United States Court of Appeals
For the First Circuit
No. 02-2348
NEW LIFE BROKERAGE SERVICES, INC., d/b/a
NLBS ADVISERS AND NEW LIFE HOLDING COMPANY, INC.,
Plaintiffs, Appellants,
v.
CAL-SURANCE ASSOCIATES, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
Before
Howard, Circuit Judge,
Campbell and Cyr, Senior Circuit Judges.
Todd S. Holbrook, with whom Michael A. Hodgins and Bernstein,
Shur, Sawyer & Nelson, were on brief, for appellants.
John S. Whitman, with whom Richardson, Whitman, Large &
Badger, were on brief, for appellee.
June 24, 2003
HOWARD, Circuit Judge. This appeal arises out of a
dispute between a defunct Maine securities broker-dealer known as
New Life Brokerage Services, Inc., and its insurance broker, Cal-
Surance Associates, Inc. New Life contends that the district court
erred in awarding Cal-Surance summary judgment on its claims that
Cal-Surance should be held liable for failing to provide it with an
insurance policy that would have covered a series of events that
put it out of business. We affirm, though on a different basis
than that relied upon by the district court.
I.
On or about September 2, 1997, a customer of New Life
complained to the Securities Division of Maine's Bureau of Banking
that one of New Life's sales representatives, Cary Butterfield, had
unlawfully sold securities that were not registered with the state.
The complaint prompted a Securities Division investigation that
revealed that, in 1996 and 1997, Butterfield had sold some $1.3
million worth of securities that were neither registered nor
approved for sale by New Life. This unlawful practice is known in
the securities industry as "selling away." The Securities Division
thereafter sought to revoke New Life's license as a Maine
securities broker-dealer. See Me. Rev. Stat. Ann. tit. 32, §
10313(1)(J) (1999 and 2002 Supp.) (conferring this power upon the
Securities Division if its administrator determines that such
revocation is "in the public interest" and that the broker-dealer
-2-
"failed reasonably to supervise [its] sales representatives").
From late 1997 through 1999, New Life attempted to
negotiate an agreement with the Securities Division that would
permit it to retain its license. But the Securities Division
conditioned any such agreement on, inter alia, New Life purchasing
back from Butterfield's customers a substantial number of the
unlawfully sold securities. On September 21, 1998, as negotiations
were ongoing, New Life notified Zurich American, its errors and
omissions insurer, of its representative's selling away and the
Securities Division's investigation. The following month, Zurich
American advised New Life that the policy did not provide coverage
for selling away. In the absence of insurance coverage, New Life
was unable to offer to purchase back a sufficient number of
unlawfully sold shares to satisfy the Securities Division.
Eventually, New Life acceded to the revocation of its broker-dealer
license, effective December 31, 1999.
Cal-Surance had procured the New Life errors and
omissions policies that were in effect annually between January 1,
1996 and January 1, 2000 -- the period during which the events
underlying this lawsuit occurred. Following the surrender of its
license, New Life brought this diversity action against Cal-
Surance. The complaint alleged that Cal-Surance had breached
duties owed to New Life to obtain for it errors and omissions
insurance policies covering the selling away of unregistered and/or
-3-
unapproved securities. At bottom, New Life's case theory was that,
had Cal-Surance discharged these duties, New Life would have been
able to purchase back a sufficient number of the unlawfully sold
securities to avoid going out of business.
Following discovery, Cal-Surance moved for summary
judgment on a number of grounds. The district court referred the
motion to a magistrate judge, who focused on Cal-Surance's argument
that New Life had failed to provide evidence that there existed in
the insurance market during the relevant time frame policies that
would have covered the costs (or some portion thereof) of meeting
the Securities Division's demands. The magistrate judge analyzed
seven insurance policies that New Life says Cal-Surance could have
procured, and concluded that there were applicable exclusions
within each disavowing coverage for claims or proceedings brought
by governmental entities. See New Life Brokerage Servs., Inc. v.
Cal-Surance Assocs., 223 F. Supp.2d 264, 271-75 (D. Me. 2002).
Accordingly, the magistrate judge recommended that Cal-Surance's
request for summary judgment be granted. See id. at 275. The
referring judge accepted the recommendation, see id. at 266, and
this appeal followed. While we do not quarrel with the magistrate
judge's reasoning and conclusions, we conclude that Maine law
provides another and more direct route to affirmance, as set forth
below.
