Harry SANDERS, Executor of the Estate of Nancy A. Andersen and Assignee of John Doe, Plaintiff, Appellant, v. The PHOENIX INSURANCE COMPANY and The Travelers Indemnity Company of America, Defendants, Appellees.
No. 15-2539
United States Court of Appeals, First Circuit.
December 7, 2016
843 F.3d 37
Before LYNCH and SELYA, Circuit Judges, and BURROUGHS, District Judge.
Hon. George A. O‘Toole, Jr., U.S. District Judge; Hon. Jennifer Boal, U.S. Magistrate Judge
For the reasons explained above, this interlocutory appeal is dismissed.
Wystan M. Ackerman, with whom Jonathan E. Small and Robinson & Cole LLP were on brief, for appellees.
SELYA, Circuit Judge.
This case begins with a tragic tale of unrequited love and morphs into a series of imaginative questions regarding the coverage available under a standard form homeowner‘s insurance policy. But when imagination runs headlong into settled legаl precedent, imagination loses. Recognizing as much, the court below dismissed the complaint. After careful consideration, we affirm.
I. BACKGROUND
This diversity suit arises from the refusal of The Phoenix Insurance Company to defend and/or indemnify its named insured, an attorney whom we (like the court below) shall call “John Doe,” against claims advanced by Harry Sanders, suing in his capacities as executor of the estate of Nancy A. Andersen (his deceased spouse) and as Doe‘s assignee.1 Inasmuch as the district court dismissed Sanders‘s complaint for failure to state a claim upon which relief could be granted, we take as true the raw facts as alleged in the complaint. See SEC v. Tambone, 597 F.3d 436, 441-42 (1st Cir. 2010) (en banc).
Doe met Andersen in January of 2011 when she sought legal representation in possible divorce proceedings against Sand-
The relationship did not go smoothly. As the fall of 2011 approached, Doe‘s ardor cooled and he became progressively distant. Correspondingly, Andersen‘s anxiety increased. Matters came to a head when, on or around October 1, 2011, Doe promised to join Andersen at her apartment. He did not do so. Distraught, Andersen wrote a suicide note lamenting Doe‘s inсonstancy and proceeded to drink herself to death. Doe tried unsuccessfully to contact Andersen by telephone the next day. When he could not reach her, he went to her apartment and discovered her body.
Sanders was appointed as executor of Andersen‘s estate. Slightly over a year after Andersen‘s death, he sent Doe a demand letter pursuant to
In a letter dated September 19, 2013, Sanders notified Phoenix that he and Doe planned to mediate their dispute and invited Phoenix to participate. Phoenix declined the invitation. About three weeks later, Doe sought to have Phoenix reconsider its denial of coverage, infоrming it that Sanders was advancing a claim for negligent infliction of emotional distress. Unmoved, Phoenix reiterated its denial of coverage.
Eventually, Doe, Doe‘s law firm, and Sanders reached an accord: the law firm‘s insurers agreed to pay Sanders $500,000 in exchange for a release of all claims against the firm. Ancillary to the settlement, Doe agreed that his personal liability to Sanders amounted to an additional $500,000 and assigned to Sanders all of Doe‘s rights and interests under the Policy vis-à-vis Andersen‘s death and any claims that he might have against Phoenix as a result of its failure to defend and/or indemnify him.3 Sanders followed up by sending a Chapter 93A demand letter to Phoenix, see supra note 2, accusing it of unfair settlement practices and demanding $500,000 (the limit of liability under the Policy). Phoenix refused the demand.
Sanders repaired to a Massachusetts state court and filed this suit. Citing diversity of citizenship and the existence of a controversy in the requisite amount, Phoenix removed the case to the federal district court. See
II. ANALYSIS
We review a district court‘s dismissal of a complaint for failure to state a claim de novo. See Artuso v. Vertex Pharm., Inc., 637 F.3d 1, 5 (1st Cir. 2011). Accepting as true all well-pleaded facts contained in the complaint, we are constrained to draw all reasonable inferences in the pleader‘s favor. See id. Where relevant, we may supplement the pleaded facts with “documentation incorporated by reference in the complaint.” Rivera-Díaz v. Humana Ins. of P.R., Inc., 748 F.3d 387, 388 (1st Cir. 2014); see Hidalgo-Vélez v. San Juan Asset Mgmt., Inc., 758 F.3d 98, 101-02 (1st Cir. 2014).
