Town of Allenstown v. National Casualty Co

• Court: Court of Appeals for the First Circuit
• Decided: September 30, 1994
• Docket: 94-1106
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 94-1106

                                 TOWN OF ALLENSTOWN,

                                Plaintiff, Appellant,

                                          v.

                              NATIONAL CASUALTY COMPANY,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                    [Hon. Paul J. Barbadoro, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                               Torruella, Circuit Judge,
                                          _____________

                           Campbell, Senior Circuit Judge,
                                     ____________________

                              and Boudin, Circuit Judge.
                                          _____________

                                 ____________________

            Glenn R.  Milner with  whom Cook  & Molan,  P.A. was on  brief for
            ________________            ____________________
        appellant.
            John A.  Lassey with whom Wadleigh,  Starr, Peters,  Dunn & Chiesa
            _______________           ________________________________________
        was on brief for appellee.

____________________

                                  September 30, 1994
                                 ____________________

BOUDIN, Circuit Judge.   In May 1986, an officer  of the
                         _____________

            Allenstown,  New Hampshire,  Police Department  arrested Paul

            Cutting for a number  of traffic offenses.  At  trial Cutting

            was acquitted of  all charges.   In April  1988, counsel  for

            Cutting and his wife  wrote a letter to the  Allenstown Board

            of Selectmen  advising that his  clients were making  a claim

            for damages against the town, arising from the arrest.

                 At that time the National Casualty Company  had in force

            a comprehensive  law enforcement liability  policy protecting

            Allenstown and its employees against claims  of the kind made

            by  the Cuttings.   National  Casualty opened  a file  on the

            incident  and  obtained  from  the  town  copies  of  various

            documents relating to the  Cutting arrest.  In June  1988 the

            Cuttings brought a  civil rights action against  the town and

            the arresting  officer in the  federal district court  in New

            Hampshire.

                 When  the federal  suit was  filed, the  Cuttings served

            copies  of  their summons  and complaint  on  the town.   The

            National  Casualty policy provided if a claim is made or suit

            brought against  the insured, the insured  "shall immediately

            forward to the Company every demand, notice, summons or other

            process" received by the  insured; the policy made compliance

            with  this  requirement a  condition  precedent  to any  suit

            against  National  Casualty.    Allenstown  contends  that it

            mailed the  summons and complaint to  National Casualty about

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eight  days after  it received  them; National  Casualty says

            that it never received  the papers and denies that  they were

            mailed.

                 Neither the  town  nor  National  Casualty  appeared  to

            defend against the Cuttings' suit, and a default judgment was

            entered.  After a  hearing on damages, the district  court in

            March  1989 entered judgment for  $424,909.88 in favor of the

            Cuttings,  including  compensatory damages,  punitive damages

            and  attorneys' fees.   After a year's wait,  Fed. R. Civ. P.

            60, the Cuttings  obtained a writ of execution in April 1990.

            Allenstown then  moved for relief from  the default judgment.

            In August 1990,  the district  court denied the  motion.   On

            appeal this  court affirmed.  Cutting v.  Town of Allenstown,
                                          _______     __________________

            936 F.2d 18 (1st Cir. 1991).

                 In May  1990, after the  writ of  execution had  issued,

            National Casualty learned--assertedly,  for the first  time--

            that the  Cuttings  filed their  threatened suit.   Not  long

            afterwards, Allenstown wrote  to National Casualty requesting

            it to provide  coverage for  the Cuttings' law  suit and  the

            judgment  they had obtained.  In June 1990, National Casualty

            declined to do  so on the ground that the  town had failed to

            notify National Casualty of the law suit's filing in a timely

            fashion and had failed immediately to forward the summons and

            complaint as required by the policy.

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Allenstown then sued National Casualty  in New Hampshire

            state court  seeking a  declaratory judgment under  N.H. Rev.

