Cardigan Mountain Sch. v. New Hampshire Ins. Co.

• Decision Date: 27 May 2015
• Docket Number: No. 14–2182.,14–2182.
• Citation: 787 F.3d 82
• Parties: CARDIGAN MOUNTAIN SCHOOL, Plaintiff, Appellant, v. NEW HAMPSHIRE INSURANCE COMPANY, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

787 F.3d 82

CARDIGAN MOUNTAIN SCHOOL, Plaintiff, Appellant

v.NEW HAMPSHIRE INSURANCE COMPANY, Defendant, Appellee.

No. 14–2182.

United States Court of Appeals, First Circuit.

May 27, 2015.

Scott H. Harris, with whom Nicholas C. Casolaro, Andrew R. Hamilton, and McLane, Graf, Raulerson & Middleton, P.A. were on brief, for appellant.

Mark D. Sheridan, with whom Jason F. King, Sean P. Neafsey, and Squire Patton Boggs (US) LLP were on brief, for appellee.

Before HOWARD, SELYA, and BARRON, Circuit Judges.

Opinion

BARRON, Circuit Judge.

This appeal arises out of an action for a declaratory judgment. The plaintiff, now the appellant, is a private middle school in Canaan, New Hampshire. The school seeks to prove that, nearly fifty years ago, the insurance company that is the defendant, and now the appellee, issued the school an insurance policy that covers a claim that the school recently received concerning events allegedly occurring during the 1967–1968 academic year.

The twist is that while the school can document that it had a policy with the insurance company at some point, it cannot find a copy of the policy for the year in question. And the insurance company has told the school that it cannot confirm the existence of the policy. Thus, the company contends that it is not obliged to cover the claim and, more significantly for present purposes, that the school's complaint should be dismissed because it fails to make a plausible case that such a policy ever existed.

The District Court sided with the insurance company and dismissed the suit. But although the question is close, we reverse and remand for further proceedings.

I.

In 2013, the Cardigan Mountain School received a demand letter asserting a claim (about which we have been given no details) based on events that allegedly occurred during the 1967–1968 school year. In response, the school asked the New Hampshire Insurance Company to defend against the claim as the carrier of the school's comprehensive general liability insurance policy at that time.

The New Hampshire Insurance Company rejected the request. The company explained that it had not been able to locate any policy covering the school for the relevant time period, and thus that it was not the school's carrier at that time and therefore had no duty to defend against this claim now.

Not having found a copy of the policy in its own records, the school filed this suit in New Hampshire state court under the New Hampshire declaratory judgment statute. See N.H.Rev.Stat. Ann. § 491:22. The school sought a judgment “adjudicating and decreeing the existence of, and Cardigan's rights under, any policy issued by” New Hampshire Insurance Company.

New Hampshire Insurance Company—which, notwithstanding its name, is a Pennsylvania corporation with its headquarters in New York—removed the suit to federal court on diversity-of-citizenship grounds.See 28 U.S.C. § 1332(a). New Hampshire Insurance Company then moved to dismiss the suit for failure to state a claim. See Fed.R.Civ.P. 12(b)(6).

The District Court granted New Hampshire Insurance Company's motion and dismissed the suit. The District Court concluded that the school's complaint did not plausibly show the existence of the policy.¹ The school appealed.²

II.

Under the Federal Rules of Civil Procedure, a complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To meet that standard, a plaintiff “need not demonstrate that [it] is likely to prevail” on its claim. García–Catalán v. United States, 734 F.3d 100, 102 (1st Cir.2013). Rather, the complaint need include only enough factual detail to make the asserted claim “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). We review the District Court's dismissal of complaint for failure to state a claim de novo. García–Catalán, 734 F.3d at 102.

To evaluate the sufficiency of a complaint under Rule 8, we first must “distinguish ‘the complaint's factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited).’ ” Id. at 103 (quoting Morales–Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir.2012) ). We then must “determine whether the factual allegations are sufficient to support ‘the reasonable inference that the defendant is liable....’ ” Id. (quoting Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir.2011) ).

