Sanders v. Phoenix Insurance Company
843 F.3d 37
| 1st Cir. | 2016Background
- John Doe (insured) began an intimate relationship with Nancy Andersen, a vulnerable client; she later committed suicide after Doe missed an appointment. Doe had not withdrawn as her counsel.
- Nancy's executor, Harry Sanders, sent Doe a Chapter 93A demand and later sued; Doe assigned his rights under his homeowner policy (Phoenix) to Sanders after settling with the law firm for $500,000 and agreeing he owed another $500,000 collectible only from insurance proceeds.
- Phoenix denied coverage, asserting (1) Andersen's death was not an "occurrence" triggering coverage and (2) the policy's professional‑services exclusion barred coverage; Phoenix also declined to defend or settle pre‑suit.
- Sanders sued Phoenix in state court; Phoenix removed to federal court on diversity grounds. The district court dismissed for failure to state a claim; Sanders appealed.
- The First Circuit applied Massachusetts law and accepted the complaint facts as true for Rule 12(b)(6) review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Phoenix had a duty to defend pre‑suit (Chapter 93A demand / mediation) | Sanders: policy language and references to "claims" require defense of pre‑suit demands and mediation; Chapter 93A letter and mediation were functionally equivalent to a suit | Phoenix: policy obligates defense only when a "suit" is brought; insurer may investigate or settle claims but need not defend before suit | Court: No duty to defend pre‑suit. Policy requires a "suit" to trigger defense; Chapter 93A letter and voluntary mediation are not equivalent to a suit under Massachusetts law |
| Whether Hazen Paper exception (pre‑suit administrative demand triggers defense) applies | Sanders: Chapter 93A demand produces severe consequences (multiple damages, fees) so it should trigger defense like the CERCLA notice in Hazen Paper | Phoenix: Hazen Paper was narrow and tied to CERCLA's exceptional administrative consequences; Chapter 93A is a conventional demand letter | Court: Hazen Paper exception is narrow; Chapter 93A demand is not analogous to CERCLA notice and does not trigger duty to defend |
| Duty to indemnify absent duty to defend / final judgment | Sanders: indemnity obligation separate; insurer may owe indemnity even if no duty to defend | Phoenix: Massachusetts law: no duty to indemnify if no duty to defend; policy requires final judgment or insurer‑signed agreement before indemnity action | Court: Affirmed — no duty to indemnify where no duty to defend; moreover policy bars suit for indemnity until final judgment or agreement by Phoenix |
| Chapter 176D / unfair settlement practices claim | Sanders: Phoenix unfairly refused to effectuate prompt, fair settlement and violated unfair practices statutes | Phoenix: No duty to settle where coverage properly denied; liability was not reasonably clear; no coverage meant no statutory violation | Court: Claim fails — no duty to settle absent coverage or reasonably clear liability; romantic‑partner liability for suicide is not reasonably clear under Massachusetts law |
Key Cases Cited
- SEC v. Tambone, 597 F.3d 436 (1st Cir.) (standard for accepting complaint facts on Rule 12(b)(6) review)
- Artuso v. Vertex Pharm., Inc., 637 F.3d 1 (1st Cir.) (de novo review of dismissal under Rule 12(b)(6))
- Ambrose v. New Eng. Ass'n of Schs. & Colls., Inc., 252 F.3d 488 (1st Cir.) (predicting state supreme court law in diversity cases)
- Billings v. Commerce Ins. Co., 936 N.E.2d 408 (Mass. 2010) (duty to defend arises when complaint reasonably susceptible of a covered claim)
- Hazen Paper Co. v. U.S. Fidelity & Guar. Co., 555 N.E.2d 576 (Mass. 1990) (CERCLA notice letter can trigger duty to defend in limited circumstances)
- Bagley v. Monticello Ins. Co., 720 N.E.2d 813 (Mass.) (duty to defend is broader than duty to indemnify; lack of duty to defend precludes duty to indemnify)
- B & T Masonry Constr. Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36 (1st Cir.) (policy language controls scope of duty to defend)
- Golchin v. Liberty Mut. Ins. Co., 993 N.E.2d 684 (Mass. 2013) (interpret policy words by plain meaning and whole document)
- Bos. Gas Co. v. Century Indem. Co., 910 N.E.2d 290 (Mass. 2009) (apply contract interpretation rules to insurance policies)
- Certain Interested Underwriters at Lloyd's, London v. Stolberg, 680 F.3d 61 (1st Cir.) (specific policy provisions take precedence over general ones)