Scottsdale Insurance Company v. Byrne ( 2019 )


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  •           United States Court of Appeals
    For the First Circuit
    No. 18-1526
    SCOTTSDALE INSURANCE COMPANY,
    Plaintiff, Appellant,
    v.
    TIMOTHY L. BYRNE, as Co-Chairman of the Board of Trustees for
    the Plumbers and Pipefitters Local 51 Pension and Annuity Funds;
    ROBERT BOLTON, as Co-Chairman of the Board of Trustees for the
    Plumbers and Pipefitters Local 51 Pension and Annuity Funds,
    Defendants, Appellees.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. F. Dennis Saylor, IV, U.S. District Judge]
    Before
    Lynch, Stahl, and Barron,
    Circuit Judges.
    Alexis J. Rogoski, with whom Edward C. Carleton and Skarzynski
    Black LLC were on brief, for appellant.
    Miranda S. Jones, with whom O'Reilly, Grosso, Gross & Jones,
    P.C. was on brief, for appellee.
    January 16, 2019
    STAHL, Circuit Judge.     In late 2014, the appellees in
    this case brought suit against Wellesley Advisory Reality Fund I,
    LLC ("WARF").     Acting in their capacity as representatives of the
    Board of Trustees for the Plumbers and Pipefitters Local 51 Pension
    and Annuity Funds (the "Funds"), Appellees alleged that WARF had
    mismanaged and squandered money that the Funds had invested in
    that entity.     Following entry of default judgment against WARF in
    that case, WARF assigned the Funds its rights in WARF's insurance
    policy with Appellant Scottsdale Insurance Company ("Scottsdale"),
    which   had    declined   to   defend   WARF   on   the   basis   of   several
    exceptions within the policy.
    Scottsdale brought an action against Appellees seeking
    a declaration that it did not owe WARF a duty to defend or indemnify
    under the policy and so owed the Funds nothing, and the Funds
    counterclaimed.     On cross-motions for summary judgment, the United
    States District Court for the District of Massachusetts ruled that
    the exclusions in Scottsdale's policies did not relieve the insurer
    of its duty to defend WARF in the prior action.             In a subsequent
    order, the district court awarded the Funds $3 million, the full
    limits of the insurance policy, plus post-judgment interest.
    Scottsdale appeals, arguing both that it did not breach
    its duty to defend under the policy under Massachusetts law and
    that, even if it did, damages should be limited to the costs of
    the defense.     After careful consideration, we affirm.
    - 2 -
    I.
    A.   The Policy
    The dispute in this appeal stems from a "Business and
    Management Indemnity Policy" (the "Policy") issued by Scottsdale
    to WARF, a real estate investment vehicle developed by Wellesley
    Advisors.1    The Policy covered the period from November 15, 2013,
    to December 15, 2014,2 and carries a coverage limit of $3 million.
    The Policy contains the following coverage clauses:
    1.   The Insurer shall pay the Loss of the
    Management Insureds for which the Management
    Insureds are not indemnified by the [Company
    and] which the Management Insureds have become
    legally obligated to pay by reason of a Claim
    first made against the Management Insureds
    during the Policy Period . . . and reported to
    the Insurer . . . for any Wrongful Act taking
    place prior to the end of the Policy Period.
    2.   The Insurer shall pay the Loss of the
    Company for which the Company has indemnified
    the   Management   Insureds   and   which   the
    Management Insureds have become legally
    obligated to pay by reason of a Claim first
    [made against] the Management Insureds during
    the Policy Period . . . and reported to the
    Insurer . . . for any Wrongful Act taking place
    prior to the end of the Policy Period.
    3.   The Insurer shall pay the Loss of the
    Company which the Company becomes legally
    1 The Policy names Wellesley Advisors as the insured, and
    explicitly added WARF as an insured "parent company" in an
    endorsement dated November 15, 2013. The parties do not dispute
    that WARF was an insured under the Policy.
    2 Initially, the policy period was set to expire on November
    15, 2014. Scottsdale and WARF subsequently extended this period
    by one month.
