# Petition for Writ of Certiorari — Brown Daltas & Associates, Inc. v. Northbrook Excess Surplus Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 516 U.S. 822

## Text

Supreme Court, U.S.
if\ PELSD

942087 JUN 19 1995!

OFFICE OF THE CLERK

No.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1994

BROWN DALTAS AND ASSOCIATES, INC.,
BENJAMIN I. BROWN, SPERO DALTAS, and
BROWN DALTAS AND ASSOCIATES
SAUDI ARABIA, LTD.,

Petitioners,

Vv.

NORTHBROOK EXCESS SURPLUS INSURANCE
COMPANY,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF
APPEALS FOR THE FIRST CIRCUIT

William Shields

DAY, BERRY & HOWARD

260 Franklin Street

Boston, MA 02110

(617) 345-4600

Counsel of Record for Petitioners

i
QUESTION PRESENTED

Whether the application by the United States
Court of Appeals for the First Circuit of a de novo

standard of review grossly departed from the accepted and
usual course of judicial proceedings.

, 3
LIST OF PARTIES

The parties to the proceeding below were the
petitioners, Brown Daltas and Associates, Inc., Benjamin
I. Brown, Spero Daltas, and Brown Daltas and Associates
Saudi Arabia, Ltd. and the respondent Northbrook Excess
and Surplus Insurance Company. General Accident
Insurance Company of America was a defendant in the
trial court. General Accident’s name appears in the
caption of the appeal, but it was not a party to the appeal.

Pursuant to Supreme Court Rule 29.1, the
Petitioners state that none of them has parent companies
or subsidiaries.

-iii-

TABLE OF CONTENTS

Page

QUESTION PRESENTED .................... i
Se ii
TABLE OF AUTHORITIES .................. Iv
DS ee ee ee 2
bdo easy chs cds be tcun des 2
STATUTES INVOLVED ...................... 3
STATEMENT OF THE CASE ................. 4
Sa ier a ee ot ee 4
BACKGROUND OF THE DISPUTE ............ 5

THE TRIAL COURT OPINION ............... 6

THE FIRST CIRCUIT OPINION .............. 8
REASONS FOR GRANTING THE WRIT ....... 9
I 6 8556 04 60s vb 6S ensue c nes 14

APPENDIX

-jvV-

TABLE OF AUTHORITIES
CASES
Page
Andersen v. City of Bessemer City,
North Carolina, 470 U.S. 564 (1985) ............. 10
Inwood Laboratories v. Ives Laboratories,
456 US. B48, SS7-SE CLOG 6 cian dss eeins vet 12
Layne and Bowler Corp. v. Western Well
Works, 261 U.S. 387, 393 (1923)... cecccesceess 9
United States v. Real Estate Boards,
S39 U.S. SB4 CLSSG) asin. ete BOR PATS I 12
United States v. United States Gypsum Co.,
S33 UG. SOS CIIAR) 0 os hcdoicn hss RE WASET . 10
STATUTES
SB USL. § TSA Ge nics 6 con ce nesevevevass 3
28 USC. © TSR ee a i iv cn eek haten nck cvs 2
OTHER AUTHORITIES
Wei Ch. 4,9

ee ee Peer eee Tre 9

BROWN DALTAS AND ASSOCIATES, INC.,
BENJAMIN I. BROWN, SPERO DALTAS, and
BROWN DALTAS AND ASSOCIATES
SAUDI ARABIA, LTD.,

Petitioners,

Vv.

NORTHBROOK EXCESS SURPLUS INSURANCE
COMPANY,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF
APPEALS FOR THE FIRST CIRCUIT

The petitioners Brown Daltas and Associates, Inc.,
Benjamin I. Brown, Spero Daltas, and Brown Daltas and
Associates Saudi Arabia, Ltd. (“BDA” or “Petitioners”),
respectfully pray that a Writ of Certiorari issue to review
the judgment and opinion of the United States Court of
Appeals for the First Circuit, entered on February 21,
1995, and the Orders denying Petitioners’ Motion for
Rehearing and Suggestion for Rehearing En Banc, entered
on March 21, 1995.

2.
OPINIONS BELOW

The opinion of the Court of Appeals for the First
Circuit is reported at 48 F.3d 30, and is reprinted in the
appendix hereto, at App. Al (hereinafter references to the
appendix will be to “App. A__”).

The opinion of the United States District Court for
the District of Massachusetts (Brody, J.) has been reported
at 844 F. Supp. 58, and is reprinted in the appendix at App.
A30.

The orders of the Court of Appeals for the First
Circuit denying Petitioners’ Motion for Rehearing and
Suggestion of Rehearing En Banc have not been reported,
but are reprinted in the appendix at App. A61 and App.
A65, respectively.

JURISDICTION

Petitioners invoked the diversity jurisdiction of the
District Court pursuant to 28 U.S.C. § 1332(a) (1988).
The District Court issued its Order and Memorandum of
Opinion on February 15, 1994.- It entered judgment for the
Petitioners on Count I of their Complaint on March 1,
1994.' App. A54. The District Court then entered an
Amended Judgment and an Order with respect thereto on

' The District Court entered judgment for defendant
General Accident Insurance Company of America on
Count II of the Petitioners’ Complaint. That judgment has
not been appealed.

Be
April 25, 1994. App. A56 and AS9, respectively.

Respondent appealed from the judgment of the
District Court and, on February 21, 1995, the Court of
Appeals for the First Circuit filed an opinion reversing the
judgment of the District Court. On March 21, 1995, the
First Circuit denied Petitioners’ Motion for Rehearing and
Suggestion for Rehearing En Banc. App. A61 and A65,
respectively.

This petition for a writ of certiorari has been filed
within 90 days of March 21, 1995. This Court has
jurisdiction to review the judgment of the First Circuit
pursuant to 28 U.S.C. § 1254(1) (1988).

STATUTES INVOLVED

There are no constitutional provisions, statutes,
ordinances, or regulations involved in this case. This case
does involve Federal Rule of Appellate Procedure 52(a)
which states:

(a) Effect. In all actions tried upon the
facts without a jury or with an advisory
jury, the court shall find the facts
specially and state separately its
conclusions of law thereon, and judgment
shall be entered pursuant to Rule 58; and
in granting or refusing interlocutory
injunctions the court shall similarly set
forth the findings of fact and conclusions
of law which constitute the grounds of its
action. Requests for findings are not

ii

necessary for purposes of review.
Findings of fact, whether based on oral or
documentary evidence, shall not be set
aside unless clearly erroneous, and due
regard shail be given to the opportunity of
the trial court to judge of the credibility
of the witnesses. The findings of a
master, to the extent that the court adopts
them, shall be considered as the findings
of the court. It will be sufficient if the
findings of fact and conclusions of law
are stated orally and recorded in open
court following the close of the evidence
or appear in an opinion or memorandum
of decision filed by the court. Findings of
fact and conclusions of law are
unnecessary on decisions of motions
under Rule i2 or 56 or any other motion
except as provided in subdivision (c) of
this rule.

Fed. R. Civ. P. 52(a).
STATEMENT OF THE CASE

THE PARTIES

Petitioner Brown Daltas and Associates is an
architectural firm incorporated under the laws of
Massachusetts with its principal place of business in
Fitchburg, Massachusetts. Benjamin Brown is a resident
of Massachusetts and Spero Daltas is a resident of Rome,
Italy. Brown Daltas and Associates Saudi Arabia Ltd. Is

-5-

a Saudi Arabia limited liability company. Respondent
Northbrook Excess and Surplus Insurance Company
(“Northbrook”) is an insurance company incorporated
under the laws of the State of Illinois with its principal
place of business in Northbrook, Illinois. It was formerly
named Northbrook Insurance Company. Jurisdiction is
grounded upon diversity of citizenship pursuant to 28
U.S.C. § 1332(a) (1988). The matter in controversy
exceeds the sum of $50,000, exclusive of interest and
costs. There is complete diversity between the parties.

BACKGROUND OF THE DISPUTE

For the period May 5, 1981 to May 5, 1982
Northbrook provided claims made insurance coverage to
BDA pursuant to an Architects and Engineers Professional
Liability Policy. To invoke coverage BDA was required
to notify Northbrook’s claims and underwriting manager,
Shand Morahan & Company, Inc. (“Shand”) if it should
"first become aware of any circumstance which may
subsequently give rise to a claim" during the policy
period. The notice provision of the policy required BDA
to notify Shand upon notice of “any claim or incident or
circumstance likely to give rise to a claim....”

In 1974, BDA contracted with the Saudi Arabian
Monetary Authority (“SAMA”) to design five branch
banks in five cities in Saudi Arabia. The design of the
banks was substantially uniform as was the heating
ventilating and air conditioning (“HVAC”) system. In
1978 Laing, Wimpey, Alireza (“LWA”) was awarded the
construction contract for the Riyadh branch. When it
looked at the design documents, it had questions and

-6-

concerns which were addressed and satisfied by BDA. In
the spring of 1981 when construction at the Riyadh branch
was substantially complete, LWA charged that it would
seek extra compensation for additional HVAC work. At
a series of meetings, it alleged that the fault was with
BDA’s design rather than its own construction methods.
LWA made a specific demand for compensation.

On November 25, 1981, BDA advised Shand of
the possibility of a claim, and Shand opened a claims file.
Thereafter, over the ensuing years, efforts were made to
solve the HVAC failures which successively plagued cach
of the banks and made them uninhabitable. BDA
consistently maintained that the HVAC failures were not
due to design error.

In 1987 SAMA stated its intention to make claims
against BDA for the poor design of the HVAC system of
the banks, which, ultimately were completely replaced.
SAMA’s claims were resolved by a “zero sum settlement”
in which BDA waived unpaid fees and expenses and
SAMA released all claims against BDA. Northbrook
authorized the settlement without admitting coverage.

BDA demanded Northbrook pay a portion of the
fees and expenses waived in the zero sum settlement.
Northbrook refused. BDA commenced this litigation,
seeking judgment requiring Northbrook to indemnify it for
a portion of fees and expenses waived.

THE TRIAL COURT OPINION

District Judge Morton A. Brody of the United

x, 2

States District Court for the District of Maine, sitting by
designation in the District of Massachusetts, tried this
matter without a jury in December 1993. In his Order and
Memorandum of Opinion of February 15, 1994, Judge
Brody found the defenses to coverage asserted by
Northbrook to be inadequate and held that BDA was
entitled to coverage under the Northbrook policy. An
amended judgment was entered in the amount of
$1,062,066.78.

The trial court did not discuss whether BDA “first
bec[a]me aware of any circumstances” which would lead
to the assertion of a claim against it in the operative
portion of the opinion. Rather, in setting forth the factual
background of the dispute, the court included a footnote
discussing the concerns expressed by LWA in 1979.
Footnote 3 stated:

Defendants maintain that LWA noticed
this problem to BDASA in 1979. They
cite a July 19, 1981 letter from LWA to
BDASA that states:

This company has no design
obligations. The error within
your specification was pointed
out in 1979 and at no time were
revised on/off coil conditions
placed with us. We would
confirm your designer’s own
words at the recent meetings
where he stated that a “mistake
was made.”

-8-

This letter reference alone is insufficient
to prove that BDA or BDASA had notice
in 1979.

