Salvati v. American Insurance Co.

United States Court of Appeals
For the First Circuit
No. 16-1403
LUCIA SALVATI, INDIVIDUALLY, AND AS THE ASSIGNEE OF ROBERT
EASTON, AJAX INVESTMENT PARTNERS, LLC, LOVEJOY WHARF, LLC,
BEVERLY WHARF, LLC, NORTH WASHINGTON WHARF, LLC, AND AB WHARF,
LLC,
Plaintiff, Appellant,
v.
AMERICAN INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
Before
Barron, Stahl, and Lipez,
Circuit Judges.
Donald R. Grady, Jr., with whom Frank J. Federico, Jr., Susan
E. Bochnak, and Sheff Law Offices, P.C. were on brief, for
appellant.
Gregory P. Varga, with whom Linda L. Morkan, Jonathan E.
Small, and Robinson & Cole LLP were on brief, for appellee.
April 26, 2017
LIPEZ, Circuit Judge. In this insurance dispute, we
must decide whether the plaintiff in a wrongful death action, who
reached a settlement with the defendants and their primary
insurance carrier, can recover the amount exceeding the primary
policy limits from the defendants' excess insurer. The district
court concluded that the settlement agreement did not trigger the
excess policy because the agreement was not accompanied by a court
judgment. Hence, it granted the excess insurer's motion to dismiss
the plaintiff's claims under the policy. While we disagree with
the district court's interpretation of the pertinent policy
language, we affirm the dismissal because the plaintiff has not
presented a plausible argument that the settlement agreement
triggered the excess insurer's duty to indemnify.
I.
A. The Accident
On June 17, 2010, Gerardo Salvati died as a result of
injuries he sustained while doing maintenance work for Ajax
Management Partners, LLC at the Lovejoy Wharf building in Boston.
On that day, Mr. Salvati was asked to examine the condition of the
brick facade of the building. While he was standing on a ladder
inspecting the building, a sizable chunk of brickwork came loose
and suddenly fell from the building, crashing into him and causing
him to fall to his death. According to the operative complaint
- 2 -
before the district court, the building had been in a state of
disrepair for years, and the owners of the property were aware
that the building's loose and decaying brickwork was in need of
repair.
In September 2011, Gerardo Salvati's wife, Lucia
(hereinafter referred to as "Salvati"), filed a lawsuit in Suffolk
County Superior Court, seeking damages for wrongful death and loss
of consortium individually and in her capacity as executrix of her
husband's estate. The defendants in that action (the "Underlying
Defendants") were Robert Easton, Gerardo Salvati's supervisor at
the time of his death and the person holding the ladder when the
accident occurred, and a group of individuals and limited liability
companies who owned the building where the accident occurred.1 The
Underlying Defendants had two insurance policies: a primary policy
through Western World Insurance Company ("Western World") in the
amount of $1 million and an excess policy through the American
Insurance Company ("AIC") in the amount of $9 million (the "Excess
Policy"). The Underlying Defendants informed both insurance
companies of Salvati's claims.
1 The other defendants were Ajax Investment Partners, LLC,
Lovejoy Wharf, LLC, Beverly Wharf, LLC, North Washington Wharf,
LLC, and AB Wharf, LLC. Because Ajax Management had workers'
compensation coverage, it was not a defendant in either the state
court wrongful death action or the instant litigation.
- 3 -
In October 2012, AIC informed the Underlying Defendants
that it would not defend them against, or indemnify them for
damages from, Salvati's suit.2 AIC's disavowal of coverage
effectively left the Underlying Defendants with only the primary
policy from Western World. The Underlying Defendants thus
initially told Salvati that they were insured for only $1 million,
although Salvati later learned of the Excess Policy. The parties
attempted mediation, during which Salvati requested damages in
excess of the primary insurance coverage, but within the coverage
amount of the Excess Policy. Despite AIC's refusal to defend the
Underlying Defendants, a representative and an attorney from AIC
were present at the mediation sessions. The parties failed to
reach an accord during mediation. In November 2014, Salvati sent
a demand letter to AIC seeking payment under the Excess Policy,
but AIC once again refused to provide coverage.
B. The Settlement Agreement
Salvati and the Underlying Defendants finally reached a
$6 million settlement agreement (the "Settlement Agreement") in
December 2014. The Settlement Agreement has three key elements
relevant to this appeal. First, as the district court observed,
2 AIC explained that it was denying coverage because, inter
alia, the policy did not apply to liability stemming from an injury
to an employee of the insured party during the course of his
employment.
- 4 -
it "provided for the total payment of $6,000,000 to Salvati."
Salvati v. Am. Ins. Co., No. 1:15-cv-13136-RWZ, slip op. at 2 (D.
