AIG Property Casualty Co. v. Cosby , 892 F.3d 25 ( 2018 )

United States Court of Appeals
For the First Circuit
No. 17-1505
AIG PROPERTY CASUALTY COMPANY,
Plaintiff, Appellant,
v.
WILLIAM H. COSBY, JR.,
Defendant, Appellee,
BARBARA BOWMAN, TAMARA GREEN, ANGELA LESLIE, KATHERINE MAE
MCKEE, LOUISA MORITZ, KRISTINA RUEHLI, THERESE SERIGNESE, JOAN
TARSHIS, LINDA TRAITZ,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark G. Mastroianni, U.S. District Judge]
Before
Lynch, Circuit Judge,
Souter, Associate Justice,
and Stahl, Circuit Judge.
Michael F. Aylward, with whom William A. Schneider,
Morrison Mahoney LLP, Rebecca R. Weinreich, Steven V. Kovarik,
and Lewis Brisbois Bisgaard Smith LLP were on brief, for
appellant.
Kirk A. Pasich, with whom Pamela M. Woods, Mikaela

Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
Gallagher-Whitman, Pasich LLP, Francis D. Dibble, Jr., John M.
Greaney, Elizabeth S. Zuckerman and Bulkley, Richardson
& Gelinas, LLP were on brief, for appellee.
June 7, 2018
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SOUTER, Associate Justice. In this declaratory
judgment action, plaintiff AIG Property Casualty Company appeals
from a judgment that it has a duty to defend the policyholder,
defendant William H. Cosby, Jr. We affirm.
Over the past decade, a number of women have accused
Cosby of sexual assault. In 2014 and 2015, nine of them, also
defendants here, filed three separate actions claiming that
Cosby had defamed them by publicly denying their accusations.
At relevant times, Cosby held two insurance policies issued by
AIG: a homeowners policy and a personal excess liability policy
(the "umbrella policy"). Under each, AIG has a duty to "pay
damages [Cosby] is legally obligated to pay [due to] personal
injury or property damage caused by an occurrence covered[] by
this policy anywhere in the world . . . ." Both policies define
"personal injury" to include "[d]efamation," and oblige AIG to
pay the cost of defending against suits seeking covered damages.
When Cosby notified AIG of the underlying defamation
suits, AIG initially agreed to defend him, subject to a
reservation of rights that permitted the company to bring this
action, seeking a declaration that the policies' "sexual
misconduct" exclusions barred coverage. The cited exclusion in
the homeowners policy bars coverage for liability or defense
costs "arising out of any actual, alleged[,] or threatened . . .
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[s]exual molestation, misconduct or harassment[,] . . . or . . .
[s]exual, physical or mental abuse." And the umbrella policy
similarly excludes coverage for liability or defense costs
"[a]rising out of any actual, alleged[,] or threatened . . .
[s]exual misconduct, molestation or harassment[,] . . . or . . .
[s]exual, physical or mental abuse." Contending that the
underlying defamation claims arose out of Cosby's alleged sexual
assaults, AIG moved for summary judgment on its declaratory
judgment claim. Cosby, for his part, moved to dismiss or, in
the alternative, for judgment on the pleadings. The district
court treated his motion as one for judgment on the pleadings
under Federal Rule of Civil Procedure 12(c) and held that the
sexual-misconduct exclusions were at least ambiguous and
consequently granted Cosby's motion insofar as it sought a
judgment that AIG had a duty to defend.1
As with a dismissal under Rule 12(b)(6), we review a
judgment on the pleadings de novo, "tak[ing] all well-pleaded
facts in the light most favorable to the non-moving party and
draw[ing] all reasonable inferences in that party's favor."
Najas Realty, LLC v. Seekonk Water Dist., 821 F.3d 134, 140 (1st
Cir. 2016).
1 By consent of the parties, the district court dismissed
AIG's claim to the extent it sought a judgment that it owed no
duty to indemnify, without prejudice to the filing of a new
action if subsequent developments justified it.
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The parties debate whether Massachusetts or California
law governs the interpretation of the relevant insurance
policies, with AIG arguing for Massachusetts on its
understanding that its law requires a finding of no coverage.
But we have no need to resolve that dispute because, simply by
applying the law of Massachusetts as AIG asks, we conclude that
AIG has a duty to defend Cosby.2 For the same reason, it is
unnecessary to address Cosby's arguments that AIG should be
judicially estopped even from arguing that Massachusetts law
applies.
"Under Massachusetts law, we construe an insurance
policy under the general rules of contract interpretation[,]
. . . begin[ning] with the actual language of the policies,
given its plain and ordinary meaning." Brazas Sporting Arms,
Inc. v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1, 4 (1st
Cir. 2000). "The insurer bears the burden of demonstrating that
an exclusion exists that precludes coverage,” however, “and any
ambiguities in the exclusion provision are strictly construed
2
It is no surprise that AIG would prefer to avoid the
application of California law. On the same day it commenced
this action, AIG began a separate declaratory judgment
proceeding against Cosby in federal court in California, seeking
a declaration that it had no duty to defend or indemnify Cosby
against a similar defamation action. AIG Prop. Cas. Co. v.
Cosby, 2015 WL 9700994, at *1-2 (C.D. Cal. Nov. 13, 2015).
Interpreting the same policy provisions at issue here, the
California court applied California law and held that AIG had a
duty to defend Cosby, given the ambiguity of the sexual-
misconduct exclusions. Id. at *3-5.
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against the insurer." Valley Forge Ins. Co. v. Field, 670 F.3d
93, 97 (1st Cir. 2012) (internal quotation marks omitted).
Indeed, the general interpretive rule that "[a]mbiguous policy
terms are construed in favor of the insured," Scottsdale Ins.
