Clauson v. New England Insurance

United States Court of Appeals
For the First Circuit

No. 00-1543
No. 00-1568

JOHN CLAUSON,

Plaintiff, Appellee/Cross-Appellant,

v.

NEW ENGLAND INSURANCE COMPANY,

Defendant, Appellant/Cross-Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ernest C. Torres,U.S. District Judge]

Before

Selya, Circuit Judge,

Coffin, Senior Circuit Judge,

and Lipez, Circuit Judge.

Harvey Weiner, with whom Michael P. Duffy and Peabody &
Arnold LLP were on brief for Appellant/Cross-Appellee.
Marty C. Marran for Appellee/Cross-Appellant.

June 22, 2001
 LIPEZ, Circuit Judge. On July 7, 1997, the Rhode Island

Superior Court entered a judgment in favor of John Clauson, awarding

him $97,716.50 in damages against his former attorney, Sanford

Kirshenbaum, for professional malpractice in representing Clauson in

his 1991 divorce. Though Kirshenbaum had a malpractice liability

insurance policy with a $100,000 limit through New England Insurance

Company (NEIC), NEIC paid Clauson only $29,000 on the judgment, the

amount of a settlement offer from Clauson that Kirshenbaum had rejected

against NEIC's recommendations. In response, Clauson filed the present

diversity action against NEIC pursuant to R.I. Gen. Laws § 27-7-2,

authorizing direct actions against insurers by injured parties who have

obtained a judgment against the insured. Clauson sought payment on his

judgment up to the stated policy limits as well as interest above those

limits pursuant to Rhode Island's rejected settlement statute, R.I.

Gen. Laws § 27-7-2.2. The district court entered judgment for Clauson

on his claim for payment above the rejected settlement amount, but for

NEIC on the issue of interest above the policy limits. NEIC appeals

and Clauson cross-appeals.

For the reasons set forth below, we affirm as to NEIC's

appeal and as to Clauson's cross-appeal to the extent it relates to

Clauson's first, $29,000 settlement offer. We remand for further

consideration by the district court of whether Clauson has properly

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preserved his argument for interest based upon his second, $100,000

settlement offer (and, if the district court finds that argument to

have been preserved, for resolution of it).

I.

The procedural history of this case is lengthy. In order to

address the legal issues, we must recount much of that history.

A. The divorce proceedings

In 1991, Clauson and his wife divorced, and the divorce court

entered a judgment granting each a one-half interest in the marital

property. A fishing trawler that Clauson used for his business was one

of the most significant marital assets. After Clauson failed to

exercise an option to purchase this trawler, his wife moved to have the

trawler sold. Clauson, who previously had been acting pro se, retained

Attorney Kirshenbaum to represent his interests during the sale.

Though the trawler was listed for sale at its appraised value, the only

viable offer for the vessel was approximately $100,000 below the listed

price. The divorce court scheduled a hearing to determine whether to

accept this offer, setting a date that created a conflict for

Kirshenbaum. Kirshenbaum complained of this conflict, but the court

refused to release him from the date, instead ordering him to be

present or to ensure that Clauson was represented by another attorney.

Despite the divorce court's explicit instructions, Kirshenbaum refused

to attend the hearing or to find another attorney to take his place.

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 Clauson tried unsuccessfully to find another attorney before

the hearing. At the hearing, the divorce court approved the sale of

the trawler. Following the sale, Clauson discharged Kirshenbaum, filed

a disciplinary complaint against him,1 and engaged a new attorney.

Although Clauson was unhappy about the sale of the trawler, his new

attorney advised against taking an appeal from the order authorizing

the sale. Clauson followed this advice.

B. The malpractice action

Approximately a year later, Clauson filed a malpractice suit

against Kirshenbaum in the Rhode Island Superior Court. Kirshenbaum

held a professional malpractice insurance policy through NEIC during

the time he represented Clauson. The policy limited NEIC's liability

to $100,000 per claim, an amount that would also be reduced by all

claims expenses, including reasonable attorney's fees. Kirshenbaum

informed NEIC of the malpractice suit and filed a counterclaim for

unpaid attorney's fees. NEIC undertook Kirshenbaum's defense under a

reservation of rights. Kirshenbaum focused his defense upon the issue

of causation, claiming that Clauson was not harmed by his failure to

attend the hearing on the sale of the trawler. Nonetheless, Michael

Stone, the attorney assigned by NEIC to defend Kirshenbaum, opined from

1 Several of Kirshenbaum's other former clients had also filed
disciplinary actions against Kirshenbaum. In September of 1992, the
Rhode Island Supreme Court ordered Kirshenbaum transferred to inactive
status.

