Beretta U.S.A. Corp. v. Federal Insurance

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BERETTA U.S.A. CORPORATION, 
Plaintiff-Appellant,
v.
THE FEDERAL INSURANCE COMPANY;  No. 00-2387
GREAT NORTHERN INSURANCE
COMPANY,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-99-2798-CCB)
Argued: June 4, 2001
Decided: September 6, 2001
Before WILKINSON, Chief Judge, KING, Circuit Judge,
and Robert R. BEEZER, Senior Circuit Judge of the
United States Court of Appeals for the Ninth Circuit,
sitting by designation.
Affirmed by unpublished per curiam opinion. Chief Judge Wilkinson
wrote a separate opinion concurring in the judgment.
COUNSEL
ARGUED: Finley T. Harckham, Sr., ANDERSON, KILL & OLICK,
P.C., New York, New York, for Appellant. Jonathan Adrian Constine,
2 BERETTA U.S.A. CORP. v. FEDERAL INSURANCE
HOGAN & HARTSON, L.L.P., Washington, D.C., for Appellees.
ON BRIEF: Richard P. Lewis, Daniel J. Healy, ANDERSON, KILL
& OLICK, P.C., New York, New York; Michele A. Gallagher,
ANDERSON, KILL & OLICK, L.L.P., Washington, D.C., for Appel-
lant. Robert M. Blue, HOGAN & HARTSON, L.L.P., Washington,
D.C., for Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Beretta U.S.A. Corporation ("Beretta") appeals the district court’s
award of summary judgment to The Federal Insurance Company
("Federal") and Great Northern Insurance Company ("Great North-
ern") in a dispute over insurance coverage. Beretta, a Maryland cor-
poration, brought this diversity action in the District of Maryland
seeking a declaration that its insurers, Federal and Great Northern,
owed it a duty, under general liability and umbrella policies, to defend
and indemnify it against pending lawsuits. Federal and Great North-
ern sought dismissal or, in the alternative, summary judgment, and
Beretta also sought summary judgment. The district court, which pos-
sessed jurisdiction under 28 U.S.C. § 1332(a), ruled in favor of Fed-
eral and Great Northern. Beretta appeals the adverse ruling, and we
possess jurisdiction pursuant to 28 U.S.C. § 1291. As explained
below, we affirm.
I.
A.
The facts relevant to our inquiry are fully described in the ruling
of the district court, embodied in its Memorandum of September 29,
2000, No. CCB-99-2798 (the "D. Ct. Memo."). Both Federal and
BERETTA U.S.A. CORP. v. FEDERAL INSURANCE 3
Great Northern issued annual commercial insurance policies (the "Pri-
mary Policies") to Beretta, effective for the aggregate period from
July 31, 1990, through December 31, 1999. The Primary Policies each
provided, inter alia, that Federal and Great Northern would pay "dam-
ages the insured [Beretta] becomes legally obligated to pay by reason
of liability imposed by law or assumed under an insured contract for:
bodily injury or property damage . . . caused by an occurrence; . . .
or personal injury . . . or advertising injury." J.A. 94, 220. Central to
the controversy in this litigation is the "Products-Completed Opera-
tions Hazard" exclusion (the "Exclusion"), found in each policy,
which is defined to include, inter alia, "all bodily injury and property
damage occurring away from premises you own or rent and arising
out of your product . . . except: products that are still in your physical
possession." J.A. 111, 237.
In addition to the Primary Policies, Federal and Great Northern
also issued annual umbrella and excess policies to Beretta for the
aggregate period from July 31, 1992, through December 31, 1999 (the
"Umbrella Policies"). The Declaration page of each Umbrella Policy
also contained, in haec verba, the Exclusion, specifically stating that
the Umbrella Policies did not provide coverage to Beretta for any lia-
bility arising out of the Exclusion.
