Federal Insurance Company, as subrogee of Berkshire Health Systems, Inc. v. Commerce Insurance Company, Estate of Lucia A. Roberts

United States Court of Appeals
For the First Circuit
No. 09-1156
FEDERAL INSURANCE COMPANY,
as subrogee of Berkshire Health Systems, Inc.,
Plaintiff, Appellant,
v.
COMMERCE INSURANCE COMPANY, ESTATE OF LUCIA A. ROBERTS
and KITTY HOWARD, as Trustee of the D. EVOR ROBERTS
and LUCIA A. ROBERTS REVOCABLE TRUST,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Kenneth P. Neiman, U.S. Magistrate Judge]
Before
Torruella, Boudin, and Howard,
Circuit Judges.
Mark J. Albano, with whom Dalsey, Ferrara & Albano, was on
brief for appellant.
Eric S. Goldman, with whom Byrne & Drechsler, L.L.P., was on
brief for appellees.
March 3, 2010

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TORRUELLA, Circuit Judge. In this appeal, based on
diversity jurisdiction, appellant Federal Insurance Company
("Federal"), the insurer of Berkshire Retirement Community, Inc.
("Berkshire Retirement"), challenges the district court's decision
to grant summary judgment on its subrogation claim in favor of
defendants Commerce Insurance Company ("Commerce") and the Estate
of Lucia A. Roberts ("Roberts").
After Federal had reimbursed Berkshire Retirement for its
loss from a fire negligently started by Roberts, Federal sued in
the U.S. District Court of Massachusetts, arguing that the implied
coinsured doctrine did not bar its subrogation claim against
defendants. The district court granted summary judgment in favor
of the defendants, and Federal now appeals. After careful
consideration, we affirm the district court's judgment.
I. Background
On April 4, 2007, Roberts, an elderly resident,
negligently started a fire in her unit at the Kimball Farms
retirement community, which is owned by Berkshire Retirement. The
fire damaged Berkshire Retirement's property, and Federal, which
had insured Berkshire Retirement, reimbursed Berkshire Retirement
over $75,000 for its loss. Roberts had her own individual
liability policy provided by Commerce.
When Roberts first moved to Berkshire Retirement's
Kimball Farms in 1999, she signed the Residence and Care Agreement

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The implied coinsured doctrine provides that the landlord's 1
liability insurance is held "for the mutual benefit of both
parties," that is landlord and tenant, unless an express provision
states otherwise. Seaco Ins. Co. v. Barbosa, 761 N.E.2d 946, 948
(Mass. 2002).
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("RCA"), which both parties characterize as a lease. The RCA is at
the core of this dispute. In addition to accommodations, dining,
medical, and housekeeping services, Article VIII, § B, entitled
"Responsibility for Damages," of the RCA provided, in relevant
part, as follows:
Any loss or damage to the real or personal
property owned by KIMBALL FARMS caused by the
negligence of RESIDENT will be charged to and
paid for by RESIDENT. If any negligence of
anyone other than KIMBALL FARMS or its
personnel results in injury, illness, or
damage to RESIDENT or to RESIDENT'S personal
property, RESIDENT hereby releases and
discharges KIMBALL FARMS from all liability or
responsibility for such injury or damage to
RESIDENT'S personal property. RESIDENT shall
have the responsibility of providing any
insurance desired to protect against such
loss.
Federal, as a subrogee of Berkshire Retirement, paid
Berkshire Retirement for its loss from the fire and filed suit
against the estate of Roberts and against Commerce in the district
court, claiming that this provision in the RCA, along with other
evidence, provided an exception to the Massachusetts implied
coinsured doctrine, which otherwise would protect defendants from
reimbursing Federal for its loss from a negligently started fire.1
The parties filed cross-motions for summary judgment. On