            Stat. Ann.    491:22 that  National Casualty was  required to

            provide  coverage for  the  Cuttings' suit.   Section  491:22

            permits declaratory actions to determine  insurance coverage,

            if  such  an  action is  brought  within  six  months of  the

            underlying  suit  that  seeks  to  impose  liability  on  the

            insured.  Section 491:22-a provides  that in an action  under

            section 491:22, "the burden  of proof concerning the coverage

            shall be upon the insurer . . . ."  There is also a provision

            for attorneys' fees.  N.H. Rev. Stat. Ann.   491:22-b.

                 National Casualty removed  the town's declaratory action

            against it  to federal  district  court in  New Hampshire  on

            grounds  of diversity.   Thereafter,   the  town amended  its

            complaint to  include claims for  breach of contract  and bad

            faith against National  Casualty.  After  a number of  delays

            because  of  reassignment  of  the  case  from one  judge  to

            another,  and finally  to  a third,  the  trial commenced  on

            November 30, 1993.

                 At trial,  the town  presented testimony of  one of  its

            police officers that he had  mailed the summons and complaint

            in the  Cuttings' suit to National Casualty  within two weeks

            after  they had  been  served on  the  town.   A witness  for

            National Casualty  testified that no such  documents had been

            received and that the company had no record that the suit had

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been  filed.    There  was  also some,  but  not  conclusive,

            evidence that might  suggest that the officer who  claimed to

            have  mailed  the summons  and  complaint  might have  partly

            misaddressed it.   Under  these circumstances, the  burden of

            proof has assumed some importance.

                 Well before trial, in July 1993, the district  court had

            ruled that section 491:22,  and its ancillary burden shifting

            and  attorney's fee provisions,  did not apply  in this case.

            The court ruled that  under New Hampshire law, a  declaratory

            action  under section  491:22 could  be brought  to determine

            insurance coverage only where the underlying action to impose
                                              __________

            liability on  the insured had  been brought in  New Hampshire

            state  court.   The district  court also  took the  view that

            where  the  statute  did  not apply,  the  burden  under  New

            Hampshire law was upon the insured to establish coverage.

                 After the  close of  all of  the evidence, the  district

            court submitted the town's contract  claim to the jury  which

            found  in favor  of National  Casualty.1  The  district court

            treated  the request for declaratory relief as a matter to be

            determined by the court.  But, following the jury's lead, the

            trial judge ruled in favor of National Casualty, holding that

            the  town "did  not,  by  a  preponderance of  the  evidence,

____________________

                 1The  bad  faith claim  was  not submitted  to  the jury
            because  the district  court  ruled, after  the close  of the
            town's evidence, that  as a  matter of law  judgment on  this
            claim should be entered in favor of National Casualty.

                                         -5-
                                         -5-

establish that the suit papers in  this case were immediately

            forwarded."2  The town now appeals to this court.

                 The principal  issue on  appeal stems from  the district

            court's decision that  section 491:22, including  its burden-

            shifting provision, did not apply in this case.  At all times

            pertinent here, section 491:22 allowed a declaratory judgment

            action if sought within  six months "after the filing  of the

            writ which gives rise to the question," i.e., the writ in the
                                                    ____

            underlying  liability action--here,  the Cuttings'  law suit.

            Because New  Hampshire state-court actions  are commenced  by

            the filing of a writ  and federal actions by the filing  of a

            complaint, the New  Hampshire Supreme Court had  held in 1985

            that "[t]he  plain language  of the statute  [section 491:22]

            clearly applies only  to State actions."   Jackson v. Federal
                                                       _______    _______

            Ins. Co., 498 A.2d 757, 759 (N.H. 1985).
            _______

                 Jackson involved  a  declaratory action  in state  court
                 _______

            where  the  underlying liability  suit  had  been brought  in

            federal court.  A  year later, this court applied  Jackson to
                                                               _______

            bar  a declaratory  action  under section  491:22 brought  in

            federal court;  as in Jackson, the  underlying liability suit
            _______               _______

            had  been brought  in  federal court.    Volpe v.  Prudential
                                                     _____     __________

            Property & Casualty Ins. Co., 802 F.2d 1 (1st Cir. 1986).  It
            ___________________________

____________________

                 2The district  court had,  of course, already  ruled the
            declaratory relief  was not  available under  section 491:22;
            but it  considered declaratory  relief to be  available under
            the federal Declaratory Judgment Act, 28 U.S.C.   2201.