Because this case is brought in diversity jurisdiction, we must look to state law for the substantive rules of decision. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The parties agree that Massachusetts law applies, and we readily embrace that sensible agreement. See Artuso, 637 F.3d at 5 (“In determining which state‘s law applies, a diversity court is free to honor the parties’ reasonable agreement.“).
If we are unable to discern any controlling Massachusetts authority on a particular point, we must make an “informed prophecy” аs to how the state‘s highest court—the Supreme Judicial Court (SJC)—would rule if faced with the issue. Ambrose v. New Eng. Ass‘n of Schs. & Colls., Inc., 252 F.3d 488, 498 (1st Cir. 2001). Our prediction may be “guided, inter alia, by persuasive case law from other jurisdictions and relevant public policy considerations.” Id.
A. Alleged Breach of Duty to Defend.
We start with Sanders‘s principal remonstrance (asserted in his capacity as Doe‘s assignee): that Phoenix forsook its duty to defend Doe against the claims advanced by Sanders. In Massachusetts, the duty to defend under an insurance policy arises “when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms.” Billings v. Commerce Ins. Co., 458 Mass. 194, 936 N.E.2d 408, 414 (2010). When determining whether an insurer has a duty to defend, an inquiring court must consider “the facts alleged in the complaint, and [any] facts known or readily knowable by the insurer that may aid in its interpretation of the allegations in the complaint.” Id. The precise scope of an insurer‘s duty to defend is defined by the insurance policy itself, to which we apply familiar rules of contract interpretation. See B & T Masonry Constr. Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 39 (1st Cir. 2004); Bоs. Gas Co. v. Century Indem. Co., 454 Mass. 337, 910 N.E.2d 290, 304 (2009). We interpret the words of the policy in light of their plain meaning, considering the document as a whole. See B & T Masonry, 382 F.3d at 39; Golchin v. Liberty Mut. Ins. Co., 466 Mass. 156, 993 N.E.2d 684, 688 (2013). Our construction must be consistent with what an objectively reasonable insured, reading the relevant policy language, would expect the words to mean. See Hazen Paper Co. v. U.S. Fid. & Guar. Co., 407 Mass. 689, 555 N.E.2d 576, 583 (1990). If this analysis yields two reasonable (but conflicting) interpretations of the policy‘s text, the insured must be given the benefit of the interpretation that redounds to his benefit. See id.
In the case at hand, the Policy (to which we add our own emphasis and removе original emphasis) states in pertinent part:
If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, even if the claim or suit is false, we will:
....
b. provide a defense at our expense of counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate.
In Phoenix‘s view, the Policy therefore provides that it must only furnish counsel to defend the insured in the face of a suit but may investigate and settle a claim. Thus, it has no obligation to provide a defense in the absence of a suit.
Sanders demurs. He points to the Policy‘s other references to claims or suits and asseverates that the Policy obligates the insurer to defend broadly against presuit claims. This asseveration lacks force. The majority of the references that Sanders identifies come from the Policy‘s credit card, fund transfer card, forgery, and counterfeit money provision, which covers losses of up to $1,000 incurred due to unauthorized use of the insured‘s credit cards or similar forms of financial misfeasance. The particular subsection most loudly bruited by Sandеrs states:
Defense:
a. ... OUR OBLIGATION TO DEFEND ANY CLAIM OR SUIT ENDS WHEN THE AMOUNT WE PAY FOR THE LOSS EQUALS OUR LIMIT OF LIABILITY.
b. If a claim is made or a suit is brought against any insured for liability under the Credit Card or Fund Transfer Card coverage, we will provide a defense at our expense by counsel of our choice.
The location of these statements within the credit card provision, coupled with the fact that the claims asserted in this case in no way implicate that coverage, persuasively indicates that the language cannot reasonably be read to support Sanders‘s broader argument concerning the scope of the bаsic liability coverage afforded by the Policy. While an insurance policy must be read as a whole, see Golchin, 993 N.E.2d at 688, that prescription does not give a party license to transplant randomly words from one provision into the inhospitable soil of an entirely different provision.
Sanders’ next argument is no more convincing. He notes that the Policy states that Phoenix will cover “reasonable expenses incurred by any insured at [its] request ... for assisting [it] in the investigation or defense of any claim or suit.” Using this clause as a springboard, he contends that Phoenix hаs undertaken a duty to defend claims as well as suits.
This glib reading of the quoted language does not withstand scrutiny. Giving the language its natural meaning, it denotes no more than that—if the company does investigate either a claim or a suit—it will reimburse any reasonable expenses incurred by the insured. An objectively reasonable insured, reading this language, would surely come to this conclusion.