Prior to initiating this litigation, Beretta notified both Federal and
Great Northern that thirteen lawsuits had been filed against it —
twelve being brought by municipal governments in various parts of
the United States, and the thirteenth being a class action (the "Under-
lying Actions"). The Underlying Actions each allege, inter alia, that
Beretta engaged in the "negligent marketing and distribution of guns
and public nuisance, and seek to recover expenses allegedly incurred
in treating and caring for people who have suffered gunshot injuries."
J.A. 9. Both Federal and Great Northern denied coverage to Beretta
under the Primary Policies and the Umbrella Policies (the "Policies").
Beretta maintained that the denials of coverage were improper, and
it sought a declaratory judgment awarding insurance coverage for the
claims, except the product liability claims, made in the Underlying
Actions (the "Claims").1
1
The Underlying Actions also assert product liability claims for Beret-
ta’s failure to make its firearms safe and to prevent foreseeable misuse
4 BERETTA U.S.A. CORP. v. FEDERAL INSURANCE
B.
Upon consideration of the written submissions and oral argument,
the district court awarded summary judgment to Federal and Great
Northern. The court determined that the Claims involved bodily
injury or property damage that occurred away from Beretta’s prem-
ises and that "arose out of" Beretta’s product. Accordingly, it con-
cluded that coverage of the Claims was precluded by the terms of the
Exclusion, and that, under Maryland law, neither Federal nor Great
Northern had any duty to defend or indemnify Beretta.
The parties agree that the first prong of the Exclusion is satisfied;
that is, the damages sought in the Claims occurred away from Beret-
ta’s premises. Thus, as the district court recognized, the central ques-
tion for our consideration and determination is the meaning, under
Maryland law, of the phrase "arising out of," as contained in the
Exclusion. Beretta contends that this phrase limits the scope of the
Exclusion to allegations involving the dangerous and defective nature
of Beretta’s products and its failure to warn of those dangers. Federal
and Great Northern, in contrast, maintain that the Exclusion is not
limited to the product liability claims.
II.
We must decide whether the district court erred in concluding that
the Claims fell under the provisions of the Exclusion, and in granting
summary judgment to Federal and Great Northern. Our standard for
review is plenary; we review an award of summary judgment de novo.
Dalton v. Capital Assocs. Indus., Inc., 2001 WL 797752, at *3 (4th
Cir. July 16, 2001); Detrick v. Panalpina, Inc., 108 F.3d 529, 538 (4th
Cir. 1997); Becerra v. Dalton, 94 F.3d 145, 148 (4th Cir. 1996).
because Beretta failed to use modern technology to incorporate safety
devices that would prevent its firearms from being used by children and
unauthorized persons. At oral argument, Beretta conceded that the prod-
uct liability claims fall within the terms of the Exclusion, and thus are
not covered by the Policies. There is accordingly no issue on appeal con-
cerning coverage for product liability claims.
BERETTA U.S.A. CORP. v. FEDERAL INSURANCE 5
III.
A.
After deciding that Maryland law is controlling, see Assicurazioni
Generali v. Neil, 160 F.3d 997, 1000 (4th Cir. 1998), the district court
concluded that Maryland courts have interpreted broadly the policy
phrase "arising out of." "The words ‘arising out of’ must be afforded
their common understanding, namely, to mean originating from,
growing out of, flowing from, or the like." N. Assurance Co. of Am.
v. EDP Floors, Inc., 533 A.2d 682, 688 (Md. 1987). In other words,
the phrase "arising out of" implies only "but for" causation. Mass
Transit Admin. v. CSX Transp., Inc., 708 A.2d 298, 307 (Md. 1998).
Accordingly, the district court reasoned that the Exclusion applied to
the Claims and that Beretta was not entitled to indemnification or
defense under the Policies.