App. A37, n.3.
THE FIRST CIRCUIT OPINION

Northbrook appealed, arguing that the trial court
made numerous errors in its factual findings. Northbrook
did not argue that the trial court erroneously shifted the
burden of proof with respect to the question of the
timeliness of the notice to it. See App. A22, n. 3.

In its opinion of February 21, 1995, the First
Circuit reversed the decision of the trial court. It held that
the trial court erroneously shifted the burden of proof on
the issue of when BDA first had notice of the potential
claim against it to Northbrook. App. A21-22. Instead of
remanding the case to the trial court for proceedings
consistent with its opinion, the First Circuit undertook to
review the record below itself. It concluded that BDA did
not meet its burden of proof with respect to the issue of
notice. App. A24. This petition seeks relief from the
decision of the First Circuit.

-9-

REASONS FOR GRANTING THE WRIT

In electing to conduct a de novo review of the
factual findings of the District Court the First Circuit
applied an inappropriate standard of review, thereby
grossly departing from the accepted and usual course of
judicial proceedings. Thus, certiorari is warranted under
the Court's power to supervise the conduct of the judiciary.
Sup. Ct. R. 10.1(a).? The proper standard for appellate
review of a District Court's findings of fact is set forth in
Federal Rule of Civil Procedure 52(a): "Findings of fact

? Certiorari is also appropriate in cases involving
principles the settlement of which are of importance to the
public. Layne and Bowler Corp, v. Western Well Works,
261 U.S. 387, 393 (1923). Applied in the context of
claims made policies of insurance, the disregard for the
district court's fact finding role has_ substantial
implications not only for insureds and insurers, but also
for the judicial system. In its decision, the First Circuit
creates a totally unworkable rule as to the circumstances
under which notice must be given under a claims made
policy. Rather than run the risk of losing coverage,
insureds will be required to report complaints or criticisms
of any nature no matter how trivial, how groundless, or
how unlikely to lead to a claim. Bad faith denials of
coverage are promoted, as insurers in an effort to deny
coverage will seek to pinpoint any knowledge before the
relevant policy period of any problem, no matter how
insignificant.

-10-

whether based on oral or documentary evidence, shall not
be set aside unless clearly erroneous, and due regard shall
be given to the opportunity of the trial court to judge the
credibility of the witnesses." Ignoring this well
established rule, the First Circuit manufactured a "legal
error" in order to go behind the trial court's findings and
conduct its own de novo review. By improperly taking on
the role of de novo reviewer, the First Circuit has usurped
the district court's fact finding role, in effect substituting
its judgment for the well-reasoned findings of the district
court acquired during four trial days assessing the
evidence and the credibility of the witnesses.

Had the First Circuit not applied the de novo
standard, but rather employed the appropriate clearly
erroneous standard, the District Court's determination of
when notice was given by BDA to Northbrook would not
have been disturbed on appeal. The District Court's
decision was well anchored in fact, and could not have
been reversed under the clearly erroneous test. The First
Circuit must consider the district court's findings to be
presumptively correct; a finding is only clearly erroneous
when "although there is evidence to support it, the
reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been
made." United States v. United States Gypsum Co., 333
U.S. 364 (1948). The result in this action simply. does not
rise to that level. When there are two permissible views of
the evidence, the fact finder’s choice between them cannot
be clearly erroneous. Andersen v, City of Bessemer City,
North Carolina, 470 U.S. 564 (1985). Unquestionably,
had the proper standard been applied, there would have
been no grounds for reversal of the District Court's

J.
decision.

As a basis for its decision to conduct a de novo
review, the First Circuit attributed to the District Court "a
mistaken impression of applicable legal principles," App.
A20, by speculating that the District Court had improperly
shifted the burden of proof regarding notice from BDA to
Northbrook. This is unsupported by the record; there was
no error by the District Court.

The First Circuit opinion relies on dicta from a
footnote in the district court's memorandum opinion in
which it commented that information in a letter regarding
knowledge of certain undescribed problems in the air
conditioning design was alone "insufficient to prove that
BDA or BDASA had notice in 1979." App. A37, n.3. The
First Circuit read this statement as an implicit shift of the
burden of proof from the insured to the insurer, and held
that the district court misapplied the law. Relying on this
alleged misapplication of law, the First Circuit held that it
was not bound by the traditional clearly erroneous
standard, but instead was entitled to give the facts de novo
review.

The District Court, however, did not misapply the
law. As the First Circuit acknowledged, both parties
conceded that the burden of proof rested with BDA. App.
A22,n.3. Further, BDA introduced substantial proof that
it did not have notice of any information which it believed
would lead to a claim. The First Circuit acknowledged
that the subjective standard, i.e., the belief of BDA,
controlled. The District Court's factual determination was
essentially a determination as to the insured's state of

-12-

mind, i.e. whether the insured was aware of circumstances
which it believed might give rise to a claim in the future.
The District Court's finding was that BDA was not so
aware. Looking to the evidence, the finding is amply
supported and should not have been disturbed.

An appellate court cannot substitute its
interpretation of the evidence for that of
the trial court simply because the
reviewing court might give the facts
another construction, resolve the
ambiguities differently, and find a more
sinister cast to actions which the District
Court apparently deemed innocent.

Inwood Laboratories v. Ives Laboratories, 456 U.S. 848,
857-58 (1982), (citing United States v. Real Estate Boards,
339 U.S. 484, 495 (1950)).?

3 The uncontroverted record evidence, which the trial
court credited, is that post-construction: (i) problems
arose in May, 1981 during the commissioning (acceptance
testing) of the air conditioning plant, See LWA letter of 19
July 1981; 6 April 1982 letter to Friend, Croager, Minutes
and (ii) at a 23 October 1981 London meeting, LWA
stated its intention to present to SAMA a claim for extra
costs.

The only evidence respecting criticism of BDA's
design prior to 1981 is found in the LWA letter of 19 July
1981 and Benjamin Brown's testimonial statement that he
was aware of such criticisms. Brown testified, and the

att.

The only basis for the First Circuit decision that
the District Court misapplied the law rests in its
interpretation of a single sentence contained in a footnote

LWA letter affirms, that during the pre-construction and
construction periods (late 1970's into 1981), Brown and
the Insureds did not credit the criticisms.

The undisputed record evidence is that the
criticism by LWA was in LWA's own language refuted by
the architect: "We have on file your telexed reply of 12
October 1978 which refutes our concern and effectively
advises us to proceed without concern." That was also the
view of Benjamin Brown, who testified as to LWA's
design criticism:

[LWA] had many questions about the

design from the beginning which we had

been able to satisfy until, I suppose it’s

the letter that was the -- that they sent to

the SAMA where they said we believe

.... that the corrections will cost
so many millions...and the cost implications made us
begin to worry about it that it may be a serious problem.

But in 1981 the landscape had changed. A
contractor, who had completed construction, stated in
certain terms that it was submitting to the Owner a priced
claim for additional and corrective modifications caused
by, he claimed, design error of the insured.

-14-
in the fact portion of its Memorandum Opinion.‘

The First Circuit's interpretation has no basis in
the District Court's actual allocation of the burden of
proof. Thus, because the District Court never improperly
shifted the burden of proof, the First Circuit had no
legitimate grounds for applying the de novo standard.
Accordingly, this Court should grant certiorari to exercise
its power of supervision and to correct the First Circuit's
gross departure from the usual and accepted course of
judicial proceedings.

CONCLUSION

For the reasons stated above, this Court should
grant its Writ of Certiorari to review the decision of the
United States Court of Appeals for the First Circuit in this
matter.

* Indeed, the entire basis for the First Circuit's decision
may have been a mere stylistic preference. Had the
District Court stated that the proof was insufficient to
outweigh the facts presented by BDA, the First Circuit's
analysis would have no basis whatsoever.

-15-
Respectfully submitted,

PETITIONERS,

BROWN DALTAS AND
ASSOCIATES, INC., BENJAMIN I.
BROAN, SPERO DALTAS, and
BROWN DALTAS AND
ASSOCIATES SAUDI ARABIA, LTD.,

By: William Shields*
DAY, BERRY & HOWARD
260 Franklin Street
Boston, MA 02110
(617) 345-4600

*Counsel of Record for Petitioners

APPENDIX

CONTENTS OF APPENDIX

Page

Appeal from The United States Court

of Appeals for the First Circuit ............. Al
Order and Memorandum of Opinion ......... A30
DRONE isk 0 NaS eR A54
CS ise Sk bas 4 Oak a Se A56
AME PORE BN ESTA on 6 00's 0 na A5S9
Order from United States Court

of Appeals for The First Circuit ............ A6él

CONGUE OE Un Cie os ao ks Sec Se wks A65

Al

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-1576
BROWN DALTAS & ASSOCIATES, INC., ET AL,
Plaintiffs, Appellees,
GENERAL ACCIDENT INSURANCE COMPANY
OF AMERICA, ET AL.,

Defendant, Appellee,

NORTHBROOK EXCESS & SURPLUS
INSURANCE CO.,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES
DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Morton A. Brody, * U.S. District Judge]

Before

* Of the District of Maine, sitting by designation.

A2

Selya, Circuit Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.

Erik Lund, with whom Sibley P. Reppert, Jon C.

Cowen, and Posternak, Blankstein & Lund were on brief
for appellant.

William Shields, with whom Day, Berry &
Howard was on brief for plaintiffs-appellees.

February 21, 1995

BOWNES, Senior Circuit Judge. This appeal

arises out of an insurance coverage dispute between
defendant-appellant Northbrook Excess & Surplus
Insurance Company ("Northbrook"), and _plaintiffs-
appellees Brown Daltas & Associates, Inc. ("BDA"),
Brown Daltas & Associates Saudi Arabia Ltd.
("BDASA"), Benjamin I. Brown, and Spero Daltas
(collectively, "the insureds").' At issue is whether.
Northbrook must indemnify the insureds under the
discovery clause of a $1,000,000 claims-made architects
and engineers professional liability policy ("the Policy")
covering the period May 5, 1981 through June 4, 1982.

' Individual plaintiffs Brown and Daltas are architects
and the founders of BDA. They also hold significant
stakes in BDASA. Both were named insureds on the
insurance policy at the heart of this litigation.

A3

The Saudi Arabian Monetary Authority ("SAMA") made
an underlying claim of architectural design negligence in
April 1987; the insureds and the SAMA settled it in
February 1990. After a jury-waived trail, the district court
resolved the coverage dispute in favor of the insureds,
entering judgment for them in the amount of $788,637.57.

Although Northbrook asserts that this ruling was
infected by several deficient factual determinations, its
flagship appellate argument is that the court clearly erred
in finding that the insureds first became aware during the
policy period of the circumstances subsequently giving
rise to the SAMA's claim. Such awareness on the part of
the insureds is one of the conditions precedent to coverage
under the Policy's discovery clause -- the only means by
which coverage under the Policy was possible. After
carefully reviewing the record and considering the parties’
arguments on this question, we agree with Northbrook.
Accordingly, we reverse.

L

The background of this litigation has been fully
set forth in a published opinion by the district court. See
Brown Daltas & Assocs. Inc. v. General Acc. Ins. Co, of
Am., 844 F. Supp. 58 (D. Mass. 1994). The facts will be
reiterated here only to the extent necessary to explain and
resolve the dispositive issue -- i.e., whether the insureds
first became aware during the policy period of the
circumstances subsequently giving rise to the SAMA's
claim of design negligence.

