United States Court of Appeals For the First Circuit

Nos. 18-1588, 18-1593

SCOTTSDALE INSURANCE COMPANY,

Plaintiff, Appellee/Cross-Appellant,

v.

UNITED RENTALS (NORTH AMERICA), INC.,

Defendant, Appellant/Cross-Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Douglas P. Woodlock, U.S. District Judge]

Before

Barron, Selya, Boudin, Circuit Judges.

Barbara A. O'Donnell and David E. Schroeder, with whom Sulloway & Hollis, P.L.L.C and Tribler Orpett & Meyer, P.C. were on brief, for appellant/cross-appellee. Gary S. Kull, with whom Joanna L. Young, Kennedys CMK, LLP, Bradford N. Louison, and Louison Costello Condon & Pfaff, LLP were on brief, for appellee/cross-appellant.

October 2, 2020 BOUDIN, Circuit Judge. The present appeals concern an

insurance coverage dispute stemming from a personal injury

lawsuit. On June 22, 2007, Gomes Services, Inc. ("Gomes")

contracted with United Rentals (North America), Inc. ("United

Rentals") to rent an electric boom lift. Gomes used that lift at

a trade show in Rhode Island, and, four days later, while operated

by a Gomes employee, the lift struck and injured Guy Ayotte

("Ayotte"), a trade show attendee.

Ayotte and his wife sued United Rentals, Gomes, and

others in Rhode Island state court asserting one count of vicarious

liability against United Rentals for Gomes' negligence in

operating the lift and two counts of direct liability for United

Rentals' own negligence in maintaining the lift and renting the

lift to Gomes. Ayotte ex rel. Ayotte v. Perez, C.A. No. 10-2164

(R.I. Super. Ct., amended complaint filed Mar. 11, 2011) ("the

Ayotte Action"). The gist was that the lift's "travel alarm"

failed to emit any audible sound to warn Ayotte that he was about

to be run over by the lift.

At the time of the accident, United Rentals was insured

by ACE American Insurance Company ("ACE") under two relevant

policies, the ACE CGL Policy and the ACE Ultimate Net Loss Policy,

described below, and Gomes was insured by Scottsdale Insurance

Company ("Scottsdale") under the Scottsdale Policy. The

Scottsdale Policy extended coverage to any party that Gomes was

- 2 - required by written contract to add as an "additional insured."

The rental contract between Gomes and United Rentals obligated

Gomes to carry adequate liability insurance and, upon request, to

supply United Rentals with "proof of such insurance" by a

certificate of insurance "naming United [Rentals] as loss payee

and additional insured." Joint Record Appendix ("JRA") at 95.

On August 24, 2011, United Rentals requested that

Scottsdale defend and indemnify United Rentals, as an additional

insured, against the claims raised in the Ayotte Action. After

correspondence between Scottsdale and United Rentals--including a

September 25, 2012 letter that described United Rentals as an

additional insured--the parties sought a declaratory judgment in

federal court on Scottsdale's duty to defend and indemnify United

Rentals in the Ayotte Action.

On December 23, 2015, the Massachusetts district court

held, on summary judgment, that United Rentals was entitled to

defense costs from Scottsdale as an additional insured under the

Scottsdale Policy. The court declined to rule on Scottsdale's

duty to indemnify United Rentals because the issue was not yet

ripe. After the Ayotte Action settled, Scottsdale and United

Rentals again cross-moved for summary judgment on Scottsdale's

duty to indemnify. On March 30, 2018, the district court held

that the Scottsdale Policy affords additional insured coverage to

United Rentals for both its direct and vicarious liability in the

- 3 - Ayotte Action but that this coverage was excess above United

Rentals' own coverage under the ACE CGL Policy.

Both parties now appeal. Scottsdale challenges the

district court's findings that United Rentals qualifies as an

additional insured under the Scottsdale Policy and that additional

insured coverage extends to both United Rentals' direct liability

and vicarious liability for Gomes' acts. United Rentals appeals

from the district court's priority-of-coverage determination.

