The federal district court in Massachusetts recently declared that a general liability policyholder’s construction of a policy exclusion was irrational, with the result that the carrier owed no coverage for an underlying personal injury suit. In the course of its discussion, the court also highlighted First Circuit precedent for the proposition that the construction of an insurance policy should comport with “common sense.” A copy of the court’s decision in United States Liability Insurance Company v. Benchmark Construction Services, Inc., No. 13-11543-NMG (D.Mass. Jul. 8, 2014), is available here

The coverage dispute arose out of a construction project in Newton, Massachusetts. The owners of a house contracted with Benchmark for certain renovation work. The homeowners separately contracted with an architect; the architect, in turn, hired a separate company to apply decorative paint to Venetian plaster on one of the residence’s interior walls. There was no contractual relationship between Benchmark and either the architect or the painting company. 

One of the painting company’s employees was injured when she fell from a ladder that had been erected atop scaffolding as the renovation project was wrapping up. She brought suit in the Massachusetts Superior Court, seeking damages on account of Benchmark’s alleged negligence. Benchmark tendered the suit to USLIC, which disclaimed coverage on grounds that the allegations fell within a policy exclusion for bodily injury to employees of contractors. 

An endorsement on the USLIC general liability policy that Benchmark had purchased excluded coverage for “‘[b]odily injury’ to any contractor…arising out of or in the course of the rendering or performing services of any kind or nature whatsoever by such contractor…for which any insured may become liable in any capacity….” USLIC took the position that the term “contractor” unambiguously referred to anyone with a contract. In its argument, Benchmark took the position that USLIC’s usage of the term rendered other policy terms superfluous, and in any event that there were alternative rational definitions of the term “contractor” – for instance, a construction worker, or a non-employee independent contractor of Benchmark – that rendered the policy ambiguous as a matter of law. 

The Massachusetts federal district court began its analysis by observing that the court should account for what an “objectively reasonable insured, reading the policy language, would expect to be covered.” The court went on to cite First Circuit precedent for the proposition that the parties are presumed to have “tried to accomplish something rational,” with the result that any reading of the contract must comport with “common sense.” See Fishman v. LaSalle Nat’l Bank, 247 F.3d 300, 302 (1st Cir. 2001). Where the policy’s terms are unambiguous, the court noted that it must construe terms according to their “plain and ordinary” meaning; the insured’s so-called “reasonable expectations” have no bearing on an unambiguous contract because the insured can have no reasonable expectation of coverage that runs counter to the unambiguous language of the policy. 

The court concluded that USLIC’s reading of the term “contractor” was rational. It pointed out that the First Circuit has recognized that “redundancies abound” in insurance contracts, and therefore has cautioned against overreliance on the canon that every word in a policy must be given an independent meaning. See Ardente v. Standard Fire Ins. Co., 744 F.3d 815, 819 (1st Cir. 2014); Certain Interested Underwriters at Lloyd’s, London v. Stolberg, 680 F.3d 61, 68 (1st Cir. 2012). Accordingly, the court observed that USLIC’s construction was “not irrational” merely because it resulted in certain redundancies when applied to an insured that happens to be both a contractor and an employer. 

Going further, the court pointed out that Benchmark’s proposed alternative definitions of the term “contractor” were irrational because they either swept too broadly, or because they would result in the policy contradicting itself. Accordingly, the court concluded that the policy was unambiguous, with the result that the painter’s lawsuit fell within the scope of the exclusion – and USLIC owed no coverage.