    - 3 -
    obligated to pay by reason of a [Claim first]
    made against the Company during the Policy
    Period . . . and reported to the Insurer . . .
    for any Wrongful Act taking place prior to the
    end of the Policy Period.
    As relevant here, the Policy defines "Claim" as "a civil proceeding
    against any Insured seeking monetary damages or non-monetary or
    injunctive relief . . . ."       "Loss" is defined as "damages,
    judgments, settlements, pre-judgment or post-judgment interest
    awarded by a court, and Costs, Charges, and Expenses incurred by"
    the entities covered under the Policy.   "Wrongful Act" is defined
    as "any actual or alleged error, omission, misleading statement,
    misstatement, neglect, breach of duty or act allegedly committed
    or attempted by" the insured entities.
    The Policy contains a number of exclusions, three of
    which are claimed to be relevant to the present appeal.     First,
    the Policy includes a "Professional Services Exclusion" which
    states:
    Insurer is not liable for Loss . . . on account
    of any Claim[] alleging, based upon, arising
    out   of,   attributable   to,    directly   or
    indirectly resulting from, in consequence of,
    or in any way involving the rendering or
    failure to render Professional Services. . . .
    Solely for purposes of this exclusion,
    Professional Services means services as a real
    estate broker or agent, multiple listing
    agent, real estate appraiser, title agent,
    title abstractor or searcher, escrow agent,
    real estate developer, real estate consultant,
    property manager, real estate inspector, or
    construction manager.    Such services shall
    - 4 -
    include, without limitation, the purchase,
    sale, rental, leasing or valuation of real
    property; the arrangement of financing on real
    property; or any advice proffered by an
    Insured in connection with any of the
    foregoing.
    Second, the Policy provides an "ERISA Exclusion" which states that
    Scottsdale
    shall not be liable for Loss . . . on account
    of any Claim . . . for any actual or alleged
    violation     of     the    responsibilities,
    obligations or duties imposed by [the]
    Employee Retirement Income Security Act of
    1974, as amended ["ERISA"], or any rules or
    regulations    promulgated   thereunder,   or
    similar provisions of any federal, state or
    local statutory or common law[.]
    Finally, the Policy provides a "Conduct Exclusion" which excludes
    coverage for
    Loss . . . on account of any Claim . . .
    alleging,   based  upon,  arising   out  of,
    attributable to, directly or indirectly
    resulting from, in consequence of, or in any
    way involving:
    . . .
    ii. the gaining of any profit, remuneration
    or   financial   advantage   to  [which   any]
    Management Insureds were not legally entitled;
    provided, however this exclusion [] shall not
    apply unless and until there is a final
    judgment against such Management Insureds as
    to such conduct.
    - 5 -
    B.    The Underlying Action
    On November 10, 2014, Appellees filed suit against WARF3
    in   the   United    States   District     Court    for    the   District     of
    Massachusetts       seeking   damages    and     injunctive      relief     (the
    "Underlying Action").         Appellees claimed that, in 2005, they
    invested $5 million with WARF, which WARF subsequently used to
    "invest in various real estate parcels . . . ."            Specifically, the
    complaint avers that WARF purchased "The Stone House," a hotel in
    Little Compton, Rhode Island; a residential condominium called
    "Eastbourne   Lodge"     in   Newport,   Rhode     Island;    and   a   housing
    development in North Attleboro, Massachusetts.
    As to The Stone House, Appellees averred that WARF
    entered into several mortgages on the property to fund renovations
    therein.   Appellees claimed that, despite this debt, WARF retained
    all revenue from hotel operations at The Stone House as a "'fee'
    for managing the property for [t]he Funds[]."             WARF failed to make
    required periodic payments on The Stone House mortgages, and the
    mortgagee sued for more than $5.6 million to enforce the mortgages
    against The Stone House.
    3 The complaint in that action addresses allegations to both
    "Wellesley Advisors" and "Wellesley Advisors Realty Fund I, LLC,"
    seemingly interchangeably.    This appears to be a distinction
    without a difference, and the parties do not attach any
    significance to that point. Accordingly, we refer to allegations
    as against WARF for clarity.
