Winbrook Communication Services, Inc. v. United States Liability Insurance Co.
89 Mass. App. Ct. 550
| Mass. App. Ct. | 2016Background
- Winbrook provided development services and goods for a children’s storybook project after DSG (and its principal York) allegedly made negligent misrepresentations promising future payment. The project never went to market.
- DSG gave USLIC notice of Winbrook’s claim; USLIC denied coverage and declined to defend. DSG defaulted in the underlying suit and a Superior Court entered a default judgment for Winbrook (~$597,633 plus interest, later adjusted).
- Winbrook sued USLIC for declaratory relief and damages (breach of contract as a third‑party beneficiary, unjust enrichment, G. L. c. 93A). Cross motions for summary judgment followed; limited discovery occurred because an early protective order curtailed investigation into DSG’s gains.
- The policy’s insuring agreement covered negligent misrepresentation as a “Wrongful Act,” but contained Exclusion C barring coverage for any insured “gaining in fact any profit, benefit, remuneration or advantage to which such Insured was not legally entitled.”
- The Superior Court ultimately granted USLIC summary judgment, holding Exclusion C applied because DSG obtained an advantage (an extension of credit/opportunity) from Winbrook’s unpaid work. The Appeals Court vacated that judgment and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the underlying claim was a covered "Wrongful Act" triggering duty to defend | Winbrook: complaint pleaded negligent misrepresentation (expressly covered); damages arising from misrepresentation do not turn covered tort into excluded contract claims | USLIC: claims were really trade‑debt/breach of contract and thus not a "Wrongful Act" under the policy | Held: The complaint alleged negligent misrepresentation and USLIC, having refused to defend, was bound by the default on that tort claim; duty to defend existed and was breached. |
| Whether Exclusion C (personal profit exclusion) bars coverage because DSG gained an advantage "in fact" | Winbrook: DSG received no actual goods or profit; "in fact" should require a real, not merely speculative, gain | USLIC: DSG obtained an advantage/opportunity (e.g., extension of credit, potential to profit) sufficient to trigger the exclusion | Held: An opportunity can constitute an "advantage in fact," but material factual disputes remain whether DSG in fact obtained such an advantage; summary judgment for USLIC was improper. |
| Burden of proof on summary judgment regarding exclusion | Winbrook: exclusion inapplicable as a matter of law because no actual gain; relied on DSG principal affidavit | USLIC: relied on Winbrook's own submissions to show exclusion applied | Held: Once insured showed coverage, insurer (USLIC) bore the burden to show the exclusion applied; USLIC failed to present evidence that DSG actually gained an advantage, so genuine dispute remains. |
| Effect of default judgment against insured on insurer's coverage defenses | Winbrook: default conclusively establishes tort liability and binds insurer that breached duty to defend | USLIC: contended lack of coverage was apparent from complaint, so it had no duty to defend or indemnify | Held: Where insurer wrongfully refuses to defend, it is bound by the underlying default judgment as to matters material to recovery; insurer may still contest indemnity only on facts not decided in the underlying action (e.g., DSG's gains). |
Key Cases Cited
- Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352 (insurer who wrongfully refuses to defend is bound by the underlying judgment as to material facts)
- Blais v. Quincy Mut. Fire Ins. Co., 361 Mass. 68 (insurer bound by default judgment after notice and opportunity to defend)
- Boazova v. Safety Ins. Co., 462 Mass. 346 (standard of review for summary judgment)
- Jarvis Christian College v. National Union Fire Ins. Co. of Pittsburgh, Penn., 197 F.3d 742 (5th Cir.) ("advantage in fact" may include opportunity to make a profit)
- TIG Specialty Ins. Co. v. PinkMonkey.com Inc., 375 F.3d 365 (5th Cir.) (opportunity to profit can trigger a personal profit exclusion)
- Wintermute v. Kansas Bankers Sur. Co., 630 F.3d 1063 (fact issue whether insured in fact gained a personal profit precludes summary judgment)