Commercial Union v. Walbrook Insurance ( 1994 )


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    December 19, 1994 United States Court of Appeals United States Court of Appeals
    For the First Circuit For the First Circuit
    ____________________
    No. 94-1526

    COMMERCIAL UNION INSURANCE COMPANY,
    Plaintiff, Appellant,

    v.

    WALBROOK INSURANCE CO., LTD., ET AL.
    Defendants, Appellees.

    No. 94-1561

    COMMERCIAL UNION INSURANCE COMPANY,
    Plaintiff, Appellee,

    v.

    NATIONAL CASUALTY CO. ET AL.,
    Defendants, Appellants.
    ____________________

    APPEALS FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF MASSACHUSETTS

    [Hon. Rya W. Zobel, U.S. District Judge] ___________________
    ____________________

    ERRATA SHEET ERRATA SHEET

    On page 10, line 14, delete "Interest" and insert "Intent". ________ ______



































    United States Court of Appeals United States Court of Appeals
    For the First Circuit For the First Circuit
    ____________________
    No. 94-1526

    COMMERCIAL UNION INSURANCE COMPANY,
    Plaintiff, Appellant,

    v.

    WALBROOK INSURANCE CO., LTD., ET AL.
    Defendants, Appellees.

    No. 94-1561

    COMMERCIAL UNION INSURANCE COMPANY,
    Plaintiff, Appellee,

    v.

    NATIONAL CASUALTY CO. ET AL.,
    Defendants, Appellants.
    ____________________

    APPEALS FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF MASSACHUSETTS

    [Hon. Rya W. Zobel, U.S. District Judge] ___________________
    ____________________

    Before

    Selya, Circuit Judge, _____________
    Campbell, Senior Circuit Judge, ____________________
    and Stahl, Circuit Judge. _____________
    ____________________

    Richard L. Neumeier with whom Parker, Coulter, Daley & White was ___________________ _______________________________
    on brief for Commercial Union Insurance Company.
    James B. Dolan with whom Erin R. Boisvert, Badger, Dolan, Parker ______________ _________________ ______________________
    & Cohen, Robert J. Brown, Mark A. DiTaranto, and Mendes & Mount were _______ _______________ _________________ _______________
    on brief for Walbrook Insurance Co., Ltd., et al.

    ____________________
    December 5, 1994
    ____________________

















    STAHL, Circuit Judge. For the second time, we STAHL, Circuit Judge. _____________

    examine issues arising out of a dispute between Commercial

    Union Insurance Company ("CU") and Walbrook Insurance et al.

    (collectively, "Weavers") concerning Weavers's obligation to

    indemnify CU under an insurance contract. On initial appeal,

    we reversed the district court's grant of summary judgment in

    favor of Weavers and remanded the case for further

    proceedings consistent with our opinion. Commercial Union _________________

    Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047 (1st Cir. 1993) _________ __________________

    ("Commercial Union I"). Both parties now challenge the ____________________

    district court's entry of judgment for CU and denial of

    cross-motions to amend or alter that judgment. Weavers has

    also moved to dismiss CU's appeal. We deny the motion to

    dismiss and affirm the entry of judgment below.

    I. I. __

    FACTUAL BACKGROUND AND PRIOR PROCEEDINGS FACTUAL BACKGROUND AND PRIOR PROCEEDINGS ________________________________________

    Between 1973 and 1975, a CU loss-prevention

    inspector conducted several safety inspections of the

    Peterson/Puritan aerosol-packing plant in Cumberland, Rhode

    Island. On January 17, 1976, a gas line exploded at the

    plant, killing four people and injuring several others. Two

    years later, victims filed several suits naming CU as

    defendant ("Peterson claims"). CU eventually settled the

    Peterson claims. CU expended $2,502,874.30 for defense and

    in settlement of the claims. Ultimately, CU obtained primary



    -2- 2













    indemnification in the amount of $1,000,000 from American

    Employers Insurance Company ("American Employers"), CU's

    primary corporate insurer for the period July 1, 1976 through

    July 1, 1979.1

    At the time of the explosion, the Travelers

    Insurance Company had issued to CU a primary corporate

    liability policy ("Travelers Policy") effective from January

    1, 1976, to July 1, 1976. The Travelers Policy provided

    occurrence-based coverage2 during the policy period for up

    to $1 million of CU liability. The main body of the

    Travelers Policy specifically excluded occurrences involving

    malpractice by CU's engineers. This gap was partially filled

    by a separate Engineers Professional Liability Endorsement

    issued by Travelers ("Travelers EPL Endorsement"). The

    Travelers EPL Endorsement provided claims-based coverage.3

    As the Commercial Union I panel noted, the ____________________

    Travelers Policy and the Travelers EPL Endorsement left CU

    with a gap in its coverage with respect to occurrences

    resulting from engineer malpractice for which no claim was

    filed during the policy period. Consequently, at the time of

    ____________________

    1. American Employers is not a party to this case.

    2. Occurrence-based insurance provides coverage if the act
    giving rise to the claim occurred during the policy period,
    regardless of when the claim is filed.

    3. Claims-based insurance provides coverage for claims made
    during the policy period regardless of when the acts giving
    rise to the claims occurred.

    -3- 3













    the explosion, CU also carried an umbrella policy issued by

    Weavers ("Weavers Umbrella").4 Under the first section of

    the main body of the Weavers Umbrella, captioned "COVERAGE,"

    the policy expressly covered "all sums . . . imposed upon

    [CU] by law . . . or assumed under contract or agreement . .