Mass. Mar. 15, 2016) (Memorandum of Decision and Order). Second,
in exchange for tendering the full $1 million of the Western World
primary insurance policy, the Agreement released both Western
World and the Underlying Defendants from any further liability.
Third, the Agreement assigned all rights previously held by the
Underlying Defendants against AIC to Salvati, allowing her to seek
recovery of the remaining $5 million from the Excess Policy.
However, the Agreement also stipulated that the settlement was not
contingent on the ultimate availability of the excess coverage,
and specified that the Underlying Defendants did not represent
that excess coverage was necessarily available. Moreover, the
Underlying Defendants expressly disclaimed wrongdoing in the
Agreement.
Pursuant to Massachusetts law, which requires court
approval of settlements of cases in which workers' compensation
benefits have been paid, see Mass. Gen. Laws ch. 152, § 15, the
Superior Court approved the Settlement Agreement, and the case was
dismissed with prejudice.
C. The Present Case
In April 2015 Salvati, acting as the assignee of the
Underlying Defendants, filed a two-count complaint against AIC in
- 5 -
Suffolk County Superior Court. In Count I, she alleged that AIC
had breached its contract (i.e. the Excess Policy agreement) with
the Underlying Defendants by refusing to indemnify them for the
liability they had incurred through the Settlement Agreement. In
Count II, she sought a declaratory judgment that she was entitled
to collect the remainder of the settlement amount from AIC under
the Excess Policy.
AIC removed the case to federal court and filed a motion
to dismiss, which the district court denied. Meanwhile, Salvati
filed an amended complaint in which she added claims under
Massachusetts General Laws chapter 93A (Count III, consumer
protection) and chapter 176D (Count IV, unfair and deceptive acts
in insurance), as well as two counts of professional negligence
based on AIC's failure to settle her claims against the insureds
(Counts V and VI). AIC responded with a second motion to dismiss.
The district court granted this motion, holding that the
amended complaint failed to state a cognizable claim for breach of
contract (Count I) and declaratory judgment (Count II). The court
reasoned that AIC's duty to indemnify could only be triggered when
the Underlying Defendants became legally obligated to pay Salvati.
Here, however, the Underlying Defendants had not incurred such an
obligation "because the Underlying Action was dismissed with
prejudice and no judgment entered against the Underlying
- 6 -
Defendants, AIC's insured." Moreover, the court noted that "AIC
was not a party to the underlying settlement and thus never agreed
or became contractually bound to pay the $5,000,000." Salvati,
No. 1:15-cv-13136-RWZ, slip op. at 5.
The court also concluded that, because AIC's obligation
to pay under the terms of the Excess Policy was a necessary
condition to the Chapter 93A consumer protection claim (Count IV)
and the professional negligence claims (Counts V and VI), it was
appropriate to dismiss those claims. Finally, the court dismissed
Count III, which alleged a violation of Massachusetts General Laws
chapter 176D for failure to settle an insurance claim in which
liability has become reasonably clear, on the ground that Chapter
176D "provides no private cause of action and is enforceable only
by the commissioner of insurance." Id. at 6 (quoting Metro. Prop.
& Cas. Ins. Co. v. Bos. Reg'l Physical Therapy, Inc., 538 F. Supp.
2d 338, 343 (D. Mass. 2008)). On appeal, Salvati argues that the
district court erred in dismissing each of her claims.
II.
We review a district court's dismissal for failure to
state a claim de novo. Coll. Hill Props., LLC v. City of Worcester,
821 F.3d 193, 195 (1st Cir. 2016). As this case comes to us
through diversity jurisdiction, we look to state law to determine
the substantive rules of decision. See Erie R.R. Co. v. Tompkins,
- 7 -
304 U.S. 64, 78 (1938). It is undisputed that Massachusetts law
applies in this case. The insured risk was located in
Massachusetts, and the underlying accident occurred in
Massachusetts. See Bushkin Assocs., Inc. v. Raytheon Co., 473
N.E.2d 662, 669 (Mass. 1985).
A. Count One: Breach of Contract
We begin with the breach of contract claim because the
determination of AIC's contractual obligation will in turn affect
our review of most of the remaining claims. We review de novo the
district court's interpretation of the excess insurance contract.
See Valley Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir.
2012).
The scope of coverage is determined by the policy
language, Sanders v. Phoenix Ins. Co., 843 F.3d 37, 45 (1st Cir.
2016), and, in construing the policy, we "consider what an
objectively reasonable insured, reading the relevant policy
language, would expect to be covered," Hazen Paper Co. v. U.S.
Fid. & Guar. Co., 555 N.E.2d 576, 583 (Mass. 1990). Any
ambiguities in the policy's terms are resolved against the insurer.
Vickodil v. Lexington Ins. Co., 587 N.E.2d 777, 778 (Mass. 1992).