                                         -6-
                                         -6-

might  have  been enough  in Volpe  to  say that  the federal
                                         _____

            action was barred because (as in Jackson) the underlying suit
                                             _______

            had  been brought in federal  court, but this  court in Volpe
                                                                    _____

            went  even  further and  held  that section  491:22  was "not

            available to litigants proceeding in  federal court."  Id. at
                                                                   ___

            5.

                 The  implication of  Volpe  was that  the federal  court
                                      _____

            would not  entertain  a section  491:22  action even  if  the

            underlying liability suit was  brought in state court.   This

            conclusion was not a careless extension of Jackson.  Although
                                                       _______

            Jackson's plain  language argument  rested  on the  statute's
            _______

            reference to a "writ"--focusing attention on the forum of the

            underlying suit--Jackson had also described section 491:22 as
                             _______

            a "court cleaning  bill," saying that the  bill was "intended

            to expedite procedures  in the  State courts."   498 A.2d  at

            759.

                 Following  Jackson and  Volpe,  the New  Hampshire state
                            _______      _____

            legislature  amended  the  declaratory  judgment  statute  by

            adding section 491:22-c, which provides:

                         The remedy of declaratory  judgment to
                      determine  the  coverage  of a  liability
                      insurance policy under RSA  491:22, 22-a,
                      and 22-b shall  also be available  in the
                      United  States  district  court  for  the
                      district of New  Hampshire when the court
                      may properly adjudicate the  matter under
                      the laws of the United States.

            This  amendment, in force at the time that Allenstown brought

            its declaratory judgment  against National  Casualty, is  the

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focus  of  the present  appeal.   The  town asserts  that the

            amendment meant that  a section 491:22 action can  be brought

            in federal court, regardless whether the underlying liability

            suit  was  brought  in  state  or  federal  court.   National

            Casualty, by contrast, claims that the amendment merely makes

            the  section 491:22  remedy  available in  federal courts  to

            precisely the same extent  that it would be available  in New

            Hampshire   state  courts--that   is,  when   the  underlying

            liability suit was brought in a New Hampshire state court.

                 The  district  court  agreed  with  National  Casualty's

            reading, and  we take the  same view.   The bare  language of

            section  491:22-c  is  not   conclusive.    It  is  perfectly

            consistent with National Casualty's reading; but arguably the

            language is general enough so that it is also consistent with

            the  town's  reading.   The  problem  for  the  town is  that

            whatever the  bare  language  of the  new  section,  the  New

            Hampshire Supreme Court in 1992 held "that RSA 491:22 applies

            only  to  underlying  suits  brought in  our  State  courts."

            Scully's Auto-Marine Upholstery, Inc.  v. Peerless Ins.  Co.,
            ____________________________________      _________________

            611 A.2d 635, 636 (N.H. 1992).

                 Scully  was  a declaratory  action  brought  in the  New
                 ______

            Hampshire  state court  involving underlying  liability suits

            both  in federal  district court  and in  Maine state  court.

            Although  decided after  section  491:22-c became  effective,

            Scully  made  no  reference   to  the  amendment  but  simply
            ______

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reiterated the court's earlier reasoning in Jackson.  What we
                                                        _______

            have, therefore,  is a  flat declaration that  section 491:22

            does  not  apply  unless  the underlying  liability  suit  is

            brought  in  New  Hampshire  state  court.    Accord  Town of
                                                          ______  _______

            Peterborough v.  Hartford Fire Ins.  Co., 824 F.  Supp. 1102,
            ____________     ______________________

            1107  (D.N.H.  1993).     Unfortunately  for  the  town,  the

            Cuttings' suit was brought in federal court.

