Insituform Technologies, Inc v. American Home Assurance Company

Of the Eighth Circuit, sitting by designation. *
United States Court of Appeals
For the First Circuit
Nos. 08-1602, 08-1603
INSITUFORM TECHNOLOGIES, INC,
Plaintiff, Appellee/Cross-Appellant,
v.
AMERICAN HOME ASSURANCE COMPANY,
Defendant, Appellant/Cross-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
Before
Boudin, John R. Gibson, and Howard, *
Circuit Judgees.
William T. Corbett with whom Mark D. Sheridan, Laura A. Brady,
Jeffrey M. Beyer, Drinker Biddle & Reath LLP, Gregory P. Deschenes,
Kurt M. Mullen and Nixon Peabody LLP were on brief for defendant,
appellant/cross-appellee.
Charles L. Philbrick with whom Sarah E. Pace, Stanley A.
Martin and Holland & Knight LLP were on brief for plaintiff,
appellee, cross-appellant.
May 22, 2009

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BOUDIN, Circuit Judge. This appeal stems from a dispute
between Insituform Technologies, Inc. ("Insituform"), a Missouri-
based contractor, and American Home Assurance Company ("American
Home"), an insurer that issued an "excess umbrella" policy to
Insituform. The dispute centers on the reading of the policy in
relation to an underlying primary coverage policy issued by another
insurer. The background events are easily recounted.
Insituform entered into a subcontract with D'Alessandro
Corporation to rehabilitate roughly 5,400 feet of an East Boston
sewer owned by the Massachusetts Water Resources Authority ("MWRA")
using cured-in-place pipe technology. The project called for
installing a tube within the existing MWRA pipe and heating resins
to cure the tube; this is said to be less costly than replacing the
existing pipe. Insituform performed the installation between
August and September 2003.
The tube had fins and wrinkles, and Insituform trimmed
the fins at MWRA's request. There was leakage from both the fins
that had been trimmed and elsewhere. Ultimately MWRA told
Insituform that the work did not meet contract specifications and
had to be repaired or replaced. On what was originally a $1
million subcontract, Insituform incurred expenses of over $7
million in attempted repair and, when its repair efforts were
unsuccessful, replacing the pipe.

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The amendment states in relevant part: "We will pay those 1
sums which you become legally obligated to pay for the required
removal or repair of 'your product' or 'your work' including
concrete, cement, sand or aggregate, concrete blocks, concrete
products or other products manufactured, sold, handled or
distributed by or on behalf of the Insured which are defective,
subject to the limits of liability and deductible and the
provisions specified below."
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Insituform filed claims with both Liberty Mutual (its
primary insurer) and American Home, seeking coverage of the repair
and replacement costs. Liberty Mutual had issued Insituform a
commercial general liability ("CGL") policy for the relevant time
period; it determined that the MWRA repair work was covered under
its policy and paid its applicable policy limit, $1 million less a
$250,000 deductible. American Home denied coverage, citing policy
exclusions for Insituform's work and product.
CGL policies are primarily directed at liability sought
to be imposed by a third party and often exclude coverage for
mistakes in the insured's own product or work. See Am. Home
Assurance Co. v. AGM Marine Contractors, Inc., 467 F.3d 810, 812-13
(1st Cir. 2006). The Liberty Mutual policy had a number of such
exclusions (e.g., for "your product" and "your work" and for recall
or replacement of "your product" or "your work"). But the policy
contained--among many separately paginated amendments (called
endorsements)--one titled "contractor rework coverage amendment"
which overrode those exclusions to provide coverage in this case
(or so Liberty Mutual concluded).1

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American Home's policy is also of the CGL variety,
although seemingly framed primarily to provide second-layer
coverage for damages exceeding the maximum allowed by underlying
primary policies. In many respects the coverage and exclusions of
the American Home policy echoed those of the Liberty Mutual policy.
But the American Home policy did not include a "contractor rework
coverage amendment" or other amendments comparable to the one
included in the Liberty Mutual policy.
After American Home denied coverage, Insituform filed
suit in the Massachusetts district court seeking damages for breach
of contract (count I), a declaratory judgment that the policy
provides coverage (count II) and attorney's fees under Missouri law
(count III), Mo. Rev. Stat. § 375.420 (2002). On cross-motions for
summary judgment, the district court held American Home liable for
the cost of repairing and replacing Insituform's work but later
denied consequential damages due to inadequate discovery
disclosures. Insituform Techs., Inc. v. Am. Home Assurance Co.,
364 F. Supp. 2d 3 (D. Mass. 2005).
The parties then stipulated to the amount of compensatory
damages ($6,054,899.68), which the district court awarded together
with prejudgment interest ($1,628,917.36). On this appeal,
American Home challenges the district court's grant of summary
judgment as to coverage as well as its calculation of prejudgment
interest. Insituform cross-appeals as to the amount of prejudgment

