Peabody Essex Museum, Inc. v. United States Fire Insurance
802 F.3d 39
1st Cir.2015Background
- Peabody Essex Museum (Museum) discovered historic subsurface oil contamination migrating to a neighbor in 2003, notified the state and tendered claims to its insurer, U.S. Fire, under a CGL policy covering Dec. 19, 1983–Dec. 19, 1985 (with a sudden-and-accidental polluter exception).
- U.S. Fire accepted defense of the public (state) claim under a reservation of rights in March 2004 but then largely failed to pay defense costs or investigate for years; the Museum retained counsel and consultants and sued U.S. Fire in 2006.
- At summary judgment (2007) the district court found U.S. Fire breached its duty to defend; under Massachusetts law (Polaroid) that shifts the burden to the insurer to prove lack of coverage at trial.
- A 2009 jury found U.S. Fire failed to prove the release began after the policy period and failed to prove a definitive start date; Boston Gas (2009) issued while post-trial allocation remained pending, endorsing pro rata allocation for progressive pollution.
- The district court adopted a start date tied to the insurer’s policy period (Dec. 19, 1983), applied a fact‑based allocation (using the Museum’s revised expert), and awarded indemnity plus punitive damages under Mass. Gen. Laws ch. 93A; the First Circuit affirmed coverage/allocation rulings but reversed the Chapter 93A finding and vacated related punitive damages and fees.
Issues
| Issue | Plaintiff's Argument (Museum) | Defendant's Argument (U.S. Fire) | Held |
|---|---|---|---|
| Duty to defend / Polaroid burden shift | U.S. Fire breached duty to defend by not paying or investigating; Polaroid shifts burden to insurer to prove no coverage | Polaroid should not apply because U.S. Fire reimbursed only after insured controlled defense or because insurer had reasonableness defenses | Affirmed breach; Polaroid applies—insurer’s long failure to pay/act constituted wrongful denial and insurer bears burden to prove lack of coverage |
| Use of Boston Gas pro rata allocation vs joint and several | Insured argued for full recovery/joint and several because insurer failed to prove timing | Insurer argued failure of proof should preclude Boston Gas proration and favor insurer (or earlier start date) | Boston Gas applies; pro rata allocation governs progressive pollution and failure of proof does not entitle insured to full indemnity |
| Allocation start date and method (time-on-risk vs fact-based) | Museum urged allocation consistent with jury and fact-based method using its expert; start date tied to policy start is permissible given insurer’s burden | U.S. Fire urged earlier start (e.g., 1979) or that time-on-the-risk should govern because the court’s chosen Dec. 19, 1983 date is artificial | Court did not abuse discretion: selecting Dec. 19, 1983 as start (as least favorable to insurer given its burden) and using a fact-based allocation was acceptable under Boston Gas and the record |
| Chapter 93A business-to-business claim for bad faith settlement | Museum argued U.S. Fire’s delay, fractional payments, and settlement conduct were egregious and willful under Ch. 93A § 11 | U.S. Fire argued conduct reflected disputes over billing, reasonableness, and complex litigation; not the kind of rascality Chapter 93A requires | Reversed: district court erred as a matter of law by treating Ch. 176D proof as dispositive for Ch. 93A § 11; record lacks egregious, extortionate conduct required for Ch. 93A liability |
Key Cases Cited
- Polaroid Corp. v. Travelers Indem. Co., 610 N.E.2d 912 (Mass. 1993) (insurer that wrongfully declines to defend must bear burden of proving no coverage)
- Boston Gas Co. v. Century Indem. Co., 910 N.E.2d 290 (Mass. 2009) (rejects joint-and-several for progressive pollution; endorses pro rata allocation and permits fact-based method with time-on-risk as default)
- Sarnafil, Inc. v. Peerless Ins. Co., 636 N.E.2d 247 (Mass. 1994) (reservation of rights with no defense action can constitute breach of duty to defend)
- R.W. Granger & Sons, Inc. v. J & S Insulation, Inc., 754 N.E.2d 668 (Mass. 2001) (example of conduct rising to Chapter 93A liability: unexplained delay, hollow settlement effort, groundless legal stance)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standards)