FIRST SPECIALTY INSURANCE CORPORATION vs. PILGRIM INSURANCE COMPANY.

KAFKER, J. The instant case involves a dispute between a general liability insurer, First Specialty Insurance Corporation (FSIC), and an automobile insurer, Pilgrim Insurance Company (Pilgrim), regarding the scope of an automobile exclusion in a commercial general liability insurance policy (CGL policy). By its express terms, this "exclusion applies even if the claims against any insured allege negligence . . . in the supervision[] [or] hiring [] . . . of others by that insured, if the 'occurrence' which caused the 'bodily injury'. . . involved the . . . use . . . of any . . . 'auto' . . . owned or operated by . . . any insured." The question presented is whether FSIC had a duty to defend

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and indemnify its insureds for negligent supervision claims relating to an automobile accident involving an intoxicated employee of the insureds. Pilgrim, which settled the underlying claims in their entirety, argues that the principles of Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 (1986) (Marnell), and its progeny mandate coverage for all of FSIC's insureds except the intoxicated driver, as they were not the owners or operators of the automobile, and therefore FSIC should reimburse Pilgrim for a portion of the costs incurred in litigating and settling the underlying action. We conclude, however, that because FSIC's policy contains the express terms referenced above that were not present in Marnell, a different result is warranted. See Massachusetts Property Ins. Underwriting Assn. v. Berry, 80 Mass. App. Ct. 598 , 602 (2011); Rhoades vs. Massachusetts Property Ins. Underwriting Assn., U.S. Dist. Ct., No. 09-11302-DPW (D. Mass. July 13, 2010). We therefore affirm the summary judgment in favor of FSIC. [Note 1]

1. Background. a. Underlying facts. The facts of the underlying litigation are undisputed in this action. In 2007, Dennis Pinto had been diagnosed with dementia. Pinto's family contracted with R. Squared Enterprises, Inc. (R. Squared), to provide nonmedical support services to Pinto. Starting on October 17, 2007, R. Squared assigned Kimberly Pereira to work with Pinto. The following day, Pereira drove Pinto to a restaurant for lunch in an automobile owned by Pinto's wife. While at the restaurant, Pereira consumed alcohol, allegedly becoming intoxicated, and she thereafter drove negligently. She crashed the automobile into a tree, and Pinto suffered serious injuries. R. Squared had policies in place to require background checks of prospective hires, including their criminal and driving records. Under those policies, Pereira should not have been hired because she previously had been convicted twice of alcohol-related offenses.

Pinto's family sued Pereira, R. Squared, and others associated with R. Squared, eventually naming as defendants R. Squared's

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principals, Robert and Raquel Mullaney. [Note 2] The claims included negligence against Pereira; liability under respondeat superior for Pereira's negligence against R. Squared and the Mullaneys (collectively, R. Squared defendants); and negligent hiring, training, supervision, or retention against the R. Squared defendants and Sandra Smith. FSIC disclaimed coverage and declined to defend the suit, except that it paid some of Smith's defense costs under a reservation of rights. Pilgrim provided the R. Squared defendants with a defense, and the Pinto suit was settled in April, 2010, within Pilgrim's $1 million policy limit. All claims by the Pintos were dismissed with prejudice in May, 2010. Pilgrim paid the settlement, which was not allocated among the various claims; FSIC did not contribute toward it.

b. Insurance policies. At all relevant times, R. Squared was the named insured on a Pilgrim business automobile insurance policy. That policy included coverage for automobiles owned by others. It is undisputed that this policy covered Pereira while using Pinto's wife's automobile. The Pilgrim policy also provided that anyone qualified as an insured if they were "liable for the conduct of [another] 'insured' . . . but only to the extent of that liability." See Society for Christian Activities, Inc. v. Markel Ins. Co., 56 Mass. App. Ct. 190 , 193 & n.9 (2002), S.C., 440 Mass. 1006 (2003) (dealing with identical language).

