Town of Allenstown v. National Cas. Co.

• Decision Date: 08 June 1994
• Docket Number: No. 94-1106,94-1106
• Citation: 36 F.3d 229
• Parties: TOWN OF ALLENSTOWN, Plaintiff, Appellant, v. NATIONAL CASUALTY COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 229

36 F.3d 229

30 Fed.R.Serv.3d 664

TOWN OF ALLENSTOWN, Plaintiff, Appellant, v. NATIONAL CASUALTY COMPANY, Defendant, Appellee.

No. 94-1106.

United States Court of Appeals First Circuit.

Heard June 8, 1994.

Decided Sept. 30, 1994.

Glenn R. Milner with whom Cook & Molan, P.A., Concord, NH, was on brief, for appellant.

John A. Lassey with whom Wadleigh, Starr, Peters, Dunn & Chiesa, Manchester, NH, was on brief, for appellee.

Before TORRUELLA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and BOUDIN, Circuit Judge.

BOUDIN, Circuit Judge.

In May 1986, an officer of the Allenstown, New Hampshire, Police Department arrested Paul Cutting for a number of traffic offenses. At trial Cutting was acquitted of all charges. In April 1988, counsel for Cutting and his wife wrote a letter to the Allenstown Board of Selectmen advising that his clients were making a claim for damages against the town, arising from the arrest.

At that time the National Casualty Company had in force a comprehensive law enforcement liability policy protecting Allenstown and its employees against claims of the kind made by the Cuttings. National Casualty opened a file on the incident and obtained from the town copies of various documents relating to the Cutting arrest. In June 1988 the Cuttings brought a civil rights action against the town and the arresting officer in the federal district court in New Hampshire.

When the federal suit was filed, the Cuttings served copies of their summons and complaint on the town. The National Casualty policy provided if a claim is made or suit brought against the insured, the insured "shall immediately forward to the Company every demand, notice, summons or other process" received by the insured; the policy made compliance with this requirement a condition precedent to any suit against National Casualty. Allenstown contends that it mailed the summons and complaint to National Casualty about eight days after it received them; National Casualty says that it never received the papers and denies that they were mailed.

Neither the town nor National Casualty appeared to defend against the Cuttings' suit, and a default judgment was entered. After a hearing on damages, the district court in March 1989 entered judgment for $424,909.88 in favor of the Cuttings, including compensatory damages, punitive damages and attorneys' fees. After a year's wait, Fed.R.Civ.P. 60, the Cuttings obtained a writ of execution in April 1990. Allenstown then moved for relief from the default judgment. In August 1990, the district court denied the motion. On appeal this court affirmed. Cutting v. Town of Allenstown, 936 F.2d 18 (1st Cir.1991).

In May 1990, after the writ of execution had issued, National Casualty learned--assertedly, for the first time--that the Cuttings filed their threatened suit. Not long afterwards, Allenstown wrote to National Casualty requesting it to provide coverage for the Cuttings' law suit and the judgment they had obtained. In June 1990, National Casualty declined to do so on the ground that the town had failed to notify National Casualty of the law suit's filing in a timely fashion and had failed immediately to forward the summons and complaint as required by the policy.

Allenstown then sued National Casualty in New Hampshire state court seeking a declaratory judgment under N.H.Rev.Stat.Ann. Sec. 491:22 that National Casualty was required to provide coverage for the Cuttings' suit. Section 491:22 permits declaratory actions to determine insurance coverage, if such an action is brought within six months of the underlying suit that seeks to impose liability on the insured. Section 491:22-a provides that in an action under section 491:22, "the burden of proof concerning the coverage shall be upon the insurer...." There is also a provision for attorneys' fees. N.H.Rev.Stat.Ann. Sec. 491:22-b.

National Casualty removed the town's declaratory action against it to federal district court in New Hampshire on grounds of diversity. Thereafter, the town amended its complaint to include claims for breach of contract and bad faith against National Casualty. After a number of delays because of reassignment of the case from one judge to another, and finally to a third, the trial commenced on November 30, 1993.

