240, 496 N.E.2d 158 (1986)( Marnell ), and its progeny mandate coverage for all of FSIC's insureds except the intoxicated driver, as they were not the owners or operators of the automobile, and therefore FSIC should reimburse Pilgrim for a portion of the costs incurred in litigating and settling the underlying action. We conclude, however, that because FSIC's policy contains the express terms referenced above that were not present in Marnell, a different result is warranted. See Massachusetts Property Ins. Underwriting Assn. v. Berry, 80 Mass.App.Ct. 598, 602, 954 N.E.2d 584 (2011); Rhoades v. Massachusetts Property Ins. Underwriting Assn., U.S. Dist. Ct., No. 09–11302–DPW, 2010 WL 2793550 (D.Mass. July 13, 2010). We therefore affirm the summary judgment in favor of FSIC.¹

1. Background. a. Underlying facts. The facts of the underlying litigation are undisputed in this action. In 2007, Dennis Pinto had been diagnosed with dementia. Pinto's family contracted with R. Squared Enterprises, Inc. (R. Squared), to provide nonmedical support services to Pinto. Starting on October 17, 2007, R. Squared assigned Kimberly Pereira to work with Pinto. The following day, Pereira drove Pinto to a restaurant for lunch in an automobile owned by Pinto's wife. While at the restaurant, Pereira consumed alcohol, allegedly becoming intoxicated, and she thereafter drove negligently. She crashed the automobile into a tree, and Pinto suffered serious injuries. R. Squared had policies in place to require background checks of prospective hires, including their criminal and driving records. Under those policies, Pereira should not have been hired because she previously had been convicted twice of alcohol-related offenses.

Pinto's family sued Pereira, R. Squared, and others associated with R. Squared, eventually naming as defendants R. Squared's principals, Robert and Raquel Mullaney.² The claims included negligence against Pereira; liability under respondeat superior for Pereira's negligence against R. Squared and the Mullaneys (collectively, R. Squared defendants); and negligent hiring, training, supervision, or retention against the R. Squared defendants and Sandra Smith. FSIC disclaimed coverage and declined to defend the suit, except that it paid some of Smith's defense costs under a reservation of rights. Pilgrim provided the R. Squared defendants with a defense, and the Pinto suit was settled in April, 2010, within Pilgrim's $1 million policy limit. All claims by the Pintos were dismissed with prejudice in May, 2010. Pilgrim paid the settlement, which was not allocated among the various claims; FSIC did not contribute toward it.

b. Insurance policies. At all relevant times, R. Squared was the named insured on a Pilgrim business automobile insurance policy. That policy included coverage for automobiles owned by others. It is undisputed that this policy covered Pereira while using Pinto's wife's automobile. The Pilgrim policy also provided that anyone qualified as an insured if they were “liable for the conduct of [another] ‘insured’ ... but only to the extent of that liability.” See Society for Christian Activities, Inc. v. Markel Ins. Co., 56 Mass.App.Ct. 190, 193 & n. 9, 775 N.E.2d 1244 (2002), S.C., 440 Mass. 1006, 795 N.E.2d 545 (2003) (dealing with identical language).

R. Squared also held a CGL policy with FSIC. The CGL policy covers liability for bodily injuries to third parties stemming from accidents in general. All of the R. Squared defendants are insureds under the CGL policy. However, the CGL policy also contains an automobile exclusion, of particular relevance here, which is set forth in the margin.³ The final pertinent provision in the CGL policy is the severability clause, which indicates that the policy applies “[s]eparately to each insured against whom claim is made or ‘suit’ is brought.” See Society for Christian Activities, Inc. v. Markel Ins. Co., 56 Mass.App.Ct. at 191–192, 775 N.E.2d 1244 (identical language).

c. The instant action. In March, 2010, FSIC filed this action against Pilgrim, seeking a declaration that it had no obligation to defend or indemnify the R. Squared defendants, and consequently that Pilgrim had no right to contribution or subrogation from FSIC. Soon after the Pinto suit settled, Pilgrim filed opposing counterclaims for equitable contribution and subrogation. On cross motions for summary judgment, the motion judge ruled in favor of FSIC and entered judgment accordingly.

