Nahant Preservation Trust, Inc. v. Mount Vernon Fire Ins. Co.

United States Court of Appeals
For the First Circuit
No. 22-1967
NAHANT PRESERVATION TRUST, INC., ET AL.,
Plaintiffs, Appellants,
v.
MOUNT VERNON FIRE INSURANCE COMPANY and UNITED STATES LIABILITY
INSURANCE GROUP,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. District Judge]
Before
Gelpí, Selya, and Montecalvo,
Circuit Judges.
John D. Frumer, with whom Law Office of John D. Frumer was on
brief, for appellants.
Lincoln A. Rose, with whom Scarlett M. Rajbanshi and Peabody
& Arnold LLP were on brief, for appellees.
August 16, 2023
SELYA, Circuit Judge. This appeal has its genesis in an
effort by plaintiffs-appellants Nahant Preservation Trust, Inc.,
its directors, officers, trustees, committee members, and
volunteers (collectively, Nahant) to secure insurance coverage
with respect to defense costs and indemnification arising in
connection with a state-court action brought by Northeastern
University (Northeastern).1 In that state-court action,
Northeastern seeks a declaratory judgment (among other remedies)
concerning its rights regarding the status of certain land owned
by it. At the center of the dispute is Northeastern's plan to
develop the land — a plan that Nahant asserts is prohibited by
Article 97 of the Amendments to the Massachusetts Constitution.
From June 19, 2018 to June 19, 2022, Nahant carried non-
profit management liability insurance through a succession of four
continuous annual policies issued by defendant-appellee Mount
Vernon Fire Insurance Company, a member of defendant-appellee
United States Liability Insurance Group (collectively, USLI).
Each of these policies included coverage for indemnity and defense
costs, subject to certain conditions, in the event that a covered
claim was made against Nahant. In industry parlance, the policies
provided claims-made coverage. See generally President & Fellows
of Harvard Coll. v. Zurich Am. Ins. Co., ___ F.4th ___, ___ (1st
1The Northeastern action has been consolidated with a cross-
action brought by Nahant.
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Cir. 2023) [No. 22-1938, slip op. at 7 n.1] (explaining difference
between claims-made and occurrence-based coverages).
Under the policy terms, this meant that coverage was
limited to claims first made against Nahant during a policy period,
which was defined as the period from the "effective date" of each
policy to the expiration date of that policy. Each policy required
— as a condition precedent to coverage — that written notice of
any claim for which coverage was sought be given to USLI "as soon
as practicable," but in no event later than ninety days "after the
expiration date" of the policy.2
Northeastern filed suit against Nahant in the state
court on August 9, 2019. The second policy in the series (the
2019 Policy), which ran from June 19, 2019 to June 19, 2020, was
then in effect. The suit came within the compass of that policy.
But Nahant did not notify USLI of the Northeastern suit until July
27, 2021, when it wrote to USLI seeking coverage for defense costs.
USLI refused to afford coverage, insisting that Nahant had not
provided notice of the claim within the notification period
specified in the 2019 Policy.
2 The first of the four policies, which ran from June 19, 2018
to June 19, 2019, had a slightly different end-date for the
notification requirement: it specified that written notice must
be given no later than sixty days after the expiration of the
policy. Nothing turns on this discrepancy here.
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Nahant did not accept this rebuff quietly. Instead, it
sued USLI in a Massachusetts state court, seeking a declaratory
judgment regarding USLI's duty to defend, indemnify, and defray
defense costs, along with specific performance and damages for
breach of contract. Noting the diverse citizenship of the parties
and the existence of a controversy exceeding the requisite minimum
amount, USLI removed the action to the United States District Court
for the District of Massachusetts. See 28 U.S.C. §§ 1332(a),
1441(a). USLI then moved to dismiss the action, see Fed. R. Civ.
P. 12(b)(6), averring that Nahant's late notice forfeited any right
to coverage.
Nahant opposed the motion. It asserted that the 2019
Policy, read in light of the series of policies, was at least
ambiguous. This assertion derived primarily from an endorsement
to the 2019 Policy (and the two subsequent policies), which amended
the exclusion for coverage of prior or pending litigation (the
Exclusion Amendment). The Exclusion Amendment stated that USLI
would not be liable for either indemnification or defense costs in
connection with claims arising from:
Any litigation, demand, claim, arbitration,
decree, judgment, proceeding, or
investigation against any Insured, or any such
action based upon the same or essentially the
same facts, circumstances, matters,
situations, transactions or events underlying
or alleged therein which was pending on or
prior to the effective date of this Policy;
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provided that, if this Policy is a renewal of
a Policy previously issued by the Company in
a continuous succession of Policies with no
lapses in coverage, the effective date of this
Policy will mean the effective date of the
first Policy issued by the Company in such
succession of Policies.