    . for damages on account of . . . personal injuries, property

    damage, [or] advertising liability . . . arising out of each

    occurrence happening anywhere in the world."5

    The next section of the main body of the Weavers

    Umbrella, captioned "LIMIT OF LIABILITY," provided that

    Weavers would only be liable for the ultimate net loss in

    excess of either "(a) the limits of the underlying insurances

    as set out in the attached schedule in respect of each

    ____________________

    4. "Umbrella" policies differ from standard excess insurance
    policies in that they are designed to fill gaps in coverage
    both vertically (by providing excess coverage) and
    horizontally (by providing primary coverage). Commercial __________
    Union I, 7 F.3d at 1053. In the latter instance, the ________
    Umbrella is said to "drop down" to provide primary coverage
    where the underlying policy provides no coverage at all.

    5. Under the Weavers policy, the term "occurrence" was
    defined as follows:

    The term "Occurrence" wherever used
    herein shall mean an accident or a
    happening or event or a continuous or
    repeated exposure to conditions which
    unexpectedly and unintentionally results
    in personal injury, property damage or
    advertising liability during the policy
    period. All such exposure to
    substantially the same general conditions
    existing at or emanating from one
    premises location shall be deemed one
    occurrence.

    -4- 4













    occurrence covered by said underlying insurances" or "(b)

    $25,000 ultimate net loss in respect of each occurrence not

    covered by said underlying insurances . . . ."

    To the Weavers Umbrella was attached an EPL

    Endorsement ("Weavers EPL Endorsement"). The terms of the

    Weavers EPL Endorsement provided that it was to "include

    Engineers Professional Liability as more fully described in

    the underlying General Liability Policy/ies" (referencing the

    Travelers Policy) and that such coverage "is subject to the

    same warranties, terms and conditions . . . as are contained

    in the said underlying policy/ies . . . ." The parties agree

    that because this language specifically incorporates the

    provisions of the Travelers EPL Endorsement, the Weavers EPL

    Endorsement provided claims-based coverage.

    Subsection (a) of the Weavers EPL Endorsement

    captioned "LIMIT OF LIABILITY," provided that Weavers would

    only be liable for the ultimate net loss in excess of "[t]he

    limits of the underlying insurances as set out in the

    attached schedule in respect of each occurrence covered by

    said underlying insurances." If the liability was not

    covered by another policy, subsection (b) of the Weavers EPL

    Endorsement ("Liability Amendment") provided coverage for

    "the excess of . . . $25,000 ultimate nett [sic] loss in

    respect of each occurrence not covered by said underlying

    insurances but in respect of engineering services liability



    -5- 5













    $250,000 ultimate nett [sic] loss [for] each occurrence not

    covered by said underlying insurances." In effect,

    subsection (b) provides for a deductible when the Umbrella

    "drops down" to provide coverage not covered under the

    underlying policy ("$250,000 deductible"). An attachment

    captioned "Schedule of Underlying Insurances" lists the

    Travelers Policy.

    Initially, Travelers undertook the defense of the

    Peterson claims. Then, in 1982, CU determined that it had

    not made its claim for coverage during the Travelers Policy

    period. Accordingly, CU released Travelers from any further

    obligations in connection with the explosion. Weavers then

    informed CU that its Umbrella would not cover the Peterson

    claims. In November 1982, CU brought the present action,

    seeking a judicial declaration as to whether the Weavers

    Umbrella covered the Peterson claims.

    Following extensive discovery, both parties sought

    summary judgment. CU argued that the main body of the

    Weavers Umbrella covered EPL claims on an occurrence basis

    and that the Weavers EPL Endorsement provided additional

    coverage on a claims basis. Weavers argued that the Weavers

    EPL Endorsement was the sole source of EPL coverage and,

    because the EPL Endorsement was claims-based, there was,

    accordingly, no coverage under either the Weavers Umbrella or

    the Weavers EPL Endorsement. The district court largely



    -6- 6













    adopted the latter reading and granted Weavers's motion for

    summary judgment.

    On appeal, the Commercial Union I panel reversed. ___________________

    Interpreting the various policy provisions, the panel

    concluded that the main body of the Weavers Umbrella provided

    occurrence-based EPL coverage and thus covered the Peterson

    claims. Commercial Union I, 7 F.3d at 1049. Consequently, ___________________

    the panel ordered that the judgment in favor of Weavers be

    vacated and that judgment be entered for CU, in proceedings

    consistent with the panel's opinion. Weavers's petition for

    rehearing and rehearing en banc was denied.

    In this appeal, we are asked to review issues

    arising from the subsequent proceedings before the district

    court. CU moved that the district court enter judgment for

    $1,502,874.30 plus interest6 to be calculated at 12%, the

    prejudgment interest rate for contractual disputes under

    Massachusetts law. In its response, Weavers argued that the

    $1,502,874.30 was subject to the $250,000 deductible and that

    prejudgment interest should be determined by reference to

    federal law. As to the prejudgment-interest issue, Weavers

    argued in the alternative that if state law applied, the

    ____________________

    6. In its brief in Commercial Union I, CU explained: ____________________
    "Commercial Union . . . does not seek to hold Weavers liable
    for $2,227,874.30 [sic] ($2,502,874.30 [settlement and
    defense costs related to the Peterson claims] less the
    $250,000 retention). Commercial Union seeks to recover only
    the amount it is out of pocket caused by Weavers'[s] breach:
    $1,502,874.30 plus interest."

    -7- 7













    correct Massachusetts statute set the rate at 6%. The

    district court, finding that the Commercial Union I panel had __________________

    "rested judgment upon" the validity of the $250,000

    deductible, applied the deductible, ordered entry of judgment

    for CU in the amount of $1,252,874.30, found state law to

    govern interest, and ordered that prejudgment interest be

    calculated at the rate of 12%. The district court entered

    judgment for $2,749,326.48.