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the outset of the suit that despite this weakness in Clauson's case,

there was a significant danger of an adverse judgment.

The case went to court-annexed arbitration, and the

arbitrator found in Clauson's favor in July of 1994, awarding him

$20,000. Though NEIC and Attorney Stone recommended that he accept the

arbitration award, Kirshenbaum rejected the award pursuant to the Rhode

Island Superior Court Rules Governing Arbitration in Civil Actions.

NEIC wrote to Kirshenbaum and complained that his refusal to consent to

settlement of the case after a decision by an unbiased arbitrator was

unreasonable. Consequently, NEIC said it was invoking the clause in

its policy that limited its exposure to the amount of the rejected

settlement. Nonetheless, NEIC continued to defend Kirshenbaum and the

case was scheduled for de novo trial.

Continuing to express his concern that a trial could result

in an even greater judgment for Clauson, Attorney Stone met with

Clauson's attorney to discuss the possibility of a settlement. Though

both attorneys agreed that the arbitrator's award, plus interest, would

be a reasonable basis for settlement, Kirshenbaum again refused to

consent to a settlement. Approximately three months later, Clauson

reiterated in writing the offer to settle for the arbitrator's award

plus interest, for a total of $29,600. Again Attorney Stone

recommended that Kirshenbaum agree to the settlement and again

Kirshenbaum refused to give his consent. NEIC then wrote to

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Kirshenbaum requesting that he accept the settlement offer. NEIC

indicated that this settlement would be beneficial to Kirshenbaum, that

his refusal was unreasonable, and that if Kirshenbaum again refused to

consent, NEIC's liability would be limited to the amount of the

rejected settlement. Kirshenbaum remained recalcitrant and the case

was scheduled for trial in September of 1995. On the morning of trial,

Clauson renewed his offer to settle, Attorney Stone recommended the

settlement, and Kirshenbaum refused to consent.

After a jury-waived trial, the Superior Court found for

Clauson, both on his claim of malpractice and on Kirshenbaum's

counterclaim for unpaid attorneys' fees. The court found that

Kirshenbaum's failure to appear at the hearing on the sale of the

trawler was a clear breach of duty that caused $97,716.50 in damages to

Clauson. The court based this damages calculation on Kirshenbaum's

failure to advise Clauson to submit his own offer to purchase the

vessel. Clauson, however, did not provide any evidentiary support for

a finding that the failure to advise of the purchase option (as opposed

to the failure to appear at the hearing) was a breach of duty, and

Kirshenbaum moved for a new trial on this basis.

While the motion for a new trial was pending, Kirshenbaum and

NEIC exchanged further correspondence. Kirshenbaum repeated his

refusal to allow a settlement of the claim. NEIC responded that it was

relinquishing control over his defense. Furthermore, it denied

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responsibility for any costs or expenses associated with Kirshenbaum's

defense accruing after the date of the adverse judgment and again

asserted that its liability on the judgment was capped at the amount of

the proposed but rejected settlement. Kirshenbaum discharged Attorney

Stone and reiterated that "the carrier is directed not to make any

payments on my judgment in favor of Clauson against me."

The motion for a new trial was granted, the prior judgment

on Clauson's claim was vacated, and the case was returned to the trial

calendar.2 Clauson again contacted Attorney Stone for the purpose of

settling the case. Stone referred him to NEIC, which indicated that it

was no longer conducting the defense and that Clauson should discuss

any settlement directly with Kirshenbaum. Clauson nonetheless sent a

written offer of settlement to both NEIC and Kirshenbaum, revoking the

earlier settlement offer and offering to settle instead for the policy

limit of $100,000. NEIC never responded to this offer. Shortly

thereafter, the Superior Court allowed Attorney Stone to withdraw.

