Decision Date13 October 2004
Citation815 NE 2d 1066,442 Mass. 675
PartiesTONY MAKRIGIANNIS & another v. NINTENDO OF AMERICA, INC., & another; SUMITOMO MARINE and FIRE INSURANCE COMPANY, LTD., third-party defendant.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, Sosman, & Cordy, JJ.

Michael F. Aylward (Richard W. Jensen with him) for Sumitomo Marine and Fire Insurance Company, Ltd.

Alice Olsen Mann (Joan S. Amon with her) for the plaintiffs.

Owen Gallagher, pro se, amicus curiae, submitted a brief.


This case raises an issue of first impression: whether, under a "vendor's broad form" insurance policy endorsement, a manufacturer's insurer is required to indemnify a vendor whose negligence in setting up a display of the manufacturer's product was the sole cause of injuries to a customer. We granted the plaintiffs' application for direct appellate review to consider whether a Superior Court judge erred where, after a bench trial, she held that the insurer must indemnify the vendor. Because we conclude that the vendor's endorsement at issue here covers claims for a vendor's own negligence when the manufacturer's product causes bodily injury, we affirm the judgment.

Facts and Procedural Background.

We present the relevant facts as found by the judge, supplementing them as necessary, and reserving certain details for our discussion of the issues. The relevant facts are not disputed.

KCS Industries, Inc., manufactured a large interactive Game Boy display unit4 (unit) for Nintendo of America, Inc. (Nintendo), which sold the unit to Lechmere, Inc. (Lechmere), in August, 1993. The unit was shipped to Lechmere in three cartons, requiring Lechmere to assemble it in the store. At some point before August, 1994, Lechmere assembled the unit on the floor of its Cambridge store. On August 2, 1994, Tony Makrigiannis, who was then five years old, was injured on the premises of the Lechmere store when the unit fell on him.

In 1997, the plaintiffs filed suit against Nintendo and Team Marketing, Inc.,5 alleging negligent installation, maintenance, and inspection, as well as negligent failure to provide adequate warnings for operators. The plaintiffs later amended their complaint to add Lechmere as a defendant, alleging negligent ownership, inspection, maintenance, or installation resulting in a dangerous and unsafe condition.

At the time of the 1994 accident, Nintendo had a policy of liability insurance with Sumitomo Marine and Fire Insurance Company, Ltd. (Sumitomo). The policy included a vendor's broad form endorsement covering "all vendors authorized by the Named Insured," which included Lechmere. Pursuant to the vendor's endorsement, Lechmere demanded defense and indemnification from Sumitomo. Sumitomo refused on the basis that the endorsement did not extend coverage to Lechmere for the plaintiffs' claims. Lechmere then commenced a third-party action against Sumitomo seeking a judgment declaring that Sumitomo owed Lechmere a defense and indemnification under the vendor's endorsement.

On Sumitomo's motion, the trial judge bifurcated the tort and third-party actions for the purposes of trial. A jury heard the plaintiffs' claims against Nintendo and Lechmere in March, 2002. At the close of the plaintiffs' case, the judge directed a verdict in favor of Nintendo on the claims of negligent design and manufacture of the unit. The remaining claims went to the jury, which found that Lechmere was one hundred per cent negligent and that its negligence was the proximate cause of the minor plaintiff's injuries. After a bench trial of the third-party action, the judge ruled that Sumitomo owed Lechmere a defense and indemnification with respect to the underlying action because the plaintiffs' claims fell within the scope of the vendor's endorsement.

Sumitomo appealed, arguing that the judge erred in ordering it to indemnify Lechmere under the vendor's endorsement because Lechmere failed to establish that it was entitled to coverage under the policy.6 Additionally, Sumitomo argues that the judge's findings of facts supporting her conclusion were clearly erroneous.7


1. Standard of review. We accept the judge's findings of fact in a bench trial unless they are clearly erroneous. Kendall v. Selvaggio, 413 Mass. 619, 620 (1992), and cases cited. "On the other hand, to ensure that the ultimate findings and conclusions are consistent with the law, we scrutinize without deference the legal standard which the judge applied to the facts. Thus, the `clearly erroneous' standard of appellate review does not protect findings of fact or conclusions based on incorrect legal standards." (Citations omitted.) Id. at 621.