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November 6, 2008, the district court granted summary judgment in
favor of defendants after it determined that the implied coinsured
doctrine controlled the outcome in this case and precluded Federal
from pursuing a subrogation claim against defendants.
The district court held that under the Massachusetts
Supreme Judicial Court's ("SJC") decision in Peterson v. Silva, the
exception to the implied coinsured doctrine would apply only if the
resident's lease expressly provided for a "tenant's liability for
loss from a negligently started fire." 704 N.E.2d 1163, 1165
(Mass. 1999). Thus, because the RCA did not specifically impose
liability on residents for fire damage, the exception to the
implied coinsured doctrine did not apply. The district court
barred the subrogation claim and held that the fact that Roberts
had chosen to purchase her own liability insurance was irrelevant
to the application of the implied coinsured doctrine.
Federal now appeals.
II. Discussion
A. Standard of Review
We review a district court's grant of summary judgment de
novo. Sullivan v. City of Springfield, 561 F.3d 7, 14 (1st Cir.
2009). "We will affirm entry of summary judgment if the record --
viewed in the light most favorable to the nonmoving party,
including all reasonable inferences drawn in favor of the nonmoving
party -- discloses no genuine issue of material fact, and the

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Massachusetts law governs construction of the lease. 2
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moving party is entitled to judgment as a matter of law." Kunelius
v. Town of Stow, 588 F.3d 1, 8-9 (1st Cir. 2009).
B. Applicable Law
1. Lease Interpretation
If the terms of a contract are unambiguous, then it must
be enforced according to those terms in accordance with their
ordinary and usual sense. See Bukuras v. Mueller Group, LLC, No. 2
08-2160, 2010 WL 175085, at *5 (1st Cir. Jan. 20, 2010); Cady v.
Marcella, 729 N.E.2d 1125, 1129-30 (Mass. App. Ct. 2000). However,
if an ambiguity exists, and the court is called to interpret it, we
must avoid "constructions that render contract terms meaningless."
Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d 9, 12 (1st
Cir. 2001); see also Lexington Ins. Co. v. All Regions Chem. Labs,
Inc., 647 N.E.2d 399, 400 (Mass. 1995). Furthermore, "ambiguous
terms are usually to be construed against the drafter." Nadherny
v. Roseland Prop. Co., 390 F.3d 44, 49 (1st Cir. 2004); see also
Air Plum Island, Inc. v. Soc'y For Preservation of New England
Antiquities, 873 N.E.2d 1159, 1165 (Mass. App. Ct. 2007).
2. The Implied Coinsured Doctrine
In insurance matters, a subrogation claim sometimes
allows an insurer to recover what it pays to an insured under a
policy, even in the absence of an express provision for such a
claim, by standing in the shoes of the insured and suing the

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Subrogation is an equitable doctrine that is based on a theory 3
of restitution and unjust enrichment, where the party who paid for
the loss is made whole by being able to collect that debt from the
wrongdoer. See Money Store/Mass., Inc. v. Hingham Mut. Fire Ins.
Co., 708 N.E.2d 687, 691 (Mass. App. Ct. 1999).
This doctrine was acknowledged in Alaska Insurance Co. v. RCA 4
Alaska Communications, Inc., where the court denied the landlord
and its subrogee the right to pursue damage actions against
negligent tenant when the lease required the landlord to carry fire
insurance on the property. 623 P.2d 1216, 1218 (Alaska 1981). As
this doctrine developed in Massachusetts, the SJC in Peterson
explained that the landlord has to make explicit the tenant's
obligation to obtain property insurance and concluded that a
landlord's insurer may not pursue a subrogation claim against a
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wrongdoer. See Frost v. Porter Leasing Corp., 436 N.E.2d 387, 389 3
(Mass. 1982).
Massachusetts, however, in cases involving subrogated
claims against residential tenants, has departed "from the common-
law principle that a person is liable for his own negligent acts,
absent an express agreement to the contrary." Seaco, 761 N.E.2d at
948. In Peterson, the SJC interpreted the terms of the lease to
determine whether the parties intended that the negligent tenant be
relieved of liability for fire damage and found that the landlord
and tenant were coinsureds, thereby defeating the insurer's
subrogation claim. See 704 N.E.2d at 1166. The SJC's approach to
the implied coinsured doctrine differs from other jurisdictions and
creates a presumption that the tenant is an implied coinsured when
a landlord fails to make explicit in its lease that the tenant
needs to obtain its own insurance to cover the landlord's property
in case of a negligently started fire.4