A grant or denial of a motion for summary judgment is

reviewed de novo, Cooper v. D'Amore,

(1st Cir.

2018), and may be affirmed on any available ground, Cahoon v.

Shelton,

(1st Cir. 2011). On cross-motions for

summary judgment, each motion is reviewed separately, drawing

facts and inferences in favor of the non-moving party. Fadili v.

Deutsche Bank Nat'l Tr. Co.,

(1st Cir. 2014).

As the parties agree that Massachusetts law governs in this

diversity case and there is "at least a 'reasonable relation'"

between the dispute and Massachusetts, we "forego an independent

analysis of the choice-of-law issue and apply Massachusetts law."

Bird v. Centennial Ins. Co.,

, 231 n.5 (1st Cir. 1993)

(citing Com. Union Ins. Co. v. Walbrook Ins. Co.,

,

1048 n.1 (1st Cir. 1993)).

This set of appeals presents three different questions,

mainly difficult because of the multiple documents engineered in

- 4 - the obscure and parochial jargon most familiar to the rest of us

from reading the waivers and acceptances on cell phones (for which

only a brief pause is allowed to digest fifty pages of jargon,

more sinister because seemingly made obscure). The questions are

addressed in turn.

Additional Insured Status. Scottsdale contests the

district court's December 23, 2015 ruling that United Rentals is

an additional insured under the Scottsdale Policy. First, United

Rentals says that Scottsdale waived the right to challenge this

ruling. On April 19, 2018, the parties entered into a partial

settlement agreement (the "Settlement Agreement"), paragraph four

of which provides in part:

In exchange for United Rentals agreement not to re-file its Fee Petition and to waive all claims for attorney's fees, costs and expenses incurred in defense of the Ayotte Lawsuit and the Coverage Action, over and above Scottsdale's $510,000.00 payment, Scottsdale agrees to forego any appeal of the court's Memorandum and Order dated December 23, 2015 granting United Rentals' motion for partial summary judgment on Scottsdale's duty to defend and shall release any claim Scottsdale might have to recover the $510,000.00 paid to United Rentals under the terms of this Partial Settlement Agreement and Release.

Supplemental Appendix ("SA") at 3 (emphasis added).

- 5 - A party who agrees in writing to settle a lawsuit in

return for certain obligations has a "right to expect a fairly

literal interpretation of the bargain that was struck and approved

by the court," Brown v. Gillette Co.,

(1st

Cir. 1983) (internal citations omitted), and where the wording is

unambiguous, its terms will be strictly enforced, see, e.g., Alison

H. v. Byard,

(1st Cir. 1998).

Here, paragraph four contains two separate promises from

Scottsdale: (1) to "forego any appeal" of the district court's

December 23, 2015 decision; and (2) to release any claim to recover

the monies paid under the Settlement Agreement. Because

Scottsdale's challenge to United Rentals' status as additional

insured violates the first promise, this challenge is barred.

Scope of Additional Insured Coverage. Scottsdale also

appeals from the district court's March 30, 2018 ruling that

Scottsdale must indemnify United Rentals for the settlement costs

of resolving United Rentals' direct and vicarious liability in the

Ayotte Action. Scottsdale insists that the Scottsdale Policy only

covers United Rentals' vicarious liability for Gomes' negligence

and that Ayotte had no viable vicarious liability claim against

United Rentals under Rhode Island law.

The Scottsdale Policy's Additional Insured Endorsement

("AI Endorsement") provides additional insured coverage "only with

respect to liability for 'bodily injury,' . . . caused, in whole

- 6 - or in part, by [Gomes'] acts or omissions[] or [t]he acts or

omissions of those acting on [Gomes'] behalf." JRA at 487. The

parties' dispute centers on the phrase "caused, in whole or in

part, by" and whether it modifies the word "liability" or the words

"bodily injury."