The insured, however, "generally bears the burden of proving that
a particular claim falls within a policy's coverage." Allmerica
- 8 -
Fin. Corp. v. Certain Underwriters at Lloyd's, London, 871 N.E.2d
418, 425 (Mass. 2007).
1. The Scope of AIC's Excess Policy
The language at the heart of this dispute appears in the
primary indemnification provision of the Excess Policy, where AIC
agrees to "pay on behalf of any Insured those sums in excess of
the Primary Insurance that any Insured becomes legally obligated
to pay as damages."3 Salvati argues that AIC's duty to indemnify
the Underlying Defendants was triggered when the Underlying
Defendants signed the Settlement Agreement, which "effectuate[d]
a full and complete settlement . . . in the amount of $6,000,000."
By failing to indemnify the Underlying Defendants (or her, as their
assignee), she thus claims, AIC breached its contract.
AIC responds that its duty to indemnify was not triggered
by the Settlement Agreement because only a judgment can "legally
obligate[]" a party to pay "damages." The district court agreed,
holding that "there was never any legal determination of liability"
because "no judgment entered against the Underlying Defendants,"
and thus AIC has no duty to indemnify the Underlying Defendants
(or Salvati) for the $5 million of the Settlement Agreement in
excess of Western World's payment.
3Such damages also must be covered by primary insurance and
arise from an event occurring during the policy period.
- 9 -
Our own review of the indemnification language, in the
context of the policy as a whole, leads us to a different
conclusion. See Gen. Convention of New Jerusalem in U.S., Inc. v.
MacKenzie, 874 N.E.2d 1084, 1087 (Mass. 2007) ("The words of a
contract must be considered in the context of the entire contract
rather than in isolation."). As we shall explain, multiple policy
provisions reveal that the requisite "legal obligat[ion]" to pay
"damages" can arise from either a court judgment or a settlement
agreement that is wholly contractual in nature.
As a general matter -- and contrary to AIC's assertion
-- the term "damages" does not itself signify the need for a court
judgment. Black's Law Dictionary defines "damages" as "[m]oney
claimed by, or ordered to be paid to, a person as compensation for
loss or injury." Damages, Black's Law Dictionary (10th ed. 2014).
This definition does not require that a court, or any other formal
body, order the payment of such compensation. Nor does the Excess
Policy set forth a more limited meaning of "damages"; the term is
not defined in the policy. Hence, we must look to other provisions
of the policy to determine whether "damages" resulting from a
settlement are within the scope of AIC's duty to indemnify.
We find one clue in the Excess Policy's definition of
the term "Suit" as "a civil proceeding in which damages insured by
this policy are alleged." This definition goes on to specify, in
- 10 -
pertinent part, that such civil proceedings include arbitrations
and "[a]ny other alternative dispute resolution proceeding[s] in
which such damages are claimed." Obligations to pay arising out
of an arbitration or alternative dispute resolution proceeding are
not judgments, but rather contractual obligations. It is "a
general rule in the construction of a written instrument that the
same word occurring more than once is to be given the same meaning
unless a different meaning is demanded by the context." Barilaro
v. Consol. Rail Corp., 876 F.2d 260, 265 n.10 (1st Cir. 1989)
(quoting Dana v. Wildey Sav. Bank, 2 N.E.2d 450, 453 (Mass. 1936)).
The policy's recognition that "damages" may be claimed in non-
judicial proceedings, therefore, contradicts AIC's position that
the term "damages" in the indemnification provision covers only
obligations to pay arising out of a judgment.
Moreover, the way in which the word "settlement" is used
in the Excess Policy reinforces the view that AIC's duty to
indemnify may be triggered by a settlement, including one that is
not memorialized in a judgment. The policy provides that, if the
limits of a primary insurance policy are reduced or exhausted "by
payments of judgments or settlements arising out of Occurrences,
our policy will apply in excess of such reduced or exhausted limit
of insurance." Similarly, AIC's duty to defend is triggered
"[a]fter the applicable limits of insurance of Primary Insurance
- 11 -
and Other Insurance cease to apply because of exhaustion by the
payment of judgments or settlements." Through the use of the word
"or," these provisions depict "judgments" and "settlements" as
alternatives; "settlements" are not presented as simply a subset
of "judgments."
This understanding of the term "settlement" informs our
interpretation of another provision of the Excess Policy, the
condition that "settlement [by the insured] requires our prior
written authorization."4 Such a requirement of prior approval
makes sense only if settlements could trigger AIC's duty to
indemnify. In light of the provision discussed above that frames
settlements and judgments as alternatives, settlements that are
not memorialized in a judgment must be included within the scope
of this requirement.