    Pursuant to Fed. R. Civ. P. 59, both parties filed

    motions seeking to alter or amend the judgment. The district

    court denied both motions.7 CU appealed, and Weavers cross

    appealed. CU requested that Weavers post a bond pursuant to

    Fed. R. Civ. P. 62. When Weavers refused, CU obtained an

    execution. CU then received payment from all defendants

    except Walbrook and Slater, Walker and has accepted checks

    totaling $2,314,758.61. CU refused to execute a satisfaction

    of judgment. Weavers moved to dismiss CU's appeal. The

    motion to dismiss was denied without prejudice pending

    reconsideration by this panel.

    II. II. ___

    DISCUSSION DISCUSSION __________






    ____________________

    7. The judgment was amended by joint motion to correct
    technical errors.

    -8- 8













    Where, as here, the issues on appeal involve pure

    questions of law, our review is de novo.8 See, e.g., __ ____ ___ ____

    Villafane-Neriz v. Federal Deposit Ins. Corp., 20 F.3d 35, 39 _______________ __________________________

    (1st Cir. 1994). On appeal, CU makes two principal

    arguments: (1) that the district court erred in stacking the

    $250,000 deductible on top of the payment received from

    American Employers; and (2) that Weavers waived its right to

    argue for alternate relief in application of the deductible.

    In its cross appeal, Weavers argues: (1) that the district

    court erred in applying state law to award prejudgment

    interest; and, in the alternative, (2) that, if state law

    applies, the district court applied the incorrect law. On

    its motion to dismiss CU's appeal, Weavers argues that, in

    executing the district court's judgment, CU waived its right

    to appeal. We first address Weavers's motion to dismiss,

    then CU's appeal and, finally, Weavers's cross appeal.

    A. Weavers's Motion to Dismiss _______________________________

    In its motion to dismiss, Weavers argues that,

    because CU executed judgment against all defendants except

    Walbrook and Slater, Walker, CU has "accept[ed] the

    ____________________

    8. We review the district court's decision to deny a motion
    to alter or amend a judgment for manifest abuse of
    discretion. See, e.g., Jorge Rivera Surillo & Co. v. ___ ____ ______________________________
    Falconer Glass Indus., No. 94-1047, slip op. at 5 (1st Cir. _____________________
    Oct. 12, 1994). As our discussion below indicates, we find
    that the district court properly entered judgment and
    therefore did not abuse its discretion in denying the motions
    under Rule 59. Accordingly, we hold that the parties' cross-
    motions under Fed. R. Civ. P. 59 were properly denied.

    -9- 9













    substantial benefits of a judgment, voluntarily and

    intentionally, and with knowledge of the facts," Fidelcor ________

    Mortgage Corp. v. Insurance Co. of N. Am., 820 F.2d 367, 370 ______________ ________________________

    (11th Cir. 1987) (citations omitted), and therefore waived

    its right to appeal. CU argues that Fidelcor, on which ________

    Weavers principally relies, should be distinguished because

    in that case Fidelcor executed a satisfaction of judgment,

    whereas CU has refused to do so.

    Our analysis must start with United States v. _____________

    Hougham, 364 U.S. 311, 312 (1960), in which the Supreme Court _______

    held that "where a judgment is appealed on the ground that

    the damages awarded are inadequate, acceptance of payment of

    the amount of the unsatisfactory judgment does not, standing

    alone, amount to an accord and satisfaction of the entire

    claim." Commentary has noted that the dimensions of the

    Court's holding are vague and courts of appeals have

    subsequently developed disparate "acceptance of benefits"

    doctrines. See, e.g., 9 James W. Moore et al., Moore's ___ ____ _______

    Federal Practice 203.06 (2d ed. 1994) (hereinafter, Moore's ________________ _______

    Federal Practice); Benson K. Friedman, Note, An Intent-Based ________________ _______________

    Approach to the Acceptance of Benefits Doctrine in the _____________________________________________________________

    Federal Courts, 92 Mich. L. Rev. 742 (1993); Annotation, _______________

    Right to Appeal From Judgment As Affected By Acceptance of _____________________________________________________________

    Benefit Thereunder -- Federal Cases, 5 L.Ed.2d 889 (1960). _____________________________________

    This Circuit has not explicitly addressed this issue since



    -10- 10













    Hougham. Notably, in Fidelcor, the Eleventh Circuit does not _______ ________

    discuss Hougham. Instead, Fidelcor relies on pre-Hougham _______ ________ _______

    common law that strictly applied the bar to appeal after

    acceptances of benefits, subject to only limited exceptions.

    We decline to follow this approach.

    While the use of the phrase "standing alone" by the

    Hougham Court does lead to some uncertainty, we think that _______

    the unique circumstances presented here fit comfortably

    within the rule of that case. As discussed fully below, CU's

    appeal focuses on the district court's application of the

    $250,000 deductible. Weavers argued for the application of

    the deductible before the district court and, except for its

    challenge to the rate of prejudgment interest raised in its

    cross appeal, Weavers does not otherwise dispute the entry of

    judgment. Under these circumstances, we do not think that CU

    should be foreclosed from appealing the deductible issue

    simply because it collected payment on what was essentially

    an undisputed amount. Indeed, this case bears out the wisdom

    of the relative flexibility incorporated in the Hougham _______

    rule.9 Accordingly, we deny Weavers's motion to dismiss.

