Liberty Mutual Insurance v. Metropolitan Life Insurance, 00-2072

Citation260 F.3d 54
Decision Date06 April 2001
Docket NumberNo. 00-2072,00-2072
Parties(1st Cir. 2001) LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff, Appellee, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant, Appellant. Heard
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert E. Keeton, U.S. District Judge]

[Copyrighted Material Omitted] Alan L. Briggs with whom James P. Wehner, Amy L. Easton, Squire, Sanders & Dempsey L.L.P., George W. Walker, III, Lee H. Copeland and Copeland, Franco, Screws & Gill, P.A. were on brief for appellant.

Mariann Zampano Malay, Dwight D. Valentine, Niarchos, Sullivan, Valentine & Malay, Walter Andrews, Lon Berk, Paul Janaskie, Lara Ramsey and Shaw Pittman on brief for St. Paul Surplus Lines Insurance Company, Amicus Curiae.

Erik Lund, Vincent M. Amoroso and Posternak, Blankstein & Lund, LLP on brief for First State Insurance Company, Amicus Curiae.

James E. Harvey, Jr. with whom Kevin D. McElaney, John F. Brosnan and O'Malley and Harvey, LLP were on brief for appellee.

Before Boudin, Chief Judge, Bownes, Senior Circuit Judge, and Torruella, Circuit Judge.

BOUDIN, Chief Judge.

This appeal grows out of a lengthy and complex dispute over commercial liability insurance coverage. At odds are the insured, Metropolitan Life Insurance Co. ("MetLife")1 and one of its insurers, Liberty Mutual Insurance Co. ("Liberty"). MetLife claims that Liberty had a duty to defend and indemnify MetLife in numerous lawsuits relating to the marketing of life insurance policies and real estate investments. Liberty refused coverage and prevailed in the district court. MetLife now appeals.

I. BACKGROUND

The origins of this dispute lie in twenty-seven lawsuits brought against MetLife by dissatisfied customers. The lawsuits fall into three groups:

Sixteen individual "vanishing premium" lawsuits in Alabama state courts (the "Alabama cases");

Nine nationwide "vanishing premium" class actions in federal court (the "class actions"); and

Two real estate investment cases arising out of dealings with Copley Real Estate Advisors, a MetLife subsidiary (the "real estate cases").

MetLife claims that the Commercial (previously "Comprehensive") General Liability Insurance ("CGL") and Umbrella Excess Liability Insurance ("UEL") policies that it purchased from Liberty require that Liberty defend and indemnify MetLife. We describe each group of lawsuits in turn.

The Alabama Cases. From late 1994 through 1996, sixteen individuals filed suit against MetLife in Alabama state courts claiming that MetLife sales representatives had negligently or intentionally made misrepresentations concerning MetLife's life insurance policies. In particular, the lawsuits charged that representatives had told buyers that if they reinvested their yearly life insurance dividends, their obligation to pay premiums would "vanish" after eight to ten years. In fact, the buyers' payment obligations continued. The Alabama plaintiffs claimed that as a result of MetLife's actions they suffered monetary damages and mental anguish.

Beginning in December 1994, MetLife began tendering the Alabama cases to Liberty. Based on the plaintiffs' "mental anguish" claims, MetLife argued that Liberty had a duty to defend and indemnify MetLife because its CGL policy included coverage for "personal injury" claims. Initially, Liberty agreed to defend the claims, but eventually it concluded that the policies did not afford any coverage and notified MetLife that it would neither defend nor indemnify.

In the litigation with the Alabama plaintiffs, MetLife eventually paid legal fees of approximately $450,000 and settled 15 of the 16 suits for roughly $2.7 million. The last suit was still pending when the present federal action was heard. MetLife seeks to hold Liberty liable for both the defense costs and the settlement payments.

The Class Actions. The second group of suits also arose from customer complaints about vanishing premiums. Beginning in October 1995, class actions were filed in various federal and state courts against MetLife; all recited claims that were similar to those in the Alabama cases. The federal class actions were consolidated in the federal district court in Massachusetts. The consolidated complaint alleged inter alia that MetLife's misdescription of the vanishing premium concept comprised "unfair competition," violating the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, §§ 2, 9 (2000).

