Essex Insurance Company v. Bloomsouth Flooring Corporation

United States Court of Appeals
For the First Circuit
No. 06-2750
ESSEX INSURANCE COMPANY,
Plaintiff, Appellee,
v.
BLOOMSOUTH FLOORING CORPORATION,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. Magistrate Judge]
Before
Lipez, Selya and Howard,
Circuit Judges.
Steven L. Schreckinger, with whom Harvey Nosowitz, and Lynch,
Brewer, Hoffman & Fink, LLP, were on brief for appellant.
Robert L. Ciociola, with whom Litchfield Cavo, LLP was on
brief, for appellee.
April 16, 2009

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HOWARD, Circuit Judge. This appeal involves a coverage
dispute between Essex Insurance Company and its insured, BloomSouth
Flooring Corporation. Essex brought a declaratory judgment action
claiming that, pursuant to "business risk exclusions" in its
policies, it had neither a duty to defend nor a duty to indemnify
BloomSouth in connection with an underlying state court action
against BloomSouth. The magistrate judge, presiding by mutual
consent, see 28 U.S.C. § 636(c), granted Essex's motion for summary
judgment, finding that the pertinent exclusions relieved Essex of
both its duties to defend and to indemnify. On appeal, BloomSouth
targets only the duty to defend.
Because the exclusions, as applied to the underlying
complaint, do not relieve Essex of its duty to defend, we reverse
the district court's summary judgment ruling in pertinent part.
I. Background
We recite the facts in the light most favorable to
BloomSouth, the party against whom summary judgment was granted.
See Millipore Corp. v. Travelers Indem. Co., 115 F.3d 21, 25 (1st
Cir. 2006).
In 2000, Boston Financial Data Services ("BFDS") retained
Suffolk Construction Corporation as general contractor for a tenant
improvement project at its offices in Massachusetts. In
undertaking the project, Suffolk subcontracted with BloomSouth for
the installation of carpet tile and related materials throughout

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the building. The subcontract required BloomSouth to perform minor
preparation work before laying the carpet. This work included
testing and cleaning the concrete floor. BloomSouth itself
subcontracted out the installation to two other companies. One was
charged with supplying the carpet and the other with installing it.
During all material times BloomSouth had commercial
general liability policies with Essex. The general contractor
Suffolk was an additional insured on the Essex policies that were
issued to BloomSouth. BloomSouth's subcontract also required it to
defend and indemnify Suffolk for claims against Suffolk arising out
of BloomSouth's work. Coverage under a first policy began on July
15, 2000 and extended through July 15, 2001; coverage under a
second policy began on July 15, 2001 and extended through July 15,
2002.
Both policies specifically covered, among other types of
damage, liability for "property damage" that occurred in the
coverage territory and during the policy period. The policies
define property damage as both "[p]hysical injury to tangible
property, including all resulting loss of use of that property,"
and "[l]oss of use of tangible property that is not physically
injured." Both policies also contain a number of what are commonly
referred to as "business risk exclusions" that serve to deny
coverage for certain types of claims that relate directly to the
insured's faulty workmanship, as opposed to damage caused to a

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third party. In turn, many of these exclusions contain exceptions
that, if operable, will restore coverage to the insured.
In late April or early May 2001, the carpet was
installed. Although it is unclear exactly when BFDS employees
moved into the building, after moving in they noticed an odor. The
employees described the odor as a "locker room" smell, a
"playdough" smell, or a "sour chemical" smell. Some further
complained that the odor caused headaches or other ill effects.
BFDS notified Suffolk of the offensive odor. In an
effort to eliminate the odor, one of BloomSouth's subcontractors
scraped up the original carpet adhesive and re-carpeted the floor.
That effort failed to correct the problem and the odor spread to
other areas of the building. As a result, the subcontractor and
Suffolk conducted tests of the carpet, the floor, and the air in
the building. Test results were inconclusive. The subcontractor
blamed the smell on a chemical reaction between the carpet and the
concrete floor, and Suffolk claimed that the subcontractor had
installed defective carpet, causing the odor. BFDS presented a
claim of property damage to Suffolk and demanded that Suffolk
remove the carpet and eliminate the smell. Suffolk subsequently
requested that BloomSouth respond to BFDS's claim. BloomSouth
refused, and as a result, Suffolk paid BFDS $1,417,500.00 for
remediation efforts. During the remediation process, Suffolk,
pursuant to its status as an additional insured under BloomSouth's

