In a January 24, 2018 decision, Certain Lloyd’s at Lloyd’s, London (Lloyd’s) v. Atlantic Construction Services, Inc.(Atlantic), the Appeals Court ruled Lloyd’s had no duty to indemnify its insured for a a slip and fall injury caused from a tripping hazard created by the insured’s independent paving contractor.
The Appeals Court’s decision is another case in a lengthening line of cases where a commercial insured has had no coverage under their commercial general liability coverage for a bodily injury claim because the policy contains an independent contractor exclusion. See Agency Checklists’ article of September 8, 2014, “Watch Out For Independent Contractor Exclusions In Commercial Liability Policies.”
The lawsuit over a tripping hazard created by a subcontractor
Park Grove was a Massachusetts realty trust established to serve as the owner, developer, and general contractor for the development of the residential subdivision in Shrewsbury, Massachusetts.
Park Grove hired a subcontractor to do the sidewalk paving in the subdivision after that subcontractor stopped work because of financial difficulties, Park Grove hired Atlantic under a verbal agreement to finish paving the sidewalk.
After an unsuccessful appeal, final judgment, including prejudgment and postjudgment interest, was assessed against Atlantic and Park Grove for slightly less than $975 thousand
While performing the remaining paving work, Atlantic stopped its work in front of one of the subdivision’s homes to wait for the paving of that home’s driveway to allow for a smooth join between the driveway and the sidewalk. As Atlantic had run out of asphalt, it installed a 1-1/2-inch high cap on the sidewalk made from a piece of wood nailed to the bottom layer of the uncompleted sidewalk pavement with masonry nails. The purpose of this so-called “cold joint” was to create a straight edge across the width of the sidewalk, to allow the asphalt that would be laid down on the home’s driveway to butt up against it.
Soon after, a person tripped and fell on the “cold joint” and suffered personal injuries. Almost three years later the person sued Atlantic for negligence. Eventually, Park Grove became a direct defendant based on negligence and its alleged failure to warn the plaintiff of the cold joint as a tripping hazard.
A jury returned a verdict for the plaintiff for $700 thousand, ascribing fifty-five percent (55%) of the liability to Atlantic, thirty percent (30%) to Park Grove and fifteen percent (15%) comparative negligence to the plaintiff. After an unsuccessful appeal, final judgment, including prejudgment and postjudgment interest, was assessed against Atlantic and Park Grove for slightly less than $975 thousand.
Lloyd’s sues insured alleging no coverage under independent contractor exclusion
While the unsuccessful appeal of Atlantic and Park Grove was pending, Lloyd’s filed a declaratory judgment in the Superior Court seeking a declaration it had no liability under its policy with Park Grove because of an independent contractors exclusion stating:
In consideration of the premium charged, it is hereby understood and agreed that the coverage afforded by this policy does not apply to “bodily injury” or “property damage” arising out of operations performed for [Park Grove] by Independent Contractors or acts or omissions of [Park Grove] in connection with [its] general supervision of such operations.
After the denial of Atlantic’s and Park Grove’s appeal, Atlantic’s insurer settled the entire personal injury lawsuit for $955,000.
Under Massachusetts statutory law, the liability findings against Atlantic and Park Grove made them jointly and severally liable for the full amount of the $975,000 judgment. When Atlantic’s insurer settled the suit against its insured, it demanded contribution from Park Grove and its insurer, Lloyd’s, for fifty percent of what it had paid to settle the personal injury suit, or $477,500.
Lloyd’s denied liability and eventually filed for summary judgment on its declaratory judgment suit.
The Superior Court found in favor of Lloyd’s. That court’s decision declared the underlying personal injury ‘arose out of’ Atlantic’s negligent operations” and therefore the Policy’s Independent Contractors Exclusion “precluded coverage [for Park Grove] regardless of the fact that Park Grove was found negligent [in the personal injury action] for failing to provide site safety.”
Based on the Superior Court decision Lloyd’s had no liability to indemnify Park Grove for the $477,500 it owed to Atlantic’s insurer acting in Atlantic’s name. Atlantic’s insurer filed an appeal for Atlantic to the Appeals Court.
