Sch. Union No. 37 v. United Nat'l Ins. Co.

• Citation: 617 F.3d 554
• Decision Date: 19 August 2010
• Docket Number: No. 09-2040.,09-2040.
• Parties: SCHOOL UNION NO. 37, Plaintiff, Appellant,v.UNITED NATIONAL INSURANCE COMPANY, Defendant, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

617 F.3d 554

SCHOOL UNION NO. 37, Plaintiff, Appellant,v.UNITED NATIONAL INSURANCE COMPANY, Defendant, Appellee.

No. 09-2040.

United States Court of Appeals, First Circuit.

Heard Feb. 1, 2010.

Decided Aug. 19, 2010.

COPYRIGHT MATERIAL OMITTED

Brendan P. Reilly, with whom Jensen Baird Gardner & Henry, was on brief for appellant.

John S. Whitman, with whom Heidi J. Hart and Richardson, Whitman, Large & Badger, were on brief for appellee.

Before TORRUELLA, Circuit Judge, SOUTER,^* Associate Justice, and STAHL, Circuit Judge.

TORRUELLA, Circuit Judge.

The dispute in this case involves the scope of coverage afforded by an Educator's Liability Policy.¹

Plaintiff-Appellant School Union 37 (SU 37) ² appeals the district court's dismissal on summary judgment of its claim asserting that Defendant-Appellee, United National Insurance Company (United National) had a duty to indemnify SU 37 for the costs incurred in defending a claim for reimbursement of non-tuition expenses under the Individuals with Disabilities Education Act (IDEA), 20 U.S.C. §§ 1400- 1490. SU 37 also challenges the dismissal of its claim asserting that United National unreasonably failed to timely settle SU 37's claim for coverage in violation of Maine's Unfair Claims Settlement Practices Act (UCSPA). Me.Rev.Stat. tit. 24-A, § 2436-A(1)(E). For the reasons stated below, we reverse the district court's dismissal of SU 37's claims for coverage under the Policy and affirm the dismissal of SU 37's claim under Maine's UCSPA.

I. Background and Procedural History

A. Background

The coverage dispute in this case stems from United National's refusal to indemnify SU 37 for the costs SU 37 incurred in defending an administrative claim for reimbursement of non-tuition expenses paid by DB and Ms. C-a public school student and his mother-in a private school placement.

In 2005, Ms. C and DB filed an administrative request for a due process hearing with the Maine Department of Education, claiming that SU 37 had failed to provide free and appropriate education to DB as required by IDEA, 20 U.S.C. §§ 1400-1482, and by Maine's special education laws, Me.Rev.Stat. tit. 20-A, § 7001 et seq.³ Because Ms. C and DB filed the administrative claim after DB had completed his schooling and his tuition expenses had been paid, they sought “reimbursement for past room and board and transportation expenses associated with DB's education in private schools outside of Maine.” Sch. Union No. 37 v. Ms. C., 518 F.3d 31, 33 (1st Cir.2008). The claim was submitted to an officer appointed by the Commissioner of Maine's Department of Education, who awarded Ms. C and DB $48,890.00 for room and board and $3,241.33 for transportation expenses. Id. at 34. SU 37 subsequently filed suit in the United States District Court for the District of Maine challenging the administrative decision. The district court reversed and entered judgment in SU 37's favor. We affirmed that decision on February 26, 2008. Id. at 31. SU 37 incurred and paid litigation expenses in the amount of $73,052.14.

At the time Ms. C and DB filed their claim for reimbursement, SU 37 had purchased an Educator's Liability Policy (the Policy) from United National. During the course of the underlying IDEA-based litigation, SU 37 sought coverage under the Policy for the costs incurred in defending Ms. C's and DB's claim. In two letters dated June 9, 2005 and September 25, 2005, United National informed SU 37 that a claim for reimbursement was not covered under the Policy. United National explained that (1) if IDEA indeed required SU 37 to pay for DB's education expenses, SU 37 would be liable for reimbursement by virtue of its statutory obligation and not as a result of a wrongful act that would trigger coverage under the Policy; and (2) the willful violation of a statute, ordinance or law was excluded from coverage under the Policy.

Under the terms of the Policy, United National-the insurer-has the duty to “pay on behalf of the Insureds loss and defense expenses in excess of the stated deductible and up to the stated limit of liability for any claim due to a Wrongful Act to which th[e] policy applies.” (Emphasis added). The term “claim” is defined as “any written demand for money damages to which th[e] policy applies;” loss is “any amount which the Insureds are legally obligated to pay as damages including back and future pay awards,” and a “Wrongful Act” includes “any actual or alleged error, misstatement, misleading statement, act, omission, neglect or breach of duty by the Educational Entity.” (Emphasis added). Relevant to this appeal, the Policy excluded coverage for claims “seeking [relief] other than money damages.” (Emphasis added).

