Jalbert v. Zurich Services Corporation, 953 F.3d 143

Background

On September 23, 2013 the SEC issued a Formal Order opening a private investigation into F‑Squared, alleging possible violations of multiple federal securities laws and authorizing subpoenas and testimony. Subpoenas were served on October 2 and October 7, 2013.
F‑Squared had a primary Columbia policy and a first excess Federal policy for 10/3/2012–10/3/2013 (both claims‑made). Those policies were renewed for 10/3/2013–10/3/2014, and Zurich and XL issued second‑ and third‑excess policies effective 10/3/2013.
The Columbia policy’s Deemed‑Made Clause provides that a formal investigation is a “Claim” and is deemed first made when an insured is identified by name in an order of investigation, subpoena, Wells notice, or target letter “as someone against whom a civil, criminal, administrative or regulatory proceeding may be brought.”
Columbia and Federal paid their $5 million limits for defense costs incurred; Zurich and XL denied coverage, asserting the claim was deemed first made on September 23, 2013 (before their policies took effect).
The district court granted summary judgment for the Excess Insurers; the trustee (Jalbert) appealed. The First Circuit affirmed, holding the Formal Order triggered the Deemed‑Made Clause and thus the claim was deemed made before the excess policies’ inception.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the SEC Formal Order triggered the policy’s Deemed‑Made Clause so the claim was "first made" before the excess policies’ 10/3/2013 inception	Jalbert: the Formal Order was purely investigatory and did not show enforcement proceedings were a reasonable possibility, so the clause was not triggered	Excess Insurers: Formal Order identified F‑Squared by name and alleged possible violations, so it sufficed to show a possibility that proceedings "may be brought" and thus triggered the clause	The court held the Formal Order satisfied the clause; the claim was deemed first made on Sept. 23, 2013 (before excess coverage), so Zurich and XL had no duty to reimburse defense costs
Whether the phrase "may be brought" requires a higher degree of likelihood (e.g., "reasonable possibility") than mere possibility	Jalbert: "may" implies a moderate/ reasonable possibility; the clause is ambiguous and should be construed for the insured	Insurers: the plain, ordinary meaning of "may" includes a possibility; the clause requires only that a proceeding be possible	The court held "may" covers the possibility that a proceeding could follow; the Formal Order conveyed that possibility and thus triggered the clause
Whether the Deemed‑Made Clause is ambiguous such that it should be construed against the insurer	Jalbert: multiple meanings of "may" create ambiguity; interpret against insurer	Insurers: the clause is plain and expansive; multiple dictionary meanings alone do not create ambiguity	The court found no ambiguity; even if read to require a "reasonable possibility," a reasonable insured would deem the Formal Order to provide that level of possibility

Key Cases Cited

BioChemics, Inc. v. AXIS Reinsurance Co., 924 F.3d 633 (1st Cir. 2019) (standard of review for summary judgment)
UBS Fin. Servs., Inc. of P.R. v. XL Specialty Ins. Co., 929 F.3d 11 (1st Cir. 2019) (insurance‑policy interpretation principles)
Easthampton Congregational Church v. Church Mut. Ins. Co., 916 F.3d 86 (1st Cir. 2019) (use plain and ordinary meaning in contract interpretation)
Brazas Sporting Arms, Inc. v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1 (1st Cir. 2000) (consider what an objectively reasonable insured would expect)
Valley Forge Ins. Co. v. Field, 670 F.3d 93 (1st Cir. 2012) (ambiguities in insurance policies construed against insurer)
DiLuglio v. New Eng. Ins. Co., 959 F.2d 355 (1st Cir. 1992) (explaining claims‑made policy framework)
Center for Blood Research, Inc. v. Coregis Ins. Co., 305 F.3d 38 (1st Cir. 2002) (distinguishing mere information subpoenas from investigative orders for coverage analysis)