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tenant unless there is an express provision to the contrary. 704
N.E.2d at 1165.
A "yield-up" clause is a provision in a lease which states that 5
the tenant must peacefully vacate the premises and leave them in a
good state of repair at the end of the lease term. For example, in
Lexington, the "yield-up" clause provided that at the expiration of
the lease tenants will "peaceably yield up the Demised Premises
. . . in the same condition and repair as the same were in at the
commencement of the term[,] . . . damage by fire or other casualty
. . . only excepted." 647 N.E.2d at 400.
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The SJC developed its approach through a trilogy of key
cases. In Lumber Mutual Insurance Co. v. Zoltek Corp., the SJC
held, in a commercial setting, that based on the language of the
lease together with an accompanying letter in which the landlord
informed the tenant that the tenant need not carry insurance
because of his contribution to the premium, tenant would be treated
as an implied coinsured of the landlord, and thus landlord's
insurer could not pursue subrogation claim against tenant for a
loss from a negligently started fire. 647 N.E.2d 395, 396 (Mass.
1995). In Lexington, the SJC held that based on a "yield-up"
clause alone, the commercial tenants were exempt from liability to 5
the landlord and landlord's fire insurance carrier for negligent
fire damage. 647 N.E.2d at 400. In Peterson, the SJC found,
despite a general residential lease provision requiring the tenants
to indemnify the landlord for their "carelessness, neglect[,] or
improper conduct," that "absent an express provision in a lease
establishing a tenant's liability for loss from a negligently
started fire, the landlord's insurance is deemed held for the

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In Commercial Union Insurance Co. v. North American Paper Co., 6
the district court interpreted Lumber, Peterson, and Lexington to
suggest that the implied coinsured doctrine should be applied even
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mutual benefit of both parties." 704 N.E.2d at 1165. Thus, the
tenant stands in the shoes of the insured landlord for the purpose
of defeating the insurer's subrogation claim. See id.
C. Application
In this appeal, Federal argues that the "Responsibility
for Damages" provision of the RCA, unlike the provision in
Peterson, unequivocally establishes tenant liability for any loss
or damage to the real or personal property of Kimball Farms caused
by the negligence of the tenant. Federal emphasizes that the RCA
requires the tenant to obtain insurance. While Federal
acknowledges that the last sentence of the provision granted some
discretion to Roberts about her choice of insurers, Federal argues
that the RCA did not state that Berkshire Retirement would provide
coverage for a fire on the premises that Roberts may have
negligently caused or that part of the rent would be allocated to
insurance coverage.
In our view, even drawing all reasonable inferences in
Federal's favor, we find that the Massachusetts coinsured doctrine
applies and that the landlord's insurance in this case was held for
the mutual benefit of both parties.
In applying the Massachusetts coinsured doctrine, we
first must determine whether the RCA is a residential lease and, 6

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in commercial settings. 138 F. Supp. 2d 222, 226-27 (D. Mass.
2001). However, a later decision, Seaco, did not extend "the rule
of Peterson v. Silva . . . to commercial tenancies," noting that
commercial tenants tend to be more sophisticated than residential
tenants. 761 N.E.2d at 950-51.
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second, whether the Peterson exception applies. "[A] residential
lease is a contract between a landlord and a tenant . . . [where]
landlord promises to provide and maintain residential premises in
a habitable condition," and the tenant "promises to pay the agreed
upon rent for the habitable premises." Jablonski v. Casey, 835
N.E.2d 615, 618 (Mass. App. Ct. 2005). According to the
"Preliminary Statement" of the RCA, Kimball Farms provides for its
tenants, in consideration for rent, "comfortable living
accommodations and associated facilities, services[,] and
amenities, together with certain medical and nursing care
facilities." We agree with the district court, and both parties
appear to agree, that the RCA is clearly a residential lease,
which, in addition to accommodations, included other services and
amenities, and not a commercial lease, which is "[a] lease for
business purposes." Black's Law Dictionary (8th ed. 2004). Based
on the reasoning underlying the decision to apply Peterson only to
residential leases, which is the lack of sophistication and the
reasonable expectations of the residential tenants, we are even
more inclined to find that the lease for this retirement community
for elderly residents is a residential lease. See Seaco, 761
N.E.2d at 949-50.

