United States Court of Appeals For the First Circuit
No. 23-1673
TIFFANY BRIERE, individually and as parent and guardian of M.P., a minor,
Plaintiff, Appellant,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.; FIRST STUDENT, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND
[Hon. Mary S. McElroy, U.S. District Judge]
Before
Barron, Chief Judge, Lipez and Kayatta, Circuit Judges.
Michael G. Sarli, with whom Stephen J. Sypole and Gidley, Sarli & Marusak LLP were on brief, for appellant. Elizabeth F. Ahlstrand, with whom Squire Patton Boggs (US) LLP, Syd A. Saloman, and Melick & Porter, LLP were on brief, for appellee National Union Fire Insurance Company of Pittsburgh, PA. Kristina I. Hultman, with whom Derek M. Gillis and Barton Gilman LLP were on brief, for appellee First Student, Inc.
September 19, 2024 KAYATTA, Circuit Judge. This appeal presents an
insurance coverage dispute between National Union Fire Insurance
Company of Pittsburgh ("National Union") and its insured, Tiffany
Briere. Briere and her minor daughter were passengers in a school
bus owned by First Student. First Student insured the bus by
purchasing a primary business automotive policy from National
Union. The bus collided with two passenger vehicles in Rhode
Island, injuring Briere and her daughter.
Briere submitted a claim to National Union for
underinsured motorist benefits. National Union denied the claim
in a letter to Briere, noting only that First Student had "elected
to reject [underinsured motorist coverage], as it [was] permitted
to do." Briere then sued National Union in federal court, arguing
that under Rhode Island law -- specifically R.I. Gen. Laws
§ 27-7-2.1(a) -- the policy had to offer underinsured motorist
coverage. First Student intervened to defend National Union. The
court granted summary judgment to National Union and First Student,
finding that because the policy was not "delivered or issued for
delivery" in Rhode Island, § 27-7-2.1(a) did not apply.
We do not decide whether the district court correctly
interpreted § 27-7-2.1(a). Rather, we find that, in denying
coverage, National Union never claimed that the policy was not
"delivered or issued for delivery" in Rhode Island within the
meaning of § 27-7-2.1(a). Accordingly, the company could not later
- 2 - deploy that argument to show that the policy excluded underinsured
motorist coverage. Because the district court relied entirely on
National Union's waived interpretation of § 27-7-2.1(a)'s delivery
requirement -- and therefore did not have occasion to consider
other defenses -- we vacate the grant of summary judgment to
Defendants and remand for further proceedings. Our reasoning
follows.
I.
A.
On December 1, 2018, Briere and her daughter were
passengers on a Rhode Island-registered bus owned by First Student.
The bus collided with two other vehicles, both operated by
underinsured drivers (i.e., drivers whose liability exceeded the
limits of their insurance policies). Briere and her daughter were
allegedly injured. Four days later, Briere sued First Student,
the bus driver, and the two underinsured motorists in Rhode Island
state court. Briere eventually settled with the motorists'
insurers, but the lawsuit proceeded against First Student and the
bus driver (a First Student employee).
First Student is owned by FirstGroup, a
Delaware-incorporated transportation company headquartered in
Ohio. Through subsidiaries like First Student, FirstGroup
operates buses in forty-nine states. To insure the bus at issue
in this case, FirstGroup purchased a $5 million primary business
- 3 - automotive policy from National Union ("the Policy"). FirstGroup
used a New York-based insurance broker. The Policy was a fleet
policy, meaning it covered vehicles in multiple states and included
state-specific coverage provisions. In a coverage selection form
submitted to National Union, FirstGroup expressly declined
underinsured motorist coverage for its Rhode Island buses.