R. Squared also held a CGL policy with FSIC. The CGL policy covers liability for bodily injuries to third parties stemming from accidents in general. All of the R. Squared defendants are insureds under the CGL policy. However, the CGL policy also contains an automobile exclusion, of particular relevance here, which is set forth in the margin. [Note 3] The final pertinent provision in the CGL policy is the severability clause,

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which indicates that the policy applies "[s]eparately to each insured against whom claim is made or 'suit' is brought." See Society for Christian Activities, Inc. v. Markel Ins. Co., 56 Mass. App. Ct. at 191-192 (identical language).

c. The instant action. In March, 2010, FSIC filed this action against Pilgrim, seeking a declaration that it had no obligation to defend or indemnify the R. Squared defendants, and consequently that Pilgrim had no right to contribution or subrogation from FSIC. Soon after the Pinto suit settled, Pilgrim filed opposing counterclaims for equitable contribution and subrogation. On cross motions for summary judgment, the motion judge ruled in favor of FSIC and entered judgment accordingly.

2. Discussion. We review the motion judge's ruling on summary judgment de novo. See Miller v. Cotter, 448 Mass. 671 , 676 (2007). "We ask whether the evidence, in the light most favorable to the party losing the contest of cross motions, and the controlling law entitle the prevailing party to judgment. See Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 , 120 (1991); DiLiddo v. Oxford St. Realty, Inc., 450 Mass. 66 , 70 (2007). As with contracts generally, the interpretation of the unambiguous terms of an insurance policy is a matter of law for the trial court and then the reviewing court. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142 , 146 (1982); Clendenning v. Worcester Ins. Co., 45 Mass. App. Ct. 658 , 660 (1998)." Audubon Hill S. Condominium Assn. v. Community Assn. Underwriters of America, Inc., 82 Mass. App. Ct. 461 , 465 (2012). An ambiguous term in a policy will be construed against the insurer, but "[a] term is ambiguous only if it is susceptible of more than one meaning and if reasonably intelligent persons would differ over the proper meaning." Suffolk Constr. Co. v. Illinois Union Ins. Co., 80 Mass. App. Ct. 90 , 94 (2011). See Shamban v. Worcester Ins. Co., 47 Mass. App. Ct. 10 , 16 (1999) (Shamban).

As an insurer's duty to defend is broader than its duty to

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indemnify, we need only consider whether FSIC was obligated to defend the R. Squared defendants against the Pintos' complaint. See A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502 , 527 (2005). "An insurer has a duty to defend an insured when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms." Billings v. Commerce Ins. Co., 458 Mass. 194 , 200 (2010). In determining the scope of the duty to defend, "[t]he process is not one of looking at the legal theory enunciated by the pleader but of 'envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy.' " Id. at 201, quoting from Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7 , 12-13 (1989).

In interpreting FSIC's automobile exclusion, see note 3, supra, we do not write on a blank slate. The Marnell case construed a homeowner's insurance policy containing an automobile exclusion, not materially different from the first paragraph of FSIC's automobile exclusion, disclaiming coverage if a motor vehicle was owned or operated by "any insured." 398 Mass. at 242. In Marnell, the underlying complaint alleged that the parents permitted their son Michael to have a party at their house, knowing that, although he was underage, he would drink alcohol, "that [Michael] left the party in an intoxicated condition, and that, while operating his motor vehicle in a negligent manner, he struck and killed the intestate." Id. at 241. The parents were named insureds under the homeowner's policy, and the son was an unnamed insured. Id. at 242. The son, not the parents, owned and operated the vehicle. Ibid. The essential theory of liability against the parents was negligent supervision of their son. Id. at 241.

The Marnell court held that "without the severability provision a literal reading of the motor vehicle exclusion by itself precludes the [parents] from coverage under the policy because [the son], an insured, owned and operated the motor vehicle involved in the fatal accident. But the severability of insurance clause makes coverage available to [the parents] nonetheless."