The Exclusion Amendment continued: "All other terms and conditions
of this Policy remain unchanged." Nahant argued that the Exclusion
Amendment should be read to change the meaning of "effective date"
throughout the series of policies (except for the 2018 Policy) and
to alter the definition of "policy period" such that the policy
period for all four policies would be deemed to run from the
inception date of the first policy (June 19, 2018) to the
expiration date of the last policy (June 19, 2022).
USLI found this argument unconvincing and urged the
district court to give the Exclusion Amendment a much narrower
reading: in its view, the Exclusion Amendment excluded coverage
for claims related to facts or matters pending before the policy's
effective date, and the specific meaning of "effective date" within
the Exclusion Amendment should be read to apply only to that
exclusion. The Exclusion Amendment, USLI said, did not operate to
revive coverage for claims that had been made, but not timely
reported by Nahant to USLI, during a prior policy period.
The district court rejected Nahant's attempt to make a
mountain out of a molehill, adopted USLI's plain-meaning
construction of the Exclusion Amendment, and granted the motion to
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dismiss. See Nahant Pres. Tr., Inc. v. Mount Vernon Fire Ins.
Co., 2022 WL 17818589, at *10 (D. Mass. Nov. 7, 2022). This timely
appeal followed.
We review the district court's entry of an order of
dismissal pursuant to Rule 12(b)(6) de novo. See SEC v. Tambone,
597 F.3d 436, 441 (1st Cir. 2010) (en banc). In conducting that
review, we accept all well-pleaded facts in the complaint as true
and draw all reasonable inferences therefrom to the pleader's
behoof. See Conformis, Inc. v. Aetna, Inc., 58 F.4th 517, 527
(1st Cir. 2023).
Insurance policies are not light reading, and their
construction often can be challenging. Here, however, the
Exclusion Amendment, read against the backdrop of the policies in
their entirety, is straightforward. And as we shall explain, see
text infra, the Exclusion Amendment's meaning — insofar as it
concerns the matter at issue — is clear.
We need not write at length. We have said before — in
the insurance context — that when a district court "correctly takes
the measure of a case and authors a convincing decision, it rarely
will serve any useful purpose for a reviewing court to wax
longiloquent." Eaton v. Penn-Am. Ins. Co., 626 F.3d 113, 114 (1st
Cir. 2010); see Seaco Ins. Co. v. Davis-Irish, 300 F.3d 84, 86
(1st Cir. 2002). Because this is such a case, we affirm the
judgment below for substantially the reasons expressed by the
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district court in its well-reasoned opinion, see Nahant Pres. Tr.,
Inc., 2022 WL 17818589, at *5-9, pausing only to add five comments.
First: Nahant bases its argument entirely on language
found in the 2019 Policy's Exclusion Amendment, which by its terms
"deleted and replaced" the prior or pending litigation exclusion.
It is apparent from the policy language that the purpose of that
exclusion was to preclude coverage for claims that were closely
related to matters pending before the policy's effective date, as
defined by the exclusion.
Massachusetts law supplies the substantive rules of
decision in this diversity case. See Erie R.R. Co. v. Tompkins,
304 U.S. 64, 78-79 (1938). Under Massachusetts law, courts
generally "should err on the side of the narrowest plausible
interpretation of [an] exclusion." Performance Trans., Inc. v.
Gen. Star Indem. Co., 983 F.3d 20, 25 (1st Cir. 2020). But Nahant
— instead of hewing to the narrow purpose of the Exclusion
Amendment — has turned this principle upside-down, disregarded
that narrow purpose, and interpreted the Exclusion Amendment
broadly to work a massive reformation of the entire series of
policies. Nahant, in effect, wants us to interpret an exclusionary
provision designed only to limit coverage as an after-the-fact
mechanism for expanding coverage. Such a huge expansion of
coverage would run at cross-purposes with the obvious objective of
the Exclusion Amendment.
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Second: Nahant's principal rejoinder is that — under
Massachusetts law — ambiguities in an insurance policy must be
construed in favor of the insured. See Certain Interested
Underwriters at Lloyd's, London v. Stolberg, 680 F.3d 61, 66 (1st
Cir. 2012) (applying Massachusetts law); Metro. Prop. & Cas. Ins.
Co. v. Morrison, 951 N.E.2d 662, 671 (Mass. 2011). Although we
have no quarrel with that tenet, it has no application here.
