Maine Drilling and Blasting, Inc. v. Insurance Co. of North America, 93-2230

• Citation: 34 F.3d 1
• Decision Date: 11 March 1994
• Docket Number: No. 93-2230,93-2230
• Parties: MAINE DRILLING AND BLASTING, INC., Plaintiff, Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants, Appellees. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

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34 F.3d 1

MAINE DRILLING AND BLASTING, INC., Plaintiff, Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants, Appellees.

No. 93-2230.

United States Court of Appeals,

First Circuit.

Heard March 11, 1994.

Decided Aug. 29, 1994.

Certification Order Aug. 29, 1994.

Stephen B. Wade, with whom Skelton, Taintor & Abbott, Auburn, ME, was on brief, for appellant.

James D. Poliquin, with whom Norman, Hanson & Detroy, Portland, ME, was on brief, for appellee Ins. Co. of North America.

Before BREYER, ^* Chief Judge, COFFIN, Senior Circuit Judge, and TORRUELLA, Circuit Judge.

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TORRUELLA, Circuit Judge.

Plaintiff-appellant Maine Drilling & Blasting, Inc., ("MD & B"), subcontracted with an excavation contractor to perform some blasting work on a building construction site. By mistake, MD & B blasted too far into the ground, leaving an unstable building foundation which the excavation contractor had to fix at considerable cost. Following litigation and arbitration, MD & B accepted an arbitration settlement calling for MD & B to reimburse the excavation contractor for repairs to the damaged foundation. MD & B now seeks to recover its defense and judgment costs from its commercial liability insurer, defendant-appellee Insurance Company of North America ("INA"). The specific issue on appeal is whether MD & B's insurance policy with INA excludes coverage for the damages in this case pursuant to general exclusions in the policy or whether the policy affords coverage pursuant to a special endorsement that is attached to the policy. The district court found that the general exclusions controlled and ruled in favor of INA. For the reasons set out below, we certify this question to the Supreme Judicial Court of Maine.

I. BACKGROUND

MD & B served as a blasting subcontractor to George Brox Industries ("Brox"), the excavation subcontractor on a building construction project for the Union Leader Corporation in Manchester, New Hampshire. Union Leader's building was to be constructed upon a subterranean granite ledge. In the process of doing the blasting work for Brox's excavation on the project, MD & B admits that it mistakenly drilled and blasted too deep, leaving an unstable grade rather than a solid ledge. Brox had to remove several feet of broken ledge and replace it with suitable solid fill at a cost of several hundred thousand dollars. The parties first discovered the fragmented granite ledge in March of 1989, and Brox completed its remedial work by July of that year. The building itself was substantially completed by May of 1990.

Litigation concerning a variety of issues related to the construction began in the summer of 1989. Brox eventually cross-claimed against MD & B for the costs of the extra excavation work needed to fix the foundation in an arbitration proceeding between the two parties. On May 29, 1990, MD & B first notified INA that it faced a potential claim by Brox and that it was seeking indemnity and defense costs. INA refused to defend Brox's claim against MD & B on a number of different grounds. MD & B and Brox subsequently reached an arbitration settlement dated December 26, 1991, pursuant to which MD & B agreed to pay Brox roughly $330,000 for reimbursement costs, interest and litigation costs.

The insurance policy issued to MD & B by INA is comprised of a Commercial General Liability ("CGL") policy, which is a boilerplate policy form that insurance companies issue to all sorts of commercial enterprises, and a number of amendments or "endorsements" modifying or adding to the basic CGL policy. The CGL policy contains several exclusions from coverage including exclusions j(5) and j(6), which exclude insurance coverage for "property damage" to:

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

The term "property damage" includes "physical injury to tangible property, including all resulting loss of use of that property." "Your work" is defined as "work or operations performed by you or on your behalf."