Arguments by Atlantic on appeal to reverse Superior Court judgment for Lloyd’s
On appeal, Atlantic made three arguments:
- Lloyd’s failed to preserve its right to raise the independent contractors’ exclusion during the underlying tort action and therefore was estopped from doing so now.
- The independent contractors exclusion was ambiguous, and that ambiguity legally should be construed against Lloyd’s.
- In the alternative, Atlantic argued even if the independent contractors exclusion was not ambiguous, the exclusion did not apply to the underlying tort action because Park Grove’s independent negligence, not Atlantic’s, was the basis for the action against Park Grove.
Appeals Court says Atlantic’s first argument ‘waived’ and remaining arguments not valid
In the underlying personal injury action, Park Grove originally received a reservation of rights letter from Lloyd’s based on Atlantic filing a third-party complaint against Park Grove for contribution and common law indemnification in the personal injury action. As the personal injury suit approached trial, the plaintiff in that action filed a direct negligence claim against Park Grove. Lloyd’s never sent a second or supplementary reservation of rights on that new claim. As a result, Atlantic argued Lloyd’s had not properly preserved its right to raise the independent contractors exclusion as a bar to coverage and, therefore, was estopped from doing so on appeal.
Under Massachusetts statutory law, the liability findings against Atlantic and Park Grove made them jointly and severally liable for the full amount of the $975,000 judgment
The Appeals Court, however, advised Atlantic in its decision that any waiver worked in reverse. The court noted that Atlantic was raising this issue regarding Lloyd’s not preserving its rights for the first time on appeal.
Park Grove had, as the court pointed out, raised this issue in the Superior Court and would have had a right to raise it on appeal. But, Park Grove had not appealed the Superior Court decision and, the rule of law, as quoted by the Appeals Court was that Atlantic, as a co-party, had no right to adopt on appeal an argument made in Superior Court by another co-party. Thus, by not having made this argument in the Superior Court Atlantic had waived its right to make the argument in the Appeals Court.
As to Atlantic’s second argument as to the ambiguity of Lloyd’s independent contractors when the phrase “arising out of” was read in the context of other provisions in the policy, the court found no ambiguity.
Under Massachusetts caselaw, the court said the phrase is “generally understood to mean originating from, growing out of, flowing from, incident to, or having connection with.” The court went on to say, “This customary understanding leads to a natural and clear meaning of the exclusion, namely that bodily injury or property damage connected to the operations of the insured’s (Park Grove) subcontractor (Atlantic) are excluded from coverage.”
Finally, Atlantic argued that, even if the independent contractors exclusion were not ambiguous, the exclusion would not bar coverage for Park Grove because Park Grove’s liability arose out of Park Grove’s failure to warn of the defect in the sidewalk rather than Atlantic’s negligence in performing the work.
The court pointed out that the phrase “arising out of” is to be read expansively. The phrase “suggest[s] a causation more analogous to ‘but for’ causation, in which the court examining the exclusion inquires whether there would have been personal injuries, and a basis for the plaintiff’s suit, in the absence of the objectionable underlying conduct.”
Using this standard, the Appeals Court looked at “the source from which the plaintiff’s personal injury originates,” and not “the specific theories of liability alleged in the complaint.” In this case, the source of the personal injury damage claim, to the court, was indisputably the “cold joint” created by Atlantic.
The court ended affirming the judgment of the Superior Court finding no coverage because using the “But for” standard, “but for Atlantic’s ‘cold joint,’ [the personal injury plaintiff] would not have been injured. [This] injury, therefore, arises out of Atlantic’s actions, and the independent contractors exclusion applies.”
Pending application for further appellate review
On February 8, 2018, the Supreme Judicial Court allowed Atlantic’s motion to file an application for further appellate review late allowing Atlantic until March 16, 2018, to file its application.
As of this article, Atlantic had not filed its application. Once Atlantic files its application, Lloyds will have twenty days to file its opposition.
Agency checklists will update this article with the Supreme Judicial Court’s decision on Atlantic’s application for further appellate review.