                 Allenstown  urges  in  its  brief that  the  legislative

            history  of section  491:22-c shows  that it was  intended to

            permit a section  491:22 action in  federal court even  where

            the underlying  liability suit was brought  in federal court.

            The legislative  history is  something of  a tangle;  a broad

            expansion of section 491:22  was originally proposed, but the

            version enacted was a narrower one supported by the insurance

            industry.   But  even  if the  legislative history  were more

            clearly favorable to Allenstown than it appears to be, Scully
                                                                   ______

            is  a holding of  New Hampshire's highest  court construing a

            New  Hampshire  statute.    We  are  bound  by  that  court's

            determination.  E.g., Della Grotta v.  Rhode Island, 781 F.2d
                            ____  ____________     ____________

            343, 347 (1st Cir. 1986).3

____________________

                 3In  April 1994,  the  state  legislature again  amended
            section 491:22,  effective January  1,  1995, to  say that  a
            section 491:22  action can be brought "even though the action
            giving  rise to the coverage question is brought in a federal
            court  or another [non New Hampshire] state court."  R.S.A.  
            491:22, as amended  by 1994 N.H. Laws ch. 37.   No one claims
            that  the  amendment  itself  applies  retroactively  to  the
            present case.

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We turn now  to the town's  second assignment of  error.

            The  town  argues  that,  even if  section  491:22's  burden-

            shifting provision did not apply  in this case, New Hampshire

            common law still places the burden of proof on the insurer to

            prove that  the insured provided  a required notice  of suit.

            Here,  of course,  the  district judge  placed the  burden of

            proof  on the insured  both when he  charged the jury  on the

            contract  claim and  when he  decided the  declaratory action

            himself.  

                 There  is  some  dispute  about  whether  the  town  has

            preserved its common-law  argument.  It made no  objection to

            the charge on this issue, as  required by Fed. R. Civ. P. 51,

            and  such failures  to object  normally preclude  arguing the

            point on appeal.  On the  other hand, the district court also

            made  the same  ruling  on the  declaratory action,  which is

            merely  the obverse of the  contract claim, and  Rule 51 does

            not  govern legal objections in bench trials.  Here, the town

            certainly made  its position clear  to the district  court in

            advance of its decision on declaratory relief.  

                 Accordingly,  we think  it best  to consider  the town's

            common-law  arguments on  the merits,  but on  the merits  we

            reject it.  Section  491:22 aside, Lumbermens Mutual Casualty
                                               __________________________

            Co. v.  Oliver, 335 A.2d  666 (N.H. 1975),  explicitly places
            ___     ______

            the burden of showing notice upon the insured where notice is

            a  condition  in  the policy.    If  New  Hampshire law  were

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otherwise, it is  difficult to  see why  New Hampshire  would

            have  had to  enact a  separate provision  (section 491:22-b)

            shifting the  burden to  the insurer in  declaratory actions.

            In all events,  Lumbermens is explicit:   "The insured  bears
                            __________

            the burden of showing  that notice of the accident  was given

            [to the insurer]  as soon  as reasonably possible."   Id.  at
                                                                  ___

            668; accord Sutton Mutual  Ins. Co. v. Notre Dame  Arena, 237
                 ______ ______________________     _________________

            A.2d 676, 679 (N.H. 1968).

                 The town's  argument to  the contrary is  based entirely

            upon   White  Mountain   Construction  Co.   v.  Transamerica
                   __________________________________        ____________

            Insurance  Co., 631 A.2d 907 (N.H. 1993).  White involved the
            _____________                              _____

            question  whether a duty to defend arose when the insurer had

            notice of a suit or only when it had notice and a request for
                                                        ___

            assistance.   The burden of proof  as to notice was  not even

            explicitly discussed in White, apparently  because notice was
                                    _____

            evident from the  facts.  See  631 A.2d at  484.  The  town's

            attempt  to extend White, because it cited cases from a state
                               _____

            where the burden of disproving notice may lie on the insurer,

            is inventive but not persuasive.

