Liquor Liability Joint Underwriting Ass'n of Massachusetts v. Hermitage Ins. Co.

• Decision Date: 13 January 1995
• Citation: 419 Mass. 316,644 N.E.2d 964
• Parties: , 44 A.L.R.5th 787 The LIQUOR LIABILITY JOINT UNDERWRITING ASSOCIATION OF MASSACHUSETTS v. HERMITAGE INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 964

644 N.E.2d 964

419 Mass. 316, 44 A.L.R.5th 787

The LIQUOR LIABILITY JOINT UNDERWRITING ASSOCIATION OF MASSACHUSETTS v. HERMITAGE INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Nov. 10, 1994.

Decided Jan. 13, 1995.

Erik Lund, Boston (Jon C. Cowen with him), for defendant.

Steven L. Schreckinger, Boston (Janet M. Zipin with him), for plaintiff.

Before LIACOS, C.J., and ABRAMS, NOLAN & GREANEY, JJ.

GREANEY, Justice.

The plaintiff, the Liquor Liability Joint Underwriting Association of Massachusetts (JUA), brought an action for declaratory relief in the Superior Court pursuant to G.L. c. 231A (1992 ed.), against the defendant, Hermitage Insurance Company (Hermitage). JUA sought to recover from Hermitage defense costs and the amount of a settlement incurred by JUA in connection with a lawsuit against Lamplighter, Inc., a business licensed to serve alcoholic beverages which was a mutual insured of JUA and Hermitage. In the lawsuit, a patron of Lamplighter, who had been assaulted, claimed that the assault was caused by Lamplighter's negligence in serving alcoholic beverages to the person who committed the assault and in failing to provide adequate security on the premises. On cross motions for summary judgment, Mass.R.Civ. P 56(a) and (b), 365 Mass. 824 (1974), a judge in the Superior Court concluded that Hermitage had violated its duties to defend and indemnify Lamplighter on the claim alleging negligent failure to provide security and, as a result, that Hermitage was responsible to JUA for one-half of the costs of the defense and the settlement. Both Hermitage and JUA appealed from the judgment, and we allowed Hermitage's application for direct appellate review. We conclude that Hermitage violated its obligations to defend Lamplighter on the claim alleging a negligent failure to provide security. We conclude, contrary to the judge's reasoning, that Hermitage is responsible to JUA for the full amount of the settlement paid by JUA in the underlying lawsuit. We also conclude that Hermitage is responsible to JUA for one-half of its defense costs. Finally, we conclude that JUA is entitled to prejudgment interest on the money due it from Hermitage.

The undisputed material facts appear in the judge's memorandum of decision and may be summarized as follows. On April 4, 1990, Michael O'Brien, a patron at Lamplighter's establishment, was assaulted by another patron. O'Brien commenced a civil action in the Superior Court against Lamplighter and the person who committed the assault. Insofar as relevant to this appeal, O'Brien's complaint accused Lamplighter of negligence in serving alcoholic beverages (count I), and negligence in failing to provide adequate security for its patrons (count II).

At the time of the assault, Lamplighter had insurance policies with JUA and Hermitage. JUA is a nonprofit association created by the Legislature to provide liquor legal liability insurance to sellers and distributors of alcohol who were previously unable to obtain liability insurance in the private market. See St.1985, c. 223, § 2. In keeping with its statutory mandate, JUA's policy with Lamplighter was limited to coverage for negligence in the distribution, sale, or serving of alcoholic beverages. ¹

Hermitage is a commercial general liability insurer. Hermitage issued Lamplighter a "Special Multi-Peril Policy" in which Hermitage provided coverage for liability due to bodily injury or property damage "caused by an occurrence." An "occurrence" is defined in the policy as "an accident ... which results in bodily injury or property damage neither expected nor intended from the point of view of the insured." An endorsement to the policy provided that an "[a]ssault and/or battery shall not be deemed an accident under the ... policy, nothing in the policy to the contrary." When purchasing the Hermitage policy, Lamplighter believed that coverage was provided for damages arising from fights among patrons on its premises, and it would not have purchased the policy if that coverage was not provided.

As has been indicated, the O'Brien lawsuit contained two separate claims, one of which was within the scope of coverage in the JUA policy (the claim in count I alleging negligent serving of alcoholic beverages), the other of which was not (the claim in count II alleging a negligent failure to provide adequate security). Hermitage disclaimed any coverage on the claim under count II on the basis of the assault and battery endorsement in its policy, and JUA agreed to undertake Lamplighter's entire defense. Hermitage thereafter continued to disclaim coverage despite receiving a letter from JUA's counsel which outlined to Hermitage why count II of the O'Brien lawsuit stated a claim within the scope of Hermitage's coverage which Hermitage was obliged to defend.