Scottsdale argues that the AI Endorsement insures United

Rentals against liability "caused, in whole or in part, by"

Gomes--such that only United Rentals' vicarious liability for

Gomes' negligence is covered--whereas United Rentals contends that

coverage extends when bodily injury is "caused, in whole or in

part, by" Gomes--meaning that United Rentals' direct negligence is

covered too.

Scottsdale's reading nearly eliminates the meaning of

the phrase "for bodily injury" by reducing the coverage inquiry to

whether the "liability" was "caused by" Gomes' acts or omissions.

See Thunder Basin Coal Co., L.L.C. v. Zurich Am. Ins. Co.,

(E.D. Mo. 2013). The phrase "in whole or in

part" also resists Scottsdale's reading because, as a form of

imputed liability, vicarious liability cannot be caused "in part."

See First Mercury Ins. Co. v. Shawmut Woodworking & Supply, Inc.,

(D. Conn. 2014). And nothing in the AI

Endorsement expressly limits coverage to vicarious liability. See

WBI Energy Transmission, Inc. v. Colony Ins. Co.,

(D. Mont. 2014).

- 7 - In short, the plain language of the AI Endorsement cannot

support the limitation that Scottsdale now urges. And even if the

language were ambiguous, Massachusetts law would favor extending

coverage. See Brazas Sporting Arms, Inc. v. Am. Empire Surplus

Lines Ins. Co.,

(1st Cir. 2000) ("[A]ny ambiguities

in the exclusion provision are strictly construed against the

insurer."); Hazen Paper Co. v. U.S. Fidelity & Guar. Co.,

(Mass. 1990). Thus, Scottsdale had a duty to

indemnify United Rentals in the Ayotte Action for both its direct

and vicarious liability.

Priority-of-Coverage Determination. Lastly, United

Rentals appeals from the district court's March 30, 2018 ruling

that the Scottsdale Policy's coverage was excess over United

Rentals' own ACE CGL Policy. United Rentals argues that because

both of its ACE Policies are forms of self-insurance, neither

provides other "valid and collectible insurance" for the purposes

of a priority-of-coverage determination. We agree and find that

United Rentals has no other "valid and collectible" insurance, so

that the Scottsdale Policy affords primary coverage here.

We already determined that Scottsdale has a duty to

indemnify United Rentals as an additional insured for both direct

and vicarious liability. However, the Scottsdale Policy

explicitly states that additional insured coverage is "excess over

any other valid and collectible insurance available to the

- 8 - additional insured whether primary, excess, contingent, or on any

other basis." Applied here, the question is whether either of

United Rentals' relevant policies--(A) the ACE Ultimate Net Loss

Policy or (B) the ACE CGL Policy--qualify as "valid and collectible

insurance." This question boils down to whether United Rentals

has "insurance."

The ACE Ultimate Net Loss Policy has a $2M self-insured

retention ("SIR") and a $3M policy limit. Under this policy,

United Rentals is not entitled to any coverage from ACE until it

pays the full $2M SIR, and once the SIR is paid, United Rentals is

entitled to up to $3M of coverage. So, does the SIR (as a form of

self-insurance) qualify as insurance?

Black's defines "insurance" as "[a] contract by which

one party (the insurer) undertakes to indemnify another party (the

insured) against the risk of loss, damage, or liability arising

from the occurrence of some specified contingency." Black's Law

Dictionary (11th ed. 2019). The Massachusetts Supreme Judicial

Court ("SJC") has acknowledged that insurance involves "the

shifting of risk from insured to insurer," in addition to risk-

sharing among insureds. Liab. Investigative Fund Effort, Inc. v.

Mass. Med. Prof'l Ins. Ass'n,

, 1324 n.11 (Mass.

1994). Conversely, "self-insurance" is a "plan under which a

business maintains its own special fund to cover any loss." Black's

Law Dictionary (11th ed. 2019).

- 9 - Courts are split on the question of whether in the

present context self-insurance is "insurance," but a clear

majority has held that it is not. See Stratford Sch. Dist., S.A.U.

No. 58 v. Emps. Reinsurance Corp.,

(1st Cir.

