Utica Mutual Insurance v. Herbert H. Landy Insurance Agency, Inc.
820 F.3d 36
1st Cir.2016Background
- Landy (an insurance agency) was insured by Utica under a Massachusetts-law professional liability policy that covers "wrongful acts" in rendering or failing to render professional insurance services and contains exclusions for "unfair competition of any type" and intentional misconduct.
- CRES, a competitor in California, sued Landy in state court alleging (1) statutory unfair business practices under California law and (2) negligence for interfering with CRES’s prospective economic advantage based on Landy’s alleged placement of surplus-lines policies and related conduct.
- Landy tendered defense to Utica; Utica filed this declaratory-judgment action in federal court in Massachusetts seeking a ruling that it had no duty to defend Landy against CRES’s negligence claim.
- District court granted summary judgment for Landy, holding Utica must defend because CRES’s negligence claim alleged errors in the performance of professional insurance services and the policy’s "unfair competition" exclusion (construed under Massachusetts law) did not apply.
- Utica appealed; the First Circuit reviewed de novo whether the complaint was "reasonably susceptible" to allegations covered by the policy and whether the exclusion precluded coverage.
Issues
| Issue | Plaintiff's Argument (Utica) | Defendant's Argument (Landy) | Held |
|---|---|---|---|
| Whether Utica has a duty to defend Landy against CRES’s negligence claim | CRES’s claim is really an unfair-business-practices dispute, not a claim arising from professional errors, so policy doesn’t apply | CRES’s negligence alleges negligent solicitation/placement, market search and filings—acts inherent to insurance brokering and thus within professional-services coverage | Duty to defend exists: complaint reasonably alleges wrongful acts in rendering professional services |
| Whether acts like soliciting/placing policies and researching the admitted market are "professional services" | Such acts are business conduct, not necessarily professional acts triggering coverage | Those activities require specialized insurance knowledge and are intrinsic to an insurance professional’s work | These activities are professional in nature and causally related to the alleged harm; covered by the policy |
| Whether the "unfair competition of any type" exclusion bars coverage for CRES’s negligence claim | "Any type" broadens unfair competition to include negligent business practices like CRES’s negligence claim | Under Massachusetts law "unfair competition" refers to consumer-confusing conduct; CRES pleaded no consumer confusion, so exclusion doesn’t apply | Exclusion construed to mean types of consumer-confusing unfair competition; it does not exclude CRES’s claim |
| Whether the exclusion’s phrase "any type" must be read to avoid surplusage by covering negligence | The intentional-misconduct exclusion covers intentional acts, so "any type" must include negligent unfair competition or else be surplus | "Any" expands types of the articular term but cannot change its core meaning; construed against insurer when ambiguous | "Any type" cannot transform the term; reasonable construction favors insured and does not encompass CRES’s negligence claim |
Key Cases Cited
- Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 951 N.E.2d 662 (Mass. 2011) (duty to defend standard and contra proferentem principles)
- Roe v. Fed. Ins. Co., 587 N.E.2d 214 (Mass. 1992) (definition and scope of professional services coverage)
- Massamont Ins. Agency, Inc. v. Utica Mut. Ins. Co., 489 F.3d 71 (1st Cir. 2007) (professional-liability coverage boundaries)
- Bagley v. Monticello Ins. Co., 720 N.E.2d 813 (Mass. 1999) (labels in complaints not dispositive for coverage analysis)
- Datacomm Interface, Inc. v. Computerworld, Inc., 489 N.E.2d 185 (Mass. 1986) (common-law meaning of unfair competition and consumer-confusion focus)
- Med. Records Assocs., Inc. v. Am. Empire Surplus Lines Ins. Co., 142 F.3d 512 (1st Cir. 1998) (distinguishing professional acts from ordinary business activities)
- Visiting Nurse Ass’n v. St. Paul Fire & Marine Ins. Co., 65 F.3d 1097 (3d Cir. 1995) (examples of policy breadth affecting coverage of competitor claims)