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policy with Essex, notified Essex of BFDS's claim and demanded that
Essex defend and indemnify Suffolk. In April 2002, Essex
disclaimed coverage to Suffolk for BFDS's claim.
In due course, Suffolk sued BloomSouth in state court.
Suffolk asserted claims for negligence, contractual indemnity,
breach of the implied warranty of merchantability, breach of
express warranty, breach of contract, and contribution under M.G.L.
ch. 231B. Suffolk's complaint alleged that: (1) BloomSouth was
responsible for negligently and defectively providing and
installing carpet "resulting in damage to and loss of use of the
building, including an alleged unwanted odor which permeated the
building," and (2) BloomSouth's negligent and defective work caused
Suffolk to spend money in an attempt to eliminate the alleged odor.
Money was spent on, among other things, "the installation of carbon
air filters to the ventilation system in the building," and
"removal of the existing carpet tile and adhesives, bead-blasting
of the concrete floor and replacement of the carpet tile and
related materials."
Shortly after Suffolk filed its action against BloomSouth
in state court, Essex filed a diversity action in the District of
Massachusetts, seeking a declaratory judgment against BloomSouth
and Suffolk. Essex sought a declaration that, under the insurance
policies issued to BloomSouth, it was not required to defend or
indemnify either Suffolk or BloomSouth for the claims being

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asserted in Suffolk's state court action or for the claims asserted
by BFDS against Suffolk. Essex specifically claimed that various
business risk exclusions relieved it of any duty to provide defense
or indemnity. BloomSouth and Suffolk filed counterclaims seeking
a declaration that Essex was required to defend and indemnify them.
After consenting to the jurisdiction of a magistrate
judge, the parties agreed to conduct discovery jointly with the
discovery in Suffolk's underlying state court action against
BloomSouth. After the completion of discovery, all parties moved
for summary judgment in the federal court action.
The court granted Essex's motion for summary judgment.
Although the court appeared to assume that Suffolk alleged property
damage sufficient to give rise to coverage, it concluded that
business risk exclusions labeled (m) and (k) relieved Essex of its
policy obligations. Exclusion (m) barred coverage for property
damage to "impaired property," defined as property that has not
been physically injured. The court held that this exclusion barred
coverage for Suffolk's allegation that an unwanted odor permeated
the building because it was an allegation of damage to "impaired
property." Exclusion (k) excluded coverage for property damage to
the insured's own product, and the court determined that this
exclusion applied to Suffolk's allegation that the concrete floor
had to be bead-blasted prior to the installation of replacement
carpet. The court arrived at this conclusion by reasoning that

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during the original installation process the concrete floor had
essentially become BloomSouth's product. Finding that these
exclusions effectively encompassed "all of the contingencies
presented in [Suffolk's] complaint" the court concluded that Essex
had no duty to defend or indemnify BloomSouth or Suffolk.
BloomSouth appeals from the final judgment of the court.
II. Discussion
We review de novo a court's grant of summary judgment.
Bogan v. City of Boston, 489 F.3d 417, 424 (1st Cir. 2007).
Because this is a diversity case, Massachusetts substantive law
controls. B & T Masonry Constr. Co. v. Pub. Serv. Mut. Ins. Co.,
382 F.3d 36, 38 (1st Cir. 2004). Under Massachusetts law, the
interpretation of an insurance policy is normally a question of law
for the court. Ruggerio Ambulance Serv. v. National Grange Ins.
Co., 724 N.E.2d 295, 298 (Mass. 2000). Summary judgment for an
insurance company is proper "when the allegations in the underlying
complaint lie expressly outside the policy coverage and its
purpose." Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 788
N.E.2d 522, 531 (Mass. 2003) (quotation omitted). The critical
issue is whether the summary judgment record alleges a liability
arising on the face of the complaint and the policy. Id. at 530
(quotation omitted).
The law regarding an insurer's duty to defend is well-
settled in Massachusetts. HDH Corp. v. Atl. Charter Ins. Co., 681