The case again went to trial with Kirshenbaum continuing pro

se. Clauson introduced evidence to eliminate the deficiencies the

court noted in granting a new trial. Once again, the court entered

judgment for Clauson in the amount of $97,716.50. Kirshenbaum did not

appeal from this judgment. Once the judgment became final, NEIC paid

Clauson approximately $29,000, the amount it considered the limit of

2 The judgment on Kirshenbaum's counterclaim remained in force.

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its liability for the judgment under the policy.3 Clauson accepted this

payment without prejudice to his right to proceed against NEIC for the

balance.

C. The present action

Within weeks of that partial payment, Clauson initiated the

present diversity action against NEIC. Clauson sought recovery,

subject to the liability policy limits, for the outstanding balance on

the judgment, as well as recovery pursuant to Rhode Island's rejected

settlement statute, section 27-7-2.2, for pre- and post-judgment

interest in excess of those limits. The case went to the district

court on a joint stipulation of facts. The court concluded that NEIC's

policy limited liability to the amount of a rejected settlement offer

only when the rejection by the insured was unreasonable. Because the

court concluded that Kirshenbaum had been reasonable when he refused to

consent to settlement, it entered judgment for Clauson on his claim for

damages. The resulting award of $71,000 represented the policy limits

less the $29,000 that NEIC paid at the conclusion of the malpractice

suit. The court, however, rejected Clauson's claim for interest beyond

the policy limits.

3 Kirshenbaum protested vociferously against this payment,
claiming that "the payment of the 29,000 was against my wishes and
contrary to my rights under the policy [and] was a gift . . . to
Clauson."

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 After the entry of judgment, NEIC filed a motion to amend,

arguing that the stated policy limits were subject to reduction by the

amount of NEIC's reasonable expenses in defending the claim, with such

expenses, including reasonable attorneys' fees, totaling $25,494.50.

The court granted the motion and amended the judgment to award Clauson

$44,505.50 in damages. NEIC now appeals from the judgment awarding

damages while Clauson cross-appeals from the denial of his claim for

interest.4 We address these issues in turn.

II.

This is a derivative action pursuant to R.I. Gen. Laws § 27-

7-2 against NEIC for a judgment rendered against its insured. Section

27-7-2 allows an "injured party . . . after having obtained judgment

against the insured alone [to] proceed on that judgment in a separate

action against the insurer." Id. In doing so, however, the statute

does not "enlarge the liability of the insurer beyond the limits stated

in the policy . . . [, which is] dependent upon the existence of

liability of the insurer to the insured under the contract of

insurance." Ogunsuada v. Gen. Accident Ins. Co., 695 A.2d 996, 1000

(R.I. 1997) (internal citations and quotations omitted). Thus, Clauson

"stands in the shoes of the defendant's insured[--Kirshenbaum--] and is

4 Clauson does not challenge the amendment to the judgment
reflecting the policy limits as reduced by reasonable claims expenses.

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subject to any defenses that the insurer would have against its

insured." Id. at 999.

The dispute in this case involves the following two

paragraphs in Kirshenbaum's professional malpractice policy:

The Company shall have the right to make
any investigation it deems necessary and with the
written consent of the insured, said consent not
to be unreasonably withheld, any settlement of
any claim covered by the terms of this policy.
If the Insured shall refuse to consent to
any settlement or compromise recommended by the
Company and acceptable to the claimant, and
elects to contest the claim, suit or proceeding,
then the Company's liability shall not exceed the
amount for which the Company would have been
liable for damages if the claim or suit or
proceeding had been so settled or compromised,
when so recommended. The Company shall have no
liability for claims expenses accruing thereafter
and the Company shall have the right to withdraw
from the further defense thereof by tendering
control of said defense to the Insured.

NEIC contends that the first paragraph gives a reasonable insured the

ability to frustrate settlement, while the second paragraph, with its

reference to "any settlement," limits NEIC's liability to the amount of

a rejected settlement offer that it recommends and is acceptable to the

claimant, whether the rejection by the insured is reasonable or not.

Clauson therefore received all he was due under the policy when NEIC

paid him $29,000 after the entry of a final judgment against

Kirshenbaum. In response, Clauson contends that these paragraphs must

be read together to limit NEIC's liability only when its insured's

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refusal to settle is unreasonable. Because the district court found

that Kirshenbaum had been reasonable when he rejected Clauson's

settlement offers, a finding that NEIC does not challenge on appeal,

NEIC's obligations extend to the full policy limits.

