OneBeacon America Insurance Co. v. Narragansett Electric Co. American Home Assurance Co.

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13-P-1240 Appeals Court

ONEBEACON AMERICA INSURANCE COMPANY vs. NARRAGANSETT ELECTRIC
COMPANY; AMERICAN HOME ASSURANCE COMPANY & others,1 third-party
defendants.

No. 13-P-1240.

Suffolk. June 3, 2014. - August 31, 2016.

Present: Kantrowitz, Hanlon, & Carhart, JJ.2

Conflict of Laws. Insurance, Comprehensive liability insurance,
Excess Liability Insurance, Pollution exclusion clause.
Contract, Insurance, Choice of law clause. Real Property,
Environmental damage.

1
Century Indemnity Company; Certain Underwriters at
Lloyd's, London, and Certain London Market Insurance Companies;
National Union Fire Insurance Company of Pittsburgh, PA
(National Union); Johns Does 1-200; American International
Specialty Lines Insurance Company (AISLIC); and Chartis
Specialty Insurance Company (Chartis). During the course of the
proceedings below, AISLIC was succeeded by Chartis. Subsequent
to the proceedings, American Home Assurance Company, Chartis,
and National Union were apparently succeeded by American
International Group, Inc. For the sake of clarity, we refer to
the parties as their names appear in the pleadings.
2
The case was argued before Justices Kantrowitz, Hanlon,
and Carhart. Following the retirement of Justice Kantrowitz,
Justice Kinder was added to the panel and participated in this
decision.
2

Civil action commenced in the Superior Court Department on
July 25, 2005.

Motions for summary judgment regarding choice of law issues
were heard by Allan van Gestel, J., and a motion for
reconsideration was considered by him; motions for summary
judgment were heard by Margaret R. Hinkle, J., and Peter M.
Lauriat, J.; the remaining issues were tried in two phases
before them; and entry of final judgment was ordered by Lauriat,
J.

Jay T. Smith, of the District of Columbia (A. Hether Cahill
with him) for Narragansett Electric Company.
Kevin J. O'Connor for OneBeacon America Insurance Company.
David B. Chaffin for Century Indemnity Company.
Eileen T. McCabe, of New York, & John T. Harding, for
Certain Underwriters at Lloyd's, London, & others, were present
but did not argue.
Michael F. Aylward, for American Home Assurance Company &
others, was present but did not argue.

CARHART, J. This matter is before us pursuant to the

December 28, 2015, order of the Supreme Judicial Court,

remanding to this court for express consideration the

substantive law to be applied to the interpretation of the

insurance contracts at issue in OneBeacon America Ins. Co. v.

Narragansett Elec. Co. (No. 2), 87 Mass. App. Ct. 1126 (2015)

(OneBeacon No. 2). The plaintiff, OneBeacon America Insurance

Company (OneBeacon), along with third-party defendants Certain

Underwriters at Lloyd's, London and Certain London Market

Insurance Companies (collectively, London), American Home

Assurance Company (American Home), and Century Indemnity Company

(Century) argued in their respective appeals that a Superior
3

Court judge erred in determining that Rhode Island law would

apply both in deciding whether the insured, Narragansett

Electric Company (NEC), was entitled to coverage for

environmental contamination at several Rhode Island sites, and

in the allocation of damages on the jury's verdicts as to one of

the sites.

For background, we refer to OneBeacon America Ins. Co. v.

Narragansett Elec. Co. (No. 1), 87 Mass. App. Ct. 417 (2015)

(OneBeacon No. 1). Early in the litigation, a judge of the

Superior Court ruled that the law of Rhode Island would apply to

interpretation of the insurance contracts, reasoning that the

sites involved were operated by a Rhode Island public utility

(NEC) and were almost all located in Rhode Island (see OneBeacon

[No. 1], 87 Mass. App. Ct. at 420; note 7, infra), and that

Rhode Island utility customers had an interest in who would bear

the clean-up costs. On appeal, OneBeacon presses for

application of Massachusetts law,3 as the State having the most

significant contacts with the primary policies issued to the

insured by OneBeacon's predecessor,4 while London and American

3
All of NEC's claims against OneBeacon were dismissed
below. On appeal, OneBeacon argued that, in the event we were
to remand any of the claims, Massachusetts law should apply.
Century joined OneBeacon's argument as to the J.M. Mills site,
discussed infra.
4
For ease of reference, we refer to OneBeacon and its
predecessor collectively as "OneBeacon."
4

Home argue that New York law should apply to the excess policies

issued by them. We resolve the choice-of-law debate in favor of

the law of Massachusetts.

