Sanders v. Phx. Ins. Co.

• Decision Date: 07 December 2016
• Docket Number: No. 15-2539,15-2539
• Citation: 843 F.3d 37
• Parties: Harry Sanders, Executor of the Estate of Nancy A. Andersen and Assignee of John Doe, Plaintiff, Appellant, v. The Phoenix Insurance Company and The Travelers Indemnity Company of America, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

843 F.3d 37

Harry Sanders, Executor of the Estate of Nancy A. Andersen and Assignee of John Doe, Plaintiff, Appellant,

v.The Phoenix Insurance Company and The Travelers Indemnity Company of America, Defendants, Appellees.

No. 15-2539

United States Court of Appeals, First Circuit.

December 7, 2016

Robert D. Cohan , Boston, MA, with whom Jonathan D. Plaut , Boston, MA, and Cohan Rasnick Myerson Plaut LLP were on brief, for appellant.

Wystan M. Ackerman , with whom Jonathan E. Small and Robinson & Cole LLP , Hartford, CT, were on brief, for appellees.

Before Lynch and Selya, Circuit Judges, and Burroughs,^* District Judge.

SELYA, Circuit Judge.

This case begins with a tragic tale of unrequited love and morphs into a series of imaginative questions regarding the coverage available under a standard form homeowner's insurance policy. But when imagination runs headlong into settled legal precedent, imagination loses. Recognizing as much, the court below dismissed the complaint. After careful consideration, we affirm.

I. BACKGROUND

This diversity suit arises from the refusal of The Phoenix Insurance Company to defend and/or indemnify its named insured, an attorney whom we (like the court below) shall call "John Doe," against claims advanced by Harry Sanders, suing in his capacities as executor of the estate of Nancy A. Andersen (his deceased spouse) and as Doe's assignee.¹ Inasmuch as the district court dismissed Sanders's complaint for failure to state a claim upon which relief could be granted, we take as true the raw facts as alleged in the complaint. SeeSEC v. Tambone, 597 F.3d 436, 441–42 (1st Cir. 2010) (en banc).

Doe met Andersen in January of 2011 when she sought legal representation in possible divorce proceedings against Sanders.

Roughly four months later, Doe initiated divorce proceedings on Andersen's behalf. During this interval, Doe learned that Andersen suffered from severe depression and anxiety, had been prescribed several anti-depressant and anti-anxiety medications, and had recently attempted suicide. Nevertheless, Doe and Andersen began an on-again/off-again intimate relationship. Despite his personal involvement, Doe did not withdraw as her counsel.

The relationship did not go smoothly. As the fall of 2011 approached, Doe's ardor cooled and he became progressively distant. Correspondingly, Andersen's anxiety increased. Matters came to a head when, on or around October 1, 2011, Doe promised to join Andersen at her apartment. He did not do so. Distraught, Andersen wrote a suicide note lamenting Doe's inconstancy and proceeded to drink herself to death. Doe tried unsuccessfully to contact Andersen by telephone the next day. When he could not reach her, he went to her apartment and discovered her body.

Sanders was appointed as executor of Andersen's estate. Slightly over a year after Andersen's death, he sent Doe a demand letter pursuant to Massachusetts General Laws Chapter 93A, Section 9.² Cognizant that some of his meretricious interludes had occurred at his home, Doe promptly notified his homeowner's insurance carrier (Phoenix). After looking into the matter, Phoenix denied coverage on two grounds: that Andersen's death was not an "occurrence" covered under Doe's homeowner's policy (the Policy) and that the Policy's professional services exclusion barred coverage.

In a letter dated September 19, 2013, Sanders notified Phoenix that he and Doe planned to mediate their dispute and invited Phoenix to participate. Phoenix declined the invitation. About three weeks later, Doe sought to have Phoenix reconsider its denial of coverage, informing it that Sanders was advancing a claim for negligent infliction of emotional distress. Unmoved, Phoenix reiterated its denial of coverage.

Eventually, Doe, Doe's law firm, and Sanders reached an accord: the law firm's insurers agreed to pay Sanders $500,000 in exchange for a release of all claims against the firm. Ancillary to the settlement, Doe agreed that his personal liability to Sanders amounted to an additional $500,000 and assigned to Sanders all of Doe's rights and interests under the Policy vis-à -vis Andersen's death and any claims that he might have against Phoenix as a result of its failure to defend and/or indemnify him.³ Sanders followed up by sending a Chapter 93A demand letter to Phoenix, see supra note 2, accusing it of unfair settlement practices and demanding $500,000 (the limit of liability under the Policy). Phoenix refused the demand.