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Id. at 244. The severability clause, providing that the policy "applies separately to each insured," "require[d] that each insured be treated as having a separate insurance policy. Thus, the term 'insured' as used in the motor vehicle exclusion refers only to the person claiming coverage under the policy." Ibid. The result was that, although coverage might be excluded for the son, the exclusion did not apply to his parents because they did not own or operate the vehicle. Id. at 244-245. The Marnell court recognized that its construction "makes the word 'any' in the motor vehicle exclusion superfluous," but stated that applying the exclusion to the parents "would render the entire severability of insurance clause meaningless." Id. at 245. The court emphasized that the alleged negligent supervision took place in the parents' home, and "the manifest design of homeowners' insurance is to protect homeowners from risks associated with the home and activities related to the home." Ibid. Moreover, in contrast to negligent entrustment, which is derivative of the operation of a motor vehicle, the negligent supervision cause of action is "separate and distinct from the use or operation of an automobile." Ibid. It therefore was reasonable for the parents to expect coverage under their homeowner's policy for that conduct. Id. at 245-246.

This court further explained the Marnell rule in Shamban, 47 Mass. App. Ct. at 13-16. The underlying facts in Shamban were that a fifteen year old boy on his dirt bike crashed into a friend, and the friend sued the boy's parents for negligent supervision. Id. at 10-11. The same insurer as in Marnell, applying much the same policy language, declined to defend based on the motor vehicle exclusion. Id. at 11-13 & n.4, 14 n.7. We held that "[u]nder Marnell it makes a difference whether the insured who is sued in the third-party action did or did not own the vehicle involved in the accident." [Note 4] Id. at 15. We therefore read Marnell as having "discredited" the insurer's view that its "motor vehicle

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exclusion . . . applies across the board when a named or unnamed insured is sued for his alleged fault in any connection with an accident involving a motor vehicle." Ibid.

In this case, Pilgrim argues that Marnell and Shamban mandate coverage for the R. Squared defendants under FSIC's CGL policy. If the automobile exclusion contained only the first paragraph, which is similar to those at issue in Marnell and Shamban, that might be true. Cf. Ayer v. Imperial Cas. & Indem. Co., 418 Mass. 71 , 73-74 (1994), quoting from Merrimack Mut. Fire Ins. Co. v. Sampson, 28 Mass. App. Ct. 353 , 358 (1990). However, the exclusion in the FSIC policy, see note 3 supra, contains a second paragraph that addresses this precise situation. See Rhoades vs. Massachusetts Property Ins. Underwriting Assn., supra, slip op. at 10 n.5 (noting that a similar provision "appears . . . designed precisely to exclude coverage for any negligent supervision claims which might be raised under a Marnell theory"). That paragraph states that the automobile exclusion "applies even if the claims against any insured allege negligence . . . in the supervision[] [or] hiring [] . . . of others by that insured," if the underlying claim involves an automobile "that is owned or operated by . . . any insured" (emphasis supplied). In Marnell, the court construed a reference to "any insured," in light of the severability clause, to refer only to each insured who was sued. Marnell, 398 Mass. at 244-245. However, the policy at issue in Marnell did not have this second paragraph. Indeed, the second paragraph appears to be a response to the issues raised in cases like Marnell. See Rhoades vs. Massachusetts Property Ins. Underwriting Assn., supra.

When read carefully, the second paragraph clearly envisions that two different insureds are involved. That paragraph excludes coverage if (1) claims are brought against "any insured" alleging negligent supervision or hiring of others by "that insured," and (2) the occurrence underlying those claims involved an automobile owned or operated by "any insured." If these two clauses of the second paragraph refer to the same person, as Pilgrim would have it, the second paragraph would add nothing to the first, and would make little sense. Under this interpretation,