1. Massachusetts choice-of-law principles. We begin with

the conflict-of-law rules of the forum State. Clarendon Natl.

Ins. Co. v. Arbella Mut. Ins. Co., 60 Mass. App. Ct. 492, 495

(2004). Massachusetts has adopted a functional choice-of-law

analysis, guided by the Restatement (Second) of Conflict of Laws

(1971) (Restatement). Bushkin Assocs. v. Raytheon Co., 393

Mass. 622, 631-632 (1985). When dealing with insurance

contracts, we look to Restatement § 193, as well as § 188 and

the principles delineated in § 6. Clarendon Natl. Ins. Co. v.

Arbella Mut. Ins. Co., 60 Mass. App. Ct. at 496.

"Section 193 [of the Restatement] provides that the rights

created by a contract of casualty insurance are to be determined

by the local law of the State that the parties to the insurance

contract understood would be the principal location of the

insured risk during the term of the policy, unless some other

State has a more significant relationship under the principles

of § 6." Ibid. Section 193 further provides that "[t]he

location of the insured risk will be given greater weight than

any other single contact in determining the state of the

applicable law provided that the risk can be located, at least

principally, in a single state." Restatement § 193 comment b.
5

The insured risk generally will be located in the State where

the policy holder is domiciled. Ibid.

The identity of the policy holder in this case is not clear

cut. NEC is a Rhode Island public utility. The first policy

issued by OneBeacon, a primary comprehensive general liability

policy for the period of October, 1972, to October, 1973, listed

the "named insured" and address as follows:

"Eastern Utilities Associates, EUA Service Corporation,
Brockton Edison Company, Blackstone Valley Electric Company
and/or any Subsidiary, Associated, Allied or Affiliated
Company which is Majority owned and now existing or which
may hereafter appear. P.O. Box 2333, Boston,
Massachusetts."5

NEC contends that its predecessor, Blackstone Valley

Electric Company (BVEC), headquartered for many years in

Providence, Rhode Island, should be considered the insured risk,

since BVEC is identified in the policy as a named insured. NEC

additionally points to language in the OneBeacon policy

providing that "[t]he insurance afforded applies separately to

each insured against whom claim is made or suit is brought,

except with respect to the limits of the company's liability."

5
OneBeacon issued thirteen primary policies to Eastern
Utilities Associates and its operating companies covering the
period of October, 1972, to January 1, 1985. Blackstone Valley
Electric Company (BVEC) was NEC's predecessor. The first
OneBeacon policy for 1972 covered Brockton Edison Company and
BVEC, with Fall River Electric Light Company and Montaup
Electric Company added to the coverage in 1973. Fall River
Electric Light Company and Montaup Electric Company are located
in Massachusetts.
6

OneBeacon counters that Eastern Utilities Associates (EUA), a

Massachusetts business trust that owned the stock of BVEC and

the other subsidiaries listed in the policy at the time,6 should

be deemed the insured risk, since EUA and EUA Service

Corporation (EUA Service) procured coverage with OneBeacon for

all its companies, under a single policy, in order to provide

uniformity. It is undisputed that EUA, along with EUA Service

and the entities other than BVEC that were covered by the

policies, were domiciled in Massachusetts, as were the insurance

agent and OneBeacon.

At first blush, Rhode Island might seem the obvious place

of the insured risk, given the location of NEC and the affected

sites there.7 But while an underlying tort claim might properly

be resolved under the laws of the State where the injury

occurred, the obligation of an insurer to defend and indemnify

against that claim is more appropriately determined by reference

to the insurance contract itself and the circumstances of its

issuance. W.R. Grace & Co. v. Hartford Acc. & Indem. Co., 407

Mass. 572, 585-586 (1990).