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We have defined "adumbrate" in the liability insurance context 1
to mean "to give a sketchy representation of; outline broadly,
omitting details . . . or to suggest, indicate or disclose
partially and with a purposeful avoidance of precision." Global
Naps v. Fed. Ins. Co., 336 F.3d 59, 61 n.2 (1st Cir. 2003)(internal
quotation omitted).
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N.E.2d 847, 850 (Mass. 1997). The duty to defend is broader than
the duty to indemnify. Herbert A. Sullivan, Inc., 788 N.E.2d at
531. In order to determine whether an insurer has a duty to
defend, a comparison must be made of the facts alleged in the
underlying complaint with the insurance policy provisions. Id.
"If the allegations of the complaint are 'reasonably susceptible'
of an interpretation that they state or adumbrate a claim covered 1
by the policy terms, the insurer has a duty to defend." Mt. Airy
Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) (noting duty
to defend may be triggered even if the allegations of the
underlying complaint are baseless); see also Cont'l Casualty Co. v.
Gilbane Bldg. Co., 461 N.E.2d 209, 212 (Mass. 1984). In sum, "The
obligation of an insurer to defend is not, and cannot be,
determined by reference to the facts proven at trial. Rather, the
duty to defend is based on the facts alleged in the complaint and
those facts which are known by the insurer." Boston Symphony
Orchestra, Inc. v. Commercial Union Ins. Co., 545 N.E.2d 1156,
1158-59 (Mass. 1989)(citing Desrosiers v. Royal Ins. Co., 468
N.E.2d 625, 627-28 (Mass. 1984)). "[I]nformation derived from
outside the complaint may not serve to negate the duty to defend."

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Metallized Prods. Inc. v. Travelers Ins. Co., 2003 WL 22481398 at
*3 (Mass. Super. Ct. Sept. 17, 2003)(citing Millipore, 115 F.3d at
35-36).
Determining the existence vel non of the duty to defend
requires a court to consider "what kind of losses may be proved as
lying within the range of the allegations of the complaint, and
then see whether any such loss fits the expectation of protective
insurance reasonably generated by the terms of the policy." Open
Software Found., Inc. v. U.S. Fid. & Guar. Co., 307 F.3d 11, 16
(1st Cir. 2002); see also Sterilite Corp. v. Cont'l Casualty Co.,
458 N.E.2d 338, 341 (Mass. App. Ct. 1983). Put differently, we ask
"what an objectively reasonable insured, reading the relevant
policy language, would expect to be covered." Hazen Paper Co. v.
United States Fid. & Guar. Co., 555 N.E.2d 576, 583 (Mass. 1990).
The insured initially bears the burden of showing that
the allegations in the underlying complaint fit within the covered
risks in the policy. Highlands Ins. Co. v. Aerovox Inc., 676
N.E.2d 801, 804 (Mass. 1997). Once the insured has satisfied this
burden, it falls to the insurer "to prove the applicability of one
or more separate and distinct exclusionary provisions." B & T
Masonry Constr. Co., 382 F.3d at 39 (citing Highlands Ins. Co., 676
N.E.2d at 804). Both determinations -- whether an allegation
creates the possibility of a covered claim, and whether an
exclusion applies to relieve an insurer of its duty to defend --

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depend on whether the insured would have reasonably understood the
exclusion to bar coverage. See Atlantic Mut. Ins. Co. v. McFadden,
595 N.E.2d 762, 764 (Mass. 1992).
As previously noted, the district court implicitly
assumed that BloomSouth had met its initial burden of showing that
the underlying complaint alleged "physical injury to tangible
property" within the meaning of the policy. On appeal, the parties
do not address directly the issue of whether there was physical
injury to tangible property. Rather, they address the issue only
in the context of the "impaired property" exclusion (m). As this
is a threshold issue, we confront it at the outset, after which we
analyze whether Essex can show that exclusions nonetheless serve to
relieve it of the duty to defend.
BloomSouth argues that two of the underlying allegations
are reasonably susceptible to the interpretation that they assert
claims of "physical injury." These allegations are: (1) that an
unwanted odor permeated the building, and (2) that the concrete
floor in the building required "bead-blasting." We agree.
A. Allegation of a permeating odor
The Massachusetts Supreme Judicial Court has not
determined whether the presence of a permeating odor may constitute
"physical injury." Accordingly, we make "an informed prophecy of
what the court would do" if confronted with the question. Trans-
Spec Truck Serv. v. Caterpillar Inc., 524 F.3d 315, 323 (1st Cir.),