2. Vendor's endorsement. The relevant portions of Sumitomo's broad form insurance policy are as follows:

"It is agreed that the `Persons Insured' provision is amended to include any person or organization designated below (herein referred to as `vendor') as an insured, but only with respect to the distribution or sale in the regular course of the vendor's business of the Named Insured's products designated below subject to the following additional provisions:
"1. The insurance with respect to the vendor does not apply to:
". . .
"(b) bodily injury or property damage arising out of
"(i) any physical or chemical change in the form of the product intentionally made by the vendor,
". . .
"(iii) demonstration, installation, servicing or repair operations, except such operations performed at the vendor's premises in connection with the sale of the product" (emphasis added).

Under the policy, Lechmere was the named vendor and Nintendo was the named insured. The insured products were listed as "Amusement machine including Home Video Games, coin-operated sic video games, playing cards and all other products which are manufactured, assembled &/or distributed by the Named Insured(s)."

The policy fails to define the terms "distribution" and "sale." "Distribution" can be defined as "the marketing or merchandising of commodities." Webster's Third New Int'l Dictionary 660 (1993). "Sale" can be defined as the "opportunity of selling or being sold," and "sales" as "operations and activities involved in promoting and selling goods or services." Id. at 2003. The policy defines "products" as "goods or products manufactured, sold, handled or distributed by the Named Insured or by other trading under his name, including any container thereof." Thus, "product" appears to include those items used for marketing.

The record reveals that the unit was displayed in the Lechmere store to stimulate sales of Nintendo's Game Boy products. Sumitomo points to the fact that the unit itself was not for resale to the general public, but rather was solely for promotional purposes. This, however, is irrelevant, as Sumitomo admits the unit was for promotional purposes and thus part of the operations and activities involved in promoting and selling Nintendo's goods and services. Further, the minor plaintiff was injured when the top portion of the unit fell on top of him as he was attempting to use it. As such, the unit was a "product" under the terms of the endorsement and covered by the policy.8

If Sumitomo did not intend to cover display products, it could have excluded all "demonstrations" including those performed at the vendor's premises in connection with the sale of the product.9 Although an exclusion cannot create coverage, the language of the exclusion reinforces our interpretation that products on display are covered under the vendor's endorsement.

Sumitomo relies heavily on the ruling in Mitchell v. Stop & Shop Cos., 41 Mass. App. Ct. 521 (1996), and cases from other jurisdictions to argue that a vendor's endorsement does not indemnify a vendor for independent acts of negligence because the purpose of the policy is to protect a vendor in products liability suits. However, Sumitomo's reliance on the Mitchell case is misplaced. Unlike in the present case, where the minor plaintiff was injured by Nintendo's product, in the Mitchell case there was no connection between the products (bakery goods) and the plaintiff's injuries. Id. at 524. There, a bakery employee was injured on a supermarket's loading dock while delivering bread to the supermarket. Id. at 521. As to one reason that the vendor's endorsement did not apply, the Appeals Court stated:

"Although Mitchell was injured in the course of delivering a Continental product to Stop & Shop, his injuries cannot be said to have been caused by the product or to have arisen in `the distribution or sale in the regular course of the vendor's i.e. Stop & Shop's business of Continental Baking Companies' products . . . .' Rather, they arose from the distribution in the regular course of Continental's business of its products to a vendor."

Id. at 524. In this case, regardless of Lechmere's negligence, the minor plaintiff's injuries were caused by Nintendo's product — it was Nintendo's product that fell on him.

As for the out-of-State cases on which Sumitomo relies, some are not persuasive as applied to the facts of this case. See Dominick's Finer Foods, Inc. v. American Mfrs. Mut. Ins. Co., 163 Ill. App. 3d 149, 150-152 (1987) (denying coverage where bottling company employee was injured when he slipped and fell on loading dock while delivering bottling company products to restaurant; facts nearly identical to those in Mitchell v. Stop & Shop Cos., supra); American White Cross Labs., Inc. v. Continental Ins. Co., 202 N.J. Super. 372, 378-381 (1985) (denying coverage under vendor's endorsement because of specific exclusion precluding coverage where products were labeled or relabeled by vendor). In fact, in other, subsequent cases, the same courts found coverage under a vendor's endorsement where there was a nexus between the named insured's product and the injury. See Sportmart, Inc. v. Daisy Mfg. Co., 268 Ill. App. 3d 974, 976-978 (1994...

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