                 The third  issue  raised  by  the  town  on  its  appeal

            concerns its bad faith claim,  an independent cause of action

            that the  district court  withdrew  from the  jury after  the

            close of the town's evidence.  Under New Hampshire law, there

            are  different types  of  good faith  requirements; pertinent

            here  is  the precept  that a  good  faith obligation  may be

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                                         -11-

inferred where a contract  allows "the defendant a  degree of

            discretion in  performance tantamount  to a power  to deprive

            the plaintiff of a  substantial proportion of the agreement's

            value."  Centronics Corp. v. Genicom Corp., 562 A.2d 187, 193
                     _______________     ____________

            (N.H. 1989).4  Under  this rubric, the town sought  to submit

            to the jury a set of interrelated arguments.

                 To  summarize,  the  town  urged  that  the  good  faith

            requirement  had not been  met in this  case because National

            Casualty  had notice of a threatened law suit and failed ever

            to  contact  the Cuttings'  lawyer,  in spite  of  the strong

            likelihood  that the suit  would be brought;  the company did

            not instruct the  town as to what  to do in the event  that a

            complaint was served; the company never told the town that it

            had previously  been sent a letter  (the Cuttings' attorney's

            letter threatening suit) which had been improperly addressed;

            and  the company closed its  file without ever contacting the

            Cuttings  or their lawyer.   On appeal, the  town argues that

            there was enough  in this  cluster of charges  to submit  the

            matter to the jury.

                 To enter judgment on this claim for National Casualty as

            a matter of law, the district  judge had to and did find that

____________________

                 4See also Seaward Constr. Co. v. City of Rochester,  383
                  ___ ____ __________________     _________________
            A.2d 707 (N.H. 1978) (city under duty to seek federal funding
            where  such  funding  is  a   condition  of  payment  to  the
            contractor);  Lawton v. Great  Southwest Fire  Insurance Co.,
                          ______    ___________________________________
            392 A.2d  576 (N.H. 1978) (insurer's  discretion to determine
            the  time of  payment  limited to  a commercially  reasonable
            time).

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no reasonable  jury could find  in favor of  the town  on the

            evidence presented, and we review this determination de novo.
                                                                 _______

            See Peckham  v. Continental Casualty Insurance  Co., 895 F.2d
            ___ _______     __________________________________

            830  (1st Cir.  1990).  If  the "good  faith" label  is taken

            literally, there  is no evidence  whatever from which  a jury

            could  infer that National Casualty acted in bad faith in the

            sense  of conscious  wrongdoing or  reckless disregard.   The

            town's only hope lies in diluting the  good faith requirement

            to  one   of  reasonableness.    It  must  be  admitted  that

            Centronics does refer  at one point  to the question  whether
            __________

            "the defendant's exercise  of discretion exceeded  the limits

            of reasonableness."  562 A.2d at 193.

                 Reading Centronics as a whole and taking account of  the
                         __________

            other   cited  New   Hampshire   decisions   on  good   faith

            requirements  in contract  cases,  we think  that the  town's

            claim does not fit  the cubby hole described by  these cases.

            The notice provisions of  the town's policy do not  confer on

            the   insurance  company  any  latitude  or  discretion,  the

            situation for which the pertinent good  faith duty appears to

            have  been   crafted.     The  reasonableness   reference  in

            Centronics  appears  to  be  an adjunct  concept;  where  the
            __________

            defendant  takes, or  declines  to take,  action pursuant  to

            discretionary   authority,   commercial  reasonableness   may

            measure how far the defendant can go.

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Finally, we think the town's reading  of the cases would

            create a  highly  improbable untethered  obligation of  care.

            Here, the most  one can say is that if  National Casualty had

            been  a little more aggressive and alert, it might have saved

            the town the  consequences of  the town's own  breach of  its

            explicit  obligation  to  forward  the pleadings.    Even  if

            National  Casualty  could in  some  measure  be described  as

            "negligent" in this respect--a  point we need not decide--the

            policy imposed nosuch generalduty of careon NationalCasualty.