B. Procedural History

After prevailing in the underlying IDEA-based litigation, SU 37 filed suit in the Franklin County Superior Court, claiming that United National had breached the terms of the Policy by refusing to provide coverage for the costs SU 37 incurred in defending Ms. C's and DB's claim for reimbursement. The complaint also included a claim asserting that United National violated its duty to promptly settle the coverage dispute in violation of Maine's UCSPA. Me.Rev.Stat. Ann. tit. 24-A, § 2436-A(1)(E).

On July 3, 2008, United National removed the action to the United States District Court for the District of Maine. The parties subsequently filed cross-motions for summary judgment on stipulated facts. On March 6, 2009, the magistrate judge recommended that summary judgment be granted in United National's favor. The magistrate concluded that Ms. C and DB had alleged a “wrongful act” as defined under the Policy, but that the claim for reimbursement under IDEA was not a claim for money damages that could trigger coverage. Finding that there was no coverage for the underlying claim for reimbursement, the magistrate judge concluded that United National had not engaged in an unfair settlement practice under UCSPA.

SU 37 timely objected to the Recommended Decision, but United National did not file any objections. On July 1, 2009, the district court adopted the Recommended Decision and granted United National's motion for summary judgment. SU 37 now appeals that decision.

II. Discussion

We review the district court's grant of summary judgment on cross-motions for summary judgment de novo.⁴ Barnes v. Fleet Nat'l Bank N.A., 370 F.3d 164, 170 (1st Cir.2004). “ ‘Cross-motions [for summary judgment] ... require us to determine whether either of the parties deserves judgment as a matter of law on facts that are not disputed.’ ” Littlefield v. Acadia Ins. Co., 392 F.3d 1, 6 (1st Cir.2004) (quoting Barnes, 370 F.3d at 170).

Where, as here, “the facts upon which liability is claimed or denied under an insurance policy are undisputed and the existence or amount of liability depends solely upon a construction of the policy, the question presented is one of law for the court to decide.” Atlas Pallet, Inc. v. Gallagher, 725 F.2d 131, 134 (1st Cir.1984); see also Stop & Shop Cos., Inc. v. Fed. Ins. Co., 136 F.3d 71, 73 (1st Cir.1998) (“Construction of insurance contracts and application of their terms to facts are matters of law, which we review de novo.”).

A. Coverage dispute regarding the scope of the term “damages”

The main issue presented in this case is whether a third-party claim for reimbursement under IDEA is covered under the terms of the Policy as a claim for “money damages.” The parties disagree on the proper interpretation of the term “money damages” and they dispute whether, as a matter of insurance contract interpretation under Maine law, the term “money damages” includes monetary compensation that is equitable in nature.

Per our decisions in Nieves-Márquez v. Puerto Rico, 353 F.3d 108, 124 (1st Cir.2003), and Díaz-Fonseca v. Puerto Rico, 451 F.3d 13, 31 (1st Cir.2006), it is settled law in this circuit that “tort-like money damages, as opposed to compensatory equitable relief, are not available under IDEA.” ⁵ Nieves-Márquez, 353 F.3d at 124. This rule stems from the Supreme Court's decision in School Committee of Burlington v. Department of Education of Massachusetts, 471 U.S. 359, 105 S.Ct. 1996, 85 L.Ed.2d 385 (1985). In Burlington, the Supreme Court held that reimbursement of educational expenses was an available remedy under the Education of the Handicapped Act (EHA), IDEA's predecessor statute, but explained that reimbursement could not be characterized as damages as it “merely requires the [defendant] to belatedly pay expenses that it should have paid all along and would have borne in the first instance had it developed a proper [individualized educational program].” Id. at 370-71, 105 S.Ct. 1996.

Relying on our decisions in Nieves-Márquez and Díaz-Fonseca, United National urges us to hold that a claim for reimbursement under IDEA is not a claim that seeks “money damages” under the Policy. However, United National's contention is not supported by these precedents.

While it is beyond cavil that tort-like monetary damages are not available under IDEA, the policy reasons that underlie our decisions in Nieves-Márquez and Díaz-Fonseca do not bind our interpretation of the types of claims that may be deemed covered under a contract of insurance that is entered into by private parties. See Gen. Star Indem. Co. v. Lake Bluff Sch. Dist. No. 65, 354 Ill.App.3d 118, 289 Ill.Dec. 288, 819 N.E.2d 784, 793 (2004) (stating that because the Supreme Court's decision in Burlington did not “define ‘damages' within the context of insurance policies, for which there are well-settled rules of construction,” the Court's holding that damages are unavailable under IDEA is “of limited persuasive value” where the key question is whether the term “damages” may be interpreted in the insurance context as encompassing claims for reimbursement).

In Nieves-Márquez and Díaz-Fonseca we examined what Congress meant when it authorized courts to provide monetary compensation in the form of reimbursement for IDEA violations. Be...