    ____________________

    9. We note that we would have reached the same result by
    applying the post-Hougham test adopted by at least four other _______
    circuits. Under this test, a party who accepts the benefit
    of a judgment is precluded from appealing if the
    circumstances indicate a mutual intent to settle all claims
    in dispute and thereby terminate the litigation. See, e.g., ___ ____
    Gadsden v. Fripp, 330 F.2d 545, 548 (4th Cir. 1964). As the _______ _____
    discussion below amply illustrates, no such mutual intent
    exists in this case.

    -11- 11













    B. Commercial Union's Appeal _____________________________

    CU challenges the district court's interpretation

    of Commercial Union I and argues that the language of the ___________________

    Weavers Umbrella prohibits stacking the $250,000 deductible

    on top of the amount received from American Employers.

    Characterizing the deductible as "alternative relief," CU

    further argues that, because Weavers raised the application

    of the deductible only after Commercial Union I, the issue is __________________

    waived. We address each argument in turn.

    1. The $250,000 Deductible ___________________________

    The doctrine of the law of the case directs that a

    decision of an appellate court on an issue of law, unless

    vacated or set aside, governs the issue during all subsequent

    stages of litigation in the nisi prius court and thereafter ____ _____

    on any further appeal. United States v. Rivera-Martinez, 931 _____________ _______________

    F.2d 148 (1st Cir.), cert. denied, 112 S. Ct. 184 (1991). _____ ______

    When a case is appealed and remanded:

    "the decision of the appellate court
    establishes the law of the case and it
    must be followed by the trial court on
    remand. If there is an appeal from the
    judgment entered after remand, the
    decision of the first appeal establishes
    the law of the case to be followed on the
    second."

    Id. (quoting 1B Moore's Federal Practice 0.404[1] (2d ed. ___ _________________________

    1991)). When the reviewing court, in its mandate, prescribes

    that a court shall proceed in accordance with the opinion of

    the reviewing court, it incorporates its opinion into its


    -12- 12













    mandate. Jones v. Lewis, 957 F.2d 260, 262 (6th Cir.), cert. _____ _____ _____

    denied, 113 S. Ct. 125 (1992). Cf. Elias v. Ford Motor Co., ______ ___ _____ ______________

    734 F.2d 463, 465 (1st Cir. 1984) ("A mandate is completely

    controlling as to all matters before the appellate court and

    disposed of by its decree."); accord Rivera-Martinez, 931 ______ _______________

    F.2d at 150; Federal Deposit Ins. Corp. v. Ramirez-Rivera, ___________________________ ______________

    869 F.2d 624, 627 (1st Cir. 1989). The mandate constitutes

    the law of the case on such issues of law as were actually

    considered and decided by the appellate court, or as were

    necessarily inferred from the disposition on appeal. 1B

    Moore's Federal Practice 0.404[10] (2d ed. 1993). ________________________

    In Commercial Union I, the mandate directed the ___________________

    district court to conduct further proceedings "in accordance"

    with the panel's opinion. The legal issue in Commercial __________

    Union I was whether the Weavers Umbrella provided occurrence- _______

    based coverage for the Peterson claims; resolution of that

    issue required the panel to interpret the Weavers contract.

    As noted above, the panel determined that the main body of

    the Weavers Umbrella provided coverage and that the Peterson

    claims resulted from an "occurrence" within the meaning of

    the policy's definition of that term. Commercial Union I, 7 __________________

    F.3d at 1051. Importantly, the panel stated:

    Our integrated reading of the Weavers
    Umbrella policy as a whole is
    corroborated by the specific terms of the
    Liability Amendment, which contemplate
    "engineering services liability" subject
    to a $250,000 deductible, in


    -13- 13













    circumstances where, as here, the Weavers
    Umbrella "drops down" to provide primary
    coverage of risks not covered by the
    underlying [Travelers] insurance policy.
    Thus, the Liability Amendment clearly
    replaces corresponding language in the
    "LIMIT OF LIABILITY" section of the main
    body of the Weavers Umbrella. We find ________
    untenable an interpretation which would _________________________________________
    provide a $250,000 EPL "deductible" for a _________________________________________
    risk not covered in the first place. ____________________________________

    Id. at 1053 (emphasis added). As the panel stated, its ___

    reading gave "full effect" to all terms in the main body of

    the Weavers Umbrella and the Weavers EPL Endorsement, thus

    satisfying the obligation to give reasonable effect to all

    contractual terms whenever possible. Id. at 1052 (citing ___

    Jimenez v. Peninsular & Oriental Steam Nav. Co., 974 F.2d _______ ______________________________________

    221, 223 (1st Cir. 1992); Feinberg v. Insurance Co. of N. ________ _____________________

    Am., 260 F.2d 523, 527 (1st Cir. 1958) (applying ___

    Massachusetts law)).

    CU argues, in essence, that the panel's references

    to the $250,000 deductible are dicta and thus cannot _____

    constitute law of the case. See, e.g., Dedham Water Co. v. ___ ____ ________________

    Cumberland Farms Dairy, Inc., 972 F.2d 453, 459 (1st Cir. _____________________________

    1992) ("Dictum contained in an appellate court's opinion has ______

    no preclusive effect in subsequent proceedings in the same,

    or any other, case."). We do not agree with CU's argument.

    To resolve the legal issue presented in Commercial Union I, __________________

    it was essential that the panel, to the extent possible, give

    reasonable effect to all contractual terms. As the language



    -14- 14













    from the opinion quoted above suggests, giving full effect to

    the $250,000 deductible was an especially critical element in

    resolving the case. Simply stated, it was the key piece of

    the puzzle. The availability of the deductible lay at the

    heart of the integrated interpretation of the Weavers

    Umbrella and the Weavers EPL Endorsement. Moreover, the

    panel concluded that, because the Travelers Policy did not

    provide coverage for the Peterson claims, the Weavers

    Umbrella "dropped down" to provide coverage and,

    consequently, the $250,000 deductible applied. Therefore,

    the district court correctly interpreted the law of the case

    and we hold that the entry of judgment was in accordance with

    Commercial Union I's mandate. __________________

    Of course, the law of the case is a prudential

    doctrine and does not serve as an absolute bar to our

    reconsideration of an issue. Rivera-Martinez, 951 F.2d at _______________

    150-51. We do not reconsider a decision, however, "``unless

    the evidence on a subsequent trial was substantially

    different, controlling authority has since made a contrary

    decision of law applicable to such issues, or the decision

    was clearly erroneous and would work a manifest injustice.'"