    - 6 -
    Separately, the complaint averred that "a sister or
    parent company" of WARF received notice from a different mortgagee
    of its intent to foreclose on and sell the North Attleboro property
    due   to    an    unspecified      "breach    of   the   conditions    of   [that]
    mortgage."
    Through   these    actions,     Appellees   averred    that   WARF
    "squandered the entire [$5 million] investment," and that "[t]he
    properties were either lost to foreclosure or written down to a
    zero value because of taxes or mortgages owed."
    Based on these allegations, the Funds brought two claims
    in state court against WARF for negligence and violations of ERISA,
    respectively.          Under the first of these claims, the complaint
    contends that WARF was negligent in overleveraging the properties
    in excess of their value, failing to pay property taxes, and
    retaining income from the investment properties, especially from
    The Stone House, for its own use.               The second, ERISA-based count
    claims that, through its retention of revenues from The Stone
    House, WARF took on fiduciary duties to the Funds, which it
    subsequently violated through "self-dealing and mismanagement of
    [the properties.]"
    WARF notified Scottsdale of the Funds' lawsuits against
    it on November 14, 2014.           Scottsdale replied verbally (and, later,
    in writing) that the Funds' claims were excluded from coverage
    based      on    the   ERISA      and   Professional     Services     Exclusions.
    - 7 -
    Accordingly, Scottsdale refused to either defend or indemnify WARF
    as to the Funds' claims.      WARF went into receivership and did not
    contest the Underlying Action thereafter.
    On November 25, 2015, the district court entered default
    judgment in the Underlying Action in favor of Appellees, awarding
    them $5,005,422.12.4      On May 15, 2016, WARF assigned to Appellees
    all rights and claims that it held against Scottsdale.
    C.   Procedural History
    Scottsdale brought the instant action on July 8, 2016,
    in the District Court for the District of Massachusetts, seeking
    declaratory judgment that Appellees' claims in the Underlying
    Action were not covered under the Policy and so that Scottsdale
    was not obligated to make any payments on the judgment in that
    case.       Appellees included in their answer several counterclaims,
    including as relevant here claims that Scottsdale breached its
    duty to defend and to indemnify WARF in the Underlying Action.
    Appellees sought payment of the entire amount of the judgment in
    the Underlying Action plus post-judgment interest.        The parties
    cross-moved for summary judgment.
    On March 1, 2018, the district court denied Scottsdale's
    motion and granted partial summary judgment to Appellees.         The
    court found that the allegations raised in the Underlying Action
    4
    This amount includes both the principal amount claimed
    ($5 million) as well as costs and attorneys' fees.
    - 8 -
    were not "clearly excluded" from coverage under the policy and so
    Scottsdale had, at minimum, a duty to defend WARF against those
    claims.       Based on Scottsdale's uncontested failure to take up
    WARF's legal defense in the Underlying Action, the court concluded
    that Scottsdale was liable to Appellees and required the parties
    to file "motions concerning the form of the judgment," which it
    said would "[p]resumably . . . be awarded [in] the amount of the
    coverage limit."          After the parties submitted the required
    motions,5 the court entered judgment for Appellees on May 8, 2015,
    in the amount of $3,038,081.10, consisting of the policy limit of
    $3 million plus post-judgment interest calculated at the statutory
    rate.       Scottsdale timely appealed the district court's judgment.
    II.
    On appeal, Scottsdale argues that the district court
    erred in concluding that it had a duty to defend the Underlying
    Action.      It points to the Policy's Professional Services and ERISA
    Exclusions,      contending   that   each    of   those   exclusions   clearly
    applies to the claims asserted in the Underlying Action and
    5
    In its motion, Scottsdale also moved for clarification of
    the summary judgment order, seeking dismissal of Appellees'
    counterclaims for breaches of the implied covenant of good faith
    and fair dealing, and violation of the Massachusetts consumer
    protection statute, which the district court initially failed to
    address. Appellees, on the other hand, sought entry of judgment
    in the full amount of damages in the Underlying Action. The court
    dismissed the remaining claims and denied the motion for damages
    in excess of the policy limit plus interest.