In its thoughtful decision finding for Clauson on the policy

limit issue, the district court first noted that, under the settled

Rhode Island rules of construction of insurance contracts, the "policy

must be examined in its entirety, giving each word its plain, ordinary,

and usual meaning. Moreover, the policy should be construed in a

manner that harmonizes and gives effect to all of its material terms

and avoids rendering any of its provisions meaningless." (internal

citations and quotations omitted). With these principles in mind, the

court turned to the two paragraphs at issue and concluded that NEIC's

interpretation was unreasonable because it failed to give effect to

every term in the policy. We quote and adopt the court's impeccable

reasoning:

NEIC contends that the reference in the
first sentence [of the second paragraph] to "any"
settlement means that coverage is limited to the
amount of the proposed settlement in every case
where the insured refuses to consent, without
regard to whether the insured acted reasonably.
However, that interpretation conflicts with the
provision in the preceding paragraph requiring
the insured's consent to settle.
By preventing the insurer from settling
without the insured's consent and prohibiting the
insured from unreasonably withholding consent,
that provision, in effect, confers on the insured

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 the right to reasonably withhold consent.
Construing the policy in the manner suggested by
NEIC would negate that right. The insured's
refusal to consent to a settlement, however
reasonable, would deprive the insured of the full
indemnification protection for which he
contracted. In addition, it would deprive the
insured of the right to be defended by the
insurer because the second sentence of the
paragraph upon which NEIC relies would allow NEIC
to withdraw from further defense.
At the very least, NEIC's reading of the
policy would render meaningless the provision
prohibiting consent from being unreasonably
withheld. If coverage were reduced to the amount
of a proposed settlement even where the insured
reasonably refuses to consent, the prohibition
against unreasonably withholding consent would be
superfluous. Coverage would be reduced whether
the insured acted reasonably or unreasonably.

Having rejected NEIC's interpretation as unreasonable, the court

adopted the only interpretation that gave "effect to both provisions,"

and construed the policy "to limit NEIC's liability to the amount of

the proposed settlement only if Kirshenbaum's refusal to consent was

unreasonable."

On appeal, NEIC argues that the district court erred in

concluding that its interpretation of its own insurance policy was

unreasonable. Although the two paragraphs at issue are set forth

consecutively in the policy exactly as set forth in the text above

under a section of the policy entitled "Defense and Settlement," NEIC

insists that these paragraphs address separate issues, requiring that

each paragraph be read individually. As such, the second paragraph is

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not limited, as the district court found, by the first paragraph, but

instead acts on its own to place a strong incentive upon the insured to

settle because any refusal to consent brings with it the full risk of

an adverse judgment.5

Interestingly, however, NEIC never argues that the

interpretation of the two paragraphs adopted by the district court is

unreasonable. Indeed, NEIC conceded at oral argument that the court's

interpretation was reasonable. That acknowledgment demonstrates that,

even if we accept NEIC's protestations about the reasonableness of its

own reading of the policy, it has done nothing more than show that

there are two reasonable interpretations of the contract language. In

other words, NEIC's argument on appeal indicates only that the contract

was ambiguous. Goldstein v. Occidental Ins. Co., 273 A.2d 318, 320

(R.I. 1971) (noting that a policy is ambiguous "if doubtful, uncertain

or ambiguous terms are used, or [if its language is] reasonably

susceptible of two interpretations") (internal citations omitted).

Such a showing is not helpful to NEIC. Under settled Rhode Island law

governing the resolution of ambiguities in insurance contracts, when

5 To bolster its argument on this point, NEIC cites to a recent
Seventh Circuit case as support for the proposition that consent to
settlement provisions shift risk to the insured every time an offer is
refused. Security Ins. Co. v. Schipporeit, Inc., 69 F.3d 1377, 1383
(7th Cir. 1995). Though Schipporeit does indicate as much, the policy
in that case did not distinguish between the reasonable and
unreasonable rejection of settlement offers. Id. Consequently,
Schipporeit provides no guidance in the correct interpretation of
NEIC's different policy language.