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"The phrase 'direct physical loss or damage' . . . is 2
susceptible of at least two different interpretations. One
includes only tangible damage to the structure of insured property.
The second includes a wider array of losses." Matzner, 1998 WL
566658, at *3.
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cert. denied, 129 S. Ct. 500 (2008). "In making such a prophecy,
we look to analogous cases decided by other courts in the forum
state, persuasive reasoning in cases from other states, and learned
treatises." Id.; see also Andrew Robinson Int'l, Inc. v. Hartford
Fire Ins. Co., 547 F.3d 48, 51-52 (1st Cir. 2008).
The parties have identified two cases, albeit
unpublished, from Massachusetts lower courts that support a finding
that the presence of odor in a building can constitute "physical
injury" to the building. In Matzner v. Seaco Ins. Co., 1998 WL
566658 (Mass. Super. Ct. Aug. 12, 1998), the insureds claimed that
carbon-monoxide contaminated their apartment building, entitling
them to coverage under an insurance policy that protected against
direct physical loss or damage to property. The court first noted
that the phrase "direct physical loss" was ambiguous and that it 2
should therefore be "interpreted in the manner most favorable to
the insured." Id. at *11. Accordingly, the court ruled that
"carbon monoxide contamination constitutes a 'direct physical loss
of or damage to' property." Id. at * 13. It is important to note
that Matzner was a first-party claim, and thus the duty to defend
was not at issue. Given that the salient question before us
involves the lesser burden of determining whether the underlying

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complaint is "reasonably susceptible" of stating a covered claim,
Mt. Airy Ins. Co., 127 F.3d at 19, we need not resolve the
ambiguity issue to conclude that the complaint can be so read.
In Arbeiter v. Cambridge Mut. Fire Ins. Co., 1996 WL
1250616 (Mass. Super. Ct. March 15, 1996), the insureds claimed
that the presence of oil fumes in their home constituted a
"physical loss" to the building triggering insurance coverage. The
court, in partially denying summary judgment for the insurer, was
persuaded by the plaintiffs' argument "that fumes are a physical
loss which attach to the property." Id. at * 3.
The two Massachusetts cases, Arbeiter and Matzner, relied
on cases from other jurisdictions to support their conclusions. In
Farmers Ins. Co. of Or. v. Trutanich, 858 P.2d 1332 (Or. Ct. App.
1993), upon which Arbeiter relied without further discussion, the
Oregon Court of Appeals held for an insured who claimed that
methamphetamine odors had physically injured his home. The court
found that the "pervasive" odors were "physical" because they
"infiltrated" the house and that such damage qualified as a
physical loss under the terms of his insurance policy. Id. at
1335-36. Similarly, in W. Fire Ins. Co. v. First Presbyterian
Church, 437 P.2d 52 (Colo. 1968), the Supreme Court of Colorado
upheld coverage where an insured argued that gasoline vapors
physically damaged the property because they contaminated the
foundation, halls, and rooms of a building. The court dismissed

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the concept that physical damage could only occur if "some tangible
injury to the physical structure itself could be detected," noting,
"[c]ommon sense requires that a policy should not be so interpreted
in the absence of a provision specifically limiting coverage in
this manner." Id. at 56 (citation omitted).
Essex makes three arguments in response. First, it
argues that the underlying claim does not reference injury to
"tangible" property, but instead alleges that the odors injured the
"air." Second, Essex asserts that an odor cannot constitute
"physical injury" to property. Finally, Essex says that, even if
there is an allegation of injury to tangible property, and even if
odors can constitute physical injury to property, the complaint
still would not trigger the duty to defend because the cases
suggest that the odor must have "persisted in and permeated the
structural components of the properties after their original source
was removed" to be considered physical injury to property. Essex
claims that the odor here does not qualify because once the carpet
was removed "there was no persistent odor remaining."
We reject each argument. First, Essex reads too much
into Suffolk's complaint when it states that Suffolk alleged -- and
BFDS claimed -- that odors only permeated the building's "air."
Suffolk in fact alleged that an unwanted odor "permeated the
building" (emphasis added). Such an allegation may be reasonably
construed as claiming damage to property.