    - 9 -
    independently provides a basis for denying coverage.                      In the
    alternative, Scottsdale contends that it is only liable for the
    costs of defending the Underlying Action —— not the entire policy
    limit —— because the claims are excluded by the Policy's Conduct
    Exclusion.     We examine these arguments separately and find no
    reason to reverse the district court's determination.
    A.      Standard of Review
    Review of the district court's grant of summary judgment
    is de novo.     Barrett Paving Materials, Inc. v. Continental Ins.
    Co., 
    488 F.3d 59
    , 63 (1st Cir. 2007).          Where, as here, there is no
    dispute regarding the material facts, the only issue is whether
    the moving party is entitled to judgment as a matter of law.                 
    Id. (citation omitted).
    This   case    comes    before    us    based   on    our   diversity
    jurisdiction, and the parties agree that Massachusetts provides
    the substantive law to be applied.                 "The interpretation of an
    insurance policy is a question of law for the court." Valley Forge
    Ins. Co. v. Field, 
    670 F.3d 93
    , 97 (1st Cir. 2012) (citation
    omitted).     "Under Massachusetts law, [the court] construe[s] an
    insurance     policy      under     the   general      rules       of    contract
    interpretation. . . . begin[ning] with the actual language of the
    policies, given its plain and ordinary meaning."                 Brazas Sporting
    Arms, Inc. v. Am. Empire Surplus Lines Ins. Co., 
    220 F.3d 1
    , 4
    (1st Cir. 2000) (citations omitted).
    - 10 -
    The "insurer's duty to defend is independent from, and
    broader than, its duty to indemnify," Metro. Prop. & Cas. Ins. Co.
    v. Morrison, 
    951 N.E.2d 662
    , 667 (Mass. 2011) (internal quotation
    marks and citation omitted), and insurers "owe[] a duty to defend
    [their insured] if the allegations in the underlying lawsuit are
    reasonably susceptible to an interpretation that they state a claim
    covered by [the] policy," Scottsdale Ins. Co. v. Torres, 
    561 F.3d 74
    , 77 (1st Cir. 2009) (citation omitted); see also Billings v.
    Commerce Ins. Co., 
    936 N.E.2d 408
    , 414 (Mass. 2010) ("An insurer
    has a duty to defend an insured when the allegations in a complaint
    are reasonably susceptible of an interpretation that states or
    roughly sketches a claim covered by the policy terms." (footnote
    and citation omitted)).    Said somewhat differently, "[i]n order
    for the duty of defense to arise, the underlying complaint need
    only show, through general allegations, a possibility that the
    liability claim falls within the insurance coverage. There is no
    requirement that the facts alleged in the complaint specifically
    and unequivocally make out a claim within the coverage." Sterilite
    Corp. v. Cont'l Cas. Co., 
    458 N.E.2d 338
    , 341 (Mass. App. Ct. 1983)
    (internal quotation marks and citation omitted).    Courts look to
    "the source from which the plaintiff's personal injury originates
    rather than the specific theories of liability alleged in the
    complaint" to determine whether the policy covers the claim under
    this standard.   Bagley v. Monticello Ins. Co., 
    720 N.E.2d 813
    , 817
    - 11 -
    (Mass. 1999) (internal quotation marks, citation, and emphasis
    omitted).
    Where, as here, an insurer asserts that it is not
    obligated to defend due to some policy exclusion or exclusions, it
    bears the initial burden of demonstrating that the exclusion
    applies.6   See Saint Consulting Grp., Inc. v. Endurance Am. Spec.
