Biochemics, Inc. v. Axis Reinsurance Co.
| Decision Date | 28 September 2017 |
| Docket Number | CIVIL ACTION NO. 13–10691–RWZ |
| Citation | 277 F.Supp.3d 251 |
| Parties | BIOCHEMICS, INC., and John Masiz v. AXIS REINSURANCE COMPANY, Brown & Brown of New York, Inc., and John P. Raucci |
| Court | U.S. District Court — District of Massachusetts |
Steven L. Schreckinger, Anne Robbins, Anderson & Kreiger, LLP, Boston, MA, Jane M. Guevremont, Anderson & Kreiger LLP, Cambridge, MA, Keith L. Sachs, Orestes G. Brown, Metaxas Brown Pidgeon LLP, Beverly, MA, for BioChemics, Inc., and John Masiz.
Joan M. Gilbride, Pro Hac Vice, Kaufman Borgeest & Ryan LLP, New York, NY, William A. Schneider, Morrison Mahoney LLP, Michael R. Perry, Jacob J. Struck, Manion Gaynor & Manning LLP, Boston, MA, Melinda B. Margolies, Kaufman Borgeest & Ryan LLP, Valhalla, NY, for AXIS Reinsurance Company, Brown & Brown of New York, Inc., and John P. Raucci.
ZOBEL, S.D.J.
In 2011, the Securities and Exchange Commission ("SEC") issued a formal order directing an investigation of plaintiffs BioChemics, Inc. ("BioChemics"), and its founder John Masiz. BioChemics made a claim under its directors and officers ("D & O") liability insurance policy for defense costs arising out of the SEC investigation and resulting enforcement action. After their D & O carrier, AXIS Reinsurance Company ("AXIS"), denied that claim, plaintiffs brought this suit.
I allowed AXIS's motion for summary judgment, see Docket # 88, at 5–6. Plaintiffs seek damages, fees, and costs from the remaining defendants, BioChemics's insurance broker Brown & Brown of New York, Inc. ("Brown & Brown"), and insurance producer John P. Raucci. Claiming that defendants' handling of their account resulted in the denial of D & O coverage for the SEC action, plaintiffs allege negligence, breach of fiduciary duty, and violations of Massachusetts General Laws chapter 93A. Defendants move for summary judgment on Counts II through VII. Docket # 108.
I summarize the relevant facts in the light most favorable to plaintiffs, the non-moving parties. See Planadeball v. Wyndham Vacation Resorts, Inc., 793 F.3d 169, 172 (1st Cir. 2015).
BioChemics is a specialty pharmaceutical company focused on transdermal drug delivery products. Masiz was the president and chief executive officer of BioChemics at all times relevant to this action. BioChemics purchased its first D & O coverage in 2005 from Brown & Brown's corporate predecessor through a consultant named Greg Kroning. After Kroning's 2009 departure from what was by then Brown & Brown, Raucci was designated the producer on the BioChemics account. Despite this designation, the parties agree that Raucci has had no personal involvement in the account.
Brown & Brown obtained for plaintiffs from XL Insurance a D & O policy providing coverage from November 13, 2010, to November 13, 2011 ("the XL policy"). The XL policy was written on a claims made basis, meaning it only covered claims made against BioChemics during the policy period. As the expiration date of the XL policy approached, Brown & Brown informed plaintiffs that because XL would be restricting D & O coverage and increasing premiums in the coming year, it recommended renewing with a different carrier. As part of the renewal process, Brown & Brown consulted a wholesale broker, who asked XL for a report of any claims BioChemics had made during the policy period. XL responded that, as of September 13, 2011, it had not received notice of any claims from BioChemics.
On November 9, 2011, Brown & Brown sent BioChemics a proposal for D & O coverage with a different carrier, AXIS.
Page 4 of the proposal states under the heading "Requirements":
Docket # 109, Ex.OO (AXIS Policy Proposal). The same requirement ("CONFIRMATION THAT ALL KNOWN CLAIMS HAVE BEEN NOTICED TO PRIOR CARRIER") appears again at page 7 of the proposal, under the heading "CONDITIONS TO BIND." Id. BioChemics endorsed the proposal the following day, and AXIS issued a policy effective for claims made from November 13, 2011, to November 13, 2012 ("the AXIS policy"). Like the XL policy, the AXIS policy was issued on a claims made basis, and states as much in large, bold font on the policy's first page.