A. ___ General Background

A4

In 1974, BDA, which -was then operating as a
partnership, entered into a contract with the SAMA to
design branch bank buildings in the Saudi cities of Riyadh,
Jedda, Damman, Mecca, and Medinah. BDA completed
the designs during the period 1974-1978. In 1978, BDA
(which was by then incorporated) and Xenel, a Saudi
company, formed BDASA as a joint venture. That same
year, BDASA entered into a contract with the SAMA to
administer and supervise the construction of the banks. In
1983, BDASA and the SAMA entered into a second
supervision contract.

From 1979 through 1986, BDASA was insured for
liability arising out of its supervision of the banks’
construction under consulting engineer's indemnity
policies issued by underwriters at Lloyd's of London.
From 1978 through 1985, BDA and, at least in some cases,
BDASA were insured for liability arising out of their
design of the banks under professional liability policies
issued consecutively by Lloyd's underwriters, Northbrook,
the Evanston Insurance Company ("Evanston"), and the
General Accident Insurance Company of America
("General Accident"). As we have stated, at issue here is
a $1,000,000 Northbrook professional liability claims-
made contract issued for the period May 5, 1981 through
June 4, 1982. The underwriter of the Policy was Shand,
Morahan & Company ("Shand").

Because of its "claims-made" nature, the Policy
generally provided coverage only for claims first made
against the insureds during the coverage period. An
exception to this general rule was, however, set forth in
the Policy's discovery clause. In relevant part, this clause

AS
provided:
If during the policy period the Insured

circumstances which may subsequently
give rise to a claim against the Insured by
reasons [sic] of any act, error or omission
for which coverage would be afforded
hereunder and if the Insured shall during
the policy period herein give written
notice to [Northbrook] of such
circumstances, any claim which may
subsequently be made against the Insured
arising out of such act, error or omission
shall be deemed for the purpose of this
Policy to have been made during the
policy period stated in the declarations.

(Emphasis supplied.)

Because the underlying claim here was not made
by the SAMA until April 1987 -- nearly five years after
the expiration of the Policy -- coverage for the insureds
depended upon operation of the discovery clause. And the
discovery clause establishes as a condition precedent to its
operation that the insureds first become aware during the
policy period of the circumstances subsequently giving
rise to any claim for which they might seek coverage.

Construction of the Riyadh and Damman branch
banks began in late 1978 or early 1979. Construction at
the other three sites began later. At some point between
1978 and 1981 (the evidence relating to exactly when will

A6é

be set forth below), Laing Wimpey Alireza Ltd. ("LWA"),
the contractor at the Riyadh, Damman, and Jedda sites,
told BDA and BDASA that the heating, ventilation, and
air conditioning ("HVAC") system was defectively
designed. On November 25, 1981, following meetings
with LWA in October 1981, BDA wrote to Shand and
advised it of the possibility of a claim "in connection with
the mechanical services in the building in Riyadh now
nearing completion." In the first part of 1982, Shand
wrote BDA and requested additional information. By
letter dated June 30, 1982, BDA responded that (1) the
potential claim was at the Riyadh branch; (2) the potential
claimant was LWA; (3) "the areas of conflict surround the
mechanical services, more particularly the heating,
ventilation and air conditioning (HVAC) system"; and (4)
"ijt is important to understand that the Riyadh and
Damma[n] Branches are identical designs."

Meanwhile, on April 6, 1982, BDASA also gave
written notice to its Lloyd's underwriters of the possibility
of a claim involving the air conditioning system. The
April 6, 1982 notice did not specify the Riyadh plant as
the site of the potential claim; nor did it explain how the
claim might be covered under BDASA's supervision
policy. It did, however, state that LWA was the potential
claimant. Moreover, it listed "October 1981" as "the date
on which [BDASA] first became aware of circumstances
which may give rise to a claim being made against [it]."
This date corresponds to the following assertions, which
were included in a _ statement attached to the
circumstances/claim notification form:

l. [BDASA] was informed by

A7

[LWA] in May 1981 that there
were certain problems in
commissioning the
airconditioning [sic] plant.

A BDASA convened a meeting in
Riyadh in June 1981 together
with [LWA] and the
representative of York
International the equipment
supplier, with the design
mechanical engineer and the
Rome project manager also
present.

3. The next meeting was on 21
October 1981, when [LWA] said
that he [sic] was not responsible,
but had only to install the
specified equipment. We replied
that it was their responsibility to
install a workable system. At
this point we became aware that
there was a possibility of a claim
being made.

Although the controversy involving the banks’
HVAC systems never completely subsided, no claim was
made against BDA or BDASA for the next several years.
In the interim, several attempts were made to commission
the air conditioning systems at several of the banks. For
a variety of reasons, none enjoyed sustained success.
During this same period, BDA and BDASA periodically

A8

submitted to the SAMA requests for the payment of fees
(monthly payments on design work) and claims (extra
costs that arose during design) owed for their work. The
SAMA was not very responsive to these requests.

Finally, in November 1986, BDA and BDASA
completed their design and supervision work, and
requested financial resolution meetings with the SAMA.
Contemporaneously, BDA issued a comprehensive report
documenting SR 13,192,337? in unpaid fees and claims.
On April 7, 1987, the SAMA responded to this report with
a letter stating its intention to make claims of its own
against BDA and BDASA in the amounts of SR 9,000,000
for negligence in the design of the electrical systems; SR
4,139,249 for negligence in the design of the HVAC
systems; and over SR 5,000,000 for other errors (including
supervision errors). The letter also stated that the SAMA
was willing "to renounce all claims against BDA in return
for a zero settlement to your final account." Although it
took several years to consummate, the parties eventually
entered into a zero-sum settlement in February 1990. The
settlement was reached without either party initiating an

adversarial proceeding.
B. _ Proceedings Below

Subsequent to their zero-sum settlement with the
SAMA, the insureds sought indemnification from several
of their insurers. Because the insureds could not obtain

2 The applicable exchange rate between the Saudi
Riyal and the dollar is SR 3.75 per $1.00.

A9

the relevant insurance at the time the SAMA's claim
actually was made, coverage depended upon operation of
discovery clauses in various of the insurance contracts.
The insureds were able to obtain a $600,000 recovery
from Lloyd's for that portion of the settlement attributable
to supervision claims; the design insurers, however,
contested coverage. The insureds therefore initiated the
instant action.

In their complaint, the insureds alleged that
Northbrook's failure to provide indemnification (up to the
Policy's limit) for that portion of the settlement
attributable to negligence in the design of the HVAC
systems constituted a breach of contract and a violation of
Massachusetts! unfair trade practices statute. See Mass.
Gen. L. ch. 93A, §§ 2 and 11 (1993). The same
allegations were made with regard to General Accident's
failure to provide indemnification for that portion of the
settlement attributable to negligence in the design of the
banks’ electrical systems. After a four-day bench trial, the
court ruled in favor of the insurers on the Ch. 93A claims,
and also ruled that the insureds’ breach of contract claim
against General Accident failed because of inadequate

notice. See Brown Daltas, 844 F. Supp. at 66-68. None of
these rulings is challenged on appeal.

The court also ruled that Northbrook had breached
the Policy in failing to indemnify the insureds under the
Policy for their settlement of the SAMA's claim of
negligence in the design of the HVAC systems. Id, at 67.
In so doing, the court found BDA's November 25, 1981
letter to Shand sufficient to invoke coverage under the
Policy's discovery clause. See id. Of critical importance,

Al0

the court rejected Northbrook's assertion that the insureds
had notice prior to the policy period of the circumstances
subsequently giving rise to the SAMA's HVAC claim. Id.
at 62 n.3. The court's finding on this issue reads:

Defendants maintain that LWA noticed
[the HVAC] problem to BDASA in 1979.
They cite a July 19, 1981 letter from
LWA to BDASA that states:

This company has no
design obligations. The
error within your
specification was
pointed out in 1979 and
at no time were revised
on/off coil conditions
placed with us. We
would confirm your
designers [sic] own
words at the recent

meetings where he stated
that a "mistake was
made."

This letter reference alone is insufficient
to prove that BDA or BDASA had notice
in 1979.

All

Although the portion of the July 19, 1981 letter
from LWA to BDASA quoted by the district court is
certainly relevant to the notice question, it is not the only
part of the letter that pertains to the issue. Moreover, there
is significant other evidence -- including the April 6, 1982
notice of circumstances from BDASA to Lloyd's, see
supra at 6-7 -- relating to notice in this record. Because
this is the basis upon which we resolve the dispute, we
believe it important to relate the evidence in some detail.

1._The July 19, 1981 Letter

In addition to the passage cited by the district
court, the lengthy July 19, 1981 letter from LWA (the
contractor) to BDASA contains several other passages
which at least suggest that the conflict over alleged
negligence in the design of the HVAC systems predated
May 5, 1981 -- the effective date of the Policy. The letter
is a point-by-point response to nine assertions made to
LWA by BDASA in a July 6, 1981 letter that is not in
evidence; understanding it therefore is not particularly
easy.

In paragraph one, LWA details a series of undated
"recent meetings" between LWA and BDASA. The
paragraph then states: "This recent meeting [sic], we were
advised, was to finally agree [sic] the solutions to your
long outstanding problems." Similarly, paragraph six
asserts:

Please advise on what basis your [sixth
point in the July 6, 1981 letter] to be
correct. Condensing Unit No. 5 was

Al2

clearly specified by yourselves. The
machine on site was approved by
yourselves and we confirm that the
compressor is larger than standard for this
package.

The possibilities of the problems actually
experienced on site were raised by us in
late 1978. We have on file your telexed
reply dated 12 October 1978 which
refutes our concern and effectively
advises us to proceed without concern.

We categorically refute any allegation of
responsibility in this matter.

Finally, after responding to the ninth and final
point in the July 6, 1981 letter, LWA states:

We fail to see how this company having
brought to your attention these problems
as early as 1978 and continually
throughout the contract and having
demonstrated the problems and offered
workable solutions, can be of more help.

Your apparent wish to ignore, reject and
refute our assistance continually is the
major factor with regard to the total
situation and all consequent delays.

We must insist that the financial
consequences and liabilities are resolved

Al3

prior to the placement of any orders.

; Testimonial Evid

In addition to the July 19, 1981 letter, evidence
pertaining to plaintiffs’ notice of circumstances came in
through the testimony of Benjamin I. Brown, a principal
of BDA and plaintiffs' most significant witness. Mr.
Brown touched on the notice issue three times during the
course of his extensive testimony.

Mr. Brown first gave testimony relating to this
issue on direct examination:

Q (By [Plaintiffs' Counsel]): Mr.
Brown, in the insurance policies we
looked at there was notification to
[Shand] of a potential claim or incident
under the name of [LWA], can you tell us
what that was all about[?]

A During the first year-and-a-half,
two years, the contractor for the Riyadh
branch named [LWA] brought it to the
attention of the client and ourselves that
their view of the HVAC system indicated
that it would not function satisfactorily.