Finally, the Excess Policy also requires the insured to
"[c]ooperate with [AIC] in the investigation or settlement of any
claim, or the defense of any insured against any Suit." Again,
the presentation of two alternatives -- a "claim" and a
"Suit" -- is significant. The policy appears to recognize that
the "settlement of [a] claim" may occur before a civil proceeding
4According to the policy, this condition applies only in
jurisdictions where AIC cannot defend the insured against a suit.
- 12 -
(a "Suit") has commenced.5 Any such settlement would not be
accompanied by the entry of a judgment.
In sum, a close review of the terms of the Excess Policy
indicates that AIC's obligation to indemnify may be triggered by
the settlement of a claim that is not accompanied by a judgment.6
Hence, a settlement agreement that imposes upon the insured a
"legal[] obligat[ion] to pay" an amount in excess of the primary
insurance may meet the terms of the indemnification provision.
2. The Applicability of the Excess Policy to the Settlement
Agreement
AIC contends that, even if the Underlying Defendants
could have become "legally obligated to pay . . . damages" through
a settlement, the agreement at issue here did not trigger AIC's
duty to indemnify because it did not legally obligate the
Underlying Defendants to pay anything beyond the $1 million
5
A similar distinction is made in another provision of the
policy, which gives AIC discretion to "a. [i]nvestigate any
Occurrence, claim or Suit; or b. [s]ettle any claim or Suit."
6
We dismiss out of hand AIC's contention that our precedent
dictates that the Excess Policy's language can be satisfied only
by a judgment. AIC cites Great American Insurance Co. v. Riso,
Inc. for the proposition that "the duty to indemnify is triggered
only 'when a judgment within the policy coverage is rendered
against [the] insured.'" 479 F.3d 158, 160 (1st Cir. 2007)
(emphasis omitted) (quoting Bos. Symphony Orchestra, Inc. v.
Commercial Union Ins. Co., 545 N.E.2d 1156, 1158 (Mass. 1989)).
Neither Great American Insurance Co. nor the Massachusetts case it
quotes addresses whether a settlement could satisfy the "legally
obligated to pay as damages" language.
- 13 -
available through Western World's primary policy. Although the
Settlement Agreement purported to create a "settlement . . . in
the amount of $6,000,0000," the only payment it required was a
check from Western World for $1 million. The remaining value was
attributed to the assignment to Salvati "of all rights [the
Underlying Defendants] may have . . . with regard to the Excess
Liability Policy . . . issued by [AIC]." Moreover, AIC points out
that the Settlement Agreement released the Underlying Defendants
from liability, and the parties agreed to dismissal of the suit,
precluding liability on the part of the Underlying Defendants.
Because the settlement did not obligate the Underlying Defendants
to pay a "sum in excess of the Primary Insurance," AIC contends,
the Agreement did not trigger AIC's indemnification liability.
Therefore, AIC did not breach its contract with the Underlying
Defendants by refusing to indemnify them.
This reading reflects the plain language of the
Settlement Agreement. Salvati does not respond to this argument
in her briefs or, indeed, offer any theory to support a conclusion
that the Settlement Agreement imposes on the Underlying Defendants
a "legal[] obligat[ion] to pay" sufficient to trigger the Excess
Policy's indemnification provision. Instead, Salvati simply
asserts that, because the primary policy was exhausted and $5
million of the $6 million settlement amount remains unpaid, AIC
- 14 -
must pay that remaining amount. See Appellant's Brief ("App. Br.")
at 26 ("AIC should then have tendered the excess amount of
$5,000,000.00 to the insured, who would have paid that amount to
the Plaintiff.").
Similarly, without explaining how they support a
"legal[] obligat[ion]," Salvati also sets out a series of
principles and facts concerning the obligations of excess insurers
generally and of AIC in this case. She acknowledges that "[t]he
primary insurer must exhaust the full limits of its coverage before
an excess insurer can be required to contribute to a compromise
settlement or judgment." App. Br. at 15; see 15 Couch on Ins.
§ 220:32 (3d ed. 2016) ("[I]t is only after the underlying primary
policy has been exhausted does [sic] the excess or umbrella
coverage kick in."). And she correctly points out that "Western
World exhausted its policy limits [through] the settlement." App.
Br. at 26; see 15 Couch on Ins. § 220:32 ("[P]rimary coverage is
'exhausted' when the primary insurers pay their policy limits in
settlement or to satisfy a judgment against the insured.").
She also argues that the scope of AIC's duty to indemnify
must be determined by the basis for the settlement, that is,
"'whether any portion of the settlement was made in compensation
for' the [Underlying Defendants'] acts, and if so, whether the
acts fell under [the excess] insurer's coverage." App. Br. at 16
- 15 -
(quoting Home Ins. Co. v. St. Paul Fire & Marine Ins. Co., 229
F.3d 56, 66 (1st Cir. 2000)). She asserts that "the entire
settlement was made in compensation for the acts of the Underlying
Defendants," and that those acts were covered by AIC's Excess
Policy. App. Br. at 18. She further claims that "the Settlement
Agreement was made in good faith and in reasonable anticipation of
liability." App. Br. at 20; see, e.g., Twin City Fire Ins. Co. v.