    Ins. Co., Inc., 
    699 F.3d 544
    , 550 (1st Cir. 2012) (citation
    omitted).    In order to meet this requirement, "the facts alleged
    in the third-party complaint must establish that the exclusion
    applies to all potential liability as matter of law."    Norfolk &
    Dedham Mut. Fire Ins. Co. v. Cleary Consultants, Inc., 
    958 N.E.2d 853
    , 862 (Mass. App. Ct. 2011) (citation omitted); see also Saint
    Consulting 
    Grp., 699 F.3d at 550
    ("If even one of the counts in
    either of the complaints falls within the coverage provisions but
    outside any exclusion, [the insurer] would have a duty to defend
    the entire lawsuit.").   "[W]hether an exclusion applies to relieve
    an insurer of its duty to defend [] depend[s] on whether the
    insured would have reasonably understood the exclusion to bar
    6 Generally, the insured bears the initial burden of "showing
    that the overall coverage provisions of the insurance policy
    apply[.]" Clark Sch. for Creative Learning, Inc. v. Phila. Indem.
    Ins. Co., 
    734 F.3d 51
    , 55 n.1 (1st Cir. 2013). Where, as here,
    the dispute centers only on the effect of coverage exclusions, the
    court can bypass this initial showing and proceed directly to
    evaluating the reach of those exclusions. See 
    id. at 55.
    - 12 -
    coverage."     Essex Ins. Co. v. BloomSouth Flooring Corp., 
    562 F.3d 399
    , 404 (1st Cir. 2009).
    B.     The Professional Services Exclusion
    Scottsdale first contends that all of the allegations in
    the Underlying Action fall within the purview of the Professional
    Services Exclusion.         In particular, it contends that all of the
    allegations in that case "arose out of" or "involved" "real estate
    development, property management, the purchase of real property,
    or the arrangement of financing on real property," all of which
    Scottsdale     argues      fall    "within     the   plain   meaning      of   the
    Professional Services Exclusion."              In support of this position,
    Scottsdale relies on the broad readings afforded by Massachusetts
    law to the terms "arising out of" and "in any way involving," both
    of   which   are    used   to     preface    the   substantive    scope   of   the
    Professional Services Exclusion (as well as the other relevant
    exclusions).       See 
    Bagley, 720 N.E.2d at 816
    (explaining that the
    phrase "arising out of" "must be read expansively, incorporating
    a greater range of causation than that encompassed by proximate
    cause under tort law" (citations omitted)); Clark Sch. for Creative
    
    Learning, 734 F.3d at 56
    (holding that "in any way involving" acts
    as a "mop-up clause, intended to exclude anything not already
    excluded by the other clauses," including "arising out of").
    Scottsdale's argument fails, however, to account for all
    of the claims raised in the Underlying Action.                   As noted above,
    - 13 -
    the   Underlying    Action    concerned     losses   stemming        from    WARF's
    investment in three properties: The Stone House, and properties in
    North Attleboro and Newport.           Were those allegations limited to
    claims regarding the mismanagement of The Stone House, we might
    agree: claims stemming from WARF's renovation of that property and
    retention   of    revenues   from     its   operation    of   the    hotel     as   a
    "management" fee fit seemingly well within the exclusion for
    actions taken "as a . . . real estate developer [or] . . . property
    manager."    As Appellees observed at oral argument, however, the
    complaint offers no similar allegations that WARF was developing,
    improving, or managing operations at the investment properties in
    North Attleboro or Newport.          Beyond alleging that WARF invested in
    those parcels, the only additional claims are that the properties
    were "lost to foreclosure or written down to a zero value because
    of tax or mortgages owed" and, generally, that WARF "engaged in
    self-dealing by retaining investment income from the properties
    for   its   own   use."      These    limited   allegations         preclude    any
    meaningful evaluation of whether the loss of the Newport and North
    Attleboro properties was attributable to WARF's actions as a
    property manager, developer, investor, or otherwise.                        As the
    district court observed, "[a]t the very least, it is ambiguous
    whether in fact all of WARF's purported misconduct stemmed from"
    WARF's provision of professional services.              Thus, the allegations
    concerning the Newport and North Attleboro properties are not
    - 14 -
    clearly within the Professional Services Exclusion, and, where
    there is ambiguity, there is a duty to defend.
