Winbrook Commc'n Servs., Inc. v. U.S. Liab. Ins. Co.

• Decision Date: 14 June 2016
• Docket Number: No. 15–P–401.,15–P–401.
• Citation: 89 Mass.App.Ct. 550,52 N.E.3d 195
• Court: Appeals Court of Massachusetts
• Parties: WINBROOK COMMUNICATION SERVICES, INC., & others v. UNITED STATES LIABILITY INSURANCE COMPANY.

89 Mass.App.Ct. 550

52 N.E.3d 195

WINBROOK COMMUNICATION SERVICES, INC., & others¹

v.UNITED STATES LIABILITY INSURANCE COMPANY.

No. 15–P–401.

Appeals Court of Massachusetts, Suffolk.

Argued March 8, 2016.

Decided June 14, 2016.

Eric F. Eisenberg, Boston, for the plaintiffs.

John B. DiSciullo, Boston, for the defendant.

Present: HANLON, SULLIVAN, & MASSING, JJ.

SULLIVAN, J.

In this insurance coverage dispute we consider whether the factual record on cross motions for summary judgment is adequate to permit either party to establish entitlement to judgment as matter of law. Plaintiff Winbrook Communication Services, Inc. (Winbrook² ), appeals from a summary judgment declaring that the defendant, United States Liability Insurance Company (USLIC), had no obligation under a directors and officers liability policy to pay a judgment obtained by Winbrook against USLIC's insureds, DeSales Group, LLC (DSG), and William York (collectively, DSG). We conclude that it was error to grant USLIC's motion for summary judgment because there remain genuine issues of material fact as to the applicability of the policy's personal profit exclusion. More precisely, there is a genuine dispute of material fact whether DSG received any profit, benefit, remuneration, or advantage to which DSG was not legally entitled. Accordingly, we vacate and remand for further proceedings.

Background. The procedural history of the litigation is both material and undisputed. Winbrook filed suit against DSG and York on August 24, 2010, alleging that York had made a series of negligent misrepresentations concerning DSG the entity's financial condition that induced Winbrook to continue to work on the development of a children's storybook series and associated promotional items. The series never went to market and Winbrook sued, seeking compensation for work performed.

DSG gave notice to USLIC of Winbrook's claims in advance of suit. USLIC replied that the policy would not cover the claims. After suit was filed, Winbrook notified USLIC of the suit and of a pending motion for entry of default. DSG reportedly told USLIC that it did not intend to defend. USLIC again denied coverage, citing two reasons: (1) the claims were for the failure to pay contractual debts, and such claims did not allege a “Wrongful Act” as required for coverage under the insuring agreements,³ and (2) the claims were excluded by exclusion C, the so-called “personal profit exclusion.”⁴ USLIC declined to defend under a reservation of rights, and did not seek declaratory relief while the underlying liability action was pending. DSG defaulted. After a hearing, a judge of the Superior Court (first judge) adopted proposed findings outlining the claimed misrepresentations, and Winbrook's calculation of losses. The judge then entered a default judgment in favor of Winbrook in the amount of $597,633.25 plus interest.⁵

With judgment in hand, Winbrook brought this action against USLIC in December of 2011, seeking a declaratory judgment that USLIC is obligated to pay the judgment obtained by Winbrook against DSG, damages for breach of contract as a third-party beneficiary of the insurance contract, and damages for unjust enrichment and for violation of G.L. c. 93A. Winbrook moved for summary judgment, and also moved for a protective order to bar discovery by USLIC. A different Superior Court judge (second judge) concluded that the existence of a claim for misrepresentation was conclusively established in the previous action, and that the claim fell within the coverage provisions of the policy. She granted the motion for a protective order, reasoning that the sole purpose of USLIC's discovery requests was to “marshal additional evidence in support of its position that the insureds are properly liable under a theory of breach of contract, not negligent misrepresentation,” and that because that claim was barred by the default, discovery was not warranted. Finally, she determined that there was a genuine dispute of material fact as to the applicability of exclusion C, and denied summary judgment.⁶

The summary judgment order was silent as to discovery regarding exclusion C, and neither party sought discovery regarding exclusion C.⁷ Rather, Winbrook filed a request for reconsideration of the summary judgment as to the applicability of exclusion C, and USLIC filed a cross motion for summary judgment.

Winbrook provided additional affidavits in support of the motion for reconsideration, and supplied the record supporting the default judgment. In opposing Winbrook's motion to reconsider and in supporting its own cross motion for summary judgment, USLIC relied exclusively on materials submitted by Winbrook.

On the basis of the record as supplemented, a third judge of the Superior Court ruled that coverage was barred by exclusion C because the insureds had reaped a gain “in fact,” that is, an advantage or an opportunity to profit. The third judge concluded that the insured had secured an advantage or opportunity, to wit, an extension of credit from Winbrook by persuading Winbrook to work without payment. As a result, the judge ordered the entry of summary judgment in favor of USLIC.