Ohio Cas. Ins. Co., 480 F.3d 1254, 1261 (11th Cir. 2007) (noting
that an insurer is only bound by a settlement agreement "so long
as the settlement is covered, reasonable, and made in good faith").
But even if the Settlement Agreement meets all of these
prerequisites, this compliance does not demonstrate how the
Settlement Agreement "legally obligated" the Underlying Defendants
to pay her the $5 million she seeks to recover from AIC. Nor does
Salvati argue that, in light of other policy language, the text of
the indemnification provision requires less than AIC suggests.
She does not contend that AIC somehow waived the right to rely on
that language, perhaps through its continued refusal to defend or
indemnify the Underlying Defendants.7 And she does not assert that
7 Other jurisdictions, for example, have found that by
breaching its duty to defend the insured, an insurer waives the
right to rely on similar policy language. See, e.g., Twin City
Fire Ins. Co., 480 F.3d at 1261; Jones v. S. Marine & Aviation
Underwriters, Inc., 888 F.2d 358, 361 (5th Cir. 1989).
- 16 -
we should refuse to enforce the provision on policy grounds, or
that Massachusetts law does not require the strict enforcement of
such language.
We do not mean to suggest that such arguments necessarily
would have succeeded. But Salvati's failure to explain how the
Settlement Agreement triggered the Excess Policy's indemnification
provision leaves us without a rationale for finding that AIC's
refusal to indemnify constituted a breach of contract. We thus
affirm, on this different ground, the district court's decision to
dismiss Count I.
We note, however, that this outcome was not inevitable.
A settlement structured differently could have met the
requirements of the Excess Policy by creating a "legal[]
obligat[ion]" on the part of the Underlying Defendants. In fact,
it was possible to structure such a settlement while also achieving
the parties' apparent goal of shielding the Underlying Defendants
from direct exposure to liability.
The Massachusetts Supreme Judicial Court has held that
in cases where an insurer such as AIC declined to settle a claim
for an amount within its policy limits, a settlement agreement
between the plaintiff and the insured that has been reduced to a
judgment may create a legal obligation that would satisfy an
insurance policy's requirements, even when the settlement is
- 17 -
accompanied by a separate agreement releasing the insured from
liability. See Campione v. Wilson, 661 N.E.2d 658, 661-62 (Mass.
1996); see also Gray v. Grain Dealers Mut. Ins. Co., 871 F.2d 1128,
1131-33 (D.C. Cir. 1989) (release of insured from liability after
default judgment did not nullify the basis for assignment of
insured's cause of action against insurer). In Campione, the
parties entered into a settlement agreement and an agreement for
judgment contemporaneously with an assignment of claims and a
conditional release of the defendants (contingent on their
cooperation with the plaintiffs' future lawsuit).8 661 N.E.2d at
660. Salvati could have pursued a similar arrangement here.9
The difference between this approach and the Settlement
Agreement may seem technical, but it is significant. In Campione,
the judgment entered by the court pursuant to the parties'
8
Cognizant of the risk of collusion between the plaintiff
and the insured present in such arrangements, the Campione court
explained that "the risk of collusion in this case appears minimal
in view of the seriousness of the accident, the existence of
liability, and the probability that a fact finder will find that
damages exceeded any existing insurance coverage." 661 N.E.2d at
663.
9
Although this arrangement involves a judgment, we note that
there is no inconsistency between our comments here and our holding
in the previous section that a judgment is not required to satisfy
the policy language. There could be a settlement agreement, unlike
the agreement here, that by its terms meets the "legally obligated
to pay" requirement of the excess policy language, even in the
absence of a judgment. However, we take no position as to whether
the logic of Campione would apply to a settlement without a
judgment; Campione does not expressly resolve that issue.
- 18 -
agreement imposed upon the insured a legal obligation to pay the
plaintiff. The court concluded that "the legal basis for the claim
against the insurer" did not "disappear[] when the insured became
insulated from liability due to a release or a covenant not to
execute." 661 N.E.2d at 662. One commentator has explained the
rationale as follows:
[i]f the plaintiff were to renege on its promise and
attempt to collect the judgment from the insured rather
than from the insurer, the insured would have a breach
of contract claim against the plaintiff, but the
plaintiff's promise [would] not [have] extinguish[ed]
either the insured's responsibility for the plaintiff's
damages or the underlying tort liability.