On September 18, 2020, Briere submitted a claim to
National Union, seeking underinsured motorist benefits under the
Policy. In her demand letter, Briere wrote that -- notwithstanding
FirstGroup's rejection of underinsured motorist coverage -- such
coverage was required under § 27-7-2.1(a). That provision states
in pertinent part:
No policy insuring against loss resulting from liability imposed by law for . . . bodily injury . . . suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle shall be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided in or supplemental to the policy . . . in no instance less than the limits set forth in § 31-47-2(13)(i)(A) . . . for the protection of persons insured under the policy who are legally entitled to recover damages from owners or operators of uninsured motor vehicles . . . . The named insured shall have the option of selecting a limit in writing less than the bodily injury liability coverage, but in no event less than the limits set forth in § 31-47-2(13)(i)(A), unless the named insured is purchasing only the minimum coverage required by compulsory insurance
- 4 - provisions of the general laws, in which case the limit can be reduced to zero . . . .1
(emphasis added).
National Union responded to Briere with a denial letter,
which stated only that FirstGroup had "elected to reject, as it
[was] permitted to do, Rhode Island [underinsured] coverage."
National Union appended to the letter a copy of FirstGroup's
coverage selection form, on which the company had ticked a box
declining underinsured motorist coverage.
B.
In October 2020, Briere sued National Union in federal
district court. First Student intervened on National Union's
behalf, so we refer to the two entities collectively as
"Defendants."2 The suit alleged breach of contract and insurer
bad faith, and also sought a declaratory judgment that the Policy
must -- pursuant to § 27-7-2.1(a) -- provide underinsured motorist
coverage.
Briere moved for summary judgment. In the section of
her motion detailing the applicable law, she argued that when an
1 "Uninsured" in this provision also means "underinsured." See R.I. Gen. Laws § 27-7-2.1(g). 2 First Student intervened to defend National Union because the Policy is a "fronting policy." This means that the Policy's deductible is equal to its policy limit, so First Student is ultimately responsible for paying any benefits to which Briere is entitled under the Policy.
- 5 - insurer denies coverage, it must be "held to the reasons given to
its insured in a denial letter and [is] barred from . . . arguing
for any grounds that do not appear in the [d]enial [l]etter."
Briere then argued against National Union's only stated basis for
denying underinsured coverage: that FirstGroup had elected to
reject such coverage.
Defendants filed cross-motions for summary judgment that
also responded to Briere's initial motion. In those motions,
Defendants argued -- for the first time -- that § 27-7-2.1(a) did
not apply because the Policy had not been "delivered or issued for
delivery" in Rhode Island. Briere replied as follows:
Plaintiffs previously explained that the insurance company is "held to the reasons given to its insured in a denial letter and [is] barred from introducing into evidence or arguing for any grounds that do not appear in the [d]enial [l]etter." See Plaintiffs' Memorandum in Support of Motion for Entry of Summary Judgment on Count I (Document 50) at 7 (citing Skaling v. Aetna Ins. Co., 799 A.2d 997 (R.I. 2002); Optical Works and Logistics, LLC v. Sentinel Ins. Co., Ltd., 525 F. Supp. 3d 295, 301-02 (D.R.I. 2021)). In the denial letter[,] National Union denied the claim for the sole reason that [FirstGroup] had "rejected" [underinsured motorist] coverage. The denial letter did not posit that coverage was unavailable because the policy had not been initially "delivered" to Rhode Island. This "delivery" argument was first raised by the Defendants' attorneys in their summary judgment memoranda. Because it was not one of the reasons cited in the denial letter[,] [Defendants] should be barred from making this argument to the Court.
- 6 - The district court granted summary judgment to
Defendants on the breach-of-contract and declaratory judgment
claims. Briere v. Nat'l Union Fire Ins. Co. of Pittsburgh, 678 F.
Supp. 3d 302, 312 (D.R.I. 2023). The court agreed that
§ 27-7-2.1(a) did not apply to the Policy, because the Policy had
not been "delivered or issued for delivery in Rhode Island." Id.
at 309. Rather, the Policy had been issued by a New York-based
broker and delivered to FirstGroup's headquarters in Ohio. The
court therefore held that it fell outside the scope of
§ 27-7-2.1(a). Id. at 308-09. In so holding, the court did not
address Briere's contention that National Union had waived
reliance on the delivery requirement by failing to mention it in
the denial letter. The court later granted summary judgment to
Defendants on the bad-faith claim, too, finding that "[b]ecause
summary judgment issued on the breach of contract claim . . . the
bad-faith claim must fall with it."