The O'Brien action was tried to a jury resulting in a verdict for O'Brien against Lamplighter in the amount of $80,000. Although JUA requested a special verdict slip to enable the jury to apportion liability between count I and count II, the judge presiding at the trial denied the request, and a verdict was returned which did not differentiate between the two claims. ² The judge allowed O'Brien's motion for costs in the amount of $5,787.92. Subsequently JUA and O'Brien entered into a "General Release and Settlement," pursuant to which the JUA paid O'Brien $90,000, and O'Brien's action was dismissed with prejudice. ³ JUA incurred $38,145.10 in attorney's fees and costs in defending Lamplighter. Thereafter, pursuant to a subrogation provision in its policy, Lamplighter assigned all its rights against Hermitage to JUA. The present action by JUA against Hermitage for declaratory relief followed.

1. Hermitage had a duty to defend Lamplighter if any allegations in the O'Brien complaint were reasonably susceptible of an interpretation that they stated or adumbrated a claim covered by the Hermitage policy. See Continental Casualty Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146-147, 461 N.E.2d 209 (1984), and cases cited; Sterilite Corp. v. Continental Casualty Co., 17 Mass.App.Ct. 316, 318, 458 N.E.2d 338 (1983), and authorities cited. It is undisputed that the first count of the O'Brien complaint, alleging that Lamplighter's employees had negligently served alcoholic beverages to the patron who assaulted O'Brien, is covered by the JUA policy and not covered by Hermitage's policy. With respect to the second count of the O'Brien complaint, alleging that Lamplighter failed to provide adequate security, Hermitage relies on the assault and battery endorsement in its policy as excusing it from any obligation to Lamplighter. In examining the endorsement, which amounts to an exclusion from coverage, we are required to "construe the words of the policy in their usual and ordinary sense," Barnstable County Mut. Fire Ins. Co. v. Lally, 374 Mass. 602, 605, 373 N.E.2d 966 (1978), taking into account "what an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 700, 555 N.E.2d 576 (1990).

Hermitage points to decisions from other jurisdictions to support its argument that the language of the assault and battery endorsement was broad enough to exclude a claim based on an allegation of negligent failure to provide security. These cases, however, construe assault and battery provisions which are far more comprehensive than the Hermitage endorsement and which typically use language stating that any claim arising out of, or based on, an assault and battery is excluded from coverage whether committed by or at the direction of the insured or third parties. ⁴ The Hermitage endorsement is much less expansive and precise with respect to what it excludes. ⁵ Courts that have considered an exclusion like the one in the Hermitage policy are divided on whether such a provision is comprehensive enough to exclude negligence claims from coverage, some courts holding that it is, see, e.g., Hermitage Ins. Co. v. Dahms, 842 F.Supp. 319, 325-326 (N.D.Ill.1994); Tarrant County Ice Sports, Inc. v. Equitable Gen. Life Ins. Co., 662 S.W.2d 129 (Tex.Ct.App. 1983), and other courts holding that it is not, see, e.g., Mount Vernon Fire Ins. v. Creative Hous. Ltd., 797 F.Supp. 176 (E.D.N.Y.1992); 2500 Motel Corp. v. Investors Ins. Co., 169 A.D.2d 604, 605, 564 N.Y.S.2d 750 (1991). See also Sphere Drake Ins. Co. v. P.B.L. Entertainment, Inc., 30 F.3d 21, 22-23 (2d Cir.1994) (holding, under New York law, that even broad form of assault and battery exclusion will not excuse insurer from defending negligence claim).

We think, as did the judge below, that the Hermitage endorsement is susceptible of at least two rational interpretations, the one placed on it by Hermitage, that the provision excludes any coverage for a negligence claim related to an assault and battery, and the other, the interpretation placed on it by Lamplighter, that the exclusion applies only to intentional damage caused by, or at the direction of, the insured, its agents, or its employees, and not to a negligence claim following an assault or battery committed by an unrelated third party. In this respect, the O'Brien claim would involve an "accident" under an "occurrence" policy like Hermitage's because Lamplighter would not have known to a substantial certainty that bodily injury it could have guarded against would result from conduct by its patrons. See Quincy Mut. Fire Ins. Co. v. Abernathy, 393 Mass. 81, 86, 469 N.E.2d 797 (1984). See also Sheehan v. Goriansky, 321 Mass. 200, 204-205, 72 N.E.2d 538 (1947). If Hermitage had intended to preclude coverage to Lamplighter for a claim based on an allegation of negligent failure to provide security, it could have done so " 'in clear and unmistakable' language." 2500 Motel Corp. v. Investors Ins. Co., supra 169 A.D.2d at 605, 564 N.Y.S.2d 750, quoting Kratzenstein...