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

78 F.4th 48

• Court: Court of Appeals for the First Circuit
• Decided: August 16, 2023
• Docket: 22-1967
• Status: Published

Opinion

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.

- 2 - 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.

- 3 - 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;

- 4 - 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

- 5 - 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

- 6 - 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.

- 7 - 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.

- 8 - 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-

- 9 - 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").

- 10 - 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.

- 11 -