-4-
II.
Cal-Surance opens its brief not by responding to New
Life's arguments against the applicability of the exclusions relied
upon by the district court, but by presenting an alternative ground
for upholding the judgment that it regards as more straightforward.
See, e.g., Houlton Citizens' Coalition v. Town of Houlton, 175 F.3d
178, 184 (1st Cir. 1999) (appeals court may affirm entry of summary
judgment on "any ground revealed by the record"). Cal-Surance
contends that each of the seven policies provided only liability
coverage for "damages" or, in the case of one of the policies,
"loss" (defined to include "damages, judgments, settlements, and
defense costs" but not "the cost of complying with any settlement
for or award of non-monetary relief") incurred as the result of
legal proceedings initiated against the insured. In Cal-Surance's
view, funds paid by New Life to buy back the securities would not
have constituted "damages" or "loss" liability under any reasonable
interpretation of these terms. New Life effectively concedes that
the policies only covered liability of this sort. Its responsive
argument is that the buy-back costs would have constituted
"damages" or "loss" under Maine law, because they would have formed
the basis for the amount of damages to which its customers would
have been entitled had they sued New Life directly. See Me. Rev.
Stat. Ann. tit. 32, § 10605. Cal-Surance has the stronger
argument.
-5-
We give content to the contractual terms in question by
adopting "the perspective of an average person untrained in either
the law or the insurance field" and asking "what a more than casual
reading of the policy would reveal to [this] ordinarily intelligent
insured." Union Mut. Fire Ins. Co. v. Commercial Union Ins. Co.,
521 A.2d 308, 310 (Me. 1987) (internal quotations omitted).
Obviously, a standard as general as this is far from self-
executing, but the Supreme Judicial Court of Maine has applied it
in circumstances that strongly suggest that New Life's buy-back
costs would not constitute "damages" or "loss" liability under
Maine law.
In Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16
(Me. 1990), the Court was faced with the question whether an
insurance policy providing liability coverage for amounts the
insured was "legally obligated to pay as damages" would cover
expenses incurred by an insured responding to a governmental demand
that it eradicate pollution damage (on its own property and that of
third parties) caused by its leaking underground gasoline tanks.
See id. at 16-17. The Court answered this question in the
negative, reasoning that there was a material difference,
discernible to the ordinarily intelligent insured, between "sums
which the insured [is] legally obligated to pay as damages" and the
costs of conduct undertaken at government direction to restore (to
the extent practicable) the status quo ante. See id. at 18. In
-6-
reaching this conclusion, the Court acknowledged that such remedial
costs "may be substantial and may effectively alleviate or prevent
damage to others . . . ." Id. But at the same time, the Court
noted the possibility of "a substantial difference between these
remedial costs and the amount of damages the [insured] would have
to pay to [affected third parties] for damages," and held that it
was only "the latter expenditure upon which the parties . . .
contracted and upon which the premium [was] based." Id. at 18-19.
Like the equitable remedial costs in Marois, New Life's
equitable remedial buy-back costs, insisted on by the Securities
Division, are distinguishable from any actual direct damages that
New Life would have been obligated to pay its customers. Under
Marois, the payment of money does not by itself constitute loss or
damage as contemplated by the policy. If anything, the
circumstances presented in this case are even more dissimilar to an
action seeking to impose damages or loss liability than the Marois
scenario. After all, unlike the government regulator in Marois,
the Securities Division had no authority under Me. Rev. Stat. Ann.
§ 10313(1) to order New Life to buy back the securities or
otherwise to spend money to remedy the situation. See id.
(conferring the power only to deny, suspend, or revoke a broker-
dealer license). In any event, the Maine Supreme Judicial Court
has concluded that the costs of remedial conduct required by a
government agency to undo the effects of an insured's unlawful
-7-
activity, even if the conduct "alleviate[s] or prevent[s]" damages
to or losses by third parties, Marois, 573 A.2d at 18, were not
covered by an insurance policy "damages" liability provision
materially indistinguishable from the policy provisions relied upon
by New Life. Having invoked the district court's diversity
jurisdiction, New Life is not well positioned to argue against our
reaching the same conclusion. See, e.g., Dryden Oil Co. of New
England, Inc. v. Travelers Indem. Co., 91 F.3d 278, 289 (1st Cir.
1996).
Affirmed.
-8-