Douglas R. Richmond, The Consent Judgment Quandary of Insurance
Law, 48 Tort Trial & Ins. Prac. L.J. 537, 556 (2013). But see
13-67 Corbin on Contracts § 67.14 (2016) (explaining that, where
a plaintiff breaches its promise and attempts to collect from the
released party, courts will generally consider the release to be
a discharge of liability). In the case at hand, by contrast, the
Underlying Defendants never incurred any "legal[] obligat[ion],"
either through a contract or a judgment, to pay Salvati. The
indemnification provision was not, therefore, triggered, and AIC's
refusal to indemnify the Underlying Defendants was not a breach of
contract.
We recognize that AIC's denial of coverage has left
Salvati in a difficult position, and that our adherence to the
- 19 -
terms of the Excess Policy may seem unforgiving. We cannot,
however, rewrite the Settlement Agreement so that it triggers the
Excess Policy. Nor can we rewrite the language of the Excess
Policy to cover the Settlement Agreement. Consequently, we must
affirm the district court's dismissal of Count I.
B. Remaining Counts
The district court dismissed four of Salvati's five
remaining counts after concluding that AIC's obligation to pay
under the Excess Policy was a necessary precondition of those
counts. As explained above, while we disagree with the district
court's reasoning, we similarly find that Salvati has failed to
demonstrate that AIC is obligated to pay her under the Excess
Policy. Accordingly, we affirm the district court’s dismissal of
Count II (declaratory judgment), Count IV (violation of Mass. Gen.
Laws ch. 93A), and Counts V and VI (professional negligence).
The district court dismissed Salvati's final claim,
Count III, based on a different rationale, with which we agree.
Massachusetts General Laws chapter 176D, which prohibits unfair
and deceptive insurance practices, "provides no private cause of
action and is enforceable only by the commissioner of insurance."
Thorpe v. Mut. of Omaha Ins. Co., 984 F.2d 541, 544 n.1 (1st Cir.
1993). When bringing a claim under Chapter 93A, which encompasses
unfair and deceptive insurance practices, a plaintiff may argue
- 20 -
that an insurer acted in violation of Chapter 176D. However, "to
the extent that [the count] attempts to state an independent claim
for recovery under [C]hapter 176D, it must fail." M. DeMatteo
Const. Co. v. Century Indem. Co., 182 F. Supp. 2d 146, 160 (D.
Mass. 2001). We therefore affirm the district court's dismissal
of Count III.
III.
Because appellant has failed to show that the Settlement
Agreement triggered AIC’s duty to indemnify, and because she may
not bring a claim under Chapter 176D, none of her causes of action
survive. Accordingly, we affirm the district court's grant of
AIC's motion to dismiss the complaint.
So ordered.
-Concurring Opinion Follows-
- 21 -
STAHL, Circuit Judge, concurring. While I join this
opinion, I write separately to express my concerns about its
potential ramifications. It goes without saying that the typical
consumer who purchases excess insurance expects that such
insurance will protect him or her in the event of a catastrophic
accident where liability is relatively certain and where a
potential judgment will likely exceed the primary coverage. Here,
the Underlying Defendants, recognizing the extent of Salvati's
claim, reasonably believed that their primary and excess insurance
policies would protect them. Likewise, Salvati, having gained
knowledge of the Defendants' primary and excess coverage,
knowledge in part gained through the excess carrier's presence
during the settlement discussions, reasonably believed that the
excess policy would cover the amount of the settlement that
exceeded the primary policy limit. Notwithstanding that
reasonable expectation, we now hold that the documents presented
to us on appeal, interpreted with the aid of fragmentary guidance
from Massachusetts courts, require us to find that this particular
settlement agreement did not trigger an obligation to indemnify
under the excess insurance policy. While the opinion's parsing of
the relevant contractual terms is admirable, the end result lays
bare several troubling practical consequences that may ultimately
decrease the incentives for plaintiffs, defendants, and insurers
- 22 -
to settle, which in turn may lead to more trials, higher costs,
and less effective excess insurance coverage.10
My concerns stem from a hypothetical. Think about a
case like this one, only where the settlement discussions occur
after this opinion's release. Given our strict interpretation of
the terms of the Settlement Agreement and the Underlying
Defendants' excess insurance policy, it seems somewhat unrealistic
to expect future plaintiffs to settle their claims unless the
defendants either assume liability or the primary carrier throws
in its entire policy and the litigation continues towards a trial,
which should obviously implicate the excess carrier. Of course,
it seems that this problem would not occur if the excess carrier
was the same carrier as the primary carrier. However, this is
likely not the case for many insureds. See Scott M. Seaman &
Charlene Kittredge, Excess Liability Insurance: Law and
Litigation, 32 Tort & Ins. L.J. 653, 653-54 (1997) (observing that
"the importance of excess insurance and the role of excess insurers
as active participants in coverage litigation ha[s] grown
10See Campione v. Wilson, 661 N.E.2d 658, 663 (Mass. 1996)
(noting the importance of "giv[ing] effect to" heavily-negotiated
insurance settlements, especially where "the plaintiffs have
voluntarily assumed the burden of proving any claims that [an
underlying defendant] may have against [an excess insurer]," the
underlying defendant's "liability for the accident is reasonably
clear, the primary insurer has paid the full limits of its policy,
and damages are substantial").