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interest, and it claims that it should have been permitted to
present evidence of consequential damages.
We review de novo the district court's grant of summary
judgment. Fireman's Fund Ins. Co. v. Special Olympics Int'l, Inc.,
346 F.3d 259, 261 (1st Cir. 2003). The parties agree that
relevant law in Missouri and Massachusetts is similar, and we
accept this view as reasonable. Commonwealth Land Title Ins. Co.
v. IDC Props., Inc., 547 F.3d 15, 22 (1st Cir. 2008). The insured
must show coverage under the policy; the insurer, the applicability
of any exclusion on which it relies. E.g., Highlands Ins. Co. v.
Aerovox Inc., 676 N.E.2d 801, 804 (Mass. 1997).
As the case has been framed, American Home seems to
concede that at least some portion of the MWRA repair and rework
cost constitutes "property damage" falling within the broad initial
coverage terms of its policy unless otherwise excluded; and
Insituform appears to concede that the "your product," "your work"
and related exclusions in the American Home policy would in turn
defeat the property damage coverage--save for a separate amendment
in the American Home policy invoked by Insituform.
That separate amendment to the American Home policy, the
subject of most of the controversy in this case, is titled
"contractor's endorsement." The endorsement is a single page that
reads as follows:

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CONTRACTOR'S ENDORSEMENT
Excluded Hazards
This insurance does not apply to:
1. Property Damage to any property or equipment leased by
the Insured;
2. Property Damage to property being installed, erected or
worked upon by the Insured or by any agents or
subcontractors of the Insured;
3. Bodily Injury or Property Damage arising out of any
project insured under a "wrap-up" or any similar rating
plan; or
4. Bodily Injury or Property Damage arising out of any
professional services performed by or on behalf of the
Insured, including but not limited to the preparation or
approval of maps, plans, opinions, reports, surveys,
designs or specifications, and any supervisory,
inspection or engineering services.
Following Form Hazards
It is further agreed that this insurance does not apply to:
1. Property Damage arising out of:
a. Blasting or explosion other than the explosion of
air or steam vessels, piping under pressure,
prime movers, machinery or power transmitting
equipment;
b. The collapse of or structural injury to any
building or structure due to:
1) the grading of land, paving, excavating,
drilling, burrowing, filling, back-filling,
tunneling, pile driving, coffer-dam or
caisson work,
2) the moving, shoring, underpinning, raising,
or demolition of any building or structure,
or the removal or rebuilding of any
structural support thereof, or

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c. Damage to or destruction of wires, conduits,
pipes, mains, sewers, tanks, tunnels, any similar
property, and any apparatus in connection
therewith, beneath the surface of the ground or
water, caused by and occurring during the use of
mechanical equipment for the purpose of grading
land, paving, excavating, drilling, burrowing,
filling, back-filling or pile driving; or
2. Any liability assumed by the Insured under any contract
or agreement.
However, if insurance for such Bodily Injury or Property Damage is
provided by a policy listed in the Schedule of Underlying
Insurance:
1. This exclusion shall not apply; and
2. The insurance provided by our policy will not be broader
than the insurance coverage provided by the policy listed
in the Schedule of Underlying Insurance.
All other terms and conditions of this policy remain unchanged.
The district court held that the endorsement is ambiguous
as to whether the "However" provision governs the entire
endorsement or merely the portion of the endorsement that follows
the subheading titled "Following Form Hazards." Arguably the
endorsement is ambiguous on this point and so should be read in
favor of the insured. Hakim v. Mass. Insurers' Insolvency Fund,
675 N.E.2d 1161, 1165 (Mass. 1997). If so, none of the exclusions
in the endorsement would apply if insurance for the listed harms
were provided in the underlying Liberty Mutual policy.
But what the district court said next--which we do not
accept--is that wherever Liberty Mutual provided coverage under its
own policy for hazards described in the endorsement, American Home

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In granting summary judgment as to liability, the district 2
judge repeated: "Endorsement No. 4 follows form . . . to the extent
that the Liberty Mutual policy provides coverage for the specific
types of hazards explicitly listed in the Endorsement--that is, a
claim must fall within one of the eight enumerated hazards, matched
to a similar provision in the primary policy, in order to be
covered by the American Home policy. The crucial inquiries, then,
are whether the MWRA Claim fits within any of the hazards listed in
Endorsement No. 4, and whether Liberty Mutual's Rework Coverage
Amendment provides coverage for that particular hazard."
Insituform, 2007 WL 2900469, at *3.
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became liable for excess damages under the American Home policy (up
to its own policy limit) for the same hazards. The district
court's reasoning is nicely summed up in the following statement by
the district judge:
Accordingly, as proposed by Insituform, I
construe the However clause in Endorsement No.
4 [the American Home contractor's endorsement]
to modify both the Excluded Hazards and the
Following Form Hazards sections of the
endorsement. Consequently, those hazards
"follow form" (as that term is used in the
parties' submissions) to the primary insurance
policy issued by Liberty Mutual Insurance
Company to Insituform, as it is uncontroverted
that the Liberty policy is "a policy listed in
the Schedule of Underlying Insurance."2
Insituform, 364 F. Supp. 2d at 6.
The "accordingly" (as already noted) may well be sound
but we think the "consequently" is not. The district court's
"consequently" and the "follow form" references rest on a half-
buried premise that is contrary to the language of the American