    Id. (quoting White v. Murtha, 377 F.2d 428, 432 (5th Cir. ___ _____ ______

    1967)). On this appeal, CU essentially argues that the third

    condition obtains; that is, the Weavers contract cannot be





    -15- 15













    interpreted to permit application of the deductible to the

    American Employers indemnification obligation.

    According to CU, the $250,000 deductible should not

    be stacked upon the American Employers indemnification

    because Travelers, and not American Employers, is listed on

    the "Schedule of Underlying Insurance" and the Weavers EPL

    Endorsement did not contain a reference to "other insurance

    not scheduled which may have been collectible by CU" to which

    the deductible would apply.

    Any confusion on the reader's part is to be

    excused. After years of pointing to the deductible as prima

    facie evidence of Weavers's liability,10 CU now argues that

    the $250,000 deductible should not apply. Based on the plain

    ____________________

    10. For example, the Commercial Union I panel summarized ___________________
    CU's argument as follows:

    [O]n CU's reading, the Weavers EPL
    Endorsement extends claims-based coverage
    "for those EPL claims arising out of
    accidents or occurrences that took place
    prior to the Weavers Umbrella period
    where claim was made during the [Weavers]
    policy period itself." Furthermore, CU
    reasons, the language of the Liability
    Amendment (amending the "LIMIT OF
    LIABILITY" section so as to add a
    $250,000 "self-insured retention" for
    EPL) supports its claim that the main
    body of the Weavers Umbrella covers EPL.
    We think the plain language of the
    insurance contract as a whole, and the
    reasonable expectations of the parties,
    are effectuated under the interpretation
    urged by CU.

    Commercial Union I, 7 F.3d at 1052. __________________

    -16- 16













    language of the Weavers contract, we cannot agree with CU's

    new argument. The Liability Amendment provides coverage for

    "each occurrence not covered by said underlying insurances ___________________________________________

    [referencing the attached schedule]" subject, in the case of

    engineering services, to a $250,000 deductible. Both parties

    agree that the "attached schedule" refers only to the

    Travelers Policy. The Liability Amendment must be read to

    provide primary coverage, subject to the deductible, when the

    Travelers Policy does not provide coverage. As CU repeatedly

    argued, that is exactly what occurred in this case: the

    Weavers Umbrella "drops down" to provide coverage not covered

    by the Travelers Policy, and thus the $250,000 deductible

    must apply. In short, the language of the contract requires

    application of the deductible. That Weavers may have

    included additional language in the insurance contract has no

    bearing on the outcome.

    In Commercial Union I, CU offered a somewhat ____________________

    different explanation of the amount it is entitled to

    recover. Rather than arguing that the deductible did not

    apply because of the contractual language, CU expressly

    stated that it only sought to recover that amount for which

    it was "out of pocket," or $1,502,874.30 plus interest.

    Under CU's view, because its "out of pocket" figure already

    affords Weavers a $750,000 "savings" (ignoring interest) from

    its total potential exposure (amount of Peterson claims less



    -17- 17













    deductible less "out of pocket" amount), they should not be

    entitled to the benefit of an additional $250,000 in

    "savings". Critically, however, there was never an agreement

    among the parties that the deductible would not still apply

    to whatever amount CU sought to recover. We can discern no

    basis in the contractual language to effect what would

    essentially be a "waiver" of the deductible. The fact that

    CU sought judgment for an amount less than it might otherwise

    be owed cannot obviate the plain language of a valid

    contractual provision. Indeed, given the course of this

    litigation, we find that the invitation to ignore the

    $250,000 deductible is, to say the least, ironic.

    In sum, we find no error in the prior panel's

    interpretation of the contractual provisions or their

    application in this case. Accordingly, as to the

    deductibility issue, we hold that entry of judgment by the

    district court is unassailably proper.

    2. Waiver of the Deductibility Issue _____________________________________

    CU argues that, because Weavers failed to raise the

    application of the deductible until after the mandate had

    issued in Commercial Union I, the argument should be rejected __________________

    as untimely. We do not agree. As the foregoing discussion

    indicates, there can hardly be any dispute that the

    deductible was a central focus of this lengthy case. It was

    the subject of intense review before the Commercial Union I __________________



    -18- 18













    panel. Given the pages of record devoted to the deductible,

    it would simply be untenable to find waiver had occurred with

    respect to that issue. We decline to do so and hold that

    there was no such waiver.

    C. Weavers's Cross Appeal __________________________

    On its cross appeal, Weavers makes two alternative

    arguments: (1) that in diversity actions brought under the

    federal Declaratory Judgment Act, the determination of

    prejudgment interest is governed by federal law; and (2)

    that, if state law is to apply, the district court applied

    the wrong law. We address each argument in turn.