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Next, we must determine whether the Peterson exception
applies, that is whether in this case there is "an express
provision in the lease establishing a tenant's liability for loss
from a negligently started fire." 704 N.E.2d at 1165. While
recognizing that the lease in Peterson is not identical to the
lease in the instant case, we are persuaded that the reasoning in
Peterson is equally applicable here.
In a residential lease case with multiple unit dwellings,
it would be an undue hardship to require all tenants to insure
against their own negligence when they are paying, through their
rent or, in Roberts' case, a monthly service fee, for the fire
insurance which covers the premises in favor of the landlord. In
this retirement community case, the elderly Roberts could
reasonably expect that Kimball Farms, which could establish its
adjustable monthly service fee based on the insurance premium,
would provide fire protection for the building. In this regard, as
the SJC noted in Peterson:
Prospective tenants ordinarily rely upon the
owner of the dwelling to provide fire
protection for the realty (as distinguished
from personal property) absent an express
agreement otherwise. Certainly it would not
likely occur to a reasonably prudent tenant
that the premises were without fire insurance
protection or if there was such protection it
did not inure to his benefit and that he would
need to take out another fire policy to
protect himself from any loss during his
occupancy.

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Peterson, 704 N.E.2d at 1165 (quoting Sutton v. Jondahl, 532 P.2d
478, 482 (Okla. Ct. App. 1975)).
In Seaco, the SJC also considered, as an important factor
in a residential tenancy, "the insurable interest that the landlord
and the tenant each had in the premises, and the common business
practice of passing insurance premium costs along to tenants when
determining rental rates such that the tenant pays that portion of
the premium that is attributable to the rented premises." 761
N.E.2d at 949 (quoting Sutton, 532 P.2d at 482). We agree that in
the case of a retirement community, which provides more services
than a residential apartment building in Peterson, it is not in the
public interest to require all of the senior residents to insure
Kimball Farms, causing the building to be fully insured by each
resident and by the landlord. If this is what Berkshire Retirement
intended, it needed to be crystal clear in requiring that tenants
maintain fire insurance; otherwise, the tenants could reasonably
expect that their monthly service fee included Berkshire
Retirement's cost for fire insurance.
The language of the lease in this case is general, and
although the first sentence mentions specific liability for damages
caused by the resident to the real and personal property owned by
Kimball Farms, there is no express language establishing liability
for fire damages, as required by Peterson. Commerce argues that
since the "Responsibility for Damages" provision does not

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specifically reference insurance for fire loss, it does not support
Federal's conclusion that this provision falls under the Peterson
exception and establishes a tenant's liability.
The sentence requiring insurance, which does not mention
fire, is inartfully drawn and could imply that the tenants are
liable only for losses to their personal property, and that
Berkshire Retirement is responsible for all other property damage.
Ultimately, the insurance clause, similarly to the first sentence,
does not reference fire liability, and to the extent that there is
any ambiguity, the lease must be strictly construed against the
drafter. This conclusion is supported by the clear drafting of the
other insurance provisions of the lease. The clauses dealing with
insurance specifically mention other required insurance, including
health and automobile insurance, but not fire insurance.
While this is a strict approach, the SJC in Peterson
emphasized the burden on the landlord to make explicit the tenant's
obligation to maintain fire insurance, stating that the landlord
could have but did not "insist[ ] that the [tenants] maintain fire
insurance." 704 N.E.2d at 1166. In this case, Kimball Farms could
have insisted in the lease that the residents maintain fire
insurance covering real property, in addition to the required auto
and health insurance.

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III. Conclusion
We are not persuaded that Federal has met its burden of
proving that the "Responsibility for Damages" provision of the RCA
overcomes the presumption that the landlord's insurance is held for
the mutual benefit of both parties. For the reasons stated above,
then, we affirm the district court's grant of defendants' motion
for summary judgment barring Federal's subrogation claim.
Affirmed.

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