And they said that on account of
this, they could foresee that there would
be additional costs to make revisions and
corrections in the equipment before they
could guarantee that the equipment would
function properly.

Al4

In Saudi Arabia the contractors
are rather like in Europe are responsible
[sic] for producing a workable project,
consultants don't have quite as much
leeway there as they do here. So they
would hold the contractors [sic] feet to
the fire before they would ours.

Q. Now, Mr. Brown, are you sure that they
were '78 or '71 [sic]?

[DEFENDANTS' COUNSEL]:
Objection.

THE WITNESS: I am not -- I am sure it
was -- it wasn't.

THE COURT: Just a moment, please.
THE WITNESS: I don't think I said --

THE COURT: Just a moment. Mr.
Brown, when you hear an objection if you
just sort of pause and give me a chance to
address it.

[DEFENDANTS' COUNSEL]: I think
it's a key factual issue here, and he is
trying to lead the witness in my opinion.

THE COURT: Well, what I am
interested in is what is indeed the fact. I
will overrule the objection.

Al5

THE WITNESS: I am not sure I said '78
when LWA discovered it, it was several
months, maybe a year-and-a-half or two
after construction started in '78 when we
received the first very serious criticism of
the HVAC system from a reputable
contractor who [sic] we had to investigate
very seriously.

The question of notice was extensively revisited
during Mr. Brown's cross-examination:

Q. (By [Defendants' Counsel]): I would
like to move to the HVAC claim.

The notification as to that claim
I believe you testified was in 1981, to
Northbrook, is that right?

A. As I recall, yes.
Q. Now, the problem that gave

rise to the notification was low suction
pressure; is that correct?

A. Your memory is better than mine.
THE COURT: Are we talking now about

the claim with regard to Riyadh or the
claim in general?

[DEFENDANTS' COUNSEL]: Yes [sic].
This is the notification that was given in
1981 regarding the HVAC in Riyadh. I

Al6

am going to show you [the July 19, 1981
letter from LWA to BDASA].... It
appears to be a letter from [LWA] to
[BDASA].

A. I am sure the letter is authentic.
I don't recall it specifically, but it looks --

Q. [LWA] was the contractor from
whom the notification of potential claim
came, right?

A. Yes, and Mr. Wilson was the
project manager on the site at that time as
the signer of the letter.

After taking Mr. Brown through several of the
specific problems alluded to in the July 19, 1981 letter,
defendants’ counsel continued his cross-examination:

Q. Now, isn't it correct to say that
[LWA] criticized the design back as early
as 1978?

A. Certainly before this letter in '81.

Q. First reference to the timing of
their criticisms of the design is on the
first page, as I see it, the last, the second
paragraph, the paragraph indicating No. 2
on the first page where it states, "The
company, this company has no design
obligations. The error within your

Al7

specification" --
A. Sorry, I've lost you.

Q. If you look at the first page of the
document, sir, down at the bottom.

A. Okay.

Q. The second numbered paragraph,
it states, "This company has no design
obligations. The error within your
specification was pointed out in 1979,
and at no time were revised on/off coil
conditions placed with us."

Do you see that?

A. Yes, I do.

Q. And isn't it correct to say that
[LWA] did notify the company about its
objections about the design back in 1979?

A. That's correct.

Q. And the -- on Page 3 under
numbered Paragraph 6, there is a
paragraph that says, "The possibilities of
the problems actually experienced on site
were raised by us in late 1978. We have
on file your telex reply dated 12 October
1978 which refutes our concern, and
effectively advises us to proceed without

Al8

concern.”
Do you see that?
A. Yes.

Q. And do you have knowledge
regarding that telex?

A. I don't recall that incident.

Q. Do you have any reason to
believe that there was no such telex --

A. No.

Q. -- Back in 1978 from your
company?

A. I am sure if he said it in writing it
occurred.

Q. So it's fair to say that the
problems asserted by LWA, regarding the
air conditioning were asserted back in '78
to '79 time period?

A. Yes.

The notice question arose again on redirect
examination:

Q. (By _[plaintiffs' | counsel]):
[Defendants’ counsel] raised with you

Al9

Exhibit 105, Mr. Brown. This was a
letter from [LWA], dated 19 July 1981.
Do you recall talking with him about
that?

A. Yes, I do.

Q. All right. In October, in October
1981, do you recall attending a meeting
with [LWA] or anybody on your staff?

A. I am sure I did not. I couldn't
swear to the exact dates of meetings, but
[LWA] had. had many questions about
the design from the beginning which we
had been able to satisfy until, I suppose
it's the letter that was the -- that they sent
to the SAMA where they said we believe,
we, [LWA], believed that it, that the
corrections to the system will cost so
many millions of rials [sic] for this that
and the other, and the cost implications
made us begin to worry about it that it
may be a serious problem if they are --

Q. Did you notify your insurance
carrier when that happened?

A. I'm sure that's the point at which
we asked on our notification.

IL.

A20

In reviewing a factual finding of a trial court made
in connection with a bench trial, we almost invariably
apply the clear-error standard of review. See Fed. R. Civ.
P. 52(a). Thus, we must give the finding effect unless we
are "left with the definite and firm conviction that a
mistake has been committed." See Anderson v. City of
Bessemer City, 470 U.S. 564, 573 (1985) (quoting United
States v. United States Gypsum Co., 333 U.S. 364, 395
(1948)); accord Dedham Water Co, v. Cumberland Farms
Dairy, Inc., 972 F.2d 453, 457 (ist Cir. 1992). "Where
there are two permissible views of the evidence, the
factfinder’s choice between them cannot be clearly
erroneous." Anderson, 470 U.S. at 573.

If, however, an appellant can demonstrate that the
trial court based its finding upon a mistaken impression of
applicable legal principles, the reviewing court is not
bound by the clearly erroneous standard. Inwood Labs. v.
Ives Labs., 456 U.S. 844, 855 n.15 (1982); accord

Cumpiano v. Banco Santander Puerto Rico, 902 F. 2d 148,
153 (1st Cir. 1990) ("It is settled that one way around the

rigors of the ‘clearly erroneous’ rule is to show that the
trial court mistook the applicable law." (Citations
omitted.)). "[T]o the extent that findings of fact can be
shown to have been predicated upon, or induced by, errors
of law, they will be accorded diminished respect on

appeal." Dedham Water, 972 F.2d at 457.

The parties have treated Massachusetts law as
controlling in this dispute. Because there is at least a
"reasonable relation" between this litigation and the forum
whose law has been selected (plaintiffs BDA and Mr.
Brown were citizens of Massachusetts at all relevant

A21

times), we shall forego an independent choice-of-law
inquiry and look to Massachusetts law for our rules of
decision. See Bird v. Centennial Ins. Co., 11 F.3d 228,
231 n.5 (Ist Cir. 1993). Thus, in deciding whether legal
error infected the crucial finding, we will be guided by
Massachusetts law.

Ii.

Here, we think it clear that the trial court's finding
regarding when the insureds first had notice of
circumstances subsequently giving rise to the SAMA's
claim was predicated upon an error of law. Northbrook
makes much of the fact that, in making its finding, the
court seems to have relied upon only the paragraph of the
July 19, 1981 letter discussing the defectively designed
on/off coil conditions. See Brown Daltas, 844 F. Supp. at
62 n.3 (setting forth the paragraph at issue and finding that
"[t}his letter reference alone is insufficient to prove that
BDA or BDASA had notice in 1979") (emphasis added).
While it is unfortunate that the court failed to mention the
balance of the evidence on this issue, we think that another
serious error lurks in the challenged finding: an erroneous
shift to Northbrook of the burden of proof. And although
the parties have largely skirted burden questions
throughout this litigation, we think that proper resolution
of the burden of proof question effectively disposes of this

appeal.’

* Although Northbrook has not specifically argued that
an erroneous shift in the burden of proof was implicit in
the court's notice of circumstances finding, it can in no

A22

Although we cannot find a Massachusetts case
which discusses the burden of proof in a discovery clause
issue like the one here, a general principle of
Massachusetts insurance law settles the question:

"{A] plaintiff seeking to recover for
breach of a duty or obligation created by
a general clause of a contract, which also
contains an exception descriptively
limiting such duty or obligation, must
allege and prove that his cause of action

way be seen as having conceded that the burden was its
own. In its appellate briefs and throughout the course of
this case, Northbrook has treated the burden of proving
coverage as being properly placed upon the insureds. The
insureds never disputed this position. Moreover, at oral
argument, counsel for the insureds acknowledged that the
insureds bore the burden of proof on another issue -- the
question whether the November 25, 1981 letter from BDA
to Shand constituted adequate notice under the Policy's
discovery clause -- analytically analogous to the instant
question. Thus, we discern no procedural bar to our
analyzing the correctness of the trial court's finding
through the lens of the burden of proof. Contrast Dedham
Water, 972 F.2d at 458-59 (party's acquiescence in the
application of a rule of law in the trial court precludes it

from subsequently challenging the rule); Templeman v.

Chris Craft Corp., 770 F. 2d 245, 247-48 (1st Cir.) (party's |
failure to object below to magistrate judge's choice-of-law

ruling barred appeals court challenge to the ruling), cert.
denied, 474 U.S. 1021 (1985).

A23

is within the contract and outside the
exception; but... where the exception is
in another separate and distinct clause of
the contract defining the duty or
obligation, then the burden is upon the
party relying upon the exception."

Ratner v. Canadian Universal Ins. Co., 269 N.E.2d 227,

230 (Mass. 1971) (quoting Murray v. Continental Ins. Co.,
48 N.E.2d 145, 147 (Mass. 1943)). In this case, the

coverage-limiting provision upon which Northbrook relies
is not set forth as a distinct exclusion in the Policy; it is the
first sentence of the coverage-providing clause (i.e., the
discovery clause) upon which the insureds’ claims are
anchored. It therefore was incumbent upon the insureds to
prove the non-applicability of the coverage-limiting
provision found in the first sentence of the discovery
clause. Put in concrete terms, it was the insureds’ burden
to prove that they first became aware during the policy
period of the circumstances subsequently giving rise to the
SAMA's claim that the HVAC systems were negligently
designed.

As we have stated, the trial court found that the
quoted portion of the July 19, 1981 letter was "insufficient
to prove that BDA or BDASA had notice in 1979." See
Brown Daltas, 844 F. Supp. at 63 n.3. Implicit in this
statement was an erroneous view that Northbrook bore the
burden of proving prior notice. Thus, the deference
usually due a factual finding under Fed. R. Civ. P. 52(a)
does not bind us in this instance. See Inwood Labs., 456
U.S. at 855 n.15.

A24

Mindful of our limited role as an appellate court,
we ordinarily would remand this matter to the district
court for a determination of the notice question under the
proper legal standard. On this record, however, such a
remand would be an empty exercise; no rational factfinder
could find that the insureds proved that they first had
notice during the policy period of the circumstances
subsequently giving rise to the SAMA's claim.
Accordingly, we will resolve the issue ourselves. See
Williams v. Poulos, 11 F.3d 271, 280-81 (1st Cir. 1993)
(discussing situations where an appellate court may
decline to remand for resolution of factual and mixed
fact/law issues) (collecting cases).