In reaching its conclusion, the district court found instructive the
EDP Floors decision of Maryland’s highest court. In EDP Floors, the
Court of Appeals of Maryland interpreted a policy provision that
excluded coverage for "bodily injury . . . arising out of . . . loading
or unloading of [a truck]." EDP Floors, 533 A.2d at 686. The court
ruled that the insurer had properly denied coverage to its insured for
a claim of negligent hiring, supervision, and retention of an employee
who was intoxicated on the job and who injured the plaintiff by his
actions during the unloading of a truck. Id. at 686-89. The court
explained that
if [the plaintiff’s] bodily injury arose out of EDP’s employ-
ee’s unloading of the truck, then that injury is excluded from
coverage. This is so regardless of whether the injury may
also be said to have arisen out of other causes further back
in the sequence of events, such as the employee’s consump-
tion of alcohol, or the employer’s negligent failure to super-
vise the employee. The exclusion also applies irrespective
of the theory of liability by which [the plaintiff] seeks
redress for his injury.
Id. at 688-89 (emphasis added).
6 BERETTA U.S.A. CORP. v. FEDERAL INSURANCE
Applying the reasoning of EDP Floors, the district court concluded
that the Exclusion applies to the Claims because, regardless of
whether the injuries involved could also be said to arise from Beret-
ta’s negligent marketing and distribution of its products, the "but for"
cause of the injuries in the Claims arose out of Beretta’s product. On
appeal, Beretta asserts that the district court’s analysis is incorrect. It
contends that Maryland law does not permit a court to look beyond
the allegations in the Claims. As we have noted, the EDP Floors deci-
sion renders this position untenable, because "the theory of liability
by which [the plaintiff] seeks redress" is irrelevant. Id. at 689.
B.
Next, Beretta maintains that the district court erred when it rejected
Beretta’s contention concerning the Exclusion’s plain meaning. It
asserts that, under Maryland law, the Exclusion, by its plain meaning,
applies only to injuries caused by defective products, in that a reason-
ably prudent layperson would believe an injury arises out of a product
only if a product defect causes the injury.
In analyzing that contention, it is first necessary to examine
the language of the policy itself. As noted, the [Exclusion]
excludes coverage for all bodily injury . . . occurring away
from premises you own or rent and arising out of your prod-
uct . . . . Nothing in that language supports the proposition
that the exclusion applies only to defective products.
D. Ct. Memo., at 13 (internal citations omitted). Moreover, the district
court found additional support in Brazas Sporting Arms, Inc. v. Amer-
ican Empire Surplus Lines Insurance Co., 220 F.3d 1 (1st Cir. 2000),
a First Circuit decision addressing a similar appeal by a firearms distribu-
tor.2 Brazas, 220 F.3d at 1-4. The court, under Massachusetts law,
"applied principles of insurance contract construction virtually identi-
cal to the principles applied under Maryland law," and ruled that "the
plain language of the exclusion was not limited to defective products
2
The theories of liability asserted against the firearms distributor in
Brazas were for negligent and willful misconduct in the distribution,
marketing, and advertising of excessive numbers of firearms, which
allegedly resulted in bodily injuries to the plaintiffs.
BERETTA U.S.A. CORP. v. FEDERAL INSURANCE 7
3
claims." D. Ct. Memo., at 13 (citing Brazas, 220 F.3d at 4-5). The
district court agreed with the analysis made by the First Circuit; we
agree as well. Id.C.
Finally, Beretta contends that the district court erred by not consid-
ering extrinsic evidence of the Exclusion’s meaning. The district court
found no merit in this position because, under Maryland law, "[o]nly
if a policy is ambiguous should the court consider extrinsic and parol
evidence to determine the intention of the parties." Id. at 9 (citing Sul-
lins v. Allstate Ins. Co., 667 A.2d 617, 619 (Md. 1995)). Under Mary-
land law, "[w]hether ambiguity exists depends on whether ‘the
language in an insurance policy suggests more than one meaning to
a reasonably prudent lay person’". Id. (quoting Sullins, 667 A.2d at
619.) The district court concluded that the Exclusion was not ambigu-
ous because, as Maryland’s courts have repeatedly held, the text of an
insurance contract will be accorded its usual, ordinary, and accepted
meaning, unless the evidence demonstrates that the parties intended
otherwise. Neil, 160 F.3d at 1001 (citing Cheney v. Bell Nat’l Life Ins.