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the second paragraph would exclude only negligent supervision claims against the owner or operator of the automobile, but such claims are already excluded by the first paragraph. See Merrimack Mut. Fire Ins. Co. v. Sampson, supra; Phoenix Ins. Co. v. Churchwell, 57 Mass. App. Ct. 612 , 614-616 (2003). "An interpretation which gives a reasonable meaning to all of the provisions of a contract is to be preferred to one which leaves a part useless or inexplicable." Marnell, 398 Mass. at 245, quoting from Sherman v. Employers' Liab. Assur. Corp., 343 Mass. 354 , 357 (1961). The only reasonable construction of this provision is that the first clause of the second paragraph, pursuant to the severability clause and consistent with Marnell, requires separate application to each insured, but the second clause refers generally to any insured. Thus, for each defendant in the underlying litigation, we must determine whether, according to the complaint, that defendant negligently hired or supervised another insured person who owned or operated the automobile involved in the occurrence underlying the claim. If so, that claim of negligence is unambiguously excluded from coverage under FSIC's policy. See Flejter v. West Bend Mut. Ins. Co., 330 Wis. 2d 721, 727 (Ct. App. 2010) (concluding, on similar facts, that identical CGL policy language "could not be more plain" in excluding negligent supervision claim). Cf. Stafford v. T.H.E. Ins. Co., 309 N.J. Super. 97, 104-105 (App. Div. 1998) (construing similar exclusion for negligent hiring or supervision relating to assault and battery).

With this interpretation in mind, we compare the allegations of the complaint with the policy terms. See Quincy Mut. Fire Ins. Co. v. Crispo, 80 Mass. App. Ct. 484 , 488 (2011). The direct claim for negligence against Pereira obviously falls within the automobile exclusion. See Merrimack Mut. Fire Ins. Co. v. Sampson, 28 Mass. App. Ct. at 358. Any claims seeking to impose vicarious liability on the R. Squared defendants for Pereira's negligence are also excluded, as they are not "separate and distinct from the use or operation of an automobile." Marnell, 398 Mass. at 245. See Society for Christian Activities, Inc. v. Markel Ins. Co., 440 Mass. at 1006-1007. The remaining claims against the R. Squared defendants, for negligent hiring, negligent supervision, and the like, clearly fall within the second

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paragraph of the automobile exclusion as explained above. Because all of the claims in the Pintos' complaint were excluded under FSIC's policy, the motion judge properly ruled that FSIC had no duty to defend (and, a fortiori, no duty to indemnify) the R. Squared defendants.

This result also comports with the allocation of risks and payment of premiums among policies purchased by R. Squared. R. Squared obtained an automobile policy from Pilgrim and a CGL policy from FSIC. The automobile policy was drafted broadly enough to provide that anyone qualified as an insured if they were "liable for the conduct of [another] 'insured.' " The CGL policy, in contrast, contained a broad automobile exclusion. Contrast Marnell, 398 Mass. at 242; Cherokee Ins. Co. v. Babin, 37 So. 3d 45, 49-50 (Miss. 2010) (finding factual issue as to CGL insurer's liability where endorsement removed second paragraph from identical automobile exclusion). The policies thereby complemented each other, and the premiums for each policy reflected the extent of the coverage each provided. R. Squared did not plan or pay for overlapping policies.

To insure itself for injuries arising out of automobile accidents, R. Squared relied on its automobile, not its general liability policy. "Were we to conclude that the [automobile] exclusion did not apply, we would in effect allow the general liability policy to provide additional insurance [for injuries arising out of automobile accidents] without a premium." Society for Christian Activities, Inc. v. Markel Ins. Co., 440 Mass. at 1007. Our holding that there was no overlap between the Pintos' claims arising out of the automobile accident and FSIC's coverage therefore comports with the economic decisions made by the insured and "supports the proper allocation of risks between an insured's [general liability] policy and automobile insurance," Ibid., quoting from Phoenix Ins. Co. v. Churchwell, 57 Mass. App. Ct. at 616 (alteration in original).

3. Conclusion. FSIC's policy, unlike those in Marnell and Shamban, clearly communicated that the types of harm suffered by the Pintos fell outside the scope of its coverage. Indeed, the policy language appears intended to address the interpretive issues raised in those cases. Therefore, FSIC owed no duty to the

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R. Squared defendants to defend or indemnify for those claims and, consequently, no duty to Pilgrim.

Judgment affirmed.