MetLife tendered the class action cases to Liberty on the ground that the CGL policy provided coverage for claims of unfair competition arising out of advertising. The advertising to which MetLife pointed were the computer-generated illustrations it used during the vanishing premium sales meetings with customers. Liberty declined to defend the class actions or indemnify MetLife. MetLife spent more than $4 million in legal fees to defend the suits. Subsequent to its decision in this case, the district court approved a $155 million settlement for the class actions.

The Real Estate Cases. The final group of lawsuits stemmed from MetLife's sale of commercial real estate interests to two state pension fund boards. In 1987, Copley Real Estate Advisors, a MetLife subsidiary, sold $450 million worth of commercial real estate to the Washington State Investment Board (the "Washington board") and $50 million worth of real estate to the Ohio State Teachers Retirement Board (the "Ohio board"). Washington also bought other real estate interests controlled by MetLife--one set of investments between 1984 and 1990 for about $185 million and another set between 1986 and 1988 for about $65 million.

As national real estate markets declined in the late 1980s, the investments quickly lost much of their value. In 1993, Washington and Ohio sued MetLife in state court suits alleging numerous wrongs; one set of claims was that MetLife had misrepresented the risks, fees, and other material aspects of the investments. In June 1995, MetLife notified Liberty of the Washington and Ohio lawsuits. Because the false statements complained of by the Washington and Ohio boards appeared in MetLife's written promotional material, MetLife said that the suits were covered by both the CGL and UEL policies' advertising injury clauses.

Liberty concluded that it would not defend or indemnify MetLife as to any of these real estate suits; it said that the promotional materials were not advertising and, further, that coverage was excluded under the policies' "insurance and related operations exclusion" ("IROE"). MetLife subsequently incurred nearly $7.75 million in legal expenses in the two suits and settled both actions; the Washington claim settled for almost $120 million. The record does not indicate the amount of the Ohio settlement.

The Policies. MetLife purchased eleven separate CGL policies (1985-96) and three separate UEL policies (1986-89); each policy covered a single year. The UEL policies provide higher liability limits. The coverage provisions are, so far as pertinent here, the same except where otherwise indicated. The key policy provisions in dispute are included in an appendix to this opinion.

The UEL and CGL policies provided coverage, subject to exclusions, for several broad categories of liability. As already noted, the liabilities for which MetLife sought coverage stemmed from MetLife's alleged misrepresentations in selling vanishing premium insurance to consumers and its alleged misrepresentations in the sale of real estate interests to the Washington and Ohio boards. To establish coverage MetLife mainly relied on provisions covering so-called "advertising injury," a phrase defined slightly differently in the CGL and UEL policies. Further, in the Alabama cases, MetLife also relied on a coverage provision for "personal injury," which was contained in the CGL policies, but not the UEL policies.

In addition to disputing initial coverage, the main exclusion invoked by Liberty was the multi-part IROE exclusion from both personal injury and advertising liability, captioned "insurance and related operations." The IROE, which was present in the CGL policies between 1985 and 1988 and all of the UEL policies, contains two paragraphs pertinent here: one excluding claims concerning insurance or annuities, and another excluding injury or liability resulting from professional services in effecting insurance, the conduct of an investment or acting as a fiduciary for pension or welfare funds.

The District Court Proceedings. In June 1997, after Liberty had refused to defend or indemnify in all three sets of suits against MetLife, MetLife brought a state-court declaratory judgment action against Liberty in Alabama seeking defense and indemnification for the twenty-seven lawsuits. Liberty countered by filing its own declaratory judgment action in the federal district court in Massachusetts, asserting that it had no duty to defend or indemnify MetLife. After the district court denied MetLife's motion to dismiss or stay the federal action in deference to MetLife's Alabama action, MetLife filed a counterclaim in federal court to establish coverage in all three groups of suits.

Over the next two years, the district court supervised extensive discovery, heard numerous motions, and conducted a lengthy trial. Although the trial began with MetLife ready to try its claims as to all three sets of lawsuits, in the end the claims submitted to the jury were greatly narrowed by two sets of rulings by the district court during trial--rulings that give rise to two of the three main issues pressed by MetLife on this appeal.

For the class action cases, MetLife asserted coverage on the ground that the misrepresentations charged in those cases fell within the advertising injury coverage of the Liberty policies. Its theory of coverage under the CGL policies relied on the fact that the...

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