                 Contracts are,  after all, specific  agreements to  take

            specific  steps to  accomplish particular results,  and those

            commitments  are   the  central   measure  of  each   party's

            responsibility.  With diffidence,  the courts have implied or

            imposed   ancillary   obligations   (such   as   good   faith

            requirements or  implied warranties) in  discrete situations.

            But the unlimited implication of new, free-floating duties is

            a matter in which  courts have to be very careful,  lest they

            undo  the  bargain struck  by the  parties.   Here,  the town

            failed to perform an important, expressly stated condition of

            coverage.  This is one risk that the policy did not cover.

                 The fourth and last  claim made by the town  is that the

            district  court erred  in  instructing  the  jury as  to  the

            meaning   of  the  policy's   requirement  that  the  insured

            "immediately" forward  the suit papers  to the insurer.   The

            district  court softened  this  requirement  considerably  in

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                                         -14-

explaining   that   under   New   Hampshire  law   the   term

            "immediately" was not to be given its literal meaning.

                      Instead, the law provides that an insured
                      has  fulfilled  its  duty to  immediately
                      forward   suit  papers  if  it  used  due
                      diligence under the circumstances  of the
                      case  in forwarding the  suit papers, and
                      the   papers   were   forwarded   without
                      unnecessary   or    unreasonable   delay.
                      Whether  the  insured forwarded  the suit
                      papers  with  due  diligence and  without
                      unnecessary or unreasonable delay must be
                      determined by considering the totality of
                      the surrounding facts and circumstances.

                 The town objected to the use of the term "due diligence"

            prior  to the  district court's  instructions, but  the trial

            judge rejected the  objection.   The town did  not renew  its

            objection  after the charge  was given,  even though  Fed. R.

            Civ.  P. 51  requires such  a further  objection in  order to

            preserve the point on appeal.  Here, the trial judge told the

            parties at  the pre-charge  conference that their  objections

            would be preserved without renewal  of the charge and further

            directed the  parties not to renew the  same objections after

            the charge was given.

                 We  have  said that  Rule 51  cannot  be altered  by the

            district  court  and  that  "[o]bjections  cannot  be carried

            forward" even where the trial judge assures  the parties that

            objections  raised  at  the  pre-charge  conference  will  be

            preserved.  McGrath v.  Spirito, 733 F.2d 967, 969  (1st Cir.
                        _______     _______

            1984); see also Carillo v. Westbulk, 514 F.2d 1214, 1219 (1st
                   ___ ____ _______    ________

            Cir.), cert. denied,  423 U.S.  1014 (1975).   In this  case,
                   ____________

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however, the district court not only assured the parties that

            their objections  were preserved  but also told  them not  to

            raise the objections again after  the instructions.  It would

            be  harsh, indeed, to punish  the town for  obeying the trial

            judge.

                 But  on  the merits,  we think  there  is little  to the

            town's argument.   The "due diligence"  phrase actually comes

            from a New Hampshire case  which, while elderly, is  directed

            to the very question  of what constitutes "immediate" notice.

            See Ward v.  Maryland Casualty  Co., 51 A.  900 (N.H.  1902).
            ___ ____     _____________________

            The town objects that  due diligence is merely an  example of

            immediate notice  and unfairly emphasizes the  conduct of the

            insured rather than  the totality of  the circumstances.   It

            seems to us  that the conduct of the insured  is normally the

            precise  question posed  by  a requirement  that the  insured

            provide immediate notice.

                 One  can probably  imagine  the unusual  case where  the

            insured  did not exercise due diligence in giving notice of a

            law  suit while  at  the same  time  this notice  was  timely

            received (e.g., from other  sources).  In this case,  no such
                      ____

            alternative source of knowledge is alleged.  Further, we have

            no reason to think that the jury was confused in this case by

            any  hypothetical  difference  between  "due  diligence"  and

            "reasonableness under  all the circumstances."   In short, as

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to the instruction on timeliness, we  think there was neither

            error nor prejudice.

                 Affirmed.
                 ________

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