    Scottsdale attempts to argue around this shortcoming,
    claiming    that     all   of    the    allegations         fall    within   the   broad
    definition     of    "services"        ——    especially       the    "arrangement     of
    financing    on     real   property"        ——   included     in     the   Professional
    Services Exclusion.         Scottsdale misreads its own policy, however:
    the plain language of the Policy is clear that, in order to fall
    within the Professional Services Exclusion, the "services" as
    defined must be provided "as a real estate broker or agent,"
    "property manager," or another of that exclusion's enumerated
    roles. As noted above, the allegations set forth in the Underlying
    Action do not offer any meaningful basis from which we can conclude
    that WARF was acting in any one of those roles with respect to
    either the North Attleboro or Newport properties.
    We therefore conclude that Scottsdale failed to meet its
    burden of establishing that the Professional Services Exclusion
    applies to all claims of liability within the Underlying Action.
    C.    The ERISA Exclusion
    Scottsdale      next      turns     to   the    ERISA    Exclusion.      As
    discussed, the Underlying Action asserted both a negligence claim
    and, separately, a claim that WARF's actions violated duties
    imposed by ERISA.          The parties do not dispute that the latter of
    these claims falls outside of the Policy's coverage, and that count
    - 15 -
    is not at issue here.     Scottsdale goes a step further, however,
    contending that because the negligence and ERISA claims arise from
    the same set of facts, the negligence claim is therefore preempted
    by ERISA.
    At the outset, we note that none of the categories of
    excluded "Claims" —— "actual or alleged violations" of (1) ERISA;
    (2) "rules or regulations promulgated" pursuant to ERISA; or (3)
    "similar provisions of federal, state or local statutory or common
    law" —— explicitly remove "preempted" state law claims from the
    Policy's    coverage.   Recognizing   this   shortcoming,   Scottsdale
    attempts to shoehorn preempted state-law claims into this clause
    as a "similar provision[] of . . . state . . . common law."        In
    our view, however, the question of whether that language could
    extend to a common law action for negligence, stated without
    reference to ERISA-like fiduciary duties, is ambiguous at best.
    That observation alone settles the issue before us: Scottsdale has
    the burden of demonstrating the exclusion's application to the
    Underlying Action, and all ambiguities must be read against the
    insurer.    See Valley Forge Ins. 
    Co., 670 F.3d at 97
    .   Accordingly,
    we see no basis for excusing Scottsdale from its duty to defend
    based on the ERISA Exclusion.7
    7 Because we find that neither of the exclusions cited by
    Scottsdale excuse it from its duty to defend, we do not reach
    Appellees' alternate argument that, under its terms, the Policy's
    - 16 -
    D.   The Conduct Exclusion
    In its final argument, Scottsdale contends that its
    liability is limited by the Policy's Conduct Exclusion.     Unlike
    the Professional Services and ERISA Exclusions, Scottsdale does
    not claim that the Conduct Exclusion excuses it from its duty to
    defend: by its terms, that exclusion is not implicated "unless
    and until there is a final judgment against [the] . . . Insureds
    . . . ."   Rather, Scottsdale contends that, even if it breached
    the duty to defend, it should be permitted to contest and limit
    its indemnity obligation based on that exclusion's application to
    financial gains to which WARF was not entitled, specifically WARF's
    alleged retention of "investment income from the properties" at
    issue in the Underlying Action.
    An insurer's breach of its duty to defend "may also
    trigger a duty to indemnify because an insurer in breach of its
    duty to defend is bound by the result of the underlying action as
    to all matters therein decided which are material to recovery by
    the insured in an action on the policy."   Metro Prop. & Cas. 
    Ins., 951 N.E.2d at 669
    (internal quotation marks, alterations, and
    citation omitted); see also Liberty Mut. Ins. Co. v. Metro. Life
    Ins. Co., 
    260 F.3d 54
    , 63 (1st Cir. 2001) ("[T]he general rule
    under Massachusetts law is that if the insurer fails to defend the
    exclusions do not relieve the insurer of its duty to defend in any
    event.
    - 17 -
    lawsuit, it is liable for all defense costs and (assuming policy
    coverage) the entire resulting judgment or settlement, unless
    liability can be allocated among covered and uncovered claims.")