6
EUA's successor is National Grid USA, a Delaware
corporation and a registered holding company, with its principal
place of business in Westborough.
7
We note that part of the so-called Lawn Street site was
located in Massachusetts. See OneBeacon (No.1), 87 Mass. App.
Ct. at 421. According to NEC's records, BVEC also utilized a
site in Attleboro, referred to as Mendon Road, that is not a
part of this action.
7

In W.R. Grace & Co. v. Hartford Acc. & Indem. Co., supra,

W.R. Grace & Co. (Grace) was a New York-based conglomerate with

divisions located in various States. Grace had procured the

relevant insurance contracts in New York, through a New York

insurance broker, and had made premium payments to the insurers

in New York. Id. at 575-576. Faced with the question of

insurance coverage for asbestos-related claims arising from the

manufacture of Grace's products by one of its divisions located

in Cambridge, the Supreme Judicial Court ruled that New York law

would govern the insurers' obligations. Id. at 585. "Whether

. . . there is a duty to defend or to indemnify under a

nationwide comprehensive general liability policy as to such a

claim should not depend on the law of the jurisdiction governing

that particular claim but rather should be determined by the law

governing the interpretation of the insurance policy and its

issuance." Id. at 586.

This court reiterated the principle in W.R. Grace & Co. v.

Maryland Cas. Co., 33 Mass. App. Ct. 358, 360-363 (1992), a

liability insurance case also involving Grace, this time related

to environmental claims in connection with one of its divisions

located in Woburn. We determined that the law of New York,

where Grace had it principal place of business and where the

insurance policies were negotiated and issued, again should

apply to the insurance contracts, even though the claims
8

involved a Massachusetts company that disposed of toxic

chemicals, causing injury thereby, exclusively in Massachusetts.

We look, then, to the circumstances surrounding the

procurement and issuance of the OneBeacon policies. In so

doing, we think it useful to begin with the ownership and

managerial structure of the insured. EUA was established as a

Massachusetts voluntary trust and owned 95 to 100 percent of the

common stock of its operating companies at the time.8 The

companies owned by EUA and covered by the OneBeacon policies

were BVEC (NEC's predecessor), Brockton Edison Company, Fall

River Electric Light Company, and Montaup Electric Company. All

but BVEC were located in Massachusetts, and all were assisted in

significant respects by EUA Service, also located in

Massachusetts, which supervised their employee benefits and

insurance programs, among other things.9 EUA is listed first in

the OneBeacon policies as the named insured, followed by EUA

Service, and then followed by the subsidiaries, all of which

8
The structure was described in EUA's 1971 service contract
with EUA Service as a "holding-company system."
9
Also among the description of services listed in the
service contract between EUA and EUA Service, as of January,
1971, were accounting; corporate matters including financing,
regulation, contracts, claims, litigation and records; data
processing; engineering; sales promotion; property; rates;
regulatory matters; taxes; and financial and statistical
reports.
9

list a single Boston post office box as their address.10 EUA

Service negotiated the insurance contracts in Massachusetts

through a Massachusetts agent, OBrion, Russell & Co. The

decision to coordinate the insurance coverage for the EUA

entities originated with John F.G. Eichorn, the president of EUA

and EUA Service.11 Given the structure of the companies and the

interests that drove the acquisition of the OneBeacon policies,

it appears that Massachusetts is the State with the greater

connection to the insurance transactions at hand.

Section 188 of the Restatement provides further

clarification.12 Section 188, which deals with contract

disputes, instructs that we apply the law of the State that,

with respect to the issues, has the more significant

relationship to the transaction and the parties, under the

principles set forth in § 6 of the Restatement. Bushkin Assocs.

v. Raytheon Co., 393 Mass. at 632. Applying the § 188 factors

used in determining the choice of law to govern contract rights

10
NEC points out that BVEC incurred the largest premiums
for the OneBeacon policy, while OneBeacon counters that EUA's
Massachusetts companies, combined, paid the greater share of
premiums for the relevant years.
11
Eichorn also served as president of Montaup Electric
Company and vice-president of the remaining three subsidiaries
at the time the OneBeacon policies were issued.
12
When § 193 does not provide a definitive answer, we turn
to the principles outlined in Restatement § 188, regarding
contracts. Clarendon Natl. Ins. Co. v. Arbella Mut. Ins. Co.,
60 Mass. App. Ct. at 496.
10

"produces coherent interstate insurance coverage; appears to

conform to justified expectations; offers the prospect of

certainty, predictability, and uniformity of result; provides

relative ease in the determination and application of the

governing law; and looks to the law of the State which, as to

the legal issues involved, has the most significant relationship

with the transactions and the parties." W.R. Grace & Co. v.

