Manganella v. Evanston Ins. Co.

• Decision Date: 14 December 2012
• Docket Number: No. 12–1139.,12–1139.
• Parties: Luciano MANGANELLA, Plaintiff, v. EVANSTON INSURANCE COMPANY, Defendant, Third–Party Plaintiff, Appellant, v. Jasmine Company, Inc., Third–Party Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

702 F.3d 68

Luciano MANGANELLA, Plaintiff,

v.EVANSTON INSURANCE COMPANY, Defendant, Third–Party Plaintiff, Appellant,

v.Jasmine Company, Inc., Third–Party Defendant, Appellee.

No. 12–1139.

United States Court of Appeals,First Circuit.

Dec. 14, 2012.

Harvey Nosowitz, with whom Anderson & Kreiger LLP was on brief, for appellant.

Anthony R. Zelle, with whom Thomas W. Evans and Zelle McDonough & Cohen, LLP were on brief, for appellee.

Before LYNCH, Chief Judge, SELYA and STAHL, Circuit Judges.

STAHL, Circuit Judge.

This is the second appeal we have heard regarding an insurance coverage dispute arising from charges of sexual harassment brought by a former employee against Luciano Manganella, the one-time president of Jasmine Company, Inc. See Manganella v. Evanston Ins. Co., 700 F.3d 585 (1st Cir.2012). After Manganella filed an action against Jasmine's liability insurance provider, Evanston Insurance Co., seeking defense and indemnification for the harassment charges, Evanston filed a third-party complaint against Jasmine itself, requesting a declaratory judgment that it had no duty to defend or indemnify Jasmine for the harassment claims. The district court granted summary judgment on the third-party claims for Jasmine, holding that Evanston had to both defend and indemnify Jasmine. Evanston now appeals part of that ruling. As framed by the parties, the dispute on appeal is whether a finder of fact must conclude that the conduct underlying the sexual harassment charges did or did not begin before Jasmine's insurance policy took effect.¹ Accordingly, our opinion is limited to that question and does not discuss arguments not made by the parties. After careful consideration, we vacate the judgment below and remand the case to the district court.

I. Facts & Background

Before the events giving rise to this action, Manganella was the president and sole shareholder of Jasmine, a clothing retailer that he founded in the 1970s. Donna Burgess, whose sexual harassment allegations form the underlying claims here, was Jasmine's human resources manager from 1997 to 2006.

In 1998, a former Jasmine employee, Sonia Bawa, filed claims of sexual harassment against Jasmine based on Manganella's conduct. Soon thereafter, Jasmine purchased from Evanston the Employment Practices Liability Insurance Policy at issue here (“the Policy”). Jasmine's coverage from Evanston under the Policy consisted of a series of annually renewed one-year installments running from April 1999 through April 2006. The Policy covers damages (including monetary settlements) “which [Jasmine] shall become legally obligated to pay as a result of [timely made claims], by reason of any Wrongful Employment Practice.” A claim is a “written charge or lawsuit ... seeking Damages or other relief for a Wrongful Employment Practice.” A Wrongful Employment Practice includes, as relevant here, “conduct of an Insured with respect to ... [an] employee that allegedly culminated in ... violation of any state, federal or local civil rights or anti-discrimination law and/or fair employment practices law.” Importantly, for a resulting claim to be covered, a Wrongful Employment Practice must have “happened” in its “entirety” during the policy period or after the retroactive date (here, April 28, 1999).

In July 2005, Manganella sold Jasmine to Lerner New York, Inc. for approximately$30 million. Manganella and Lerner executed a stock purchase agreement to effectuate the sale and an employment agreement under which Manganella would remain Jasmine's president for three years. Under the stock purchase agreement, $7 million of the purchase price was placed in escrow, “as security ... in the event of” certain types of misconduct by Manganella. A few months after the sale was completed, Jasmine cancelled the final installment of the Policy but purchased an extended reporting period, which allowed for coverage of claims made and reported during the thirty-six months following the cancellation.

In May 2006, further allegations of sexual harassment by Manganella prompted Jasmine to hire an outside investigator, Stier Anderson LLC, which interviewed several employees, including Burgess; she recounted inappropriate comments that Manganella had made in the past. On June 22, 2006, as a result of conduct revealed by the investigation, Manganella was fired. In a letter to Manganella, Lerner accused him of sexually harassing four female employees and downloading sexually explicit images on company computers, all in violation of Lerner's corporate Code of Conduct. A subsequent arbitration between Lerner and Manganella confirmed that he had violated the Code of Conduct by harassing several female employees. See Manganella, 700 F.3d at 589–90 (describing the arbitration).