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"the policy terms are ambiguous or capable of more than one reasonable

meaning, the policy will be strictly construed in favor of the insured

and against the insurer." Mallane v. Holyoke Mut. Ins. Co., 658 A.2d

18, 20 (R.I. 1995) (citing Aetna Cas. & Sur. Co. v. Sullivan, 633 A.2d

684, 686 (R.I. 1993)); see also Nagy v. Lumbermens Mut. Casualty Co.,

219 A.2d 396, 400 (R.I. 1966) (noting that when an insurance contract

"admits to two reasonable constructions . . . we charge the fault to

the insurer who selected the language and . . . accept the

interpretation which favors the beneficiaries"); Factory Mut. Liability

Ins. Co. v. Cooper, 262 A.2d 370, 372 (R.I. 1970). Of the two

reasonable interpretations of the paragraphs at issue, the district

court's interpretation is far more beneficial to the insured than

NEIC's interpretation. Consequently, the recognition of these two

reasonable interpretations does nothing more than return us to the

interpretation of the policy language that the district court credited,

and to the ultimate conclusion that the district court correctly held

that NEIC was liable on the judgment against its insured up to its full

policy limits.

III.

In the usual case under Rhode Island law, the insurance

policy governs the obligations the insurer owes to its insured, thus

limiting an insurer's total liability on a judgment against its insured

to the contractual limits contained in that policy. Factory Mut.

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Liability Ins. Co., 262 A.2d at 372. The fact that an insured may also

be liable for interest on the judgment does not normally increase an

insurer's liability beyond those limits. Skaling v. Aetna Ins. Co.,

742 A.2d 282, 291 (R.I. 1999). Nonetheless, there are certain

exceptions to this general rule. Rhode Island's rejected settlement

statute, R.I. Gen. Laws § 27-7-2.2, outlines a set of circumstances

under which an insurer will be liable above its policy limits for

interest on a judgment against its insured.6 Under this statute, if an

insurer rejects a written offer to settle for an amount within the

policy limits, the insurer becomes liable for "all interest due on the

judgment entered by the court [against the insured] even if the payment

of the judgment and interest totals a sum in excess of the policy

coverage limitation." R.I. Gen. Laws § 27-7-2.2.

Clauson contends in his cross-appeal that the rejection of

his various written settlement offers brings this case under this

6 R.I. Gen. Laws § 27-7-2.2 provides:
In any civil action in which the defendant is covered by
liability insurance and in which the plaintiff makes a
written offer to the defendant's insurer to settle the
action in an amount equal to or less than the coverage
limits on the liability policy in force at the time the
action accrues, and the offer is rejected by the defendant's
insurer, then the defendant's insurer shall be liable for
all interest due on the judgment entered by the court even
if the payment of the judgment and interest totals a sum in
excess of the policy coverage limitation. This written offer
shall be presumed to have been rejected if the insurer does
not respond in writing within a period of thirty (30) days.

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statute.7 During the pendency of the superior court action, Clauson

made two different written offers to NEIC and Kirshenbaum. The first,

for $29,000 (the $29,000 offer), was made and rejected prior to the

entry of the first judgment in Clauson's favor.8 The second, "for the

policy limit, which I understand to be $100,000" (the $100,000 offer),

was made following the superior court's order vacating the first

judgment and ordering a new trial. Despite the differences between

these two offers, the district court addressed only the $29,000 offer

when it evaluated Clauson's argument for interest. These two offers,

however, raise separate issues under section 27-7-2.2, and therefore we

address each in turn.

A. The $29,000 offer

When NEIC received the $29,000 offer, it transmitted it to

Kirshenbaum along with a recommendation that he give his consent to

7 Clauson also presses an alternative argument claiming
entitlement to post-judgment interest above NEIC's policy limits
pursuant to R.I. Gen. Laws § 9-21-10. Clauson first advanced this
legal theory in his Rule 59(e) motion. Prior to that motion, his claim
for interest was based solely upon section 27-7-2.2. "Motions under
Rule 59(e) must either clearly establish a manifest error of law or
must present newly discovered evidence. They may not be used to argue
a new legal theory." Santiago v. Cannon U.S.A., Inc., 138 F.3d 1, 4
(1st Cir. 1998); Jorge Rivera Surillo & Co. v. Falconer Glass Indus.,
Inc., 37 F.3d 25, 29 (1st Cir. 1994). The district court, therefore,
properly rejected this argument.
8 At various points prior to the first trial, Clauson
communicated several offers to settle for approximately $29,000,
including an offer of $30,000 on the morning of trial. The
distinctions between these offers are unimportant for purposes of the
present analysis, and consequently we treat them as a single offer.