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The factual bases for much of Essex's argument comes from 3
discovery conducted in both this case and the underlying case.
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Second, Essex does not provide any authority in support
of its contention that odor cannot constitute physical injury to
property. Given Arbeiter, Matzner, and the cases upon which they
rely, the appellant has met its initial burden on this issue.
Third and finally, although Essex may be correct that
odor can only constitute physical injury to property if it is
permeating or pervasive, nothing in the complaint (the controlling
document in the duty to defend inquiry) indicates that the odor was
not pervasive or permeating. On the contrary, the underlying
complaint explicitly asserts that the odor "permeated the building"
and that Suffolk expended funds "to remediate the alleged odor."
Essex claims that the odor was not pervasive or
permeating because, when the carpet was removed, "the smell went
out with the [carpet]." That claim, however, impermissibly relies
on extrinsic evidence, which Massachusetts law proscribes. See 3
Sterilite Corp., 458 N.E.2d at 344 ("What is not permitted is that
an insurer shall escape its duty to defend the insured against a
liability arising on the face of the complaint and policy, by dint
of its own assertion that there is no coverage in fact . . . .");
Nashua Corp. v. Liberty Mut. Ins. Co., 1997 WL 89163, at *3 (Mass.
Super. Ct. Feb. 18, 1997) ("[W]here a complaint is susceptible on
its face of a reading that brings the claim within the policy, the

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insurer cannot rely on facts outside the complaint to justify a
unilateral refusal to defend").
Against this legal and factual backdrop, we are persuaded
both that odor can constitute physical injury to property under
Massachusetts law, and also that allegations that an unwanted odor
permeated the building and resulted in a loss of use of the
building are reasonably susceptible to an interpretation that
physical injury to property has been claimed. Further, since
nothing in Essex's policies suggests that odor cannot constitute
physical injury to property, Suffolk's claim is colorable under the
policies. See W. Fire Ins. Co., 437 P.2d at 56.
B. Bead-blasting of the concrete floor
Suffolk's allegation that the concrete floor required
bead-blasting because of BloomSouth's negligent and defective work
and materials may also be reasonably interpreted as alleging
physical injury to property, viz., the concrete substrate.
Suffolk's complaint alleged that third-party property
(BFDS's concrete floor) had to be bead-blasted because of
BloomSouth's faulty work (the defective carpet which was placed
upon the concrete floor). The import of this allegation is that
BloomSouth's carpet, or its installation, caused physical injury to
BFDS's concrete floor. That is essentially the view of Suffolk's
allegation that the magistrate judge adopted. The court, in
paraphrasing Suffolk's complaint, stated, "Suffolk seeks

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A Massachusetts appellate court has used similar logic in 4
determining that a complaint alleged physical injury to property.
In Sterilite, the underlying third-party complaint alleged, in
relevant part, that the third-party "incurred losses and suffered
damages including . . . increased costs of obtaining replacement
trays . . . ." 458 N.E.2d at 341. Although the allegation did not
mention any physical injury to the trays, the court noted, "The
reference in the complaint to the costs of replacing trays ought to
be enough to allow proof of physical damage of the trays." Id. at
342. Here, similarly, Suffolk never explicitly alleged that the
carpet "physically injured the floor." But, the allegation that
the floor required bead-blasting may be reasonably construed as
indicating the carpet caused such injury.
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remuneration for . . . bead-blasting the concrete []floor to
eradicate VOC contamination caused by the [carpet] or its
installation."4
Essex argues that Suffolk's bead-blasting allegation
cannot be reasonably construed as indicating physical injury to
property. It asserts that "The allegation itself conclusively
establishes that the 'bead-blasting' was part of the replacement
process for the defective carpet."
We reject Essex's argument. The claim that Suffolk's
allegation conclusively establishes that bead-blasting was part of
a replacement process -- as opposed to a remedial measure -- is
overstated. As we have noted, the allegation is reasonably
susceptible to a different interpretation: the one adopted by the
magistrate judge. Moreover, were we to read the complaint as Essex
suggests, we would be endorsing a more exacting pleading standard
than currently exists for establishing the duty to defend. See Lee
v. Aetna Cas. & Sure. Co., 178 F.2d 750, 753 (2d Cir. 1949) (L.