Co. v. Torres, 561 F.3d 74, 77 (1st Cir. 2009), "applies with
particular force to exclusionary provisions," U.S. Liab. Ins.
Co. v. Benchmark Const. Servs., Inc., 797 F.3d 116, 120 (1st
Cir. 2015) (internal quotation marks omitted). "Ambiguity
exists when the policy language is susceptible to more than one
meaning." Scottsdale, 561 F.3d at 77.
There is no single definition of "arising out of"
under Massachusetts law. The Massachusetts Supreme Judicial
Court has said that the term "indicates a wider range of
causation than the concept of proximate causation in tort law,"
Commerce Ins. Co. v. Ultimate Livery Serv., Inc., 897 N.E.2d 50,
62 (Mass. 2008) (internal quotation marks omitted), and that it
"suggest[s] a causation more analogous to 'but for' causation,"
Fuller v. First Fin. Ins. Co., 858 N.E.2d 288, 292 (Mass. 2006)
(internal quotation marks omitted). In a slightly earlier
decision, however, the same court has taken care to note that
"the expression does not refer to all circumstances in which the
injury would not have occurred 'but for'" the excluded activity.
Rischitelli v. Safety Ins. Co., 671 N.E.2d 1243, 1245 (Mass.
1996) (injuries resulting from fisticuffs that broke out after
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vehicle collision did not "aris[e] out of the ownership,
maintenance or use of an auto"). Rather, "there must be a
sufficiently close relationship" or a "reasonably apparent"
causal connection between the injury and relevant event.
Commerce Ins. Co., 897 N.E.2d at 62 (internal quotation marks
omitted). Ultimately, "[a] judgment call . . . must be made as
to where the facts of the case fall along a continuum of
causation." Am. Home Assur. Co. v. First Specialty Ins. Corp.,
894 N.E.2d 1167, 1170 (Mass. App. Ct. 2008).
Here, AIG says that because Cosby's allegedly
defamatory denials were prompted by the women's sexual-assault
allegations, the defamation injury and the excluded conduct are
so "inextricably intertwined" as to trigger the sexual-
misconduct exclusions. Cosby counters that the source of the
women's claimed injuries is not any alleged sexual misconduct,
but rather the allegedly defamatory statements. Cf. Bagley v.
Monticello Ins. Co., 720 N.E.2d 813, 817 (Mass. 1999) ("It is
the source from which the plaintiff's personal injury originates
rather than the specific theories of liability alleged in the
complaint which determines the insurer's duty to defend."
(emphasis in original; internal quotation marks omitted)).
Given the independent cause of injury, Cosby maintains, the
causal link between the excluded conduct and the defamation
claims is too attenuated to trigger the exclusions.
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It is only fair to say that applying the quoted
governing principles of Massachusetts law to this case does not
supply an easy answer to the question before us. But we need
not determine whether the homeowners policy's "arising out of"
exclusion, standing on its own, would or would not eliminate
coverage. Instead, a closer look at the umbrella policy
provides a key to decision here.
As the district court observed, the presence of
another, more broadly worded sexual-misconduct exclusion in the
umbrella policy tips the scales in favor of finding ambiguity.
That policy's coverage for "Limited Charitable Board Directors
and Trustees Liability" is subject to an exclusion that applies
to claims for damages "[a]rising out of, or in any way
involving, directly or indirectly, any alleged sexual
misconduct." RA at 328, ¶ D.10 (emphasis added). This
provision has a place in the analysis here under the rule that
"[e]very word in an insurance contract must be presumed to have
been employed with a purpose and must be given meaning and
effect whenever practicable." Metro. Life Ins. Co. v. Cotter,
984 N.E.2d 835, 844 (Mass. 2013) (internal quotation marks
omitted); see also J.A. Sullivan Corp. v. Commonwealth, 494
N.E.2d 374, 378 (Mass. 1986). Given that this separate,
specific sexual-misconduct exclusion was drafted so closely to a
but-for view, the umbrella policy's more laconic, generally
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applicable counterpart may most reasonably be read, in the
circumstances of this case, as imposing a standard closer along
the continuum to proximate causation than but-for, under that
policy. And because both the umbrella and homeowners policies
were drafted by the same insurer, and the policies were issued
by it side by side to the same insured, we may infer that the
two policies' identical "arising out of" language was intended
to carry identical meaning, calling for identical effect. And
if that meaning is not proximate cause outright, at a minimum it
renders the pertinent sexual-misconduct exclusions ambiguous as
to the question here, requiring judgment for the insured.3
To be clear, we do not hold that "arising out of" is
an inherently ambiguous term under Massachusetts law or that
discrepancies in insurance provisions always give rise to
ambiguity. Rather, our holding is confined to this case where
the ambiguity question is close to begin with and where another
sexual-misconduct exclusion is worded more broadly.4 Out of
caution, we also note that this appeal decides only the question
3 Notably, the same result would obtain under California
law. See Safeco Ins. Co. of Am. v. Robert S., 28 P.3d 889, 893
(Cal. 2001) (ambiguities are resolved in favor of insured);
Palmer v. Truck Ins. Exch., 988 P.2d 568, 572-73 (Cal. 1999)
("We must . . . give effect to every part of the policy with
each clause helping to interpret the other." (internal quotation
marks omitted)).
4 In view of our holding, we need not reach Cosby's
alternative grounds for affirmance.
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of coverage in providing defense to the policyholder. Coverage
for any damages that may be awarded if the defense is
unsuccessful could turn on facts beyond those pertinent here,
requiring independent analysis. Cotter, 984 N.E.2d at 850 (an
"insurer's duty to defend is independent from, and broader than,
its duty to indemnify" (internal quotation marks omitted)).
Affirmed.
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