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settlement. Kirshenbaum, however, withheld consent, and the offer was

accordingly rejected. Relying on these circumstances, the district

court held that section 27-7-2.2 was inapplicable. Because

Kirshenbaum, and not NEIC, rejected Clauson's settlement offer, the

district court reasoned, Clauson had failed to make the required

showing that "the offer [was] rejected by the defendant's insurer."

Clauson challenges this ruling, arguing that when NEIC contracted away

its unfettered authority to accept settlements, it tied itself to

Kirshenbaum so that his rejection should be deemed NEIC's. Any other

result, Clauson contends, undermines the purpose of the statute. We

disagree.

This is the second time we have been called upon to construe

Rhode Island's rejected settlement statute. Armacost v. Amica Mut.

Ins. Co., 11 F.3d 267 (1st Cir. 1993). In Armacost, we noted that

section 27-7-2.2 seeks to encourage the early settlement of meritorious

tort claims. Id. at 270. This goal is advanced when all of the

parties with authority over settlement have an incentive to settle.

Under most liability policies, the insurer has the authority to settle

a claim whether or not its insured consents. Prior to the enactment of

section 27-7-2.2, an insurer had little incentive to settle a claim.9

9 The Rhode Island Supreme Court has recently "promulgate[d]
a new rule" imposing a fiduciary duty upon insurers "to consider
seriously a plaintiff's reasonable offer to settle within the policy
limits." Asermely v. Allstate Ins. Co., 728 A.2d 461, 464 (R.I. 1999).
This duty is broader than that imposed by section 27-7-2.2 and carries

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"It would be in an insurer's interest to dispute even the most

meritorious claims because the maximum cost to the insurer in any

protracted proceedings would be the policy limit, and during that time

the insurer would enjoy full use of any funds owed the insured."

Skaling, 742 A.2d at 292.

By making the insurer liable above its policy limits for pre-

and post-judgment interest, section 27-7-2.2 changes this equation. An

insurer now has an incentive to settle meritorious claims. The

question presented here is how a consent to settlement clause in an

insurance policy affects the statute and its allocation of incentives.

Clauson correctly notes that, though section 27-7-2.2 extends liability

to insurers for their own refusal to settle, it does nothing to remove

an insured's legal liability for interest. It does not follow,

however, that because the statute causes both insurer and insured to be

liable for interest, we must treat Kirshenbaum and NEIC as a single

entity so that the rejection of one becomes the rejection of another.

To the contrary, treating the insurer and insured as a single entity in

this case would actually frustrate the statutory scheme. Though

Kirshenbaum remains ultimately responsible as a matter of law for the

with it seemingly greater consequences. The Asermely court did not
limit the duty to written offers and also suggested that a violation of
this duty might expose the insurer not just to interest but also to a
judgment for damages that exceeded the policy limits. Id.
Nonetheless, because the insurer can escape this enhanced liability by
demonstrating "that the insured was unwilling to accept the offer of
settlement," Asermely is not applicable to the present case. Id.

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interest on the judgment, the risk from that liability and the

consequent incentive for Kirshenbaum to settle is dulled considerably

if the insurer is, through section 27-7-2.2, forced to cover that

interest irrespective of its policy limits. Moreover, if an insured

can reasonably reject a settlement offer and have that rejection

imputed to the insurer, the insured would thereby be allowed to

unilaterally increase the limits of liability contained in the policy.

Such a result removes from the insured a considerable incentive to

consent to settlement and as such would frustrate rather than serve the

legislative design.