    1. Prejudgment Interest Under the Declaratory ___________________________________________________

    Judgment Act ____________

    In determining the rate of prejudgment interest,

    the district court held that, because jurisdiction was based

    on diversity, Massachusetts law governed. Weavers argues

    that federal law should govern. Reduced to its essence,

    Weavers's theory is that the "procedural" nature of the

    Declaratory Judgment Act ("DJA"), 28 U.S.C. 2201 and

    2202,11 displaces a "contrary state provision" under the

    ____________________

    11. Captioned "Creation of remedy," 28 U.S.C. 2201
    provides in relevant part:

    In a case of actual controversy within
    its jurisdiction, . . . any court of the
    United States, upon the filing of an
    appropriate pleading, may declare the
    rights and other legal relations of any
    interested party seeking such

    -19- 19













    rule of Erie R.R. v. Tompkins, 304 U.S. 64 (1938), and its _________ ________

    progeny. Thus, Weavers argues that if the district court

    grants "[f]urther necessary or proper relief" under the DJA

    by awarding prejudgment interest, it should apply the federal

    rule governing prejudgment interest under which, Weavers

    says, prejudgment interest is calculated at the "market" rate

    of interest. We find Weavers's analysis to be flawed.

    Where, as in this case, jurisdiction is based on

    diversity, familiar principles control. "[F]ederal courts

    sitting in diversity jurisdiction are obligated to apply

    state law unless applicable federal procedural rules are

    sufficiently broad to control a particular issue before the

    court." Daigle v. Maine Medical Ctr., Inc., 14 F.3d 684, 689 ______ ________________________

    (1st Cir. 1994) (citing Walker v. Armco Steel Corp, 446 U.S. ______ ________________

    740, 749 (1980); Hanna v. Plumer, 380 U.S. 460, 470-71 _____ ______

    ____________________

    declaration, whether or not further
    relief is or could be sought. Any such
    declaration shall have the force and
    effect of a final judgment or decree and
    shall be reviewable as such.

    28 U.S.C. 2201 (1988)

    Captioned "Further relief," 28 U.S.C. 2202
    provides:

    Further necessary or proper relief based
    on a declaratory judgment or decree may
    be granted, after reasonable notice and
    hearing, against any adverse party whose
    rights have been determined by such
    judgment.

    28 U.S.C. 2202 (1988)

    -20- 20













    (1965)); see also Stewart Org., Inc. v. Ricoh Corp., 487 U.S. ___ ____ __________________ ___________

    22, 26 (1988) (where federal procedural statute is involved,

    a court must determine if it is "sufficiently broad to

    control the issue").

    The DJA creates a particular remedy where a federal

    district court already has jurisdiction to entertain a suit.

    See, e.g., Nashoba Communications v. Town of Danvers, 893 ___ ____ _______________________ ________________

    F.2d 435, 437 (1st Cir. 1990). Issues that would be governed

    by state law in a coercive action are equally governed by

    state law when declaratory relief is sought. 10A Charles A.

    Wright et al., Federal Practice and Procedure, 2771 (2d ed. ______________________________

    1983) (hereinafter, "Wright, Miller, & Kane"). Indeed, as

    one commentator has noted:

    Since the declaratory remedy is not
    intended to affect substantive rights,
    federal substantive rights will, of
    course, rule the adjudication of federal
    rights. Similarly, just as in any other
    type of civil action where the
    substantive issues are non-federal, Erie ____
    R.R. v. Tompkins requires a careful and ____ ________
    loyal application of state substantive
    law . . . .

    6A Moore's Federal Practice 57.02[5] (2d ed. 1994). ________________________

    Notwithstanding these well-established principles

    governing both federal-state choice of law and declaratory

    judgment actions, Weavers argues, as summarized above, that

    federal law should govern prejudgment interest. In

    circumstances such as this where a federal court is

    confronted with a claim that a state law conflicts with a


    -21- 21













    federal procedural rule or statute, the court must first ask

    whether the dispute falls within the scope of the federal

    statute. If a conflict exists, then the court must then ask

    whether the statute is a valid exercise of Congress's

    authority. See, e.g., Stewart, 487 U.S. at 26-27. If no ___ ____ _______

    federal statute or procedural rule covers the point in

    dispute, a court must then proceed to evaluate "whether

    application of federal judge-made law would disserve the so-

    called ``twin aims of the Erie rule: discouragement of forum ____

    shopping and inequitable administration of the laws.'" Id. ___

    at 27 n.6 (quoting Hanna, 380 U.S. at 468). If application _____

    of federal law would disserve these two policies, state law

    applies. Id. ___

    We find that Weavers's theory fails on the first

    inquiry: no conflict exists between the "procedural" DJA12

    and state prejudgment interest law. Weavers reads the DJA

    broadly: under Weavers's interpretation, a federal court

    entertaining a declaratory judgment action may, in effect,


    ____________________

    12. As Weavers points out, courts and commentators have
    characterized the DJA as "procedural." See, e.g., Skelly Oil ___ ____ __________
    Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950) ___ _______________________
    ("``[T]he operation of the Declaratory Judgment Act is
    procedural only.' . . . Congress enlarged the range of
    remedies available in the federal courts but did not extend
    their jurisdiction." (citation omitted) (dicta)); Charles A. _____
    Wright, Law of Federal Courts 100 (5th ed. 1994) ("[The ______________________
    DJA] may be regarded as ``procedural' and is expressly
    authorized by Act of Congress."). For the purposes of
    addressing Weavers's argument only, we adopt this
    characterization.

