963 F. Supp. 2d 64
D. Mass.2013Background
- BioChemics and its CEO Masiz faced SEC subpoenas in May and Sept 2011 (before AXIS policy) and additional subpoenas in Jan–Mar 2012 and an SEC enforcement complaint in Dec 2012 (after AXIS policy began).
- BioChemics had a claims-made D&O policy with XL Group for the 2011 period; it switched to an AXIS claims-made policy covering claims first made 11/13/2011–11/13/2012.
- AXIS denied coverage and refused to defend the 2012 subpoenas and the later enforcement action, arguing all arose from a single “Claim” first made in May 2011 (pre-policy) because of the policy’s interrelated-wrongful-acts aggregation clause.
- Plaintiffs moved for partial summary judgment seeking a declaration that AXIS owes a defense; AXIS opposed and sought Rule 56(d) discovery into communications with the SEC to prove interrelatedness and timing.
- The court held the question whether the matters are ‘‘interrelated wrongful acts’’ (and thus a single pre-policy claim) depends on extrinsic facts not apparent on the face of the subpoenas/complaint, so discovery is appropriate; plaintiffs’ summary judgment motion was denied without prejudice and AXIS’s 56(d) request allowed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether AXIS owes a duty to defend the 2012 subpoenas and enforcement action | Policy language on its face requires defense because the claims/complaint fall within the claims-made period | The 2012 matters are part of one aggregated “Claim” first made in May 2011 (pre-policy) under the interrelated-wrongful-acts clause, so no duty to defend | Denied summary judgment; court allowed discovery because extrinsic evidence may show interrelatedness/timing that defeats coverage |
| Whether insurer may rely on extrinsic evidence to deny duty to defend | Insurer must match third-party pleadings to policy; cannot use extrinsic facts to deny defense | Extrinsic evidence is permissible where the determinative issue (timing/relatedness) is irrelevant to the underlying merits and not shown on the pleadings | Court: insurer may use extrinsic evidence for issues like timing/interrelatedness; 56(d) discovery permitted |
| Whether later alleged wrongful acts (post-2011) can be interrelated with pre-2011 acts | Later misrepresentations cannot be interrelated because they post-date earlier subpoenas | They can be interrelated if a common nexus exists; this is a factual question requiring discovery | Court: interrelatedness is a factual inquiry not resolvable on present record; discovery required |
| Whether AXIS must provide an interim defense while coverage is resolved | Plaintiffs: insurer should defend pending coverage determination | AXIS: no obligation to advance defense costs under Massachusetts law | Court: Massachusetts law does not require AXIS to provide an interim defense; insurer may refuse and risk later liability for defense costs if duty found |
Key Cases Cited
- Fed. Ins. Co. v. Raytheon Co., 426 F.3d 491 (1st Cir.) (match pleadings to policy to determine duty to defend)
- Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143 (Mass. 1984) (insurer’s duty to defend determined by pleadings)
- Bos. Symphony Orchestra v. Commercial Union Ins. Co., 406 Mass. 7 (Mass. 1989) (insurer cannot refuse defense based on merits of suit)
- Edwards v. Lexington Ins. Co., 507 F.3d 35 (1st Cir.) (extrinsic evidence permissible for claims-made timing issues)
- Sterilite Corp. v. Cont’l Cas. Co., 17 Mass. App. Ct. 316 (Mass. App. Ct.) (scope of duty to defend analyzed by pleadings)
- Allmerica Fin. Corp. v. Certain Underwriters at Lloyd’s, London, 449 Mass. 621 (Mass. 2007) (interrelated-acts analysis may require factual development)
- Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93 (Mass. 1997) (insurer may refuse defense but risks liability for incurred defense costs)