- 23 -
exponentially" due to a variety of factors, including the increased
issuance of "excess insurance contracts as commercial and
professional insureds purchase excess coverage as part of
comprehensive risk management programs," the "increased exposures
of the insureds" due to substantive legal changes, and the "high
monetary stakes" accompanying coverage disputes).
Likewise, it appears equally unrealistic to expect
insured defendants to agree to assume liability with no assurance
that their excess policy would cover the portion of liability that
exceeds their primary coverage. After all, defendants rely on
their excess insurance policies, and eschew assumptions of
liability, because these policies "are risk-spreading devices.
They exist primarily because the stakes of liability to an insured
are greater than they are to the insurer, which can spread the
loss across all of its customers." Trs. of the Univ. of Pa. v.
Lexington Ins. Co., 815 F.2d 890, 901 (3d Cir. 1987). However,
the risk that an excess insurer might, as has occurred here, refuse
to cover means that an underlying defendant, facing the potential
of millions of dollars in liability and having purchased insurance
precisely to avoid the type of potential liability in question,
will push for a result that is similar to what occurred here: a
settlement that includes a release of liability or a covenant not
- 24 -
to execute, and an assignment of rights to sue on the excess policy
to the plaintiff.11
Simply put, I am concerned that parties will be less
likely to agree to settlements in disputes where the primary
coverage is clearly inadequate. This outcome "run[s] counter to
the well-accepted public policy favoring settlement of insurance
disputes" and could create other "perverse incentives" for
insurers, such as "encouraging [them] to disclaim their duties to
defend" and, subsequent to this, their duty to indemnify. IMG
Worldwide, Inc. v. Westchester Fire Ins. Co., 572 F. App'x 402,
411-12 (6th Cir. 2014); see also 1 Barry R. Ostrager & Thomas R.
Newman, Handbook on Ins. Coverage Disputes, § 6.03[b] (16th Ed.
2013) (noting that "the insured, having purchased both primary and
excess coverage, cannot be abandoned by its insurers" (citing
Hocker v. N.H. Ins. Co., 922 F.2d 1476 (10th Cir. 1991))).
To that end, many courts impose a duty to defend on
excess carriers when the potential scope of liability plainly
11 These types of settlements are not only attractive cost-
saving options for litigants, but frequently necessary ones in
cases where, like this one, an insurance carrier abandons its
insured or its insured's assignee. See, e.g., Foremost Cty. Mut.
Ins. Co. v. Home Indem. Co., 897 F.2d 754, 759 (5th Cir. 1990)
(noting that in situations where the insurer has refused to provide
coverage and refused to participate in the defense of the insured,
"the insured often can protect himself only with a covenant not to
execute").
- 25 -
exceeds the limits of the primary policy.12 Likewise, other
jurisdictions have held that an insurer waives its right to rely
on language in an insurance contract that limits the scope of an
insured's coverage when the insurer breaches its duty to defend.13
12 See, e.g., Metlife Capital Corp. v. Westchester Fire Ins.
Co., 224 F. Supp. 2d 374, 388 (D.P.R. 2002) ("[I]n circumstances
where the claim against the insured equals an amount exceeding the
primary policy limits, the excess insurer's duty to defend may
also be triggered."); Royal Ins. Co. of Am. v. Reliance Ins. Co.,
140 F. Supp. 2d 609, 618 (D.S.C. 2001) (holding that a prayer for
relief that clearly implicated excess policy limits triggered an
excess carrier's duty to defend); Phico Ins. Co. v. Aetna Cas. &
Sur. Co. of Am., 93 F. Supp. 2d 982, 993-94 (S.D. Ind. 2000)
(concluding that an excess insurer owed a duty to its insured once
the excess insurer understood that the primary policy would be
exhausted); Am. Motorists Ins. Co. v. Trane Co., 544 F. Supp. 669,
692 (W.D. Wis. 1982), aff'd, 718 F.2d 842 (7th Cir. 1983) (stating
that "if the claim against the insured exceeds the monetary limits
set by the underlying insurer, the excess insurer's duty to defend
is usually activated, even if the underlying insurer undertakes
the defense as well"); cf. House of Clean, Inc. v. St. Paul Fire
& Marine Ins. Co., 775 F. Supp. 2d 302, 306-07 (D. Mass. 2011)
(finding that a primary insurer breached its duty to defend because
it was on notice that the potential scope of liability would fall
within the applicable policy but nonetheless failed to defend the
insured).