At trial, the town presented testimony of one of its police officers that he had mailed the summons and complaint in the Cuttings' suit to National Casualty within two weeks after they had been served on the town. A witness for National Casualty testified that no such documents had been received and that the company had no record that the suit had been filed. There was also some, but not conclusive, evidence that might suggest that the officer who claimed to have mailed the summons and complaint might have partly misaddressed it. Under these circumstances, the burden of proof has assumed some importance.

Well before trial, in July 1993, the district court had ruled that section 491:22, and its ancillary burden shifting and attorney's fee provisions, did not apply in this case. The court ruled that under New Hampshire law, a declaratory action under section 491:22 could be brought to determine insurance coverage only where the underlying action to impose liability on the insured had been brought in New Hampshire state court. The district court also took the view that where the statute did not apply, the burden under New Hampshire law was upon the insured to establish coverage.

After the close of all of the evidence, the district court submitted the town's contract claim to the jury which found in favor of National Casualty. ¹ The district court treated the request for declaratory relief as a matter to be determined by the court. But, following the jury's lead, the trial judge ruled in favor of National Casualty, holding that the town "did not, by a preponderance of the evidence, establish that the suit papers in this case were immediately forwarded." ² The town now appeals to this court.

The principal issue on appeal stems from the district court's decision that section 491:22, including its burden-shifting provision, did not apply in this case. At all times pertinent here, section 491:22 allowed a declaratory judgment action if sought within six months "after the filing of the writ which gives rise to the question," i.e., the writ in the underlying liability action--here, the Cuttings' law suit. Because New Hampshire state-court actions are commenced by the filing of a writ and federal actions by the filing of a complaint, the New Hampshire Supreme Court had held in 1985 that "[t]he plain language of the statute [section 491:22] clearly applies only to State actions." Jackson v. Federal Ins. Co., 127 N.H. 230, 498 A.2d 757, 759 (1985).

Jackson involved a declaratory action in state court where the underlying liability suit had been brought in federal court. A year later, this court applied Jackson to bar a declaratory action under section 491:22 brought in federal court; as in Jackson, the underlying liability suit had been brought in federal court. Volpe v. Prudential Property & Casualty Ins. Co., 802 F.2d 1 (1st Cir.1986). It might have been enough in Volpe to say that the federal action was barred because (as in Jackson) the underlying suit had been brought in federal court, but this court in Volpe went even further and held that section 491:22 was "not available to litigants proceeding in federal court." Id. at 5.

The implication of Volpe was that the federal court would not entertain a section 491:22 action even if the underlying liability suit was brought in state court. This conclusion was not a careless extension of Jackson. Although Jackson's plain language argument rested on the statute's reference to a "writ"--focusing attention on the forum of the underlying suit--Jackson had also described section 491:22 as a "court cleaning bill," saying that the bill was "intended to expedite procedures in the State courts." 498 A.2d at 759.

Following Jackson and Volpe, the New Hampshire state legislature amended the declaratory judgment statute by adding section 491:22-c, which provides:

The remedy of declaratory judgment to determine the coverage of a liability insurance policy under RSA 491:22, 22-a, and 22-b shall also be available in the United States district court for the district of New Hampshire when the court may properly adjudicate the matter under the laws of the United States.

This amendment, in force at the time that Allenstown brought its declaratory judgment against National Casualty, is the focus of the present appeal. The town asserts that the amendment meant that a section 491:22 action can be brought in federal court, regardless whether the underlying liability suit was brought in state or federal court. National Casualty, by contrast, claims that the amendment merely makes the section 491:22 remedy available in federal courts to precisely the same extent that it would be available in New Hampshire state courts--that is, when the underlying liability suit was brought in a New Hampshire state court.

The district court agreed with National Casualty's reading, and we take the same view. The bare language of section 491:22-c is not conclusive. It is perfectly consistent with National Casualty's reading; but arguably the language is general enough so that it is also consistent with the town's reading. The problem for the town is that whatever the bare language of the new section, the New Hampshire Supreme Court in 1992 held "that RSA 491:22 applies only to underlying suits brought in our State courts." Scully's Auto-Marine Upholstery, Inc. v. Peerless Ins. Co., 136 N.H. 65, 611 A.2d 635, 636 (1992).

Scully was a declaratory action brought in the New Hampshire state court involving underlying liability suits both in federal district court and in Maine state court. Although decided after section 491:22-c became effective, Scully made no reference to the amendment but...