As an initial matter, there is a dispute as to the
standpoint we should assume in deciding the notice of
circumstances question. Citing cases that apply Illinois
law, Northbrook asserts that the question should be viewed
from an objective perspective, and that we need decide
whether, prior to the policy period, the insureds knew of
circumstances that should have put them on notice of the
possibility of a claim. The insureds, however, treat the
issue as a subjective one, essentially arguing that the
question simply is whether, prior to the policy period, they
were "aware of circumstances which [they] believed might
give rise to a claim in the future." We need not resolve the
dispute in this case.

Even if we assume arguendo that the question of
notice should be viewed from a subjective perspective, the
insureds still must show that they first became aware
during the policy period of the circumstances that did lead
them to notify Northbrook of the possibility of a claim. In

A25

other words, the relevant point in time under the terms of
the Policy is not the point at which the insureds first came
to believe that a claim was possible; it is the point at which
they first became aware of the circumstances which in fact
led them to file their notice of potential claim. The
distinction is critical in this case, because plaintiffs have
not established that they first became aware during the
policy period of the circumstances which led to their
November 25, 1981 letter to Northbrook.

Northbrook takes the position that LWA's
criticism of the design of the HVAC systems constitutes
the notice-triggering "circumstance" under the Policy.
The insureds, however, have not made entirely clear their
stance on this crucial question. On redirect examination,
Mr. Brown testified that the notice-triggering
circumstance was a letter that the contractor (LWA) sent
to the SAMA which allegedly stated "we believe, we,
[LWA], believed that it, that the corrections to the
[HVAC] system will cost so many millions of rials [sic]
for this that and the other." See supra at 16. This, of
course, conflicts with the April 6, 1982 notice from
BDASA to Lloyd's, which states that the notice-triggering
circumstances occurred at an October 21, 1981 meeting in
Riyadh. See supra at 6-7. It also conflicts with the
insureds’ brief, which contends that the notice-triggering
circumstances were "the meetings in the summer of 1981
[between representatives of BDA, BDASA, LWA, and the
HVAC equipment supplier], followed by the October
meeting in London and LWA's claim to SAMA."
Regardless, close scrutiny of the record reveals that none
of the insureds’ theories vindicates their baseline position.

A26

Mr. Brown's assertion that a letter from LWA to
the SAMA was the notice-triggering circumstance simply
cannot support a finding that the insureds first became
aware of the notice-triggering circumstances during the
policy period. The letter to which Mr. Brown alludes is
not part of the record, and we have no evidence that it was
sent during the policy period. Even more fundamentally,
we have no elaboration from the insureds as to how this
letter altered the then-existing landscape in such a way
that, after it was sent, the insureds first believed that a
claim against them was possible. One might infer from
Mr. Brown's testimony that this letter was the first time
LWA attached a cost to the design errors, and that this was
the notice-triggering circumstance; the insureds, however,
have made absolutely no argument to this effect.

The insureds’ contention that the meetings in the
summer and fall of 1981 constitute notice-triggering
circumstances is similarly flawed. The insureds do not say
much about what occurred at those meetings, let alone
explain how the communications at those meetings were
so qualitatively different from prior communications
between themselves and LWA that it led them, for the first
time, to believe that a claim was possible. And the scant
record evidence of what occurred at those meetings
reveals nothing beyond LWA informing BDA and
BDASA of its view that the HVAC system was, at least in
some respects, incorrectly designed. Essentially
unrebutted, then, is Northbrook's argument that LWA's
assertion of this view was the notice-triggering

A27

circumstance.‘ Therefore, the question really boils down
to whether a reasonable factfinder could find that the
insureds proved by a preponderance of the evidence that
LWA's view was first expressed during the policy period.
No such finding is possible on the records before us.

We need not reiterate all the evidence regarding
when LWA first criticized (or seriously criticized, see
Supra note 4) the design of the HVAC systems. It is
sufficient to state that there is significant record evidence
indicating that such criticism predated the policy period.
This evidence includes the July 19, 1981. letter’s
indications that problems with the design of the on/off
coils had been pointed out in 1979, and that problems with
the design of Condensing Unit No. 5 had been pointed in
1978. It also includes: (1) Mr. Brown's direct testimony
that LWA had informed the insureds' of its view that the
HVAC system "would not function satisfactorily" within
a year-and-a-half or two years of construction beginning

* In stating in their brief that "[g]eneralized criticisms
of the design by a contractor, far from being unusual in
any construction setting, are simply not events which
require a designer to put his carrier on notice," the
insureds may be implying that no sufficiently serious or
specific design criticisms were lodged against them by
LWA prior to the policy period. Without. further
explication
(including a statement as to where and when the criticisms
became sufficiently serious and specific) and supporting
record evidence, however, such an implication is
inadequate.

A28

(in late 1978 or early 1979); (2) Mr. Brown's direct
testimony that LWA had seriously criticized the design of
the HVAC systems within two years of construction
beginning; and (3) Mr. Brown's concession on cross-
examination that the problems asserted by LWA regarding
the air conditioning had been asserted back in 1978-79.
To the extent that the insureds wish us to construe this
testimony as involving careless guesswork on the part of
Mr. Brown, we note that no attempt at clarification was
made on redirect examination.

On the other hand, there is a total absence of
evidence tending to indicate that LWA's criticism of the
HVAC system's design first occurred during the policy
period. Because such criticism was apparently the
"circumstance" that prompted the insureds to notify
Northbrook of the possibility of a claim of design
negligence, and because the insureds bore the burden of
proving that they first became aware during the policy
period of the circumstances subsequently giving rise to the
SAMA's claim, this ends the matter. Judgment should
have been entered in favor of Northbrook.

IV.

For the reasons stated above, the district court's
finding in favor of the insureds on the question of notice
is premised upon an incorrect view of the burden of proof
and is not sustainable. Moreover, while we agree
completely that generalized criticisms of shortcomings in
a party's product or performance will ordinarily be
insufficient, without more, to serve as a notice-triggering
circumstance for purposes of claims-made coverage, this

A29

is not the garden-variety case. Here, the insureds’ lack of
proof is a determining factor. In short, our reading of the
record in the light of the proper burden of proof leads us
to conclude that judgment should properly enter in favor
of Northbrook. The district court's contrary judgment is
therefore reversed.

Reversed. Costs to appellant.

A30

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

BROWN DALTAS AND ASSOCIATE )
INC., BENJAMIN I. BROWN, SPERO )
DALTAS, AND BROWN DALTAS AND _)
ASSOCIATES SAUDI ARABIA LTD., )
)
)

Plaintiffs,
v. ) Civ. No.
)91-10010-K
GENERAL ACCIDENT INSURANCE )
COMPANY OF AMERICA, AND )
NORTHBROOK EXCESS AND SURPLUS )
INSURANCE COMPANY, )
Defendants. )

ORDER AND MEMORANDUM OF OPINION

BRODY, District Judge

I. FACTS

Brown Daltas and Associates ("BDA"), an
architectural firm, entered into a contract with the Saudi
Arabian Monetary Authority ("SAMA") in April 1974.'

' BDA operated as a partnership when it signed the
design contract with the SAMA. In 1976, the parties of

A31

Under this contract, BDA planned and designed branch
banks for the SAMA in Jedda, Riyadh, Damman, Mecca,
and Medina over a period of approximately four years.

In 1978, BDA entered into a joint venture with
Xenel, a Saudi Arabian Company.” In the same year, the
SAMA entered a supervision contract with Brown Daltas
and Associates Saudi Arabia Ltd. ("BDASA"). Under the
supervision contract, BDASA administered and supervised
the construction contracts for the branch banks. BDASA
and the SAMA signed another supervision contract in
1983..

A. Insurance Coverage
1. Supervision coverage
BDASA carried consecutive, annual,
consulting engineer's indemnity policies issued by
underwriters at Lloyd's, London from January 1979
through February 1986.
2. Design coverage

BDA carried professional _ liability

BDA formed a Massachusetts corporation called Brown
Daltas and Associates, Inc. The Court refers to both the
partnership and the corporation as "BDA".

? Xenel owned 25% of the joint venture. The
remaining 75% was owned by Brown Daltas & Associates
Ltd., a British company.

A32

insurance issued by underwriters at Lloyd's London until
April 1979. The 1978-79 Lloyd's policy named both BDA
and BDASA as insureds. The policy listed the SAMA
branch banks as the largest percentage of BDA's total
work, but excluded the "Saudian [sic] Arabian Joint
Venture". It therefore covered BDA's SAMA design
work, and excluded the supervision work by the joint
venture, BDASA.

In May 1979, BDA transferred its professional
liability insurance to one of the Defendants, the
Northbrook Excess and Surplus Insurance Company
("Northbrook").

The underwriting manager for Northbrook was
Shand, Morahan & Company ("Shand"). The Northbrook
policies required BDA to report claims to Shand.

Northbrook issued BDA claims-made professional
liability policies. The policies defined claims-made
insurance as follows:

Coverage: Claims Made Provision.
The Company will pay on behalf of the
Insured all sums in excess of the
deductible amount stated in_ the
Declarations which the Insured shall
become legally obligated to pay as
damages by reason of any act, error or
omission committed or alleged to have
been committed by the Insured, or any
person or organization for whom the
Insured is legally liable provided always

A33
that:

(a) Claim is first made against the
Insured during the policy period by
reason of such act, error or omission, and

(b) The Insured’s legal liability arises out
of the performance of professional
services as described in the Declarations,
and

(c) The Insured has no knowledge of
such act, error or omission on the
effective date of this Policy.

The policies contained a discovery
clause:

Discovery Clause. If during the policy
period the Insured shall first become
aware of any circumstances which may
subsequently give rise to a claim against
the Insured by reasons of any act, error or
omission for which coverage would be
afforded hereunder and if the Insured
shall during the policy period herein give
written notice to the Company of such
circumstances, any claim which may
subsequently be made against the Insured
arising out of such act, error or omission
shall be deemed for the purpose of this
Policy to have been made during the
policy period stated in the declarations.

A34

All Northbrook policies covered both BDA and
BDASA. The first Northbrook policy provided that it was
a renewal of BDA's Lloyd's policy. The policy stated that
"{ajll work as construction managers is currently
separately insured with Lloyd's of London."

The second Northbrook policy was a renewal of
the first, and it ran from May 1980 to 1981. The policy
did not contain language indicating that construction
supervision was separately insured elsewhere. However,
question 20 of the application asked whether any one
contract or client represented more than 50% of annual
work. BDA's answer stated: "At present two projects
insured separately represents [sic] 83% of BDA's work."
One of these projects was BDASA's supervision work for
the SAMA.

The third Northbrook policy, number 63133836,
was a renewal of the second, and ran from May 1981 to
June 1982. Question 16 in the application for this policy
requested fees and construction values spanning from
1979 to 1982. BDA supplied the information, and noted
"* SAMA" next to some of the numbers listed under
"Gross billings/Fees." At the bottom of the chart a legend
read "* Separately insured elsewhere." The noted fees
were those that BDASA was billing SAMA. The policy
also contained a construction management endorsement
that excluded claims due to faulty supervision work.

Between June and August of 1982, BDA
consented to a change in insurance carrier, and the
Evanston Insurance Company provided coverage. Shand
continued as underwriting manager.

