Scottsdale Ins. Co. v. United Rentals (N. Am.), Inc.

305 F.Supp.3d 223

SCOTTSDALE INSURANCE COMPANY, Plaintiff,

v.UNITED RENTALS (NORTH AMERICA), INC., Defendant.

CIVIL ACTION NO. 13–12824–DPW

United States District Court, D. Massachusetts.

Filed March 30, 2018

Douglas J. Steinke, Pro Hac Vice, Carroll McNulty & Kull LLC, Joanna Lyn Young, Kennedys CMK LLP, New York, NY, Gary S. Kull, Pro Hac Vice, Carroll, McNulty & Kull LLC, Basking Ridge, NJ, Bradford N. Louison, Louison, Costello, Condon & Pfaff, LLP, Boston, MA, for Plaintiff.

David E. Schroeder, Tribler Orpett & Meyer PC, Chicago, IL, Barbara A. O'Donnell, Sulloway & Hollis, P.L.L.C., Providence, RI, Suzanne M. Whitehead, Zelle McDonough & Cohen LLP, Boston, MA, for Defendant.

MEMORANDUM AND ORDER

DOUGLAS P. WOODLOCK, UNITED STATES DISTRICT JUDGE

I. BACKGROUND

This is the second phase of an insurance coverage action arising from a personal injury suit in the Rhode Island courts. In the first phase, I found that plaintiff Scottsdale Insurance Company ("Scottsdale") owed a duty to defend to defendant United Rentals (North America), Inc. ("United Rentals") in an underlying personal injury action. Scottsdale Ins. Co. v. United Rentals (N. Am.), Inc. ("Scottsdale I "), 152 F.Supp.3d 15 (D. Mass. 2015). The underlying action has now settled, and I am called upon to determine whether Scottsdale also owes United Rentals indemnification.

The basic facts were set forth in my previous Memorandum and Order:

In a contract dated June 22, 2007, Gomes Services, Inc. ("Gomes") rented an electric boom lift from United Rentals. Gomes used that lift at a trade show held at the Rhode Island Convention Center, where on June 26, 2007 an accident occurred. Guy Ayotte, the plaintiff in the underlying action, was struck and injured by the lift, which was then being operated by Gomes employee Mario Perez. At that time, Gomes was insured by Scottsdale. United Rentals had its own insurance policies, two of which are at issue in this litigation and now asserts that it was an additional insured on the Scottsdale policy as well. The relevant features of these contracts and policies will be described as they arise in the analysis of the legal questions presented.

After the accident, Ayotte and his wife filed suit in Rhode Island state court against United Rentals, Gomes, and others.

Ayotte ex. rel. Ayotte v. Perez , C.A. No. 10–2164 (R.I. Super. Ct., amended complaint filed Mar. 11, 2011). Three counts in the amended complaint assert causes of action against United Rentals and are relevant here: Negligent Operation and Ownership Liability (Count I); Negligent Maintenance of a Dangerous Instrumentality (Count V), and Negligent Hiring of a Dangerous Instrumentality (Count VI). At the heart of the claims against United Rentals is the allegation that the lift should have been properly equipped with an alarm which warned bystanders of the lift's approach, but that the lift emitted no audible sounds at the time.

Scottsdale I , 152 F.Supp.3d at 18.

The underlying Ayotte action has settled, and, pursuant to that settlement, United Rentals paid a sum of money to the Ayottes.¹

In my previous Memorandum and Order, I resolved a number of disputes concerning the relationship between the parties. These rulings remain the law of the case.

First, I found that Massachusetts law governs this dispute. Id.

Second, I determined that Scottsdale's insurance contract with Gomes required United Rentals to be added as an additional insured. Id. at 22–23.

Third, I held that Scottsdale owed United Rentals a duty to defend in the underlying action, and that it had failed to do so. Id. at 25.

Because a declaration concerning indemnification was not then ripe, however, I did not decide that issue. Id. at 19. But the issue is now ripe before me. Both parties now seek a declaratory judgment in their favor on the duty to indemnify, and United Rentals also seeks damages for Scottsdale's breach of its contractual duty to indemnify.

The standard of review remains the same:

Under Federal Rule of Civil Procedure 56, summary judgment is appropriate where there "is no genuine issue as to any material fact and [ ] the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Cross-motions for summary judgment do not alter this standard, but rather require a determination of whether either party can show an entitlement to judgment as a matter of law based on the undisputed facts. Adria Int'l Grp., Inc. v. Ferre Dev., Inc. , 241 F.3d 103, 107 (1st Cir. 2001). The interpretation of an insurance contract is a question of law. Cody v. Connecticut Gen. Life Ins. Co. , 387 Mass. 142, 439 N.E.2d 234, 237 (1982).

Id. at 18.