On March 19, 2007, Burgess filed a charge of discrimination against Manganella, Lerner, and Jasmine with the Massachusetts Commission Against Discrimination (“MCAD”). Burgess's MCAD charge alleged that, “[t]hroughout her employment with Jasmine[ ], Manganella subjected Ms. Burgess to nearly constant physical and verbal sexual harassment,” including “inappropriate comments about Ms. Burgess' body, inappropriate touching,” and, eventually, coerced sexual activity on five separate occasions. Manganella also threatened Burgess (and others) with physical violence.

Ten days after Burgess filed the MCAD charge, Manganella notified Evanston of her claims and requested coverage. Less than two weeks later, Evanston sent a letter to Jasmine, denying coverage for Burgess's claims on the ground that it was “apparent” that the harassment alleged by Burgess in the MCAD charge “did not happen in its entirety subsequent to the Retroactive Date, which is April 28, 1999,” as required for coverage.

In April 2008, Jasmine settled the MCAD charge with Burgess for $300,000. As part of the settlement, Burgess provided Jasmine with an affidavit (the “2008 Affidavit”) stating that the “conduct and actions by Mr. Manganella that formed the basis of my allegations of sexual harassment did not begin until in or about October 1999, and then continued throughout my employment.” Burgess's claims against Manganella were settled separately at a later date.

Manganella filed this action against Evanston in July 2009, seeking (among other things) a ruling that Evanston was required under the Policy to defend and indemnify Manganella against Burgess's MCAD charge. Two months later, Evanston filed an answer and a third-party complaint against Manganella and Jasmine, asserting that it had no duty to defend or indemnify either Manganella or Jasmine for Burgess's claims.²

After discovery, Manganella and Evanston cross-moved for summary judgment on Manganella's coverage claims. The district court held that Evanston should have at least investigated the MCAD charge before denying coverage, given that it was aware of certain facts (including an affidavit that Burgess filed in Bawa's harassment case) suggesting that Manganella's unlawful conduct may not have begun prior to the Policy's retroactive date. Manganella v. Evanston Ins. Co., 746 F.Supp.2d 338, 346 (D.Mass.2010). The court also concluded, however, that the arbitration between Lerner and Manganella had conclusively established that Burgess's MCAD charge fell within the Policy's exclusion of claims based on conduct “committed with wanton, willful, reckless or intentional disregard” for the laws underlying those claims. See id. at 348. The district court thus found that the doctrine of issue preclusion barred Manganella from relitigating that question, and granted summary judgment for Evanston. Id. at 349. We recently affirmed that ruling. See Manganella, 700 F.3d at 594–95.

In a subsequent summary judgment opinion, the district court addressed Evanston's third-party claims against Jasmine. Manganella v. Evanston Ins. Co., No. 09–cv–11264–RGS, 2011 WL 5118898 (D.Mass. Oct. 28, 2011). The court reiterated its earlier holding that Evanston had a duty to at least investigate the MCAD charge before denying coverage. Id. at *6–7. Because Evanston had breached the duty to defend, it had “the burden of proving that [Burgess's] claim was not within its policy's coverage.” Id. at *7 (quoting Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 610 N.E.2d 912, 922 (1993)) (internal quotation mark omitted). Evanston failed to carry that burden. Addressing the issues as framed by the parties, the district court found no genuine dispute of material fact as to whether the conduct underlying Burgess's MCAD charge had begun prior to the Policy's retroactive date of April 28, 1999. See id. at *5–6. In the district court's view, Evanston had at most produced a “shard of allegedly contradictory evidence” in the form of an interview memorandum and interrogatory answers filed in connection with the MCAD proceeding, in which Burgess characterized some of Manganella's pre-April 1999 remarks as offensive in hindsight. Id. at *5. The district court did not consider these statements sufficient to create a factual dispute as to the scope of Burgess's harassment claims. The court thus “determined that Evanston is liable under the Policy for the costs of defending and settling the Burgess claim,” and granted summary judgment for Jasmine. Id. at *8.³ Evanston now appeals the ruling that summary judgment was properly entered against it, and that in consequence it must reimburse Jasmine for the settlement with Burgess (but not the holding that it must cover Jasmine's defense costs).

II. Analysis

We review a grant of summary judgment de novo, Baker v. St. Paul Travelers Ins. Co., 670 F.3d 119, 125 (1st Cir.2012), and will affirm if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law, seeFed.R.Civ.P. 56(a). “Where, as here, we are presented with cross-motions for summary judgment, we ‘must view each motion, separately,’ in the light most favorable to the non-moving party, and...