A35

Shand transferred BDA's professional liability
policy to the General Accident Insurance Company of
America ("General Accident") in August 1982. All of the
General Accident policies insured BDA and BDASA, and
included the same claims-made provision and discovery
clause as the Northbrook policies. See supra at 2-3.

The first General Accident policy ran through
September 1983. The policy contained a joint venture
endorsement that provided coverage under the policy for
BDA's involvement in joint ventures. Addition of the joint
venture endorsement necessitated an exclusion of
coverage for specific operation ("specific operation
exclusion"). The exclusion states:

there is not coverage hereunder for any
work performed by the Named Insured
for the following project or firm:
KKMC, Joint Venture, SAMA, Joint
Venture & MOH, Joint Venture.

The language before the colon was Shand boilerplate, and
Richard Shapleigh, BDA's comptroller, drafted the
language that excluded the three joint ventures. The Court
reads the specific operation exclusion to exclude BDASA's
supervision work for the SAMA. This conclusion is
buttressed by BDA's answer to question 16 in the policy
application. It listed fees and collection values from 1980
through 1983. An asterisk followed certain numbers on
the list. A legend at the bottom of the page read: "SAMA
Supr. insured elsewhere". This legend indicated that the
SAMA supervision work performed by BDASA was not
covered by this policy. The obvious inference is that the

A36

other work that BDA did for the SAMA was covered by
the policy.

The second General Accident policy, number
PE11970, ran from 1983-84 and was in all relevant
respects identical to the preceding policy.

The 1984-85 General Accident policy, number
PE15181, contained a page with the specific operation
exclusion, and a clarification of the exclusion that
Comptroller Shapleigh drafted. In addition to the
language quoted above, the exclusion states:

For clarification purposes, the Joint
Ventures named above are more
specifically identified as . . . Brown
Daltas and Associates Saudi Arabia LTD
[BDASA] . . . prime contractor for the
Saudi Arabian Monetary Agency
[SAMA] - Branch Bank Building
Program (Construction Supervision).

BDA's answer to question 16 in the application to
PE15181 stated more clearly that BDASA, or the SAMA
supervision work, was separately insured elsewhere. The
legend read: "SAMA ... Supervision-Insured Elsewhere."

Spurred to action by its apparent confusion about
coverage for the SAMA project, Shand finally requested
the Lloyd's policies covering BDSA's supervision work for
the SAMA in August 1985. In October 1985, Shand filed
a declaratory judgment action in this Court, seeking a
declaration that their policies did not cover any of BDA's

A37

work for the SAMA. This action was later dismissed
without prejudice. Soon after filing the declaratory
judgment action, General Accident terminated BDA's
insurance policy.

B. The Project

BDA completed the design phase of the branch
banks in 1978. Laing, Wimpey, Alireza ("LWA") bid on
the contracts at Riyadh, Damman, and Jeddah.
Construction of the branch banks in Riyadh and Damman
began in late 1978.

a HVAC system

LWA informed BDA of a potential problem with
mechanical services in the Riyadh branch in late 1981.> In
an October 1981 meeting, LWA charged that the heating,
ventilation and air conditioning ("HVAC") system was
defectively designed. BDA advised Shand of the

* Defendants maintain that LWA noticed this problem
to BDASA in 1979. They cite a July 19, 1981 letter from
LWA to BDASA that states:
This company has no design obligations. The
error within your specification was pointed out in
1979 and at no time were revised on/off coil
conditions placed with us. We would confirm
your designer's own words at the recent meetings
where he stated that a "mistake was made."

This letter reference alone is insufficient to prove that

BDA or BDASA had notice in 1979.

A38

possibility of a claim on November 25th, and Shand
opened a claims file. Shand requested additional
information about the claim that BDA provided in June
1982. BDA stated that the design of both the Riyadh and
the Damman branch was identical, and that BDA was
attempting to establish that the cause of the problem was
something other than faulty design. Shand sent BDA a
letter in December 1982 stating that BDA had provided no
further information, and that the claims file was being
placed on inactive status, but could be reopened if the
incident resulted in a claim. In August 1982, John
Rothkopf, a claims handler at Shand, stated that the
liability of underwriters "appears to be that of the insured,"
meaning that if a claim were made, he saw no grounds to
disclaim coverage.

The construction subcontractor redesigned and
installed a HVAC system different than the one that BDA
designed. This system failed. Eventually a specialist
engineer, Chris Burgess, advised LWA to rebuild the
Damman and Riyadh air conditioning systems to conform
them to the original BDA design. LWA made an effort to
conform the system to the original BDA design by 1985.

In June 1985, BDA sent Shand a letter enclosing
a telex from John Thornley, a BDA designer in Saudi
Arabia. Thornley reported the replacement of the HVAC
system "in almost the precise configuration of our initial
design." Thornley warned, however, that the system had
not been tested, and requested BDA to "keep the present
status." Thornley's hesitation to. report success with the
HVAC system stemmed from the appearance of an
electrical problem that had prevented complete testing of

A39
the HVAC system.

On June 21, 1986, BDA informed Shand that the
maintenance contractor at Damman blamed BDA for
problems with air conditioning compressors. BDA
included a telex from the SAMA stating that the HVAC
installer had reported that the HVAC systems were of
“incorrect design" and that "an inherent compressor failure
mode [was] present." BDA referred to the letter of
notification dated November 25, 1981.

2. Electrical System

In BDA's original design of the branch banks, all
electrical transformers were located in the banks. The
power companies in Riyadh, Damman, and Jedda later
refused to supply electricity in the voltage that the design
required. Therefore, after BDA completed the design, but
before contractors bid on the contract, BDA was forced to
modify the design and move the electrical transformers out
of the building. BDA connected the transformers to the
building with low voltage cables. The added expense of
these changes was reflected in a bulletin that BDA issued
less than two weeks before the bid date. These added
charges were called "unauthorized extras."4

BDA notified General Accident generally of the
problem of "unauthorized extras" in a supplement to the

* These charges were classified as "unauthorized"
because they had not been approved by the SAMA
through formal change orders.

A40

application for PE15181. The supplement is dated
September 19, 1984 and states:

SAMA has indicated that if any
unauthorized change orders resulting in
increase in price can be attributable to
design (and not supervision), these may
be backcharged to BDA Inc. This item
has already been filed with Carrier.

When LWA turned on the power to test the air
conditioning system, some of the underground cables
overheated. On June 26, 1985, the SAMA informed BDA
that the electrical cables supplying the Riyadh branch were
overloaded, needed to be replaced, and that BDA would be
responsible for the cost of new cables. BDA notified
Shand by letter of this possible claim the next day, but it
was missent. BDA subsequently notified Shand by
telephone and by letter dated July 18, 1985. BDA sent a
letter to Shand on August 8, 1985 notifying them that the
SAMA ordered electrical cable repairs.

In response to the electrical problem, BDA
retained an electrical consultant, who generated a technical
report. BDA sent this report to Shand and to the SAMA.
In August 1985, the SAMA told BDA to instruct LWA to
correct the cables, and told BDA that they would assess
costs later. BDA notified Shand of the corrections.

C. Settlement

In June 1984, BDA presented the SAMA with the
final technical and financial reports of the Jeddah and

A4l

Damman branches. The reports show both fees (monthly
payments on design work) and claims (extra costs that
arose during design) that the SAMA owed BDA.

In November 1986, BDA and BDASA completed
the design and supervision services, and requested
financial resolution meetings with the SAMA. BDA
issued a comprehensive and well documented report of
unpaid fees and claims. BDA and BDASA requested SR.
4,147,640 in outstanding fees and SR. 9,044,697 in
outstanding claims, for a total of SR. 13,192,337.°
Comptroller Shapleigh revised these figures in 1988 after
SAMA paid some fees, leaving a balance of SR. 3,969,640
in outstanding fees.

BDA's financial report prompted a letter from the
SAMA dated April 7, 1987 (the "9215 letter"). This letter
stated the SAMA's intention to make claims against BDA.
The SAMA proposed a SR. 9,000,000 claim for
negligence in the design of the electrical system; a SR.
4,139,249 claim for poor design of the HVAC system; and
a SR. 1,742,229 claim for errors on the "bills of quantity;"
for a total of SR. 14,881,478. The 9215 letter also served
as a vehicle for making a settlement offer. The final page
of the letter stated that the SAMA was prepared "to
renounce all claims against BDA in return for a zero
settlement of your final account." The Court is satisfied
that the 9215 letter reflects an accurate and fair allocation
between design and supervision claims.

$ The applicable exchange rate is SR. 3.75 per $1.

A42

After BDA received the 9215 letter, it notified its
lawyer, Joseph Hinkle, and Shand. Hinkle in turn spoke
with David Hatem, the lawyer retained by Shand. BDA
and the SAMA began settlement discussions. BDA
requested that the insurers participate, but the Defendants
declined. Richard Hougham, BDASA's quantities
surveyor, analyzed the SAMA's claims in preparation for
the negotiations with the hope of reaching a global
settlement with the SAMA and the insurers. His report
was completed by May 1987. Hinkle kept the insurers
informed of th. negotiations throughout the process.

A May 15, 1987 record of some of the settlement
negotiations indicated that the SAMA recommended an
"alternative insurance recovery and enquired how SAMA
could help." The SAMA required that BDA be covered by
insurance as a condition to granting the branch bank
design contract. It therefore follows that the settlement
negotiations included discussion of BDA's insurance
coverage.

BDA responded in writing to the 9215 letter in
March 1988, stating that they could not afford to
participate in a zero-sum settlement. The response led to
further negotiations, and a written record of the
negotiations prepared by the SAMA dated June 12, 1988
(the "13202 letter"). The 13202 letter referred to
additional claims that the SAMA planned to bring against
BDA, and explained that the SAMA would not pay BDA
anything because of the SAMA's outstanding claims
against BDA. The letter also reflected BDA's negotiating
position, that the deficiencies were not design faults.

:
;
-
‘e *
;

A43

The SAMA did not sue BDA, nor did the parties
enter a formal U.S.-style grievance procedure or
arbitration.

After receiving the 9215 and the 13202 letters,
BDA repeatedly requested that the SAMA define what
were referred to as additional claims. There is absolutely
no evidence in the record to support Defendants’ allegation
that BDA and the SAMA colluded so that BDA could get
extra money from its insurers.

On June 28, 1988, Shand's counsel, Hatem, wrote
BDA's counsel, Hinkle. The Hatem-Hinkle letter states:

I recommend that BDA fulfill its
obligation to mitigate any damages by
consummating a settlement with SAMA
pursuant to which SAMA agrees to
release and waive any of its claims
against BDA. I understand that this type
of settlement arrangement has been
available to BDA since at least as early as
July 1987 and presently remains available
to BDA. As I previously advised, BDA
has_the authority and consent _of
Northbrook, Evanston, General Accident
and Shand to consummate a settlement
along those lines without prejudice to any

coverage defenses that those companies
may have. (Emphasis added.)

This letter unambiguously provides BDA authority and
consent to settle its claims with the SAMA, subject only

A44

to the insurers’ coverage defenses. BDA relied on this
authority and consent while negotiating the final
settlement.

BDA and the SAMA entered a zero-sum
settlement agreement on February 16, 1990. BDA filed
this action against Defendants alleging breach of contract
and unfair trade practices on January 3, 1991.