13See, e.g., Twin City Fire Ins. Co. v. Ohio Cas. Ins. Co.,
480 F.3d 1254, 1260-61 (11th Cir. 2007) (stating that an insurance
contract's "'legally obligated to pay' language does not block an
otherwise valid coverage obligation when an insurer refuses to
defend the insured and the injured party enters into a reasonable
and good faith settlement that precludes proceeding against the
insured" (citing Liberty Mut. Ins. Co. v. Wheelwright Trucking
Co., 851 So.2d 466, 490 (Ala. 2002))); Jones v. S. Marine &
Aviation Underwriters, Inc., 888 F.2d 358, 361 (5th Cir. 1989)
(noting that an insurer may waive the right to rely on the "legally
obligated to pay" language contained in the applicable insurance
policy once the insurer breaches its defense obligation to an
insured).
- 26 -
Judge Lipez's fine opinion alludes to both of these
doctrines, but I wish to make my own views more explicit. Our
holding today rightly emphasizes the importance placed on the plain
language of insurance contracts and settlement agreements.
However, we must not ignore the unique purpose of excess insurance
coverage: "to protect the insured against the risk of costs
exceeding the limits of primary coverage." Pac. Emp'rs Ins. Co.
v. Travelers Cas. & Sur. Co., 136 F. Supp. 3d 211, 219 (D. Conn.
2015) (emphasis added). Because an excess carrier may otherwise
shirk its responsibilities to its insureds if it is allowed to
rely on the terms of a settlement agreement with impunity, courts
should interpret the duty to defend broadly (at least when a
plaintiff and underlying defendant reach a good-faith,
collusion-free settlement that exhausts the primary carrier's
coverage).14 See Metlife Capital Corp., 224 F. Supp. 2d at 388(stating that "[t]he duty to defend arises when the possibility
14 Of course, the dangers of possible collusion between the
insured, the primary insurance carrier, and the plaintiff means
that courts must always take steps to ensure that settlements are
reached in good faith. See Campione, 661 N.E.2d at 663 (stating
that Massachusetts courts "do not ignore the risk that, when a
prejudgment settlement is combined with a release and covenant not
to execute in favor of the tortfeasor, collusion may exist between
the injured party and the tortfeasor"). However, these concerns
are mitigated in this case because AIC participated in the
mediation sessions and presumably kept itself informed of the
settlement discussions.
- 27 -
exists, from a liberal interpretation of the pleadings, that the
insured is protected by the policy issued, regardless of the final
outcome of the case"). Similarly, a rigorous application of the
waiver rule encourages excess insurers to fulfill their
responsibilities under the duty to defend, thereby decreasing the
occurrence of costly litigation. See Solo Cup Co. v. Fed. Ins.
Co., 619 F.2d 1178, 1185 (7th Cir. 1980) (noting that "one of the
basic purposes of" the duty to defend is the "protection of the
insured from the expenses of litigation").
Unfortunately, Massachusetts case law currently offers
few insights into these issues.15 Our analysis, to some extent,
is also affected by Salvati not raising some arguments that may
have led to a different outcome. See ante, at 17 (noting, among
other things, that Salvati "does not contend that AIC somehow
15Nonetheless, Massachusetts courts have found that in cases
of ambiguous language in insurance contracts, the excess carrier
may be required to "drop down" and cover an insured party after a
policyholder enters into a settlement and the full scope of primary
coverage is unavailable (e.g., if the primary insurer is
insolvent). See, e.g., Mass. Bay Transp. Auth. v. Allianz Ins.
Co., 597 N.E.2d 439, 443 (Mass. 1992) (upholding validity of "drop
down" coverage in excess insurance contracts but finding relevant
insurance contract unambiguous); Gulezian v. Lincoln Ins. Co., 506
N.E.2d 123, 124 (Mass. 1987) (stating that an ambiguous insurance
contract "should be read to drop down to provide indemnity coverage
to the extent that [the primary insurer's] insolvent estate does
not"). These cases hint at the willingness of Massachusetts courts
to consider interpreting contractual language establishing an
excess insurer's duty to defend in a broad manner, at least in
some circumstances.
- 28 -
waived the right to rely on [the text of the indemnification
provision], perhaps through its continued refusal to defend or
indemnify the Underlying Defendants"). Even so, one would
anticipate that when a Massachusetts court eventually does
encounter another plaintiff in Salvati's position who raises these
arguments, it will consider the practical effects of its decision
on plaintiffs, insureds, and insurers throughout the Commonwealth.
- 29 -