Briere timely appealed.
II.
We need not address the district court's interpretation
of § 27-7-2.1(a). Instead, we vacate the grant of summary judgment
to Defendants for a more fundamental reason: In denying coverage
prior to suit, National Union never notified Briere that it was
disclaiming coverage based on its interpretation of
- 7 - § 27-7-2.1(a)'s delivery requirement. The company therefore
waived this defense. Our reasoning follows.
Rhode Island's highest court has held that "[i]nsurers
doing business in Rhode Island have an implied obligation to
promptly and fully respond to their insured." Skaling v. Aetna
Ins. Co., 799 A.2d 997, 1010 (R.I. 2002). And if the response is
a denial, it must be specific enough to "give [the] plaintiff[]
notice of [the insurer's] intent to raise" a given coverage
defense. Rueschemeyer v. Liberty Mut. Ins. Co., 673 A.2d 448, 451
(R.I. 1996). The existence of that obligation raises the following
question: What happens when an insurer's response to its insured
omits a possible ground for denying coverage, and the insurer later
relies on that ground to defend the denial?
In Skaling, the Rhode Island Supreme Court answered that
question, albeit in the context of considering what is often called
a bad-faith claim. There, the insurer allegedly denied coverage
despite knowing (or recklessly disregarding) that it
"lack[ed] . . . a reasonable basis for denying the claim." Id. at
1004 (quoting Bibeault v. Hanover Ins. Co., 417 A.2d 313, 319 (R.I.
1980)). The Skaling court ruled that, when defending against the
bad-faith claim, the insurer could not rely on "extraneous facts
or arguments that it did not communicate to the insured when it
refused payment." Id. at 1011. So, if a denial letter does not
- 8 - sufficiently raise a defense to a bad-faith claim, then that
defense is waived. See Skaling, 799 A.2d at 1011; cf.
Rueschemeyer, 673 A.2d at 451 (holding that an insurer did not
waive a claim defense, because it sufficiently explained that
defense in its denial letter).
Briere has brought a bad-faith claim. But she has also
brought a breach-of-contract claim, as well as a related claim for
declaratory judgment. So, we must determine if the rule from
Skaling -- which limits an insurer in a bad-faith action to the
defenses enumerated in its coverage denial letter -- also applies
to a breach-of-contract action. We find that it does.
A successful bad-faith claim is like second base -- you
can only get there if you reach first base by prevailing on the
underlying breach-of-contract claim. Zarrella v. Minn. Mut. Life
Ins. Co., 824 A.2d 1249, 1261 (R.I. 2003) ("[A] plaintiff first
must show that he or she is entitled to recover on the contract
before he or she can prove that the insurer dealt with him or her
in bad faith."); Skaling, 799 A.2d at 1004 ("[N]o action in bad
faith can lie unless and until an insured has proven a breach of
the insurance contract."). If an insurer could rely on a belatedly
raised defense to defeat a breach-of-contract claim, then the
corresponding bad-faith claim would never come into play. This
would effectively render Skaling a dead letter.
- 9 - Perceiving no mandate to wipe Skaling off the books, we
find that Skaling's "explain-or-waive" rule applies to litigation
of claims for both breach of contract and insurer bad faith. Our
holding comports with the generally accepted rule that "once an
insurance company has denied coverage to its insured and stated
its defenses, the insurer has waived or is estopped from raising
new defenses." See 46 C.J.S. Insurance § 1196 (2024) (collecting
cases). We turn our attention, then, to determining whether
National Union -- in denying coverage -- adequately notified Briere
of its proposed delivery requirement defense.
National Union's pre-suit denial letter to Briere was,
to a significant degree, conclusory. It stated one fact: that
FirstGroup had rejected underinsured coverage. And it stated one
legal conclusion: that FirstGroup was permitted to reject such
coverage. But it did not even hint at why FirstGroup was so
permitted. Nor did it cite any facts from which one could infer
the source of such permission.