Hartford Acc. & Indem. Co., 407 Mass. at 586, citing Bushkin

Assocs. v. Raytheon Co., 393 Mass. at 631-634 (discussing § 188

factors).

Those factors, again, point predominantly to the law of

Massachusetts. According to the record, in 1972, EUA turned to

an insurance broker to find comprehensive insurance with the

goal of eliminating separate policies for its operating

companies and integrating their coverage into a single program,

"underwritten as one risk." The stated objective was to provide

EUA and its operating companies "with one coordinated insurance

program designed to afford broad uniform coverages and limits at

the lowest possible costs." To that end, EUA and its operating

companies were insured under one policy, for each of the years

insured by OneBeacon.

Accordingly, even though EUA's subsidiaries were located in

two different States, EUA specifically sought and obtained

coverage under a single policy with OneBeacon in order to
11

promote uniformity among its several companies. As observed in

W.R. Grace & Co. v. Hartford Acc. & Indem. Co., supra at 585,

"to obtain uniform and practical coverage nationwide for a

multiState corporation . . . , it is desirable that the law of

one State govern the interpretation of all [the corporation's]

comprehensive general liability insurance policies." We think

the same holds true in this case, where, for example, NEC argues

in favor of Rhode Island law, OneBeacon argues for Massachusetts

law, and London and American Home argue for New York law.

As a result, despite the fact that the underlying claims

involved in this case arose in Rhode Island in connection with a

Rhode Island operating company, we believe the insurance

contracts as a whole, and the circumstances connected to their

issuance, point toward the application of Massachusetts law.

One consideration that gives us pause, however, is the fact that

NEC is a public utility. As the judge observed, Rhode Island

ratepayers have potential economic interest in application of

Rhode Island law, particularly as to who will bear the cost for

remedial efforts at the Rhode Island properties.

Nevertheless, protection of justified expectations in the

issuance of insurance contracts will tip the scale when other

factors do not point to a clear choice of law. "Where relevant

contacts and considerations are balanced, or nearly so, we are

inclined to resolve the choice by choosing that law 'which would
12

carry out and validate the transaction in accordance with

intention, in preference to a law that would tend to defeat

it.'" Bushkin Assocs. v. Raytheon Co., 393 Mass. at 636,

quoting from Boston Safe Deposit & Trust Co. v. Paris, 15 Mass.

App. Ct. 686, 691 (1983).

We conclude that the intention of the parties to the

OneBeacon insurance contracts was uniformity of coverage, so

that the operations of multiple companies were insured as a

single risk under a single policy, at a reduced cost. We think

application of Massachusetts law provides the uniformity that

was sought by EUA and its operating companies when they

contracted together for comprehensive insurance coverage.

For the reasons set forth above, we also reject the

arguments of London and American Home that New York law should

apply to the insurance contracts those companies issued to NEC.

In light of our analysis, the fact that the excess policies

issued by those insurers were written in New York is

insufficient to outweigh the considerations in favor of

Massachusetts law. Moreover, where multiple policies issued by

multiple insurers are involved, the Supreme Judicial Court has

expressed a preference that the law of one State govern their

interpretation. W.R. Grace & Co. v. Hartford Acc. & Indem. Co.,

407 Mass at 585.
13

2. Application of Massachusetts substantive law.

Application of Massachusetts substantive law, rather than that

of Rhode Island, changes our prior interpretation of the

relevant policies in two respects.13 First, Massachusetts and

Rhode Island substantive law differ with regard to the

interpretation of the "sudden and accidental release" exception

to an insurance contract's pollution exclusion. The issue

affects the coverage determinations as to the J.M. Mills site, a

landfill owned by a third party that received contaminated waste

from NEC.14 As discussed in OneBeacon (No. 2), we concluded that

application of Rhode Island law raised a question of fact as to

whether the release of contaminants at the J.M. Mills landfill

was sudden and accidental, Rhode Island construing the phrase to

mean "unintended and unexpected."