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Hand, J.) ("When . . . the complaint comprehends an injury which
may be within the policy, we hold that the promise to defend
includes it") (cited with approval in Sterilite); see also
Sterilite Corp., 458 N.E.2d at 341 ("There is no requirement that
the facts alleged in the complaint specifically and unequivocally
make out a claim within the coverage.") (citation omitted).
C. Exclusions
Having determined that Suffolk's and BFDS's allegations
can be reasonably interpreted as giving rise to a duty to defend,
we next consider whether the business risk exclusions nonetheless
relieve Essex of its duty to defend. The appellant argues that
exclusion (m) is not applicable, because Suffolk's allegation did
not involve "impaired property" as that term is defined in the
policies. It contends that exclusion (k) does not apply either,
because Suffolk's allegation that the concrete floor had to be
bead-blasted showed there was damage to a third party's real
property -- BFDS's concrete floor -- rather than damage to
BloomSouth's own product. Thus, the argument goes, the court's
determination that exclusion (k) applied was erroneous because this
exclusion operates to deny coverage only for damage to the
insured's own product.
1. Exclusion (m)
We begin our analysis with the broad observation that
exclusion (m) is one of several "business risk exclusions" in a

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Under the policies' definition, "property damage" may be 5
manifested by either (i) physical injury to tangible property,
including all resulting loss of use of that property, or (ii) the
loss of use of tangible property that is not physically injured.
Thus, exclusion (m) serves to exclude coverage for non-physical
injury to tangible property that arises from (or in other words is
caused by) the insured's defective product or work.
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Commercial General Liability policy. These "business risks" are
those:
which management can and should control or
reduce to manageable proportions; risk which
management cannot effectively avoid because of
the nature of the business operations; and
risks which relate to the repair or
replacement of faulty work or products. These
risks are a normal, foreseeable and expected
incident of doing business and should be
reflected in the price of the product or
service rather than as a cost of insurance to
be shared by others.
Sterilite Corp., 458 N.E.2d at 323 n.13 (citation and internal
quotation marks omitted). Thus, a distinction is drawn between
"faulty workmanship" claims involving only the insured's own work
product, for which a defense need not be provided, and claims for
damage to the property of a third party, for which a defense is
required. Frankel v. J. Watson, Inc., 484 N.E.2d 104, 106 (Mass.
App. Ct. 1985).
Exclusion (m) bars coverage for property damage to
"impaired property," which the exclusion internally defines as
"property that has not been physically injured." (emphasis added).5
Further, for the exclusion to apply the alleged damage must arise

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out of "a defect, deficiency, inadequacy, or dangerous condition in
the insured's product or work."
The first reason why the exclusion does not apply is
plain. Suffolk's complaint alleged that odor "permeated the
building." As we have concluded, this allegation is reasonably
susceptible to an interpretation that the odor physically injured
the property.
The policies' more detailed definition of "impaired
property" provides the second reason for concluding that the
exclusion is inapplicable. The policies define "impaired property"
as tangible property, other than the insured's product or work,
that cannot be used or is less useful because it incorporates part
of the insured's product or work that is "known or thought to be
defective, deficient, inadequate, or dangerous." This definition
is, however, somewhat narrowed by a condition that property is
"impaired property" only if such property can be restored to use by
(i) the repair, replacement, adjustment, or removal of the
insured's product or work, or (ii) the insured's fulfilling the
terms of its contract or agreement.
Although the complaint alleges property damage (odor) to
tangible property (the building) that cannot be used or is less
useful because it incorporates the insured's defective, deficient,
inadequate, or dangerous product (the carpet), we also must
consider the definition's internal limiting condition. Property

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Suffolk's initial complaint contained a specific allegation 6
concerning the installation of carbon filters. The amended
complaints do not contain this allegation but rather general
allegations that Suffolk spent money in an attempt to remediate the
alleged odor. These may be read in conjunction with the earlier
allegations. Boston Symphony Orchestra, Inc., 545 N.E.2d at 1158
(prior allegations known to insurer must be considered by insurer
in determining whether to defend).
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can only be "impaired property" if it can be restored to use by
"the repair, replacement, adjustment or removal of [the insured's]
product or [] work." If it cannot be so restored, then it is not
"impaired property." Dorchester Mut. Fire Ins. Co. v. First Kostas
Corp., Inc, 731 N.E.2d 569, 572 (Mass. App. Ct. 2000) ("Other cases
implicating this exclusion have turned on the fact that the
exclusion applies only if the damaged property can be restored to
use by the 'repair, replacement, adjustment or removal' of the
insured's work.") (citation omitted).
A fair reading of Suffolk's complaint suggests the
property could not be restored to use simply by repairing,
replacing, adjusting, or removing BloomSouth's product or work.
The allegations thus fall outside the definition of impaired
property. Suffolk's complaint states in relevant part, "as a
result of the defendant's negligent and defective work and
materials, and in order to eliminate the alleged odor . . . Suffolk
expended monies in attempting to remediate the alleged odor . . .
including . . . the installation of carbon air filters to the
ventilation system in the building." (emphasis added).6