Of course, the general rule that there is no duty to defend before the filing of a suit is not ironclad. For example, the SJC has held that a Comprehensive Environmental Respоnse, Compensation, and Liability Act (CERCLA) notice letter from the federal
In the last analysis, though, the SJC‘s decision in Hazen Paper was quite narrow and case-specific. Among other things, the SJC took great pains to distinguish the CERCLA letter from a “conventional demand letter based on a personal injury claim.” Id. at 581.
Sanders argues that this case comes within the confines of the Hazen Paper exception because of his Chapter 93A letter to Doe. In support, he notes that failure either to respond to a Chapter 93A letter or to make a reasonable settlement offer can expose the insured to multiple damages, attorneys’ fees, and costs.
In Hazen Paper, the failure to participate in the administrative process would have all but forfeited the insured‘s case. Ignoring a Chapter 93A demand letter,
The short of it is that Chapter 93A demand letters are fairly comparable to demand letters sent in anticipation of garden-variety personal injury litigation. Given the frequency with which they are used and the important differences that distinguish them from CERCLA letters, we are reluctant to widen the narrow boundaries sketched by the Hazen Paper court and hold that Chapter 93A demand letters are a functional equivalent of a suit. In our view, such restraint is particularly appropriate given our status as a federаl court predicting state law. Cf. Katz v. Pershing, LLC, 672 F.3d 64, 73-74 (1st Cir. 2012) (declining to recognize novel exception to “bright-line rule” of state law because “federal diversity courts are charged with ascertaining state law, not with reshaping it“).
If more were needed—and we do not think that it is—there is substantial reason to doubt, based on the facts of this case, whether a failure to respond to the Chapter 93A letter would have brought about the consequences that Sanders gloomily predicts. Chapter 93A applies to “acts or practices in the conduct of any trade or commerce.”
Sanders also submits that the mediation in which he and Doe participated was the functional equivalent of a suit and, thus, triggered the duty to defend. For this proposition, he relies on the decision in Selective Insurance Co. v. Cherrytree Cos., 376 Ill. Dec. 159, 998 N.E.2d 701 (2013). There, the insurer denied coverage for a disputed claim, and the insured entered into a settlement agreement with the claimant without suit having been filed. See id. at 702-03. The court held that the absence of a lawsuit did not insulate the insurer from liability, explaining that “the indemnification provision in the policy ... did not require the filing of a ‘suit.‘” Id. at 709-10.
Sanders‘s reliance on Cherrytree is triply misplaced. First, Cherrytree is an Illinois case, never adopted by the Massachusetts courts. Second, it is black-letter law that the policy language determines the scope of coverage, see B & T Masonry, 382 F.3d at 39, and the Policy on which Sanders sues contains no provision allowing indеmnification without suit. Third, the Cherrytree decision did not in any way implicate the duty to defend. See Wesco Ins. Co. v. Regas, No. 14 C 716, 2015 WL 500702, at *6 (N.D. Ill. Feb. 3, 2015) (observing that, in Cherrytree, there was “no determination of whether the insurer had a duty to defend“). Given these salient distinctions, the Cherrytree decision fails to persuade us that the SJC would conclude that the mediation conducted in this case was the functional equivalent of a suit.
Bereft of any support in the case law, Sanders‘s suggestion that mediation, in the circumstances of this case, should be regarded as the functional equivalent of a suit strikes us as patently unreasonable. The mediation to which he adverts was a less formal, more ad hoc proсeeding, and Doe‘s involvement in it was completely voluntary. So viewed, the mediation was markedly different from a lawsuit, which operates under established procedural rules and in which a defendant must participate to protect his interests. In the face of a lawsuit, mounting a defense is a necessity; in the face of a proposal to mediate, opting to participate is a strategic choice.7
In an effort to catch lightning in a bottle, Sanders emphasizes that Doe‘s desire for anonymity created an added рressure to settle before Sanders filed suit (thus making participation in mediation more imperative for fear that Doe‘s name would be exposed in public court documents). This stated concern turns a blind eye to familiar procedural protections. Sanders could have filed a motion to seal the case along with his complaint or, if he did not, Doe himself could have moved to seal. See D. Mass. R. 7.2; New Eng. Internet Café, LLC v. Clerk of Superior Ct., 462 Mass. 76, 966 N.E.2d 797, 803 (2012). In the alternative, Doe could have sought—whether by agreement or by court order—to hаve his identity safeguarded through the use of a pseudonym (which is precisely what transpired here).