Discussion. The standard of review of a grant of summary judgment is whether, viewing the evidence in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the moving party is entitled to a judgment as a matter of law. Commissioners of the Bristol County Mosquito Control Dist. v. State Reclamation & Mosquito Control Bd., 466 Mass. 523, 528, 997 N.E.2d 1188 (2013)

. See Mass.R.Civ.P. 56(c), as amended, 436 Mass. 1404 (2002). Where, as here, both parties have moved for summary judgment, “the evidence is viewed in the light most favorable to the party against whom judgment is to enter.” Albahari v. Zoning Bd. of Appeals of Brewster, 76 Mass.App.Ct. 245, 248 n. 4, 921 N.E.2d 121 (2010). See DiLiddo v. Oxford St. Realty, Inc., 450 Mass. 66, 70, 876 N.E.2d 421 (2007). “We review a decision to grant summary judgment de novo.” Boazova v. Safety Ins. Co., 462 Mass. 346, 350, 968 N.E.2d 385 (2012).

1. Wrongful act. USLIC urges us to affirm the summary judgment on the basis that the claims asserted against DSG did not fall within the insuring agreements of the policy, a claim that the second judge rejected. See Aetna Cas. & Sur. Co. v. Continental Cas. Co., 413 Mass. 730, 734–735, 604 N.E.2d 30 (1992)

(prevailing party may argue that judge was “right for the wrong reason”). USLIC contends that the second judge erred in concluding that the claim fell within the definition of a “Wrongful Act” because the damages sought arose out of a breach of contract and the policy does not insure trade debt.

“Where, as here, the plaintiff in the underlying action brings a negligence claim and the factual allegations in the complaint are sufficient to support such a claim, the default judgment conclusively establishes negligence as to the defendant insured and, if the insurer has committed a breach of its duty to defend, as to the insurer.” Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 360, 951 N.E.2d 662 (2011)

, citing MacBey v. Hartford Acc. & Indem. Co., 292 Mass. 105, 106, 197 N.E. 516 (1935). See, e.g., Miller v. United States Fid. & Guar. Co., 291 Mass. 445, 448, 197 N.E. 75 (1935) (“Where an action against the insured is ostensibly within the terms of the policy, the insurer, whether it assumes the defense or refuses to assume it, is bound by the result of that action as to all matters therein decided which are material to recovery”).

Here, a default judgment entered against the insured on a claim of negligent misrepresentation. USLIC, which was on notice of the action by Winbrook but disclaimed coverage and declined to defend without first obtaining a judicial declaration, was bound by the default judgment. See Blais v. Quincy Mut. Fire Ins. Co., 361 Mass. 68, 70–71, 278 N.E.2d 746 (1972)

(“[A]n indemnitor, after notice and an opportunity to defend, is bound by material facts established in an action against the indemnitee.... In the absence of fraud or collusion the insurer would be bound by a judgment entered by default”).

On appeal USLIC contends that the second judge applied the doctrine of res judicata in error. This argument misapprehends the basis of the judges' rulings.⁸

“[USLIC] may be bound ... if it committed a breach of its duty to defend, because ‘an insurer who has wrongfully refused to defend its insured cannot relitigate coverage issues.’ ” Metropolitan Prop. & Cas. Ins. Co., supra at 361 n. 10, 951 N.E.2d 662

, quoting from Maimaron v. Commonwealth, 449 Mass. 167, 175, 865 N.E.2d 1098 (2007). A breach of the duty to defend “trigger[s] a duty to indemnify” because the insurer is bound by the result in the underlying action “as to all matters therein decided which are material to recovery by the insured.” Id. at 360, 951 N.E.2d 662.

USLIC responds that the lack of coverage is so evident on the face of the Winbrook complaint against DSG that it had no duty either to defend or to indemnify. See generally United Natl. Ins. Co. v. Parish, 48 Mass.App.Ct. 67, 70–73, 717 N.E.2d 1016 (1999)

. “[The] duty to defend is independent from, and broader than, [the insurer's] duty to indemnify.” Metropolitan Prop. & Cas. Ins. Co., supra at 357, 951 N.E.2d 662

(citation omitted). “In order for the duty of defense to arise, the underlying complaint need only show, through general allegations, a possibility that the liability claim falls within the insurance coverage.” Preferred Mut. Ins. Co. v. Vermont Mut. Ins. Co., 87 Mass.App.Ct. 510, 513, 32 N.E.3d 336 (2015) (citation omitted).

The wrongful act provision of the policy here expressly covered claims of negligent misrepresentation. See note 3, supra. The complaint against DSG alleged negligent misrepresentation by DSG. The complaint contained no allegation that a contract existed, or that DSG had breached a contract.⁹ Rather, the complaint...