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BloomSouth argues that in the event exclusion (m) does bar 7
coverage an exception to the exclusion operates to restore
coverage. Because exclusion (m) is inapplicable we need not
address this argument.
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Admittedly, there is no express indication in the
complaint that the installation of the air filters actually
restored the property to use. On the other hand, neither is there
any indication that repairing, replacing, adjusting, or removing
the defective product (the carpet) restored the property to use.
The closest the complaint comes to using such language is in the
allegation that reads, "Suffolk was ultimately required to pay BFDS
for removal of the existing carpet . . . and adhesives, bead-
blasting of the concrete floor and replacement of the carpet [] and
related materials." But even this language indicates that "bead-
blasting," a remedial effort that may be distinct from removal and
replacement of the carpet, was necessary to restore the property to
use. A legitimate reading of the complaint is that Suffolk
attempted to remediate the alleged injury (odor) by installing
carbon air filters and bead-blasting the concrete floor. Whether
it was these actions, the removal and replacement of the offending
carpet, or some combination that restored the building to use is
unclear. What is clear is that Essex had the burden of proving the
applicability of exclusion (m). See Highlands Ins. Co., 676 N.E.2d
at 804. Such a hurdle simply cannot be cleared given the wording
of Suffolk's complaint.7

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Although the magistrate judge discussed other exclusions in 8
addition to exclusion (k), it noted that further factual
development may trigger exceptions in other exclusions causing them
to become inapplicable. As such, its finding that exclusion (k)
unequivocally served to exclude coverage for property damage to the
floor was the key to its analysis.
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We express no opinion on the issue of whether the alleged
odor damage here will ultimately require indemnification. A
Massachusetts court may conclude that odor in general, or this odor
in particular, does not constitute "physical injury" to the
property. Moreover, exclusion (m) may serve to deny
indemnification if, for example, a fact-finder determines that
removing or replacing the carpet alone would have sufficed to
restore the property to use.
2. Exclusion (k)8
The magistrate judge found that coverage for the claim
for damage to the concrete floor was barred by exclusion (k), which
proscribes coverage for "Property damage to 'your product' arising
out of it or any part of it." The definition section of the policy
provides:
'Your Product' means
a. Any goods or products, other than real
property, manufactured, sold, handled or
distributed or disposed of by:
(1) You;
(2) Others trading under your name; or
(3) A person or organization whose business or
assets you have acquired

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Although it might be argued that BloomSouth "handled" the floor 9
because it touched the floor when laying carpet, that description
of BloomSouth's work is too broad. See National Union Fire Ins.
Co. of Pittsburgh, Pa. v. Structural Sys. Tech., Inc., 756 F. Supp
1232, 1239 (E.D. Mo. 1991)(amended by 764 F.Supp. 145 (E.D. Mo.
1991), aff'd, 964 F.2d 759 (8th Cir. 1992)(defining handled as "to
deal or trade in" rather than to touch)).
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The language employed by the exclusion does not relieve
Essex of its duty to defend. Where, as here, the complaint alleges
damage to "real property" the exclusion cannot apply because it
excludes coverage only for damage to goods or products, "other than
real property." See CU Lloyd's of Texas v. Main St. Homes, Inc.,
79 S.W.3d 687, 697 (Tex. App. 2002) (agreeing with another court
that the definition of "'your product'" in a similar exclusion
"does not apply to a building and its components"). In this case,
Suffolk's complaint alleged damage to "real property,"
specifically, BFDS's concrete floor. In addition, the policy
further defines the insured's "product" as any good or product
"manufactured, sold, handled or distributed or disposed of by" the
insured or the insured's agents. There is no indication in this
case that BloomSouth or its subcontractors "manufactured, sold,
handled, or distributed or disposed of" the concrete floor.9
The district court elided the policy language by
reasoning that the concrete floor became BloomSouth's product, thus
bringing Suffolk's claim within the reach of exclusion (k). The
court stated, "BloomSouth's 'product' and 'work' includes the
Subcontract's requirements for the [concrete] subfloor even though