Furthermore, treating the insured and insurer as a single

unit contradicts the language of the statute, which explicitly refers

to "the defendant's insurer" rejecting the written offer. There is

nothing in the record or in the case law that would justify ignoring

the plain language of the statute and treating NEIC and Kirshenbaum as

one. Despite the delegation of power in the policy, Kirshenbaum did

not become an agent of NEIC with respect to settlement. As is amply

demonstrated by this case, NEIC had no ability to control or direct

Kirshenbaum, who acted in direct contradiction of NEIC's

recommendations. Instead of treating the insurer as bound by its

insured, we conclude that the approach most consistent with the

statutory language and purpose is that adopted by the district court,

which placed the risk of interest upon the party who resists the early

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settlement of a meritorious claim.10 Because Kirshenbaum, rather than

NEIC, rejected the $29,000 offer, that rejection may not form the basis

of an interest judgment above the policy limits pursuant to section 27-

7-2.2.

B. The $100,000 offer

The district court did not address the rejection of Clauson's

$100,000 settlement offer, an oversight that would be of little

importance if that offer was subject to the same analysis as the

$29,000 offer. That may not be the case, however. Clauson made the

$100,000 offer after the Rhode Island Superior Court ordered a new

trial. At that time, NEIC had tendered control of the case to

Kirshenbaum. In keeping with this decision, NEIC appears to have never

transmitted the offer or received a refusal to consent to the offer

from Kirshenbaum. Thus, we cannot, on this record, conclude that

Kirshenbaum rather than NEIC rejected this offer. Also, in light of

our resolution of NEIC's appeal, it could be argued that NEIC's

withdrawal from Kirshenbaum's defense was in contravention of its

obligations under the policy. Under that circumstance, NEIC's failure

to respond might be deemed its own rejection of the offer. Conversely,

10 We note that if Kirshenbaum had been unreasonable in
withholding his consent, NEIC would have gained the right under the
policy to force a settlement. Because the district court found that
Kirshenbaum was reasonable in resisting settlement, however, we do not
decide whether NEIC's failure to exercise its right to force settlement
after an unreasonable rejection could be construed under section 27-7-
2.2 as NEIC's own rejection of a settlement offer.

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it might be argued that the $100,000 offer did not meet the statutory

criteria (because some of the coverage had been exhausted by

expenditures for defense costs) or that Kirshenbaum's rejection of the

first, $29,000 offer excused NEIC from submitting the second, $100,000

offer to him, as doing so would have been futile. We take no position

on these possibilities. We note them only to underscore that the

issues raised by the $100,000 offer differ from those raised by the

$29,000 offer. Moreover, whether an interest award above the policy

limits under section 27-7-2.2 should be imposed upon NEIC based upon

any imputed rejection of the $100,000 offer presents an unsettled

question of Rhode Island law.

We have repeatedly admonished parties that "[n]o precept is

more firmly settled in this circuit than that theories not squarely

raised and seasonably propounded before the trial court cannot

rewardingly be advanced on appeal." Lawton v. State Mut. Life Ins.

Co., 101 F.3d 218, 222 (1st Cir. 1996). This precept takes on an added

significance when this Court is confronted, as here, with a question of

first impression under state law. We have examined the record to

determine whether the district court's failure to address the $100,000

offer was simple oversight or a consequence of Clauson's failure to

present this issue properly before the court. Either way, given the

present state of the record, we can understand why the district court

may have overlooked the difference between the $29,000 and the $100,000

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offers. To the extent that Clauson's arguments below can be read to

argue the $100,000 offer, these arguments are not a model of clarity.

As a consequence, the record is equivocal as to the issue of waiver on

the significance of the $100,000 offer.

We conclude, therefore, that the issues raised with respect

to the $100,000 offer would benefit from an initial evaluation by the

district court, with its greater familiarity with the parties and their

course of dealing throughout this litigation. We remand to that court

to determine whether Clauson "squarely raised and seasonably

propounded" his argument as to the $100,000 offer. If the court

determines that Clauson has preserved this argument, the court should

then proceed to rule on the merits. In remanding for this purpose we

do not retain jurisdiction of the case. If there are to be any further

appeals from the decision of the district court relating to the

$100,000 offer, they must be filed anew.

Affirmed as to NEIC's appeal and as to Clauson's cross-appeal
to the extent it relates to the $29,000 offer; remanded for further
proceedings consistent with the opinion herein.
No costs.

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