2. Discussion. We review the motion judge's ruling on summary judgment de novo. See Miller v. Cotter, 448 Mass. 671, 676, 863 N.E.2d 537 (2007). “We ask whether the evidence, in the light most favorable to the party losing the contest of cross motions, and the controlling law entitle the prevailing party to judgment. See Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 [571 N.E.2d 357] (1991); DiLiddo v. Oxford St. Realty, Inc., 450 Mass. 66, 70 [876 N.E.2d 421] (2007). As with contracts generally, the interpretation of the unambiguous terms of an insurance policy is a matter of law for the trial court and then the reviewing court. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146 [439 N.E.2d 234] (1982); Clendenning v. Worcester Ins. Co., 45 Mass.App.Ct. 658, 660 [700 N.E.2d 846] (1998).” Audubon Hill S. Condominium Assn. v. Community Assn. Underwriters of America, Inc., 82 Mass.App.Ct. 461, 465, 975 N.E.2d 458 (2012). An ambiguous term in a policy will be construed against the insurer, but “[a] term is ambiguous only if it is susceptible of more than one meaning and if reasonably intelligent persons would differ over the proper meaning.” Suffolk Constr. Co. v. Illinois Union Ins. Co., 80 Mass.App.Ct. 90, 94, 951 N.E.2d 944 (2011). See Shamban v. Worcester Ins. Co., 47 Mass.App.Ct. 10, 16, 710 N.E.2d 627 (1999)( Shamban ).

As an insurer's duty to defend is broader than its duty to indemnify, we need only consider whether FSIC was obligated to defend the R. Squared defendants against the Pintos' complaint. See A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 527, 838 N.E.2d 1237 (2005). “An insurer has a duty to defend an insured when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms.” Billings v. Commerce Ins. Co., 458 Mass. 194, 200, 936 N.E.2d 408 (2010). In determining the scope of the duty to defend, “[t]he process is not one of looking at the legal theory enunciated by the pleader but 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.’ ” Id. at 201, 936 N.E.2d 408, quoting from Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12–13, 545 N.E.2d 1156 (1989).

In interpreting FSIC's automobile exclusion, see note 3, supra, we do not write on a blank slate. The Marnell case construed a homeowner's insurance policy containing an automobile exclusion, not materially different from the first paragraph of FSIC's automobile exclusion, disclaiming coverage if a motor vehicle was owned or operated by “any insured.” 398 Mass. at 242, 496 N.E.2d 158. In Marnell, the underlying complaint alleged that the parents permitted their son Michael to have a party at their house, knowing that, although he was underage, he would drink alcohol, “that [Michael] left the party in an intoxicated condition, and that, while operating his motor vehicle in a negligent manner, he struck and killed the intestate.” Id. at 241, 496 N.E.2d 158. The parents were named insureds under the homeowner's policy, and the son was an unnamed insured. Id. at 242, 496 N.E.2d 158. The son, not the parents, owned and operated the vehicle. Ibid. The essential theory of liability against the parents was negligent supervision of their son. Id. at 241, 496 N.E.2d 158.

The Marnell court held that “without the severability provision a literal reading of the motor vehicle exclusion by itself precludes the [parents] from coverage under the policy because [the son], an insured, owned and operated the motor vehicle involved in the fatal accident. But the severability of insurance clause makes coverage available to [the parents] nonetheless.” Id. at 244, 496 N.E.2d 158. The severability clause, providing that the policy “applies separately to each insured,” “require[d] that each insured be treated as having a separate insurance policy. Thus, the term ‘insured’ as used in the motor vehicle exclusion refers only to the person claiming...