To sum up, the Policy, fairly read, draws a clear distinction between the duty to defend (which applies to suits alone) and the right to investigate (which applies to both suits and claims). Giving force to this clear distinction, we hold—as did the court below—that Phoenix‘s duty to defend was never triggered (and, thus, never breached) in the circumstances of this case.
B. Other Theories of Liability.
Sanders raises a gallimaufry of other theories of liability. To begin, he asserts that, even in the absence of a duty to defend, Phoenix violated its separate duty to indemnify. In his view, the two duties are separate and distinct: the duty-to-defend analysis considers all preliminary allegations, whereas the duty-to-indemnify analysis examines the factual merits of the case. Phoenix counters that, under Massachusetts law, there can be no duty to indemnify if there is no duty to defend.
As a general matter, the duty to defend is broader than the duty to indemnify. See Bagley v. Monticello Ins. Co., 430 Mass. 454, 720 N.E.2d 813, 817 (1999). The SJC has made pellucid that “[i]f an insurer has no duty to defend, based on the allegations in the plaintiff‘s complaint, it necessarily follows that the insurer does not have a duty to indemnify.” Id. In other words, the broader duty (the duty to defend) swallows up the narrower duty (the duty to indemnify).
Here, moreover, the Policy affords us an independently sufficient reason to hold that Phoenix does not have a duty to indemnify. The Policy states that “no action with respect to [the insured‘s personal liability coverage] can be brought against [Phoenix] until thе obligation of the insured has been determined by a final judgment or [an] agreement signed by [Phoenix].” In this instance, there is neither a final judgment nor a settlement agreement executed by Phoenix; there is only a settlement negotiated between Sanders and Doe, in Phoenix‘s absence. Consequently, no action lies against Phoenix for indemnification under the terms of the Policy.
Sanders asks us to overlook this Policy language and focus instead on the Policy‘s general indemnification provision. That provision states that Phoenix will “[p]ay up to [its] limit of liability for the damages for which the insured is legally liable.” Sanders contends that the phrase “legally liable” does not logically require that the insured‘s obligation be reflected in a final judgment.
This contention ignores the more specific provision cited by Phoenix. It likewise ignores the logical import of that provision: that an insured‘s liability will either be adjudicated by a court of law or agreed to by the insurer. Massachusetts law teaches that an inquiring court normally should give a more specific policy provision priority over a more generаl policy provision, see Certain Interested Underwriters at Lloyd‘s, London v. Stolberg, 680 F.3d 61, 67 (1st Cir. 2012), and Sanders has not offered a plausible rationale for abandoning that tenet here.
This brings us to Sanders‘s common-law claims sounding in tort and breach of contract. Those claims need not detain us. The complaint predicates them largely on Phoenix‘s failure to defend or indemnify Doe. But here—as discussed above—Phoenix did not have a duty either to defend or to indemnify in the circumstances at hand.
The one remaining claim hinges on Sanders‘s allegation thаt Phoenix is guilty of unfair and deceptive trade practices in violation of Massachusetts General Laws Chapter 176D. Specifically, he alleges that Phoenix‘s liability rests on its refusal to effectuate a prompt, fair, and equitable settlement.
This claim fails for two reasons. For one thing, Phoenix has no duty to settle absent a duty either to defend or to indemnify. See Transam. Ins. Co. v. KMS Patriots, L.P., 52 Mass. App. Ct. 189, 752 N.E.2d 777, 783 (2001) (explaining that “[w]hen coverage has been correctly denied ... no violation of the Massachusetts statutes proscribing unfair or deceptive trade practices may be found“). For another thing, Massachusetts law only requires an insurer to effectuate settlement once “liability has become reasonably clear.”
In lieu of case law, Sanders relies on the Restatement (First) of Torts section 325, which providеs:
One who gratuitously undertakes with another to do an act or to render services which he should recognize as necessary to the other‘s bodily safety and thereby leads the other in reasonable reliance upon the performance of such undertaking
(a) to refrain from himself taking the necessary steps to secure his safety or from securing the then available protective action by third persons, or
(b) to enter upon a course of conduct which is dangerous unless the undertaking is carried out,
is subject to liability to the other for bodily harm resulting from the actor‘s failure to exercise reasonable care to carry out his undertaking.
Extending the type of voluntary undertaking of another‘s care that section 325 contemplates to participants in an on-again/off-again romantic relationship would involve mental gymnastics that we are not prepared to undertake. For present purposes, it suffices to say that such a leap in logic is far from reasonably clear.
III. CONCLUSION
We need go no further. For the reasons elucidated above, the judgment is
Affirmed.
BRUCE M. SELYA
UNITED STATES CIRCUIT JUDGE