    (citations omitted). "Where [the insured] defendant defaults, the
    factual allegations in the complaint as to liability are deemed to
    be admitted . . . and treated as if they are true" as to both the
    defendant and those insurers who wrongfully decline to defend the
    case.   Metro. Prop. & Cas. 
    Ins., 951 N.E.2d at 669
    .
    Subject to these provisos, "insurer[s] that wrongfully
    decline[] to defend a claim" may contest their indemnity under
    their policy, provided, however, that they "have the burden of
    proving that the claim was not within [the] policy's coverage."
    Polaroid Corp. v. Travelers Indem. Co., 
    610 N.E.2d 912
    , 922
    (Mass. 1993).   Moreover, where some of the claims fall within a
    policy's coverage and others do not, "an insurer that breaches its
    duty to defend bears the burden of allocating a judgment against
    its insured between covered and noncovered claims."       Palermo v.
    Fireman's Fund Ins. Co., 
    676 N.E.2d 1158
    , 1163 (Mass. App. Ct.
    1997); see also Liquor Liab. Joint Underwriting Ass'n of Mass. v.
    Hermitage Ins. Co., 
    644 N.E.2d 964
    , 968-69 (Mass. 1995).
    Similar   to   the   Professional   Services   Exclusion,
    Scottsdale's attempt to escape its indemnity obligation fails to
    account for all of the claims made in the Underlying Action.
    Scottsdale maintains a narrow focus on allegations that WARF
    - 18 -
    engaged in self-dealing when it retained fees from the investment
    properties.       Self-dealing, however, is just one component of the
    many allegations in the Underlying Action.             Much of the complaint
    is concerned not with WARF's improper gain or pecuniary advantage,
    but rather the squandering of Appellees' investment through, among
    other things, negligently overleveraging and failing to pay taxes
    and service mortgages on the properties.8           Those allegations were
    "conclusively     establishe[d]"      by   the   entry   of    default   as    to
    Scottsdale, Metro. Prop. & Cas. 
    Ins., 951 N.E.2d at 669
    , and they
    offer a theory of Appellees' loss that is entirely separate from
    any improper gain by WARF. Scottsdale provides no basis from which
    we could conclude that the Conduct Exclusion covers all of the
    material allegations established in the Underlying Action, and it
    further   fails    to   demonstrate    any   grounds     for   allocating     the
    judgment award between portions attributable to WARF's improper
    8 Scottsdale's reliance on Winbrook Communication Services
    Inc. v. United States Liability Insurance Company, 
    52 N.E.3d 195
    (Mass. App. Ct. 2016), is misplaced. There, the insured company's
    negligent misstatements about its own financial stability induced
    the judgment creditor to provide a benefit in the form of services
    for which it was never paid. 
    Id. at 197.
    Examining a conduct
    exclusion similar to that in the Policy, the court concluded that
    evidence   in    the   record   indicated   that,    through   its
    misrepresentations, the insured might have "received goods or
    services that created an opportunity for gain or advantage . . . .
    [such as] credit, investors, or customers." 
    Id. at 203.
    In other
    words, the insured's negligence might have directly contributed to
    its receipt of an advantage to which it was not legally entitled.
    In this case, however, we see no basis to conclude that WARF's
    negligence in squandering Appellees' investment led to any
    demonstrable gain.
    - 19 -
    gains and negligent losses.   As such, we see no basis from which
    to relieve Scottsdale of its obligation to pay the policy limit.9
    III.
    The judgment of the district court is AFFIRMED.
    9 In their opposition brief, Appellees hint that the district
    court erred in limiting their recovery to the policy limits, rather
    than the full judgment. Because Appellees failed to cross-appeal
    on that issue, we do not address the merits of their claim. See
    Jennings v. Stephens, __ U.S. __, 
    135 S. Ct. 793
    , 798 (2015) ("[A]n
    appellee who does not cross-appeal may not attack the [judgment of
    the lower court] with a view either to enlarging his own rights
    thereunder or lessening the rights of his adversary." (internal
    quotation marks and citation omitted)).
    - 20 -