National Union fairly responds that its denial letter
must be read alongside Briere's initial demand letter. The demand
letter quoted § 27-7-2.1(a) extensively, claiming that this
provision required the Policy to include underinsured coverage.
So, one could charitably read National Union's response as implying
that § 27-7-2.1(a) "permitted" FirstGroup to reject underinsured
- 10 - coverage. But even that generous reading of the denial letter
leaves the reader guessing as to why § 27-7-2.1(a) "permitted" the
coverage rejection. Was National Union claiming that the bus was
not registered or principally garaged in Rhode Island? Was
National Union asserting (as it is now) that the Policy was not
delivered or issued for delivery in Rhode Island? Was National
Union relying on the statute's exemption for policies offering
minimum coverage?
In fact, the only explanation that National Union could
be read to have given in its denial letter for why FirstGroup was
"permitted" to decline underinsured motorist coverage is the
minimum coverage exemption in § 27-7-2.1(a). Recall that National
Union appended FirstGroup's coverage selection form to the denial
letter. That form stated that underinsured motorist coverage "may
be rejected [in Rhode Island] only if minimum bodily injury
liability limits . . . are selected in [the Policy]." This
disclaimer stemmed from § 27-7-2.1(a)'s statement that a policy
may exclude underinsured motorist coverage if it provides only
"the minimum coverage required by compulsory insurance provisions
of the general laws." R.I. Gen. Laws § 27-7-2.1(a). By appending
the coverage selection form, National Union appeared to be implying
-- incorrectly3 -- that the Policy was exempt from § 27-7-2.1(a)
3 The Policy does not provide merely the "minimum coverage" required by Rhode Island law. The Policy has a limit of
- 11 - because FirstGroup had purchased the minimum coverage required
under Rhode Island law, but certainly not because the Policy
(unbeknownst to Briere) was not "delivered or issued for delivery
in Rhode Island."
Thus, even giving National Union the benefit of
plausible inferences drawn from the language and context of its
denial, National Union still never sufficiently explained that it
was denying coverage based on § 27-7-2.1(a)'s delivery
requirement. Defendants could not, therefore, rely on the delivery
requirement to win summary judgment on Briere's bad-faith, breach-
of-contract, or declaratory judgment claims. See Skaling, 799
A.2d at 1011.
C.
National Union also argues that any waiver of its
delivery requirement argument is irrelevant, because "waiver or
estoppel based on the conduct of an insurer cannot create coverage
where none exists." To support this contention, National Union
points to a statement by the Rhode Island Supreme Court that "the
doctrine of estoppel cannot be used to enlarge coverage beyond
that which is set out in the policy." Gen. Accident Ins. Co. of
Am. v. Am. Nat'l Fireproofing, Inc., 716 A.2d 751, 755 (R.I. 1998).
$5 million, and the applicable minimum coverage requirement under Rhode Island law is $25,000 per person and $50,000 per accident. See R.I. Gen. Laws § 31-47-2(13)(i)(A).
- 12 - We decline to read this statement from General Accident
about estoppel to negate the principle later articulated in Skaling
-- consistent with prevailing industry practices and norms -- that
an insurer waives a defense to coverage that relies on facts or
arguments belatedly offered in support of its denial of coverage.
See, e.g., Restatement of the Law of Liability Insurance § 15(3)
("Notice to the insured of a ground for contesting coverage must
include a written explanation of the ground, including the specific
insurance policy terms and facts upon which the potential ground
for contesting coverage is based[.]"); id. at § 15, cmt. a ("[T]he
rule is now so well established that an insurer that does not raise
a ground for contesting coverage should be understood to have
waived its right to contest coverage in nearly all cases.").
National Union's reading of General Accident would seemingly allow
insurers to violate Skaling's waiver rule with impunity, safe in
the knowledge that a waived defense could nevertheless spare them
from ultimately providing coverage. Yet Skaling was decided four
years after General Accident, and it never once mentioned that
earlier decision. Put simply, General Accident cannot reasonably
be read in a way that effectively overrules Skaling.4
4 Moreover, General Accident relied on Martinelli v. Travelers Insurance Co., 687 A.2d 443, 447 (R.I. 1996), which limited its estoppel holding to "the circumstances of [that] case."