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BloomSouth did not build the [concrete] subfloors," and
"BloomSouth's 'product' of labor and/or materials damaged the
surface of the subfloors, which were also within BloomSouth's
product." We reach a different conclusion.
As opposed to the carpet itself -- which BloomSouth
concedes is its "product" -- the pre-existing building structures,
including the concrete subfloor over which the carpet was to be
installed, are "real property," and are thus excluded from the
definition of "product." Two Massachusetts appellate decisions
inform this conclusion. In Frankel, the court found that damage
to the superstructure of a farmhouse caused by the insured's faulty
construction of a foundation -- onto which the farmhouse was to be
moved -- could be the basis of a covered claim because it
distinguished between "damage to the work product of the insured"
(the foundation) and "damage to larger units of which the insured's
work product is but a component." 484 N.E.2d at 105-06 (citations
omitted).
In addition, despite a finding that coverage did not
exist, Mello Construction, Inc. v. Acadia Ins. Co., 874 N.E.2d
1142, 2007 WL 2908267 (Mass. App. Ct. 2007)(unpublished), is also
instructive. In Mello, the insured general contractor sought
coverage for allegations that it or its subcontractor improperly
installed a concrete slab as part of a school construction project.
Id. at ***1. The insured had to fix the slab, as well as perform

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The district court found support in Commerce Ins. Co. v. Betty 10
Caplette Builders, Inc. 647 N.E.2d 1211 (Mass. 1995) for its
conclusion that the building was BloomSouth's product. We find the
reliance to be misplaced. In Caplette, as in Mello, the insured
was a developer. Thus, its "product" was the completed building.
Here, however, similar to the scenario in Frankel, the carpet is a
component of the larger building.
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repairs to paint, mechanical systems, and floors, and sought
reimbursement from the carrier. Id. at ***2, ***4. The insured
relied on Frankel, but the court distinguished it because the
insured's "work product, as general contractor, encompassed the
entire elementary school." Concluding that the entire school was
"the insured's particular work," the court found no coverage. Id.
at ***5-6. The circumstances here are more akin to those in
Frankel than to those in Mello. Like the foundation in Frankel,
the carpet was "but a component," while the underlying complaint
alleged damage to "the larger unit."10
Additionally, we do not believe that an insured would
reasonably understand exclusion (k) to bar coverage for property
damage to third-party property such as the subfloor, that was, at
all times, part of the building in which it was working in just the
same way as the walls, ceilings and windows. The court's
conclusion that the subfloor "became" BloomSouth's product
stretches too far the contours of what an insured might reasonably
understand.
Essex, for its part, gives us no good reason to affirm
the court's decision regarding exclusion (k). Specifically, Essex

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fails to offer any reasoned argument in support of the court's
conclusion that the concrete floor became BloomSouth's product for
purposes of the exclusion. Instead, Essex states that "The
defective carpet is clearly BloomSouth's product. Just as clearly,
it does not constitute real property." While we may agree with
Essex on this point, BloomSouth's argument is that Suffolk's
complaint may be reasonably construed as alleging that the carpet
caused damage to a third party's real property -- BFDS's concrete
floor. Essex's statement is not responsive to this argument.
In sum, we conclude that exclusion (k) does not relieve
Essex of its duty to defend, and summary judgment for Essex on this
basis cannot be sustained. Again, as was the case with the
complaint of a permeating odor, we express no opinion on the
question of whether Essex will ultimately be required to indemnify
BloomSouth for the damage caused to the concrete floor.
D. Attorney's Fees
BloomSouth argues that it is entitled to recover
attorney's fees incurred in establishing that Essex breached its
duty to defend. In Massachusetts, an insured generally is entitled
to recover attorney fees incurred in successfully establishing that
its insurer breached its duty to defend. Preferred Mutual Ins. Co.
v. Gamache, 686 N.E.2d 989, 993 (Mass. 1997). BloomSouth is
directed to file its attorney's fees application in the district

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court, in accordance with Local Rule 39.1(b) of the First Circuit
Court of Appeals.
III. Conclusion
Because the allegations in Suffolk's complaint are
reasonably susceptible to an interpretation that they state covered
claims and because those allegations do not prove the applicability
of the business risk exclusions in the Essex policies, we hold that
Essex erroneously denied a defense to BloomSouth. Accordingly, the
court's grant of summary judgment to Essex is reversed, and we
remand for proceedings not inconsistent with this opinion.

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