1998). The First Circuit confronted a similar question regarding

a policy with a $75,000 SIR in Stratford. There, interpreting New

Hampshire law, this court held that a "retained self-insurance

under a deductible, or in some analogous situation," does not

constitute "'insurance' for the purposes of a separate policy's

'other insurance' clause."

.

Drawing upon Black's definitions of insurance and self-

insurance, the court wrote that "it seems obvious" that Stratford's

"retention of responsibility to pay for claims against it below

the limit of $75,000 was no 'insurance' at all" as its insurer

"lacked any responsibility within the $75,000 limits."

. Nothing in Stratford was specifically informed by New

Hampshire law as opposed to general principles about how insurance

functions.

As the SJC explained in Morrison v. Toys "R" Us, Inc.,

the "status of being 'self-insured' means the assumption of one's

own risk, instead of transferring it to a third-party insurer by

means of purchasing insurance coverage."

, 390 n.1

(Mass. 2004). "The term 'self-insured' is a manner of referring

to a decision not to be insured by a third party . . . ."

- 10 - However, the SJC later stated in Boston Gas Co. v.

Century Indemnity Co. that "[e]xcess . . . insurance over a

qualified purely self-insured retention of risk would not be

considered 'primary'; the self-insurance itself is the 'primary'

layer. The excess policies [issued] in this case provided the

first layer of excess coverage over Boston Gas's primary layer of

self-insurance."

, 294 n.7 (Mass. 2009) (internal

citation omitted). In our case, the district court concluded that

this footnote meant that self-insurance is insurance.

The reasoning of Stratford governs here: the ACE

Ultimate Net Loss Policy provides insurance coverage for claims

above $2M, but the SIR itself does not provide insurance coverage

because ACE has no obligation to pay any claim within the $2M

limit. Boston Gas confirms Stratford's approach of evaluating an

SIR and a policy limit within a single policy as two separate

layers of coverage. Moreover, Boston Gas stated that it was not

concerned with a priority-of-coverage determination and was not

interpreting an "other insurance" clause. The main point of

footnote seven was that when an excess policy contains an SIR, the

SIR must be exhausted before any coverage is triggered.

Law is to a large extent about words, their flexibility,

malleability and abuse. George Orwell's classic essay Politics

and the English Language is about politics and not law but more

instructive (to law students of all ages) than any casebook. For

- 11 - present purposes and in the context of our analysis, "insurance"

is about risk shifting and "self-insurance"--a perfectly good

phrase in other contexts--is the opposite of "insurance."

Turning to the ACE CGL Policy, that policy can be

properly termed a "fronting" arrangement with a $2M policy limit

and a $2M deductible. Under this arrangement, the first $2M of

any loss must be paid by United Rentals, and once United Rentals

has paid that first $2M, the $2M policy limit is considered

exhausted. If United Rentals cannot pay the deductible, ACE has

an obligation to pay damages of up to $2M to satisfy a judgment or

settlement, and ACE always has the right, at its discretion, to

pay damages on behalf of United Rentals. However, in either

scenario, United Rentals must reimburse ACE for any sums paid out.

So, is a fronting policy "valid and collectible insurance"?

This is a closer call than the SIR. Stratford is not a

perfect analogy here because ACE does have some responsibility

below the $2M policy limit--specifically in the case when United

Rentals cannot pay its deductible. But the ACE CGL Policy is not,

for practical purposes, an undertaking "to indemnify [United

Rentals] against the risk of loss, damage, or liability"; in any

scenario under which ACE would pay out under the policy, United

Rentals would still be obligated to pay ACE back for any money

spent.

- 12 - Because United Rentals has no "other valid and

collectible insurance," the Scottsdale Policy affords coverage to

United Rentals here, and no further analysis of each policy's

"other insurance" provision is needed.

The judgment of the district court is vacated and the

case is remanded for further proceedings consistent with this

decision. Costs shall be taxed in favor of United Rentals.

It is so ordered.

- 13 -