Il. BREACH OF CONTRACT

Each Plaintiff is a named insured on claims-made
professional liability policies that Defendants issued. The
insurance contracts are valid and enforceable, and
Plaintiffs paid all premiums. Plaintiffs allege that
Northbrook and General Accident breached these
contracts when they refused BDA payment, causing
damage to BDA.

Plaintiffs have standing to sue Defendants under
the terms of the contract. Condition V in the policies
provides that BDA cannot sue the Insurers "to recover for
any loss under this Policy ... until the amount of such loss
shall have been fixed or rendered certain ... by agreement
between the parties with the written consent of the
Company." The Hatem-Hinkle letter provided the
necessary written consent to satisfy condition V.°

° Defendant argues that without written authority to
settle that Plaintiffs could not seek recovery, and cites

Augat. Inc. v. Liberty Mut, Ins, Co, 571 N.E.2d 357
(Mass. 1991). Augat is inapplicable. It holds that an

A45

Section V(a) in the Insuring Agreements section
of the policies states:

The Company shall defend any suit
against the Insured seeking damages to
which this Policy applies ... and it is
agreed that the Company may make such
investigation and settlement of any claim
or suit as they deem _ expedient.
(Emphasis added.)

The SAMA never sued BDA, and under the terms of the
policies, Defendants were only required to defend against
a "suit."’ Defendants did not have, and therefore could not
breach, a duty to defend Plaintiffs.*

insurer has no duty to indemnify when the insured enters
a settlement agreement without prior consent and the
policy in question has a voluntary payment exclusion.

7 An insured may argue that certain government-
agency action triggers a duty to defend because it is the

functiona! equivaient of a suit. Hazen Paper Co. v. U.S.

Fidelity and Guar, Co., 555 N.E.2d 576, 581 (Mass. 1990).
The 9215 letter from the SAMA was not, however, the

functional equivalent of a suit.

* If this were a straightforward duty to defend case,
case law is clear. An insurer who improperly declines to
defend a claim is not automatically liable for the amount

of any settlement reached. Polaroid Corp. v. The

A46

The Hatem-Hinkle letter does more than give
Plaintiffs standing to sue under the contract. It requires
Defendants to indemnify BDA subject only to "coverage
defenses."

Generally an insurer's duty to defend is more

broad than its duty to indemnify. Boston Symphony
Orchestra _v. Commercial Union Ins. Co., 545 N.E.2d
1156, 1158 (Mass. 1989). It is generally accepted that the

duty to defend is antecedent to the duty to indemnify. Id.,
Ryan v. Royal Ins. Co., 916 F.2d 731, 743 (ist Cir. 1990)
(applying New York law). However, the Court has found
no authority to support the allegation that because a claim
fails to trigger a duty to defend, that an insurer who
expressly and unambiguously consents to a settlement is
not liable for the settled claims. In effect, the Hatem-
Hinkle letter triggered the duty to indemnify under the
policies, and created a distinct indemnification contract.

C. Coverage Defenses

Travelers Indem, Co,, 610 N.E.2d 912, 920 (Mass. 1993);

N.E.2d 637, 639 (Mass. 1962). An insurer who
wrongfully declines to defend a claim has the burden of
proving that the claims were not within its policy
coverage. Polaroid, 610 N.E.2d at 922. If the insurer fails
to meet this burden, it is liable for a reasonable settlement.
Berke Moore, 185 N.E.2d at 641.

A47

Defendants must indemnify BDA for the SAMA
claims that are not subject to valid coverage defenses.
"Coverage defense” is not defined in the policy. The
Court construes the term broadly to include any defense
that Defendants can raise to argue that the claim does not
fall under the policy. Defendants raise four coverage
defenses: the withdrawal of fees provision; inadequate
notice of the electrical claim; inadequate notice of the
HVAC claim; and the specific operations exclusion. The
Court finds for the Plaintiffs on three of the defenses; and
for the Defendants on inadequate notice of the electrical
claim.

1. Withdrawal of Fees

The policies exclude from their definition of
damages "the return or withdrawal of fees." Defendants
argue that a zero-sum settlement is a withdrawal of fees
because under such an arrangement an insured drops its
request for payment of fees in exchange for the claimant
dropping its claims. Defendants may not avoid paying
BDA on this basis.

The withdrawal of fees exclusion exists to prevent
an insured and a claimant fom colluding and obtaining an
unwarranted insurance recovery. No evidence of collusion
exists in this case. Further, Defendants’ argument rests in
formality and not logic. Defendants argue that no money
changed hands in the zero-sum settlement, and therefore
a withdrawal of fees occurred. However, the zero-sum
settlement functions as if each paid the other.

Inadequate notice of the electrical claim

A48

Defendant General Accident argues that BDA's
notice of the electrical claim on September 19, 1984 in
question 30 of the application for policy number PE15181
was insufficient.? The Court agrees and denies Plaintiffs’
recovery on the electrical claim.

This notice does not bring the electrical claim
under the 1984-85 policy. The Advisory Endorsement to
that policy states that no coverage exists under policy
number PE15181 for any claim "referred to in answer to
question 30 in the application." BDA must therefore
establish that the notice in the application to PE15181
brings the claim under the 1983-84 policy, PE1 1970.

There is no evidence that PE1 1970 was extended
past September 4, 1984."° Therefore the notice given on
September 19, 1984 was too late to be deemed notice
under PE11970.

Even if PE11970 were extended until PE15181

° As stated supra at 9, question 30 states, in relevant
part,
SAMA has indicated that if any unauthorized
change order resulting in increase in price can be
attributable to design ... these may be backcharged
to BDA Inc. This item has already been filed with
Carrier.

'0 The evidence does not support Plaintiffs’ request for

a findings of fact that the policy was extended until
November 19, 1984.

~

:
4
_ .
:
en

A49

took effect, the notice is insufficient because it did not
provide full information and is misleading." While
condition XIII of the policy requires "immediate written
advice" of “an incident or circumstance likely to give rise
to a claim," condition I(a) requires "full information with
respect to the time, place and circumstances of the event
complained of." The application notice refers only to
"unauthorized change orders." This is not full
information, as it does not even mention to what the
change orders relate.

The notice is misleading, and did not give rise to
a duty on the insurer to investigate the potential claim.
Generally, good faith requires that an insurer notify an
insured of deficiencies in notice within a reasonable time
period. If the insurer fails to so notify, it waives its right
to assert defective notice, later. See

Ins. Corp. v. Burdette, 718 F. Supp 649, 654 (E.D. Tenn.

1989); see also W.R. Grace & Co. v, Maryland Casualty
Co., 600 N.E.2d 176; 182-83 (Mass. App. Ct. 1992). The

notice states that the claim "has already been filed with
Carrier." Testimony established that this meant that the

'!' The Court, however, does not deem the notice
insufficient as a matter of law simply because it was given
in a policy application. See W.R. Grace & Co, v.
Maryland Casualty Co., 600 N.E.2d 176, 182 (Mass. App.
Ct. 1992) (notice insufficient when buried in 57-page
application among "wholly unrelated underwriting data").
Contrary to Defendants’ assertions, W.R. Grace does not
hold that notice given in a policy application is insufficient
as a matter of law.

A50

item had been filed with the U.K. carrier. Defendants,
however, reasonably could have believed that the
unauthorized extras were part of one of two earlier noticed
potential claims arising out of BDA's SAMA work.
Defendants, therefore, were not required to notify BDA of
the deficiency within a reasonable time period.

3. Inadequate notice of the HVAC claim

Defendants contend that BDA's notice regarding
the HVAC problem was inadequate. Although BDA
noticed Shand in 1981, Defendants argue that the 1981
incident was not the same as the problem that arose in
1986. Defendants have failed to show that the problems
are distinct. The Court is satisfied that the notice provided
in 1981 covered the claim that arose in 1986.

4, Specific operations exclusion

Defendants argue that the specific operations
exclusion prevents Plaintiffs’ recovery. As explained
above, that exclusion barred only BDASA's supervision
work from coverage. Further, because the electrical
claims were not properly noticed, and because the
mechanical claims were noticed prior to the effective date
of the exclusion, this exclusion is inapplicable in this case.

B. Damages

Defendants are liable to BDA for the amount of
the HVAC claim. The total amount of fees and claims due

AS51

and payable to all BDA entities is SR. 13,014,337.'? Loss
due to design negligence constitutes 72.14%, or SR.
9,388,542.70, of the total."? The loss due to the HVAC
problem was 31.5% of the design negligence. Therefore,
Defendants are liable for SR. 2,957,390.90, or
$788,367.57. 3

BDA noticed the HVAC claim to Northbrook
under policy number 63 133836 that provides $1 million
coverage with a $25,000 deductible. Therefore, BDA is
entitled to recover $763,367.57 from Northbrook.

III. UNFAIR TRADE PRACTICES

Count II of Plaintiffs' complaint asserts that
Defendants violated Mass. Gen. L. ch. 93A §§ 2 and 11.
To prevail in an action under chapter 93A §§ 2 and 11, a
plaintiff must prove that a person who is engaged in trade
or business committed an unfair or deceptive act, and that
the plaintiff suffered a loss of money or property as a

2, The Court recognizes that this figure is lower than
that listed in the zero-sum settlement. This is the sum that
Comptroller Shapleigh figured in 1988, and it reflects
partial payment by the SAMA.

'3 The SAMA asserted claims totalling SR. 18,212,401
against BDA in their 9215 letter. The SAMA allocated
SR. 13,139,249, or 72.14%, to design claims.

4 Of the SR. 13,139,249 allocated to design claims,
the SAMA allocated only SR. 4,139,249, or 31.5% to the
HVAC problem.

A52

result. SS ne
823 F. Supp. 33, 43 (D. Mass. 1993).

Chapter 93A does not define "unfair." Conduct
that violates Mass. Gen. L. ch. 176D is evidence of
unfairness under chapter 93A. Alan Corp., 823 F. Supp.
at 43-44 n. 4. Plaintiffs allege that Defendants violated
chapter 176D §§ 3(9)(d) (it is unfair to refuse "to pay
claims without conducting a reasonable investigation
based upon all available information") and (f) (it is unfair
to fail "to effectuate prompt, fair and equitable settlements
of claims in which liability has become reasonably clear").
While Defendants' conduct was inappropriate and at times
heavy-handed, Plainuffs did not establish that the
Defendants failed to conduct a reasonable investigation.
Further, initially, liability in this case was not reasonably
clear.

Plaintiffs also allege that Defendants violated the
judicially-promulgated definition of unfairness under
chapter 93A. Under Massachusetts law, an alleged unfair
trade practice is unfair if it is within "the penumbra of
some common-law, statutory or other established concept
of unfairness ... [or] is immoral, unethical, oppressive or
unscrupulous." Farm Bureau Fed'n Inc. v. Blue Cross of
Mass., Inc., 532 N.E.2 660, 665 (Mass. 1989) (quoting
Zayre Corp. v. Computer Sys. of America, Inc., 511
N.E.2d 23, 30 (Mass. App. Ct. 1987). The Court is not
persuaded that Defendants’ conduct rose to the level of
unfairness.

Judgment for Plaintiffs in the amount of
$788,367.57 on Count I. Judgment for Defendants on

Count II.