    -22- 22













    apply a rule of decision13 that would fashion "further

    relief" in a more restrictive manner than would apply in a

    non-declaratory diversity case. Thus, according to Weavers,

    a conflict with state law arises.14

    The plain language of 28 U.S.C. 2201 and 2202

    does not support Weavers's broad reading. Section 2201

    authorizes a judicial declaration "whether or not further

    relief is or could be sought," thus "indicat[ing] that

    declaratory relief is alternative or cumulative and not

    exclusive or extraordinary." Fed. R. Civ. P. 57 Committee

    Notes. Section 2202 gives effect to the cumulative nature of

    the declaratory device15 by authorizing a district court to

    ____________________

    13. When a district court sits in federal question
    jurisdiction, prejudgment interest has been determined by
    federal common law in the absence of a specific provision in
    the underlying statute. See, e.g., Robinson v. Watts ___ ____ ________ _____
    Detective Agency, Inc., 685 F.2d 729, 741 (1st Cir. 1982), _______________________
    cert. denied, 459 U.S. 1105, 1204 (1983). Thus, Weavers _____ ______
    appears to argue that federal common law should similarly
    apply in the context of a diversity-based declaratory
    judgment action. We note, however, that in at least one
    federal question case, we held that a district court may
    properly look to state law where the underlying federal law
    is silent as to awarding prejudgment interest. Colon Velez ___________
    v. Puerto Rico Marine Mgmt., Inc., 957 F.2d 933, 941 (1st ________________________________
    Cir. 1992). Hence, we held that the district court did not
    abuse its discretion in levying prejudgment interest at the
    12% rate applicable under local law. Id. ___

    14. Notably, notwithstanding the long history of the DJA,
    Weavers does not point to a single case adopting its view.

    15. On this point we also note that under Fed. R. Civ. P.
    54(c), a court, in rendering judgment, may grant the
    prevailing party any relief to which that party is entitled,
    even if such relief was not, but could have been, demanded in
    the original pleadings. See 6A Moore's Federal Practice ___ ________________________

    -23- 23













    grant additional relief consistent with the underlying

    declaration even though the right to the relief may arise

    long after the court has entered its declaratory judgment.

    See, e.g., Gant v. Grand Lodge, 12 F.3d 998, 1002 (10th Cir. ___ ____ ____ ___________

    1993) (citing Wright, Miller, & Kane 2771), cert. denied, _____ ______

    114 S. Ct. 1834 (1994). The fact that a declaratory action

    was brought in lieu of an action seeking coercive relief

    "``does not merge a claim in the judgment or bar it.'" Gant, ____

    12 F.3d at 1002 (quoting Wright, Miller, & Kane 2771).

    Simply stated, the DJA complements, but does not

    displace, relief available under applicable law.

    Accordingly, we do not share Weavers's view that the

    provision for district courts to grant "further necessary or

    proper relief" is an authorization to formulate a rule of

    decision granting less relief than would otherwise have been

    available had a coercive action been brought instead.16

    Because no conflict exists between a specific

    federal rule or statute and state law, we then must determine


    ____________________

    57.10 (2d ed. 1994).

    16. We note here that in Gant the Tenth Circuit reaffirmed ____
    an earlier holding interpreting section 2202 as authorizing a
    district court sitting in a diversity-based declaratory
    proceeding to grant additional relief, not otherwise __________
    authorized by state law, if that relief were "``necessary or
    proper to effectuate relief based upon the declaratory
    judgment rendered in the proceeding.'" Gant, 12 F.3d at 1003 ____
    (quoting Security Ins. Co. v. White, 236 F.2d 215, 220 (10th _________________ _____
    Cir. 1956)). We take no position on the Tenth Circuit's
    interpretation of the statute.

    -24- 24













    whether application of a federal-judge made rule governing

    the calculation of prejudgment interest would disserve the

    twin aims of Erie. Assuming for the moment that a federal ____

    court would, as Weavers argues, calculate prejudgment

    interest according to the "market" rate, the difference

    between the application and nonapplication of a state law

    under which interest is calculated at 12% could make a

    substantial difference in terms of the plaintiff's ultimate

    monetary recover. Moreover, if the state law were not to

    apply, the incentives for forum shopping are plain. A

    plaintiff would likely bring his action in state court to

    take advantage of the more favorable prejudgment interest

    law; similarly, a non-Massachusetts defendant would seek to

    remove the action to avoid substantial additional damages.

    Because the twin aims of Erie would not be served by the ____

    application of judge-made federal law, state law must apply.

    Stated another way, prejudgment interest is substantive law

    and, therefore, state law must be applied in diversity-based

    proceedings. This conclusion comports with our repeated

    statements that when jurisdiction is diversity-based, a

    district court should look to the law which a state court

    sitting in that jurisdiction would apply in awarding

    prejudgment interest. See, e.g., Aubin v. Fudala, 782 F.2d ___ ____ _____ ______

    287, 289 (1st Cir. 1986); Roy v. Star Chopper, Inc., 584 F.2d ___ __________________





    -25- 25













    1124, 1135 (1st Cir. 1978), cert. denied, 440 U.S 916 (1979). _____ ______



    In sum, a district court sitting in diversity when

    it awards prejudgment interest pursuant to a declaratory

    judgment action must apply the law of the state in which the

    court sits, including that state's conflict-of-law

    principles. See Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. ___ ______ ______________________

    487 (1941). Here, the parties agree that Massachusetts law

    governs the substance of the underlying transaction. Under

    these circumstances, Massachusetts law directs that a court

    should apply Massachusetts law in calculating prejudgment

    interest. See, e.g., Morris v. Watsco, Inc., 385 Mass. 672, ___ ____ ______ ____________

    674-75 (1982). Thus, we hold that the district court

    properly calculated prejudgment interest using Massachusetts

    law.

    2. The Applicable Rate of Interest Under __________________________________________

    Massachusetts Law _________________

    Weavers next argues that even if Massachusetts law

    is to govern the award of prejudgment interest, the district

    court erred in awarding prejudgment interest pursuant to

    Mass. Gen. L. ch. 231, 6C17 rather than under Mass. Gen.