To perform this two-step analysis, though, we need to be clear about the legal issue that is in dispute. Here, the school seeks to prove that the company must cover the claim made in the 2013 demand letter that the school received. But on appeal, the issue is narrower. The sole legal question in dispute concerns the existence of the policy, not whether that policy, if it exists, covers the claim. And that is because, as in the District Court, the New Hampshire Insurance Company seeks the complaint's dismissal solely on the ground that the complaint does not make a plausible case that the policy was ever in place. See Goldman v. First Nat'l Bank of Bos., 985 F.2d 1113, 1116–17 n. 3 (1st Cir.1993) (“[T]heories not raised squarely in the district court cannot be surfaced for the first time on appeal.” (quoting McCoy v. Mass. Inst. of Tech., 950 F.2d 13, 22 (1st Cir.1991) )).

We thus look at the complaint to determine what facts it sets forth concerning the existence of the policy. We then address whether, accepting the truth of those facts, the complaint makes out a plausible case that the policy does in fact exist.

A.

The allegations in the school's complaint do not include a direct allegation that the insurance policy existed. In fact, the complaint alleges that New Hampshire Insurance Company's representative “has noted that she has searched for the policy and been unable to find it, but has assured the [school] that her search continues.” In place of a direct allegation, the complaint relies on circumstantial evidence. That evidence is as follows.

The complaint alleges that an accounting firm prepared an audit report for the school dated September 1971. That report is attached as an exhibit to the complaint. The report states that from September 1970 to September 1971 the school had a “Special Multi–Peril” insurance policy from the New Hampshire Insurance Company. And, according to the report, that policy included $1,000,000 in “General Liability” coverage.

The complaint further states that Phillip Wheeler, “one of the two principals in the [accounting] firm that prepared” that audit report, “believes that had the school changed carriers” between the 1969–1970 school year and the 1970–1971 school year, “then the auditors would have noted the change.” No such change is noted in the audit report.

To show that the policy was in place during the critical 1967–1968 school year, the complaint alleges that “Cornelius Bakker, Cardigan's business manager between 1967 and 1970, is certain the school had insurance during his tenure.” The complaint further alleges that Bakker “worked with A.B. Gile, Inc., a local insurance brokerage, to secure Cardigan's insurance coverage.” And the complaint alleges that Bakker “does not believe Cardigan changed carriers while he was business manager between 1967 and 1970.”

The complaint offers one additional, bolstering allegation. It alleges “[u]pon information and belief” that the insurance brokerage the school used “had a close association with” New Hampshire Insurance Company and “advised most of its commercial clients like Cardigan to place their commercial lines of insurance with” New Hampshire Insurance Company.

New Hampshire Insurance Company argues, and the District Court held, that, except for the allegation concerning the audit report, the complaint sets forth “nothing more than speculation and conjecture.” New Hampshire Insurance Company thus argues that we are not “obligated to accept” those other allegations as true. New Hampshire Insurance Company relies for that argument on the Supreme Court's decisions in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

In each decision, the Supreme Court held that “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; see Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Iqbal illustrates the sort of “conclusory statements” that are “not entitled to the assumption of truth.” 556 U.S. at 678–79, 129 S.Ct. 1937.

Iqbal involved a suit by an individual—Iqbal—who was arrested and detained following the September 11, 2001, terrorist attacks. Id. at 666, 129 S.Ct. 1937. After Iqbal was released, he brought suit against a variety of federal officials, asserting alleged violations of his constitutional rights. Id. The defendants included John Ashcroft, who had been the United States Attorney General at the time, and Robert Mueller, then the Director of the Federal Bureau of Investigation. Id.

The Supreme Court explained that the complaint's “bald allegations” that Ashcroft and Mueller were personally involved in unconstitutional conduct were “conclusory” and thus should have been disregarded by the district court. Id. at 681, 129 S.Ct. 1937. In particular, the Supreme Court held that statements that Ashcroft and Mueller “ ‘knew of, condoned, and willfully and maliciously agreed to subject [the plaintiff]’ to harsh conditions of confinement” based on his “ ‘religion, race, and/or national origin’ ” were not factual allegations that must be taken as true. Id. at 680, 129 S.Ct. 1937. And the Court ruled the same with respect to Iqbal's allegations that “Ashcroft was the ‘principal architect’ ” of the policy and that “Mueller was ‘instrumental’ in adopting and executing it.”Id. at...