II. MOTION TO STRIKE

United Rentals has moved to strike three elements from Scottsdale's briefing: pages filed beyond the 20–page limit set forth in Local Rule 7.1(b)(4); all references to Scottsdale's internal investigation by representative Eliza Czerwein, which was belatedly disclosed; and the confidential amount of the settlement in the underlying litigation.

In determining whether sanctions are appropriate for untimely disclosures and other discovery violations related to Czerwein's investigation, I am guided by the factors the First Circuit has laid out. District courts should "weigh the severity of the discovery violations, legitimacy of the party's excuse for failing to comply, repetition of violations, deliberateness of the misconduct, mitigating excuses, prejudice to the other party and to the operations of the court, and adequacy of lesser sanctions," as well as whether the court previously "gave the offending party notice of the possibility of sanctions and the opportunity to explain its misconduct and argue against the imposition of such a penalty." AngioDynamics, Inc. v. Biolitec AG , 780 F.3d 429, 435 (1st Cir.), cert. denied , ––– U.S. ––––, 136 S.Ct. 535, 193 L.Ed.2d 427 (2015).

After weighing these factors, I conclude no sanction is necessary. The record shows no pattern of discovery violations by Scottsdale—and as a result, no prior warnings about sanctions were given. Nor did these failures create any substantial prejudice to United Rentals. First, my analysis of the merits of the case does not rely upon, or otherwise make use of, Ms. Czerwein's testimony. Her investigation is potentially relevant in addressing factual questions about the negligent maintenance of the boom lift but that does not affect my determination as to indemnity coverage on summary judgment. Moreover, Scottsdale points out that this evidence comes from the underlying litigation, to which United Rentals, but not Scottsdale, was a party; thus, United Rentals already had access to this information. I see no need for sanction in this instance.

I find the other two issues harmless. First, Scottsdale has already filed a Notice of Scrivener's Error and a corrected memorandum addressing the confidential settlement figure. This suffices to cure any problem. Second, while Scottsdale's briefing exceeded the page limit, it was largely repetitive of briefing from the first phase of this litigation and then repeated in Scottsdale's opposition brief; the extra pages did not serve to augment the persuasiveness of Scottsdale's arguments. While I must warn Scottsdale and its attorneys of the need for greater care in its briefing and closer attention to the Rules of Civil Procedure and the Local Rules of this District, I impose no sanctions at this juncture and I will deny the motion to strike.

III. ANALYSIS

A. The Duty to Indemnify

Although Scottsdale had a duty to defend United Rentals in the underlying action, "the obligation to indemnify does not ineluctably follow from the duty to defend." Newell–Blais Post No. 443, Veterans of Foreign Wars of U.S., Inc. v. Shelby Mut. Ins. Co. , 396 Mass. 633, 487 N.E.2d 1371, 1374 (1986). The duty to indemnify is narrower. "[A]n insurer's obligation to defend is measured by the allegations of the underlying complaint while the duty to indemnify is determined by the facts, which are usually established at trial." Travelers Ins. Co. v. Waltham Indus. Labs. Corp. , 883 F.2d 1092, 1099 (1st Cir. 1989). Here, however, there was no trial in the underlying action but rather a settlement. "This means that the duty to indemnify must be determined in the basis of the settlement and, since this [is] a summary judgment proceeding, the undisputed facts." Id.

Because Scottsdale wrongfully declined to defend United Rentals, even if it did so in good faith, the relevant burden of proof shifts and Scottsdale must prove that the claim was not within its policy's coverage in order to avoid owing indemnification. Polaroid Corp. v. Travelers Indem. Co. , 414 Mass. 747, 610 N.E.2d 912, 922 (1993).

This burden shifting brings certain additional consequences in the context of a settlement. If some underlying claims are covered by the policy and others are not covered, the insurer also bears the burden of allocating the judgment or settlement between those claims.

Liquor Liab. Joint Underwriting Ass'n of Massachusetts v. Hermitage Ins. Co. , 419 Mass. 316, 644 N.E.2d 964, 969 (1995). If that allocation is "speculative and arbitrary," then the insurer will be liable for the full amount. Id. ; see also Liberty Mut. Ins. Co. v. Metro. Life Ins. Co. , 260 F.3d 54, 63 (1st Cir. 2001) ("if the insurer fails to defend the lawsuit, it is liable for all defense costs and (assuming policy coverage) the entire resulting judgment or settlement, unless liability can be allocated among covered and uncovered claims.").

Massachusetts courts have generally looked for unambiguous allocations of liability, such as a special jury verdict dividing liability across claims, to meet the burden. See, e.g., Palermo v. Fireman's Fund Ins. Co. , 42 Mass.App.Ct. 283, 676 N.E.2d 1158, 1163–64 (1997) (suggesting insurer should have requested judge employ special jury questions) (citing Hermitage , 644 N.E.2d at 969 ); Republic Franklin Ins. Co. v. United Educators Reciprocal Risk Retention Grp. , 66...