By contrast, Massachusetts cases interpret "sudden and

accidental" to connote a temporal element, so that only an

abrupt release of pollutants will fall within the exception.

See, e.g., Lumbermens Mut. Cas. Co. v. Belleville Indus., Inc.,

407 Mass. 675, 679-681 (1990); Polaroid Corp. v. Travelers

13
The insurers made no argument regarding the applicability
of Rhode Island law with respect to some of the issues discussed
in OneBeacon (No. 2). As to those issues, our application of
Rhode Island law in OneBeacon (No. 2) remains undisturbed, as
the arguments are waived. See Mass.R.A.P. 16(a)(4), as amended,
367 Mass. 921 (1975).
14
For further background on the J.M. Mills site, see
OneBeacon (No. 1), 87 Mass. App. Ct. at 423-424.
14

Indem. Co., 414 Mass. 747, 751-752 (1993). It follows that,

under Massachusetts law, the question whether NEC took

reasonable steps in arranging for the safe disposal of its

wastes at the J.M. Mills site, and whether the discharge of

contaminants there was thus unexpected or unintended, is not

material.

On the undisputed facts, the release of pollutants at the

J.M. Mills landfill cannot be characterized as sudden and

accidental, as that term is construed under Massachusetts law,

and so does not fall within the exception to the pollution

exclusion of the relevant policies. Accordingly, OneBeacon,

Century, and American Home were properly granted summary

judgment in their favor under the pollution exclusion in their

respective policies, as to the J.M. Mills site.

Second, our ruling that Massachusetts substantive law

should apply to all of the insurance policies issued for NEC

affects, in turn, the allocation of damages in the jury's

verdicts against London and Century regarding the Tidewater

site.15 Massachusetts, like New York, has adopted pro rata

allocation of damages, and does not utilize the all sums

approach to coverage that the policyholder would enjoy under

Rhode Island law. See, e.g., Boston Gas Co. v. Century Indem.

15
The Tidewater site was used as a manufactured gas plant
and power plant. For further background on the Tidewater site,
see OneBeacon (No. 1), 87 Mass. App. Ct. at 420-421, 424.
15

Co., 454 Mass. 337, 360-366 (2009); New England Insulation Co.

v. Liberty Mut. Ins. Co., 83 Mass. App. Ct. 631, 635-638 (2013).

We must therefore reverse so much of the final judgment as

determines damages against London and Century16 with respect to

the Tidewater site, and remand for further proceedings to

determine the proper allocation of damages in accordance with

Massachusetts law.

Conclusion. The following text shall supersede the final

paragraph of OneBeacon (No. 1), 87 Mass. App. Ct. at 436-437:

It was error (a) to grant summary judgment in favor of Century

and London on statute of limitations grounds with respect to

their duty of indemnification for Hamlet Avenue and PWSB; and

(b) to apply Rhode Island law rather than Massachusetts law in

construing the terms of the insurance contracts. Accordingly,

we reverse so much of the final judgment and declaratory decree

as (a) declares that Century and London have no duty to

indemnify NEC with respect to claims or liabilities at Hamlet

Avenue and PWSB and dismisses those claims; and (b) allocates

damages against Century and London pursuant to the verdicts in

the trial regarding the Tidewater site. We remand the matter of

16
Although Century advanced no argument that Rhode Island
law should not apply at the trial regarding the Tidewater site,
London argued that a pro rata approach to damages, rather than
Rhode Island's all sums approach should have been applied in
assigning the damages awards on the jury's verdicts in that
trial. Therefore, in providing a remedy to London, the award to
Century is necessarily included in our remand.
16

the damages awards in that trial to the Superior Court to

determine an allocation of damages on a pro rata basis, pursuant

to Massachusetts law. We vacate so much of the final judgment

and declaratory decree as dismisses with prejudice NEC's claims

as to High Street, Pond Street, and Exchange Street, and the

judgment shall be modified to dismiss those claims without

prejudice. In all other respects, the final judgment and

declaratory decree is affirmed. The orders denying Century's

motion for judgment notwithstanding the verdict or new trial and

London's motion for judgment notwithstanding the verdict are

affirmed. The order denying London's motion for new trial and

to alter or amend the judgment is affirmed as to the request for

new trial and reversed as to the request to alter or amend the

judgment.

So ordered.