The SEC commenced a Non–Public Formal Investigation targeting BioChemics and its officers by Formal Order on May 5, 2011, styled "In the Matter of BioChemics, Inc. (B–02641)" (the "SEC Investigation"). The SEC served a series of document subpoenas on BioChemics pursuant to the investigative order, including on May 9 and September 12, 2011. Those subpoenas indicated the existence of the Formal Order and were captioned "In the Matter of BioChemics, Inc. (B–02641)."
In May 2011, plaintiffs retained counsel to represent them in the SEC investigation and consulted counsel whether to report the investigation to their insurer. Additional subpoenas issued in January and March 2012 under the same SEC matter identification and number. BioChemics notified AXIS of the SEC investigation on March 29, 2012. AXIS denied coverage, viewing the entire SEC investigation as a single "claim" first made in May 2011, when the SEC issued its first document subpoena to BioChemics—before the AXIS policy took effect. BioChemics notified Brown & Brown of the SEC investigation in July 2012 and instructed Brown & Brown not to contact XL or AXIS concerning the investigation. On August 2, 2012, Brown & Brown took the position that Masiz should report the claim to XL. Masiz, through counsel, declined to do so by email dated August 8, 2012. The SEC filed an enforcement action against plaintiffs in December 2012.1
On February 27, 2013, plaintiffs filed the present suit in the Massachusetts Superior Court against AXIS, Brown & Brown, and Raucci. Defendants removed the case to federal court on March 27, 2013, based on diversity jurisdiction. On January 6, 2015, I granted AXIS's motion for summary judgment, ruling that the SEC investigation and enforcement action were not covered under AXIS's policy because the SEC's Formal Order was issued prior to AXIS's policy period. See Docket # 88, at 5–6. The remaining defendants, Brown & Brown and Raucci, now move for summary judgment.
Summary judgment is appropriate when the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "An issue is ‘genuine’ for purposes of summary judgment if ‘the evidence is such that a reasonable jury could return a verdict for the nonmoving party,’ and a ‘material fact’ is one which ‘might affect the outcome of the suit under the governing law.’ " Poulis–Minott v. Smith, 388 F.3d 354, 363 (1st Cir. 2004) (quoting Hayes v. Douglas Dynamics, Inc., 8 F.3d 88, 90 (1st Cir. 1993) ). In determining whether a genuine issue of material fact exists, "a court must view the evidence ‘in the light most favorable to the opposing party.’ " Tolan v. Cotton, ––– U.S. ––––, 134 S.Ct. 1861, 1866, 188 L.Ed.2d 895 (2014) (per curiam) (quoting Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) ).
Plaintiffs' negligence and fiduciary duty theories (Counts II–V) rely on the assertion that defendants failed to advise BioChemics on the risks associated with the expiration of the XL policy. Masiz explains that he did not understand that the SEC action amounted to a reportable claim, but that had defendants properly advised him prior to the expiration of the XL policy in November 2011, he would have preserved BioChemics's coverage under the XL policy by reporting the action. Plaintiffs further contend that, had defendants specifically asked them at the time of policy renewal about any potential claims, Masiz would have perceived the coverage significance of the SEC action.
"To prevail on a negligence claim, a plaintiff must prove that the defendant owed the plaintiff a duty of reasonable care, that the defendant breached this duty, that damage resulted, and that there was a causal relation between the breach of the duty and the damage." Jupin v. Kask, 447 Mass. 141, 849 N.E.2d 829, 834–35 (2006).2
Insurance brokers do not generally owe a fiduciary duty to the insured. See Robinson v. Charles A. Flynn Ins. Agency, Inc., 39 Mass.App.Ct. 902, 653 N.E.2d 207, 207–08 (1995). Instead, the broker "[o]rdinarily ... assumes only those duties normally found in an agency relationship." Baldwin Crane & Equipment Corp. v. Riley & Rielly Ins. Agency, Inc., 44 Mass.App.Ct. 29, 687 N.E.2d 1267, 1269 (1997) (quoting 16A Appleman, Insurance Law & Practice § 8836, at 64 (1981)). These duties include the duty to deal in good faith and the duty to carry out instructions, but do not include the duty to advise. See Appleman, § 8836, at 64. Thus, a broker is not generally required to ensure that the insured understands "the full import" of a policy provision, and an insured remains responsible for ascertaining the terms of coverage obtained by the broker. See Baldwin, 687 N.E.2d at 1269. Moreover, AGA Fishing Group Ltd. v. Brown & Brown, Inc., 533 F.3d 20, 23 (1st Cir. 2008) (citations omitted).
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