Sanders repaired to a Massachusetts state court and filed this suit. Citing diversity of citizenship and the existence of a controversy in the requisite amount, Phoenix removed the case to the federal district court. See28 U.S.C. §§ 1332(a), 1441. Phoenix then moved to dismiss. SeeFed. R. Civ. P. 12(b)(6). The district court referred the motion to a magistrate judge, who recommended granting it. Sanders objected, and the district court, undertaking de novo review, overruled his objections and dismissed the action.⁴ This timely appeal ensued.

II. ANALYSIS

We review a district court's dismissal of a complaint for failure to state a claim de novo. SeeArtuso v. Vertex Pharm., Inc., 637 F.3d 1, 5 (1st Cir. 2011). Accepting as true all well-pleaded facts contained in the complaint, we are constrained to draw all reasonable inferences in the pleader's favor. See id. Where relevant, we may supplement the pleaded facts with "documentation incorporated by reference in the complaint." Rivera–Díaz v. Humana Ins. of P.R., Inc., 748 F.3d 387, 388 (1st Cir. 2014) ; seeHidalgo–Vélez v. San Juan Asset Mgmt., Inc., 758 F.3d 98, 101–02 (1st Cir. 2014).

Because this case is brought in diversity jurisdiction, we must look to state law for the substantive rules of decision. SeeErie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that Massachusetts law applies, and we readily embrace that sensible agreement. SeeArtuso, 637 F.3d at 5 ("In determining which state's law applies, a diversity court is free to honor the parties' reasonable agreement.").

If we are unable to discern any controlling Massachusetts authority on a particular point, we must make an "informed prophecy" as to how the state's highest court—the Supreme Judicial Court (SJC)—would rule if faced with the issue. Ambrose v. New Eng. Ass'n of Schs. & Colls., Inc., 252 F.3d 488, 498 (1st Cir. 2001). Our prediction may be "guided, inter alia, by persuasive case law from other jurisdictions and relevant public policy considerations." Id.

A. Alleged Breach of Duty to Defend.

We start with Sanders's principal remonstrance (asserted in his capacity as Doe's assignee): that Phoenix forsook its duty to defend Doe against the claims advanced by Sanders. In Massachusetts, the duty to defend under an insurance policy arises "when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms." Billings v. Commerce Ins. Co., 458 Mass. 194, 936 N.E.2d 408, 414 (2010). When determining whether an insurer has a duty to defend, an inquiring court must consider "the facts alleged in the complaint, and [any] facts known or readily knowable by the insurer that may aid in its interpretation of the allegations in the complaint." Id. The precise scope of an insurer's duty to defend is defined by the insurance policy itself, to which we apply familiar rules of contract interpretation. SeeB & T Masonry Constr. Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 39 (1st Cir. 2004) ; Bos. Gas Co. v. Century Indem. Co., 454 Mass. 337, 910 N.E.2d 290, 304 (2009). We interpret the words of the policy in light of their plain meaning, considering the document as a whole. SeeB & T Masonry, 382 F.3d at 39 ; Golchin v. Liberty Mut. Ins. Co., 466 Mass. 156, 993 N.E.2d 684, 688 (2013). Our construction must be consistent with what an objectively reasonable insured, reading the relevant policy language, would expect the words to mean. SeeHazen Paper Co. v. U.S. Fid. & Guar. Co., 407 Mass. 689, 555 N.E.2d 576, 583 (1990). If this analysis yields two reasonable (but conflicting) interpretations of the policy's text, the insured must be given the benefit of the interpretation that redounds to his benefit. See id.

In the case at hand, the Policy (to which we add our own emphasis and remove original emphasis) states in pertinent part:

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, even if the claim or suit is false, we will:

....

b. provide a defense at our expense of counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate.

In Phoenix's view, the Policy therefore provides that it must only furnish counsel to defend the insured in the face of a suit but may investigate and settle a claim. Thus, it has no obligation to provide a defense in the absence of a suit.

Sanders demurs. He points to the Policy's other references to claims or suits and asseverates that the Policy obligates the insurer to defend broadly against pre-suit claims. This asseveration lacks force. The majority of the references that Sanders identifies come from the Policy's credit card, fund transfer card, forgery, and counterfeit money provision, which covers losses of up to $1,000 incurred due to unauthorized use of the insured's credit cards or similar forms of financial misfeasance. The particular subsection most loudly bruited by Sanders states:

Defense:

a. ... OUR OBLIGATION TO DEFEND ANY CLAIM OR SUIT ENDS WHEN THE AMOUNT WE PAY FOR THE LOSS EQUALS OUR LIMIT OF LIABILITY.

b. If a claim is made or a suit is brought against any insured for liability under the Credit Card or Fund Transfer Card coverage, we will provide a defense at our expense by counsel of our choice.

The location of these statements within the credit card...