SO ORDERED.

tsi
MORTON A. BRODY

United States District Judge

Dated at Bangor, Maine this 15th day of February 1994.

A54

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

BROWN DALTAS AND ASSOCIATES _)
INC., BENJAMIN I. BROWN, SPERO )
DALTAS, AND BROWN DALTAS AND _)
ASSOCIATES SAUDI ARABIA LTD., )
)
)

Plaintiffs,
v. )Civ. No.
)91-10010-K
GENERAL ACCIDENT INSURANCE )
COMPANY OF AMERICA, AND )
NORTHBROOK EXCESS AND SURPLUS )
INSURANCE COMPANY, )
Defendants. )
JUDGMENT

This action came to trial before the Court, the
Honorable Morton A. Brody presiding. The issues have
been tried and a decision has been rendered pursuant to the
Order and Memorandum of Opinion dated February 15,
1994.

IT IS ORDERED AND ADJUDGED

that Judgment is hereby entered on Count I for
Plaintiffs against Defendant Northbrook Excess
and Surplus Insurance Company for
$1,086,695.26. This figure is the sum of the
judgment of $768,367.57, and prejudgment

sta i oie Ahi ees

A55

interest in the amount of $298,327.69, which is
12% per annum accruing from January 3, 1991.
Defendant Northbrook Excess and Surplus
Insurance Company's actual liability is
$1,061,695.26. This figure is the judgment less
the $25,000 policy deductible. Judgment is
hereby entered on Count I for Defendant General
Accident Insurance Company.

IT IS FURTHER ORDERED AND ADJUDGED

that Judgment is hereby entered for the
Defendants on Count II.

APPROVED:

Ls/

MORTON A. BRODY
United States District Judge

NOTE: The post-judgment interest rate effective
this date is 3.74%.

Dated this Ist day of March 1994.

ROBERT J. SMITH, JR.
Clerk

A56

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS
BROWN DALTAS AND ASSOCIATES )
INC., BENJAMIN I. BROWN, SPERO )
DALTAS, AND BROWN DALTAS AND _)
ASSOCIATES SAUDI ARABIA LTD., )
Plaintiffs, )
)
v. yCiv. No.

)91-10010-K
GENERAL ACCIDENT INSURANCE )
COMPANY OF AMERICA, AND )
NORTHBROOK EXCESS AND SURPLUS )
INSURANCE COMPANY, )
Defendants. )

ORDER

BRODY, District Judge

The judgment in this matter was filed on March 1,
1994, after entry of the Order and Memorandum of
Opinion Defendant Northbrook Excess and Surplus
Insurance Company ("Northbrook") has since filed a .
Motion to Amend Judgment. Plaintiffs have also filed a
Motion to Amend Judgment, and an Opposition to
Northbrook's Motion to Amend Judgment.

A. — Northbrook's Motion to Amend Judgment

A57

The Court found Northbrook liable for the amount
of the Saudi Arabian Monetary Authority's ("SAMA's")
heating, ventilation and air conditioning ("HVAC") claim
against Brown Daltas and Associates Inc. ("BDA"). (Ct.'s
Order and Mem. of Op. at 18.) Northbrook argues that the
Court erred when apportioning the total HVAC claim
between design and supervision errors. The Court is
persuaded that its use of the so-called "9215 letter" to
apportion design and supervision errors was appropriate,
and is supported by the evidence. (Ct.'s Order and Mem.
of Op. at 10.)

Northbrook also argues that it should not be liable
for the SR. 9,044,697 in claims that BDA requested from
the SAMA. The Court disagrees. The claims were not
"mere puffing" to improve BDA's settlement posture; they
were part of the proposed zero-sum settlement in the 9215
letter. More importantly, however, Defendants consented
to the zero-sum settlement in the so-called "Hatem-Hinkle
letter". This letter "requires Defendants to indemnify
BDA subject only to ‘coverage defenses." (Ct.'s Order
and Mem. of Op. at 14.) There was not presented
sufficient evidence to establish that BDA's claims were
subject to any coverage defense.

The Court calculated prejudgment interest on the
amount that Northbrook was found liable to Plaintiffs.
Northbrook argues that prejudgment interest should not be
assessed based on Northbrook's liability, but on the
liability less the policy deductible. The Court is satisfied
that its method of calculation is correct.

A58

Plaintiffs argue that the Court should award
prejudgment interest from February 16, 1990, the date of
the zero-sum settlement, and not from the date of filing
this action, January 3, 1991. The Court rejects Plaintiffs’
argument. Because the date of breach was not clearly
established, prejudgment interest should be calculated
from the date of filing. See mass. Gen. L. ch. 231, § 6C
("If the date of the breach or demand is not established,
interest shall be added by the clerk of the court ... from the
date of the commencement of the action").

The Court recorded the judgment against
Northbrook as SR. 2,957,390.90, but incorrectly converted
the figure into U.S. dollars. (See Ct.'s Order and Mem. of
Op. at 18-19.) Judgment against Northbrook should have
read $788,637.57.

The parties entered into a joint stipulation, and the
record now includes a complete General Accident policy
number PE11970. While the policy was extended through
November 19, 1984 (see Ct.'s Order and Mem. of Op. at
16, n.10), notice of the electrical claim was "insufficient
because it did not provide full information and is
misleading." (Id, at 16.)

SO ORDERED.
Ls/

MORTON A. BRODY
United States District Judge

Dated at Bangor, Maine this 25th day of April 1994.

A59

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

BROWN DALTAS AND ASSOCIATES _ )
INC., BENJAMIN I. BROWN, SPERO )
DALTAS, AND BROWN DALTAS AND _)
ASSOCIATES SAUDI ARABIA LTD., )
)
)
)

Plaintiffs,

v.
)Civ. No.

GENERAL ACCIDENT INSURANCE 91-10010-K
COMPANY OF AMERICA, AND )
NORTHBROOK EXCESS AND SURPLUS )
INSURANCE COMPANY, )

Defendants. )

a
AMENDEDJUDGMENT

This action came to trial before the Court, the
Honorable Morton A. Brody presiding. The issues have
been tried and a decision has been rendered pursuant to the
Order and Memorandum of Opinion dated February 15,
1994, as amended by the Order dated April 25, 1994.

IT IS ORDERED AND ADJUDGED

that Judgment is hereby entered on Count I for
Plaintiffs against Defendant Northbrook Excess
and Surplus Insurance Company for
$1,087,066.78. This figure is the sum of the

A60

judgment of $788,637.57, and prejudgment
interest in the amount of $298,429.21, which is
12% per annum accruing from January 3, 1991
until March 1, 1994. Defendant Northbrook
Excess and Surplus Insurance Company's actual
liability is $1,062,066.78. This figure is the
judgment less the $25,000 policy deductible.
Judgment is hereby entered on Count I for
Defendant General Accident Insurance Company.

IT IS FURTHER ORDERED AND ADJUDGED

that Judgment is hereby entered for the
Defendants on Count II.

APPROVED:

Ls/

MORTON A. BRODY
United States District Judge

NOTE: The post-judgment interest rate effective
this date is 3.74%.

Dated this 25th day of April 1994.

ROBERT J. SMITH, JR.
Clerk

Aél

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

NO. 94-1576
BROWN DALTAS & ASSOCIATES, INC., ET AL.,
Plaintiffs, Appellees,
v.

GENERAL ACCIDENT INSURANCE COMPANY
OF AMERICA, ET AL..,

NORTHBROOK EXCESS & SURPLUS
INSURANCE CO.,

Defendant, Appellant.

A62

ORDER
Entered: March 21, 1995

The petition of plaintiffs-appellees Brown Daltas
& Associates, Inc., et al. ("BDA") for panel rehearing is
denied.

BDA's petition suffers from the same infirmities
as did its initial brief: there is no clear identification of the
"circumstance" which led BDA to inform its carriers of the
possibility of a claim. At one point, BDA seems to say
that the statement of Laing Wimpey Alireza Ltd. ("LWA")
that it was submitting to the Saudi Arabian Monetary
Authority ("SAMA") a priced claim for extra costs was the
notice-triggering event. See Petition at 4. At another, it
seems to suggest that it was the notice from LWA to BDA
of the post-construction "commissioning" problems. Id.
at 7.

Neither of these two assertions were made by
BDA until its petition for rehearing. See Opinion at 22
(detailing BDA's inconsistent assertions regarding the
notice-triggering circumstances). Accordingly, they are
untimely. Even if we did consider them to be properly
raised, however, there is no record evidence proving that
the now-alleged circumstance first occurred during the

policy period.

With regard to the first alleged notice-triggering
event -- LWA's submission of the priced claim to the
SAMA (or LWA's indication that it would be submitting
such a claim) -- the opinion is correct. There is no record
evidence indicating exactly when LWA submitted its

A63

claim to the SAMA, or even indicating when LWA said it
was going to submit its claim to the SAMA’. With regard
to the second alleged notice-triggering event -- the notice
from LWA to BDA of post-construction commissioning
problems -- the record evidence is that BDA received this
notice in "May 1981." See Appendix at 1337. Because
the Policy ran from May 5, 1981 through June 4, 1982,
this evidence is insufficient to prove that BDA first
became aware of the commissioning problems during the
policy period. The communication could have taken place
May 1-4, 1981.

BDA neither took issue with Northbrook's
argument that LWA's design criticism was the notice-
triggering event, nor specifically articulated the
aforementioned notice-triggering circumstances until now.
Moreover, there is no record evidence demonstrating that
either of the circumstances to which it now points first
occurred during the policy period. Because it bore the
burden of proof on the notice question, this absence of
articulation and evidence must be held against it.

By the Court:

' The November 18, 1981 letter which is appended to
the petition (but which was not included in the appellate
appendix) generally indicates that LWA was submitting its
claim contemporaneously to the sending of the letter.
There is, however, insufficient specificity in the letter to
ground a ruling for BDA on this issue.

A64

Francis P. Scigliano, Clerk

By:___/s/
Chief Deputy Clerk

Messrs. Cowen, Reppert, Lund, Hatem, Sullivan & Shields

a

A65

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

NO. 94-1576
BROWN DALTAS & ASSOCIATES, INC., ET AL.,
Plaintiffs, Appellees,
v.

GENERAL ACCIDENT INSURANCE COMPANY
OF AMERICA, ET AL.,

Defendant, Appellee,

NORTHBROOK EXCESS & SURPLUS
INSURANCE CO.,

Defendant, Appellant.

BEFORE

Torruella, Chief Judge,
Bownes, Senior Circuit Judge,
Selya, Cyr, Boudin & Stahl, Circuit Judges.

A66
ORDER OF THE COURT
Entered: March 21, 1995

The panel of judges that rendered the decision in
this case having voted to deny the petition for rehearing
and the suggestion for rehearing en banc having been
carefully considered by the judges of the Court in regular
active service and a majority of said judges not having
voted to order that the appeal be heard or reheard by the
Court en banc.

It is ordered that the petition for rehearing and the
suggestion for rehearing en banc, be denied.

By The Court
FRANCIS P. SCIGLIANO, Clerk

By:___/s/
Chief Deputy Clerk

Messrs. Cowen, Reppert, Lund, Hatem, Sullivan & Shields

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1950%3A1. Public record. Not legal advice.