Ambiguity in an insurance policy exists when "the policy language
is susceptible to more than one rational interpretation." Valley
Forge Ins. Co. v. Field, 670 F.3d 93, 97 (1st Cir. 2012) (quoting
Brazas Sporting Arms, Inc. v. Am. Empire Surplus Lines Ins. Co.,
220 F.3d 1, 4-5 (1st Cir. 2000)). In this instance, though, the
only rational interpretation of the Exclusion Amendment is that
proposed by USLI and adopted by the district court; Nahant's
reading of the Exclusion Amendment is — as we already have pointed
out — not a reasonable one. Consequently, there is no ambiguity.
Third: Nahant's reading of the Exclusion Amendment
would do violence to the very language of that amendment. It is
apodictic that an insurance policy (like any other contract) must
be read as a whole and that every word and phrase "must be presumed
to have been employed with a purpose and must be given meaning and
effect whenever practicable." Metro. Life Ins. Co. v. Cotter, 984
N.E.2d 835, 844, 846 (Mass. 2013) (quoting Allmerica Fin. Corp. v.
Certain Underwriters at Lloyd's, London, 871 N.E.2d 418, 425 (Mass.
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2007)); see Stolberg, 680 F.3d at 67. Nahant's reading flouts
this abecedarian principle: it completely ignores the final
sentence of the Exclusion Amendment, which instructs that "[a]ll
other terms and conditions of this Policy remain unchanged."
Nahant's interpretation reads the Exclusion Amendment to modify
important provisions elsewhere in the policies (including the
policy period and notice requirements) and, thus, flatly
contravenes the Exclusion Amendment. By contrast, the reading
proposed by USLI and accepted by the district court, see Nahant
Pres. Tr., Inc., 2022 WL 17818589, at *6, gives appropriate meaning
and effect to all parts of the Exclusion Amendment (including the
last sentence). That reading, therefore, represents the preferred
interpretation of the Exclusion Amendment under Massachusetts law.
See Cotter, 984 N.E.2d at 844.
Fourth: Nahant's reading of the Exclusion Amendment is
inconsistent with the core purpose of claims-made policies. Such
policies aim "to minimize the time between the insured event and
the payment." Harvard Coll., ___ F.4th at ___ [slip op. at 8]
(quoting Chas. T. Main, Inc. v. Fireman's Fund Ins. Co., 551 N.E.2d
28, 30 (Mass. 1990)). For that reason, "notice provisions of
claims-made policies — which require that notice of a claim be
given by the end of the policy period or a defined period ending
shortly thereafter — are of the essence of those policies." Id.at ___ [slip op. at 8]. Accordingly, the core purpose of a claims-
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made policy would be thwarted if the policy period extended
indeterminately. See Chas. T. Main, Inc., 551 N.E.2d at 30.
Yet, Nahant's reading subverts that core purpose by
continually expanding the time between an insured event and the
eventual payment with each new policy year. Such a continually
expanding reading discourages prompt reporting and inevitably
hinders accurate rate setting, thus frustrating the core purpose
of a claims-made policy. See id. at 29.
Fifth: Last but not least, it is well-established in
Massachusetts that late notice under a claims-made policy forfeits
coverage, regardless of prejudice. See Tenovsky v. All. Syndicate,
Inc., 677 N.E.2d 1144, 1145-46 (Mass. 1997); Chas. T. Main, Inc.,
551 N.E.2d at 29-30. We have applied that doctrine in diversity
cases on no fewer than four occasions. See Harvard Coll., ___
F.4th at ___ [slip op. at 10-11]; Gargano v. Liberty Int'l
Underwriters, Inc., 572 F.3d 45, 49-51 (1st Cir. 2009); Nat'l Union
Fire Ins. Co. v. Talcott, 931 F.2d 166-167-69 (1st Cir. 1991);
J.I. Corp. v. Fed. Ins. Co., 920 F.2d 118, 120 (1st Cir. 1990);
see also DiLuglio v. New England Ins. Co., 959 F.2d 355, 358 (1st
Cir. 1992) (explaining Massachusetts rule while discussing Rhode
Island law). That doctrine controls here. Cf. RTR Techs, Inc. v.
Helming, 707 F.3d 84, 86 (1st Cir. 2013) (noting that "the law
normally ministers to the vigilant").
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We need go no further. For substantially the reasons
expressed in the district court's opinion and embellished here, we
accept USLI's plausible reading of the Exclusion Amendment, reject
Nahant's implausible reading, and affirm the judgment below.
Affirmed.
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