Co., 556 A.2d 1135, 1138 (Md. 1989)) (internal quotations omitted).4
Beretta has failed to demonstrate that the parties to the Policies
intended the phrase "arising out of," or the other provisions of the
Exclusion, as having anything other than their usual, ordinary, and
accepted meanings. Although Beretta asserts several separate bases in
its effort to convince us otherwise, each misses the mark.
First, Beretta suggests the Exclusion is ambiguous because it has
historically been interpreted by other courts, and understood in the
3
In Massachusetts, the phrase "arising out of" denotes an intermediate
standard of causation between proximate and "but for" causation. Brazas,
220 F.3d at 4. Therefore, in Brazas a more demanding standard was
applied by the First Circuit than the "but for" standard mandated by
Maryland law
4
In Brazas, the First Circuit concluded that "[w]here, as here, the lan-
guage of the exclusion provision is unambiguous, the text should be
given its plain meaning. In this case, the plain meaning of the exclusion
is that it applies to all product-related injuries." Brazas, 220 F.3d at 6.
8 BERETTA U.S.A. CORP. v. FEDERAL INSURANCE
insurance industry, to apply only to defective product and failure-to-
warn claims, rather than negligent sale claims. While Beretta asserts
that a number of decisions from other jurisdictions support its position,5
"that fact cannot alter the application of clearly established Maryland
law, which this court is bound to follow." D. Ct. Memo., at 13. It is
manifest that, under Maryland law, the phrase "arising out of" is to
be interpreted broadly. EDP Floors, 533 A.2d at 688.
Second, Beretta contends that the Exclusion’s title (Products-
Completed Operations Hazard) in and of itself creates ambiguity.
However, to the extent the title of the Exclusion might be considered
ambiguous, such a construction would be insufficient to render the
Exclusion ambiguous. Bernhardt v. Hartford Fire Ins. Co., 648 A.2d
1047, 1051 (Md. App. 1994) (finding the title endorsement — "pollu-
tion exclusion" — not to be ambiguous because the provisions of the
insurance contract were quite specific).
Third, Beretta maintains that the conflicting decisions from other
jurisdictions concerning the scope of the Exclusion also constitute
evidence of ambiguity. See supra note 5. In Maryland, however, a
mere conflict in judicial interpretation is not dispositive on the issue
of ambiguity, but is only a factor to be considered. Sullins, 667 A.2d
at 624. In any event, "conflicting interpretations from other jurisdic-
tions do not create ambiguity where Maryland courts have adopted a
definitive interpretation under Maryland law." D. Ct. Memo., at 14
(citing Willis v. Allstate Ins. Co., 591 A.2d 896, 900-02 (Md. App.
1991); McCloskey v. Republic Ins. Co., 559 A.2d 385, 387 (Md. App.
1989)). Maryland courts have adopted a definitive interpretation of
the phrase "arising out of." In this circumstance, Beretta cannot rely
on contrary decisions of other jurisdictions to create an ambiguity in
the language of the Exclusion.
5
See, e.g., Scarborough v. N. Assurance Co. of Am., 718 F.2d 130, 136
(5th Cir. 1983) (applying Louisiana law); Farm Bureau Mut. Ins. Co. of
Arkansas, Inc. v. Lyon, 528 S.W.2d 932, 934 (Ark. 1975); Lessak v.
Metro. Cas. Ins. Co., 151 N.E.2d 730, 735 (Ohio 1958); Colony Ins. Co.
v. H.R.K., Inc., 728 S.W.2d 848 851 (Tex. Ct. App. 1987). Several of the
decisions on which Beretta relies are distinguishable because either the
policy language at issue was different from that involved in this case, or
the decisions did not involve interpreting of the phrase "arising out of."