Attached to the CGL policy is a special endorsement called the "Explosives Limitation Endorsement" (the "Endorsement"), which begins with the notice: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. This endorsement modifies insurance provided under the following: Commercial General Liability coverage part." The Endorsement then provides:

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This insurance does not apply to "property damage" included within the "explosion hazard" or "underground property damage hazard" except as modified below:

EXPLOSIVES LIMITATION ENDORSEMENT

This insurance will apply to those sums that the insured becomes legally obligated to pay as damages for occurrences included within the "explosion hazard" or "underground property damage hazard" which arise out of "covered operations" subject to the following schedule of deductibles:

Amount and Basis of Property Damage Liability Deductible

$25,000 per occurrence for intentional detonation

$0 per occurrence for unintentional detonation

The following definitions are added as respects this endorsement: ...

d. "Explosion Hazard" includes property damage arising out of blasting or explosion....

e. "underground property damage hazard" includes "underground property damage" and any resulting "property damage" to any property at any time.

f. "underground property damage" means property damage to wires, conduits, pipes, mains, sewers, tanks, tunnels, any similar property, and any apparatus used with them beneath the surface of the ground or water, caused by and occurring during the use of explosives or mechanical equipment for the purpose of grading land, paving, excavating, drilling, mining, borrowing, filling, back-filling or pile driving.

The insurance shall not apply to "property damage" arising from: ...

c. Poor breakage including any failure to obtain desired fragmentation or fracture.

MD & B brought a diversity action in the district court on July 14, 1992, claiming INA wrongfully refused to defend and indemnify MD & B in the above action as required by the provisions of its insurance contract. On cross motions for summary judgment, the magistrate recommended that judgment be entered in favor of INA on the ground that exclusions j(5) and j(6) unambiguously excluded coverage for MD & B's claims. The district court adopted the recommended decision. MD & B then brought this appeal.

II. CERTIFICATION

A federal appeals court sitting in diversity, may, in its discretion, certify questions of state law to the state's highest court. Lehman Bros. v. Schein, 416 U.S. 386, 391, 94 S.Ct. 1741, 1744, 40 L.Ed.2d 215 (1974); Nieves v. University of Puerto Rico, 7 F.3d 270, 274 (1st Cir.1993); Fischer v. Bar Harbor Banking, 857 F.2d 4, 7 & n. 2 (1st Cir.1988). Although neither party has requested certification in this case, we do certify, on occasion, questions to a state's highest court upon our own motion when we feel it is appropriate. Sierra-Serpa v. Martinez, 966 F.2d 1, 3-4 (1st Cir.1992); Horta v. Sullivan, 4 F.3d 2, 23-24 (1st Cir.1993).

Our decision to certify in this case is guided by the Maine's certification statute, M.R.S.A. tit. 4, Sec. 57, ¹ which allows for certification

of issues that are "determinative of the cause" and for which there are "no clear controlling precedents in the decisions of the Supreme Judicial Court." M.R.S.A. tit. 4, Sec. 57

In this case, the question of whether the Explosives Limitation Endorsement at issue here, when read together with the exclusions in the CGL policy, creates an ambiguity for the policy's scope of coverage, is both determinative and unsettled. MD & B does not dispute that exclusions j(5) and j(6) of the CGL portion of the policy would normally exclude coverage for the type of damages which occurred in this case. MD & B argues, however, that the Explosives Limitation Endorsement modifies the CGL policy in a way that effectively trumps these two exclusions by granting special coverage for damages caused by blasting operations. MD & B points to the language of the Endorsement which states: "This insurance will apply to ... damages for occurrences included within the 'explosion hazard' " which includes "property damage arising out of blasting or explosion." MD & B concludes that this language, by its own terms, covers the damages in this case.

Once a claim falls within the Endorsement, MD & B argues, the provisions included in the Endorsement describe the full extent of coverage. As a result, the separate enumerated exclusions listed on the Endorsement itself replace exclusions like j(5) and j(6) that conflict with the explicit grant of coverage in the Endorsement. MD & B concludes that if this interpretation is not the correct one, it is at least a reasonable one in the face of ambiguous language which, according to Maine law, must be construed in favor of the insured. See Massachusetts Bay Ins. Co. v. Ferraiolo Constr. Co., 584 A.2d 608, 609 (Me.1990); Peerless Ins. Co. v. Brennon, 564 A.2d 383, 384 (Me.1989).

INA argues that there is no ambiguity in the CGL policy and the attached Explosives Limitation Endorsement. According to INA, exclusions j(5) and j(6) unambiguously exclude coverage for the damages in this case, which resulted from what are called "business risks." Business risks involve "expenses incurred by the insured for repair or replacement of unsatisfactory work." Ferraiolo, 584 A.2d at 610. The other types of risks, "occurrence of harm risks," are those "involving harm to others due to faulty work on products." Id. INA argues that the Endorsement cannot reasonably be interpreted as granting coverage for business risks because such risks are beyond the scope of what a...