    ____________________

    17. Captioned, "Interest added to damages in contract
    actions," Mass. Gen. L. ch. 231, 6C provides in relevant
    part:

    In all actions based on contractual
    obligations, upon a verdict, finding or
    order for judgment for pecuniary damages,

    -26- 26













    L. ch. 107, 3.18 Weavers reasons that, because the

    Massachusetts declaratory judgment act, Mass. Gen. L. ch.

    231A, does not specify the rate of interest to be awarded,

    there is no applicable "provision of law for a different

    rate" and, thus, chapter 107, section 3 is not supplanted.

    In essence, Weavers seeks to avoid application of section 6C

    by recharacterizing this case as a "declaratory judgment

    action." We decline to do so.19


    ____________________

    interest shall be added by the clerk of
    the court to the amount of damages, at
    the contract rate, if established, or at
    the rate of twelve per cent per annum
    from the date of the breach or demand.
    If the date of the breach or demand is
    not established, interest shall be added
    by the clerk of the court, at such
    contractual rate, or at the rate of
    twelve per cent per annum from the date
    of the commencement of the action . . . .

    Mass. Gen. L. ch. 231, 6C (Supp. 1993)

    18. In relevant part, Mass. Gen. L. ch. 107, 3 provides:

    If there is no agreement or provision of
    law for a different rate, the interest of
    money shall be at the rate of six dollars
    on each hundred for a year . . . .

    Mass. Gen. L. ch. 107, 3 (1990)

    19. Weavers makes two additional arguments against
    application of a 12% interest rate: (1) that the rate is
    "unreasonably high"; and (2) that the statute violates the
    Massachusetts Constitution because of changed economic
    conditions. Weavers's first contention is properly directed
    to the Massachusetts legislature. Whether Massachusetts
    should adopt a lower rate of interest or a scheme which
    refers to the "market" rate of interest is not a matter for a
    federal court to decide.

    -27- 27













    As explained in detail above, the declaratory

    device is a remedy by which parties may seek a declaration as

    to their substantive rights. A declaratory judgment is not a

    theory of recovery. It is clear that, in this case, the

    underlying substantive theory is contractual. The plain

    language of chapter 231A, section 6C establishes conclusively

    that it is to govern the award of prejudgment interest in

    contractual disputes. Accordingly, Weavers's reasoning must

    be rejected. The district court properly awarded interest

    under chapter 231A, section 6C.

    III. III. ____

    CONCLUSION CONCLUSION __________

    For the foregoing reasons, the motion to dismiss is

    denied and the decision of the district court is

    Affirmed. Each party shall bear its own costs. Affirmed. Each party shall bear its own costs. _________ ____________________________________








    ____________________

    As for Weavers's second contention, we are at a
    loss to determine its theory for unconstitutionality.
    Indeed, Weavers does not point to a specific provision of the
    state constitution that the prejudgment interest rate is said
    to violate. Moreover, Weavers offers no developed
    argumentation on this point. We require far more, especially
    when we are asked to reach a state constitutional question.
    Accordingly, we deem this argument waived. See, e.g., Ryan ___ ____ ____
    v. Royal Ins. Co. of Am., 916 F.2d 731, 734 (1st Cir. 1990) _____________________
    ("issues adverted to on appeal in a perfunctory manner,
    unaccompanied by some developed argumentation, are deemed to
    have been abandoned").

    -28- 28






Document Info

Docket Number: 94-1526

Filed Date: 12/19/1994

Precedential Status: Precedential

Modified Date: 9/21/2015

Authorities (18)

Robert Robinson, Trustee in Bankruptcy of D. C. Sullivan & ... , 685 F.2d 729 ( 1982 )

fidelcor-mortgage-corporation-fka-local-mortgage-company-of-georgia-a , 820 F.2d 367 ( 1987 )

Morris Feinberg, Treasurer v. Insurance Company of North ... , 260 F.2d 523 ( 1958 )

wilfredo-colon-velez-v-puerto-rico-marine-management-inc-wilfredo-colon , 957 F.2d 933 ( 1992 )

Morris v. Watsco, Inc. , 385 Mass. 672 ( 1982 )

Federal Deposit Insurance Corporation v. Juan Jesus Ramirez-... , 869 F.2d 624 ( 1989 )

Erie Railroad v. Tompkins , 58 S. Ct. 817 ( 1938 )

Daigle v. Maine Medical Center, Inc. , 14 F.3d 684 ( 1994 )

Dedham Water Co., Inc. v. Cumberland Farms Dairy, Inc. , 972 F.2d 453 ( 1992 )

elizabeth-mcclelland-gant-v-the-grand-lodge-of-texas-ancient-free-and , 12 F.3d 998 ( 1993 )

harold-a-gadsden-v-harry-m-fripp-supervisor-of-colleton-county-south , 330 F.2d 545 ( 1964 )

Maury A. Ryan, D/B/A Ryan, Klimek, Ryan Partnership v. ... , 916 F.2d 731 ( 1990 )

Villafane-Neriz v. Federal Deposit Insurance , 20 F.3d 35 ( 1994 )

security-insurance-company-of-new-haven-v-gertrude-june-white-of-the , 236 F.2d 215 ( 1956 )

James D. Elias v. Ford Motor Company , 734 F.2d 463 ( 1984 )

Skelly Oil Co. v. Phillips Petroleum Co. , 70 S. Ct. 876 ( 1950 )

james-h-white-trustee-in-bankruptcy-for-las-olas-inn-corporation , 377 F.2d 428 ( 1967 )

Commercial Union Insurance Co. v. Walbrook Insurance Co., ... , 7 F.3d 1047 ( 1993 )

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