BERETTA U.S.A. CORP. v. FEDERAL INSURANCE 9
Finally, Beretta invokes the principle embodied in Stanley v. Amer-
ican Motorist Insurance Co., 73 A.2d 1 (Md. App. 1950), that "parties
who adopt an insurance policy, which apparently has had nationwide
use and has been judicially construed in five or six states, adopt with
it the uniform judicial construction that it has received in other
states." Id. at 4. This point is of no assistance to Beretta, however,
because the provisions of the Exclusion have not been uniformly con-
strued. See, e.g., Cobbins v. Gen. Accident Fire & Life Assurance
Corp., Ltd., 290 N.E.2d 873, 877 (Ill. 1972) ("The definition of the
‘products’ hazard does not permit the interpretation that it applies
only to the typical product-liability or defective-product case. It is not
so limited."); see also Parma Seed, Inc. v. Gen. Ins. Co., 496 P.2d
281, 286 (Idaho 1972); Tiano v. Aetna Cas. and Sur. Co., 301 N.W.2d
476, 480 (Mich. Ct. App. 1980); Pennsylvania Gen. Ins. Co. v.
Kielon, 492 N.Y.S.2d 502, 503-04 (N.Y. App. Div. 1985).
IV.
Pursuant to the foregoing, we find no error in the district court’s
interpretation and application of Maryland law. We accordingly adopt
its well-reasoned decision, and we affirm. Beretta U.S.A. Corp. v.
Federal Ins. Co., No. CCB-99-2798 (Sept. 29, 2000).
AFFIRMED
WILKINSON, Chief Judge, concurring in the judgment:
I concur in the judgment here, but I write separately because I think
the case is closer than the majority acknowledges.
In the abstract, it is reasonable to contend, as appellant does, that
the language "arising out of your product" in the exclusion applies
only to traditional products liability actions. If an injury is inflicted
by a person with a non-defective gun or knife, one would not nor-
mally think of the gun or knife as having inflicted the injury. Rather,
one would typically view the person who misused the weapon as hav-
ing inflicted the injury. That is, the injury would be said to have
"arisen out of" the wrongful act of the person, not the weapon itself.
10 BERETTA U.S.A. CORP. v. FEDERAL INSURANCE
In many jurisdictions, this would be a prevailing argument, and
coverage for the insured manufacturer would lie. The question here
is whether Maryland courts have interpreted the words "arising out
of" in such a manner as to sweep this argument away. Analytically,
they have. It is only because Maryland assigns to the words "arising
out of" an extraordinary breadth that the exclusion can be interpreted
as the district court did. The Maryland courts have interpreted "arising
out of" to express the expansive concept of but-for causation, and
they have done this repeatedly and in a variety of different settings
and contexts. See, e.g., Mass Transit Admin. v. CSX Transp., Inc., 708
A.2d 298, 307 (Md. 1998); N. Assurance Co. of Am. v. EDP Floors,
Inc., 533 A.2d 682, 688-89 (Md. 1987); Nat’l Indem. Co. v. Ewing,
200 A.2d 680, 682 (Md. 1964). Under Maryland law, one cannot
escape the fact that, "but for" appellant’s product, the harms alleged
in the underlying complaints would not have occurred.
Secondly, if the adjective "defective" had been used to modify the
noun "product," the exclusion could likewise be interpreted in the
manner that appellant suggests. The exclusion would then plainly be
limited to traditional products liability suits. I do not believe, how-
ever, that courts possess the authority to add that word to the contract
of insurance negotiated by the parties.
In sum, had another state’s law been controlling or had the exclu-
sion contained a single additional word, the result might well have
been different. On the basis of Maryland law and under this contract,
however, I think an affirmance is the proper course.