New England Mut. Life Ins. Co. v. Liberty Mut. Ins. Co.

• Decision Date: 02 October 1996
• Docket Number: No. 95-P-13,95-P-13
• Citation: 40 Mass.App.Ct. 722,667 N.E.2d 295
• Parties: , 68 Empl. Prac. Dec. P 44,237 NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY v. LIBERTY MUTUAL INSURANCE COMPANY.
• Court: Appeals Court of Massachusetts

Page 295

667 N.E.2d 295

40 Mass.App.Ct. 722, 68 Empl. Prac. Dec. P 44,237

NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY v. LIBERTY MUTUAL INSURANCE COMPANY.

No. 95-P-13.

Appeals Court of Massachusetts,

Suffolk.

Argued March 11, 1996.

Decided July 17, 1996.

Further Appellate Review Denied Oct. 2, 1996.

Andre A. Sansoucy, Boston, for plaintiff.

Kevin D. McElaney, Boston, for defendant.

Before BROWN, PORADA and LAURENCE, JJ.

PORADA, Justice.

New England Mutual Life Insurance Company (insured) filed an action in the Superior Court against the Liberty Mutual Insurance Company (insurer), in which it sought a declaration that the insurer had a duty to defend the insured and several of its employees in an action brought against them by Marcia Henderson and her family in the United States District Court of Massachusetts arising out of alleged discriminatory treatment of Henderson as an employee of the insured. The insured and insurer filed cross motions for summary judgment. The motion judge granted the insurer's motion on the grounds that all of the claims set forth in the Henderson complaint were based on allegations of employment discrimination and, therefore, were barred by the clause in the insured's policy excluding coverage for personal injury claims "arising out of ... discrimination which is unlawful or which is committed by or at the direction of the insured."

On appeal, the insured claims that the judge erred because the exclusion in its policy does not negate coverage for the common law claims in the Henderson complaint, ¹ does not apply absent a finding that unlawful discrimination occurred, and does not apply to the complaint's specific claims of misrepresentation, negligent supervision, loss of consortium, and property damage. We affirm the judgment.

There is no question that the insurer had a duty to defend the Henderson action if any allegations in the complaint "were reasonably susceptible of an interpretation that they stated or adumbrated a claim covered by" the policy issued to its insured. Liquor Liab. Joint Underwriting Assn. of Massachusetts v. Hermitage Ins. Co., 419 Mass. 316, 319-320, 644 N.E.2d 964 (1995). Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 318, 458 N.E.2d 338 (1983), S.C., after remand, 20 Mass.App.Ct. 215, 479 N.E.2d 205 (1985), S.C., 397 Mass. 837, 494 N.E.2d 1008 (1986). The policy in question provided:

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury.... [C]overage does not apply to personal injury arising out of ... discrimination which is unlawful or which is committed by or at the direction of the insured."

Relying on Newell-Blais Post # 443, Veterans of Foreign Wars of the United States, Inc. v. Shelby Mut. Ins. Co., 396 Mass. 633, 487 N.E.2d 1371 (1986), the insured argues that the phrase "discrimination which is unlawful" should be read to exclude from coverage only those claims in the Henderson complaint which are based on violations of specific statutes barring discrimination and not those claims based on common law theories. In Newell-Blais, id. at 636-637, 487 N.E.2d 1371, the Supreme Judicial Court held that language in a policy excluding from coverage liability imposed "by, or because of the violation of, any statute, ordinance or regulation pertaining to the sale, gift, distribution or use of any alcoholic beverage" did not excuse the insurer from its duty to defend its insured in a wrongful death action based on negligence where the underlying complaint against the insured averred that the insured had negligently sold alcoholic beverages to one of its customers in violation of G.L. c. 138, § 69. The Supreme Judicial Court reasoned that the exclusion applied only to those situations where the violation of the statute without more was the direct cause of liability and not to those situations in which it was relied upon solely as evidence of negligence. Ibid.

The exclusionary language in this case, by contrast, is much broader in that it excludes any and all personal injury which "arises out of" any unlawful discrimination. When this language is read in its ordinary and usual sense, there is nothing therein to suggest that the exclusion applies only to those claims for personal injury based on a direct causal relationship between a violation of a statute and the personal injury suffered. To adopt the construction advocated by the insured would distort not only the plain meaning of the clause, see and compare Jefferson Ins. Co. of New York v. Holyoke, 23 Mass.App.Ct. 472, 474-476, 503 N.E.2d 474 (1987), but also what an "objectively reasonable insured, reading the relevant policy language, would expect to be covered." Hazen Paper Co. v. United States Fid. & Guar. Co., 407 Mass. 689, 700, 555 N.E.2d 576 (1990).

We therefore conclude that the insured's reliance on Newell-Blais is misplaced and that the expansive language of the exclusionary clause is not limited to claims for personal injury based solely on a violation of a statute but encompasses all claims for personal injury which arise out of the alleged discriminatory treatment of Marcia Henderson. See also Liquor Liab. Joint Underwriting Assn. of Massachusetts v. Hermitage Ins. Co., 419 Mass. at 320 & n. 4, 644 N.E.2d 964 (in ruling that an endorsement in a commercial general liability insurance policy that excluded an "assault and/or battery" from coverage was not adequately clear to exclude from coverage a claim of negligent failure of the insured to provided security on its premises, the Supreme Judicial Court noted that the exclusionary language before the court was not as expansive as the language used in other policies which excluded "any claim arising out of, or based on, an assault and battery").

The insured also argues that the exclusionary clause does not apply absent a finding of unlawful discrimination. This argument lacks merit. ² The insured bases its argument on language used in another exclusion endorsement in the policy which negates coverage for "any claim based upon an allegedly unfairly discriminatory ... act" in contrast to the language in the subject exclusion which refers to "discrimination which is unlawful." As a result of the use elsewhere in the policy of the modifier "allegedly" to describe a discriminatory act and its omission in the subject clause, the insured argues that this creates an ambiguity in the exclusionary clause under scrutiny. Apart from the fact that the other exclusionary clause is inapplicable to the Henderson claims and the fact that the language of the exclusionary clause is unambiguous, this construction would lead to the illogical result that the Henderson case would have to be tried to conclusion before the insurer's duty to defend could be determined. No reasonable policy holder reading the language of the exclusionary clause would have expected that to be the case. Home Indem. Ins. Co. v. Merchants Distribs., Inc., 396 Mass. 103, 107, 483 N.E.2d 1099 (1985).

Finally, the insured argues that the specific claims in Henderson's complaint in the Federal action for misrepresentation, negligence, and loss of consortium are not precluded from coverage under the insured's policy because they do not "arise out of discrimination which is unlawful." The insured bases its argument on a construction of the phrase "arising out of" as being the equivalent of the phrase "caused by." For this construction, the insured relies upon our decision in M. DeMatteo Constr. Co. v. A.C. Dellovade, Inc., 39 Mass.App.Ct. 1, 3, 652 N.E.2d 635 (1995), in which we held that there was no meaningful distinction between the language "arising out of or in consequence of," as used in an indemnity clause in a construction contract between a general contractor and subcontractor, and the words "caused by" set forth in G.L. c. 149, § 29C, which permits a general contractor to require indemnification by a subcontractor only in connection with harm "caused by" the...