924 F.3d 633
1st Cir.2019Background
- In May 2011 the SEC opened a non-public formal investigation into BioChemics and named CEO John Masiz; subpoenas followed in May and Sept. 2011. BioChemics did not notify its then-carrier (Greenwich).
- BioChemics obtained a new D&O policy from AXIS effective Nov. 13, 2011–Nov. 13, 2012; the application represented that no claims were pending.
- In Jan–Mar 2012 the SEC served additional subpoenas (naming Masiz individually for some), and in Dec. 2012 the SEC filed an enforcement action alleging fraud beginning as early as 2009 (and including at least one post‑2011 alleged misrepresentation).
- BioChemics notified AXIS in 2012; AXIS agreed the SEC matter was a D&O Claim but denied defense coverage, asserting the Claim was "first made" in May 2011 (pre‑policy) and that the Policy’s interrelated‑acts aggregation treats all SEC filings as one Claim.
- BioChemics and Masiz sued AXIS (breach of contract/duty to defend). The district court granted summary judgment to AXIS, holding the 2011 Order, later subpoenas, and the 2012 enforcement action are interrelated and deemed one Claim first made May 5, 2011. The First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether subpoenas and the 2012 enforcement action were separate "Claims" first made during the policy period | Subpoenas and the 2012 Action each qualify as independent D&O Claims (subpoenas are written demands) first made during policy period | Policy treats subpoenas as part of an administrative/regulatory proceeding; Interrelated Wrongful Acts clause aggregates related matters and deems the Claim first made on the earlier pre‑policy date | Held for AXIS: subpoenas are components of a proceeding and, under the interrelated‑acts clause, the matters are aggregated and deemed first made May 5, 2011 (pre‑policy) |
| Whether the Policy’s Interrelated Wrongful Acts provision applies to coverage (not just limits) despite placement in "Limits of Liability" section | Provision should be read narrowly as a limits provision and not to bar coverage | Provision’s text expressly conditions "coverage under this Policy" on Claims first made in the policy period; headings are not contract terms | Held for AXIS: provision governs coverage timing; its placement in "Limits" does not limit its substantive effect |
| Whether the 2011 Order "alleges" Wrongful Acts so as to interrelate pre‑ and post‑policy filings | 2011 Order’s references are qualified ("possible," "may have been") and the accompanying subpoena letter disclaimed indication of violation, so it does not "allege" Wrongful Acts | The Order identifies possible violations and names Masiz; language suffices to allege actual or alleged errors/misstatements within Policy’s definition | Held for AXIS: 2011 Order sufficiently alleges Wrongful Acts (the Policy covers "actual or alleged" acts), so interrelation is permissible |
| Whether any later, post‑2011 allegation (e.g., ibuprofen trial misrepresentation) prevents aggregation under the "substantial overlap" test | A post‑Order allegation shows non‑overlap; a single non‑overlapping act means the later Claim should get coverage | Raytheon substantial‑overlap test allows aggregation despite some non‑overlapping allegations when many allegations overlap | Held for AXIS: Raytheon controls; a single differing allegation does not defeat substantial overlap/aggregation |
Key Cases Cited
- Utica Mut. Ins. Co. v. Herbert H. Landy Ins. Agency, Inc., 820 F.3d 36 (1st Cir. 2016) (standard of review on summary judgment and de novo review of policy interpretation)
- Massamont Ins. Agency, Inc. v. Utica Mut. Ins. Co., 489 F.3d 71 (1st Cir. 2007) (insurance policy interpretation reviewed de novo)
- Federal Ins. Co. v. Raytheon Co., 426 F.3d 491 (1st Cir. 2005) (applies "substantial overlap" test to aggregate related claims for policy‑period/prior‑acts analysis)
- Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 951 N.E.2d 662 (Mass. 2011) (ambiguous policy language construed in insured’s favor; plain language applied when clear)
- Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, 871 N.E.2d 418 (Mass. 2007) (detailed comparisons of pre‑ and post‑policy allegations required to assess interrelation)
- Medical Mut. Ins. Co. of Maine v. Indian Harbor Ins. Co., 583 F.3d 57 (1st Cir. 2009) (a suit naming a company that alleges officer misconduct is not necessarily a claim against officers; distinguishable from regulator investigative orders)