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Various phrases are used to describe second-layer policies, 3
among them "umbrella," "excess" and "follow form," but it is a
mistake to assume precision in such terminology; and even where a
policy is described as "follow form," it does not necessarily
provide coverage that is substantively identical to the underlying
one. Ostrager & Newman, supra, § 13.01.
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Home policy and its contractor's endorsement. Why the premise is
mistaken is argued by American Home only late in its brief on
appeal and after other complex arguments, which may also explain
why the premise was not focused upon by the district court; but the
argument against the premise was fully preserved in the district
court and is decisive in favor of American Home.
The phrase "follow form" refers to the practice, common
in excess policies, of having the second-layer coverage follow
substantively the primary layer provided by the main insurer, 2
Ostrager & Newman, Handbook on Insurance Coverage Disputes, § 13.01
(11th ed. 2002), and it would be easy to write a short excess
policy that adopted all of the terms of the primary (except that
coverage cuts in after the primary layer is exhausted and cuts off
at the excess policy limit). But "follow form" is a loose term,
and the American Home policy does not by any means "follow [the]
form" of the Liberty Mutual policy in all respects.3
Rather, the American Home policy--although it provides
much secondary coverage in relation to Liberty Mutual--has a
lengthy set of coverage provisions and exclusions of its own. Many
of the American Home provisions, for and against coverage, mirror

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those of the Liberty Mutual policy. But--and this is critical
here--the American Home policy contains the Liberty Mutual
exclusions for "your product" and "your work" and related
liabilities, but it does not contain the Liberty Mutual "contractor
rework coverage amendment" (note 1, above) that overrides those
exclusions as to Liberty Mutual.
The district court read the However clause in the
American Home contractors endorsement as if it made American Home
liable for any of the hazards listed in the endorsement wherever
Liberty Mutual would be liable for the same hazard. Thus, on the
district court's reading, because hazard 2 in the endorsement
relates to property damage and Liberty Mutual's policy covers such
damage under the "contractor rework coverage amendment," American
Home is liable to provide secondary coverage for the rework.
But the American Home contractors endorsement does not
create new liability for American Home inconsistent with its other
basic coverage and exclusion provisions. On the contrary, the
American Home endorsement at issue (in contrast to the Liberty
Mutual endorsement which expands liability) negates liability for
the named hazards over and above existing exclusions elsewhere.
The only role of the However clause is to limit these new negations
wherever Liberty Mutual would provide coverage.
American Home need not and arguably cannot rely on the
endorsement to its policy to defeat Insituform's claim: it can and

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The contractors limitation endorsement in the excess policy 4
excluded contractually assumed liability "except insofar as
coverage is available to the insured in valid and collectible
'underlying insurance' . . . ." The underlying insurance did cover
the harm; but the court held that the "insofar as" qualifier left
intact a separate exclusion in the excess policy for pollution-
related harm.
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clearly does rely on the "your product" and "your work" exclusions
of its own policy which, unlike the Liberty Mutual policy, are not
overridden by the contractor's rework coverage amendment to which
Liberty Mutual (but not American Home) consented. Insituform makes
no effort to show that the your product and your work exclusions
are inapplicable. Its reliance on the rework amendment--which only
applies to "your work" or "your product"--implicitly recognizes
that they would apply but for the endorsement.
On point is United National Ins. Co. v. Hydro Tank, Inc.,
497 F.3d 445, amended on other grounds by 525 F.3d 400 (5th Cir.
2007), which also dealt with an excess policy's limiting
endorsement that itself contained a savings clause akin to the
However clause here. The Fifth Circuit crisply dispatched an 4
insured's claim parallel to that of Insituform, saying (as we do)
that the savings clause created an exception to the exclusions in
the endorsement but did not override exclusions contained elsewhere
in the same policy. Id. at 452. The policy language in Hydro Tank
was different; the principle is the same.
In an effort to get around this result, Insituform points
to other uses of the However clause elsewhere in the American Home

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policy that it says are designed to create new coverage; in
particular, it says that endorsement no. 7, which governs employee
benefit liability, uses a However clause to create coverage that
follows form to a similar endorsement in the underlying Liberty
Mutual policy. It says that reading that endorsement as limited by
the American Home policy exclusions would make it meaningless.
Even if this other endorsement were taken to cast light
on the contractor's endorsement, it does not cast the light that
Insituform attributes to it. Insituform is not correct that
endorsement no. 7 would be meaningless if limited by American Home
policy's other exclusions. Endorsement no. 7 creates limited
follow form coverage for negligent administration of such programs;
the exclusions, in contrast, defeat coverage for violating
obligations imposed by the benefit laws themselves and are not
inconsistent with coverage created by endorsement no. 7.
Our discussion renders as beside the point the parties'
lengthy discussion as to whether the harm in this case is within or
without one or another of the listed hazards in the American Home
contractor's endorsement. This would matter here only if the
endorsement were read to override independent restrictions
elsewhere in the policy. Such a reading is not tenable and
American Home is not liable for the rework. This also means that
the interest and consequential damages issues are moot.

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The judgment of the district court is vacated and the
case remanded for dismissal of the complaint.
It is so ordered.

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