- 13 - D.
Finally, National Union advances an alternative argument
for affirming the grant of summary judgment. According to the
company, Briere never proved that the two motorists who collided
with the First Student bus were underinsured. Therefore, National
Union argues, Briere's claims cannot survive summary judgment. In
reply, Briere notes that her demand letter contained damage
estimates that exceeded the other drivers' policy limits, and that
National Union never disputed this estimate with any evidence of
its own.5
The district court never reached this issue, which may
well turn on a yet-to-be-undertaken review of the summary judgment
record. We therefore think it best to let the district court
consider this issue in the first instance.
III.
For the foregoing reasons, we vacate the district
court's grant of summary judgment to Defendants as to all three
claims, and remand for further proceedings consistent with this
opinion. The parties shall bear their own costs.
5 Briere also argues that National Union waived the argument that her damages were lower than the other motorists' liability coverage, because the company never raised the argument before moving for summary judgment. Briere, though, never meaningfully argued below that this argument was waived. We therefore leave it to the district court to decide who can argue what now with respect to National Union's damages argument.
- 14 - -Concurring Opinion Follows-
- 15 - BARRON, Chief Judge, concurring. The majority relies on
Skaling v. Aetna Ins. Co., 799 A.2d 997 (R.I. 2002), as the source
of the waiver rule that it deems dispositive of the plaintiff's
breach-of-contract claim. But, because I understand Skaling to
address waiver only as to a claim alleging a bad-faith denial of
coverage, I write separately to explain why I nonetheless concur.
The majority concludes that a bad-faith claim is like
"second base" in that it requires the underlying claim for coverage
to be valid. The majority then goes on to conclude that because,
as Skaling holds, bad-faith claims are subject to a waiver rule,
coverage claims are subject to that rule, too.
But, under Rhode Island law, a bad-faith claim is an
"independent tort claim," Bibeault v. Hanover Ins. Co., 417 A.2d
313, 319 (R.I. 1980). And, in principle, I could see how a
bad-faith denial of coverage claim could give rise to tort
liability regardless of whether the denial itself was wrongful.
One need only posit a plainly bad-faith denial of a timely claim
on grounds of untimeliness, where the insurer then shifts course
after much time and expense on the part of the insured to identify
a less-than-obvious but still-correct ground for denying coverage.
True, as the majority notes, Zarrella v. Minn. Mut. Life
Ins. Co., 824 A.2d 1249, 1261 (R.I. 2003), and Skaling, 799 A.2d
at 1004, say that a successful breach-of-contract claim is a
necessary predicate for a bad-faith claim. But those cases
- 16 - involved situations where the same ground for denial was at issue
in both the bad-faith claim and the breach-of-contract claim.
Thus, I am hesitant to read them to be saying more than that a
ground for denial that is itself correct cannot serve as the
predicate for a bad-faith claim. And so, I am hesitant to conclude
that Skaling itself demonstrates that the waiver rule it recognized
extends to the context at issue here.
Nonetheless, Skaling is entirely consistent with the
established background rule of insurance law that "once an
insurance company has denied coverage to its insured and stated
its defenses, the insurer has waived or is estopped from raising
new defenses." See 46 C.J.S. Insurance § 1196 (2024). I also see
nothing in Rhode Island law that suggests Rhode Island does not
follow that rule, and National Union has not pointed to cases that
suggest Rhode Island is an outlier. Indeed, in Rueschemeyer v.
Liberty Mut. Ins. Co., 673 A.2d 448, 451 (R.I. 1996), which was
decided six years before Skaling, the Rhode Island Supreme Court
extensively explained why the record showed that an insurer's
denial letter had sufficiently invoked a particular coverage
exclusion to avoid waiver. Id. If it were impossible to waive a
legal basis for a coverage denial, then the Rueschemeyer court's
entire analysis would have been unnecessary. Thus, I come to the
same conclusion as the majority, albeit by a different route.
- 17 -