United States Court of Appeals
For the First Circuit
Nos. 07-2190, 07-2204
NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PENNSYLVANIA,
Plaintiff/Fourth-Party Defendant-Appellee/Cross-Appellant,
v.
WEST LAKE ACADEMY, et al.,
Defendants/Third-Party Plaintiffs,
v.
THE TRAVELERS INDEMNITY COMPANY; AON RISK SERVICES;
B.K. MCCARTHY INSURANCE AGENCY,
Third-Party Defendants,
JANE DOE, a/k/a JENNIFER CORNISH WILLIAMS,
Third-Party Defendant/Fourth-Party Plaintiff-Appellant/Cross-
Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Boudin and Dyk*, Circuit Judges,
and Dominguez**, District Judge.
*
Of the Federal Circuit, sitting by designation.
**
Of the District of Puerto Rico, sitting by designation.
Samuel J. Perkins, with whom Jocelyn M. Sedney, Leonard
H. Kesten, Deidre Brennan Regan, and Brody, Hardoon, Perkins, &
Kesten, LLP, were on brief, for fourth-party plaintiff-appellant.
Mark Edward Cohen, with whom The McCormack Firm was on
brief, for fourth-party defendant-appellee.
November 13, 2008
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DYK, Circuit Judge. Fourth-party plaintiff Jane Doe
(“Doe”) appeals from a final judgment in favor of fourth-party
defendant National Union Fire Insurance Company of Pittsburgh,
Pennsylvania (“National Union”). In a prior Massachusetts state
court action, Doe obtained a judgment against one of National
Union’s insureds, Ed Hovestadt. In this appeal, Doe challenges a
final judgment in favor of National Union entered by the United
States District Court for the District of Massachusetts based on
(1) an adverse jury verdict on Doe’s claims under Mass. Gen. Laws
ch. 93A, § 9, for failure to settle an insurance claim; (2) summary
judgment on Doe’s claim to recover on Hovestadt’s insurance
coverage; and (3) summary judgment on Doe’s claim for
misrepresentation by National Union as to the policy limits. For
the reasons stated below, we affirm.
I. Background
Between 1993 and June 1995, Doe, who was at the time a
minor, was involuntarily committed to West Lake Academy (“West
Lake”), a facility for mentally ill teenagers. In June 1995,
Jeffrey Senechal, a West Lake employee, transported Doe between
West Lake and a bus station on several occasions without another
staff member’s being present. On at least some of these occasions,
Senechal had sexual intercourse with Doe. Doe became pregnant, and
although Senechal initially denied having had sexual intercourse
with Doe, he has since admitted that he engaged in sexual
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intercourse with her and, indeed, he was deemed the father of Doe’s
child. Ed Hovestadt, another West Lake employee, was allegedly
negligent in allowing Senechal to travel alone with Doe.
National Union provided a commercial general liability
insurance policy (the “National Union policy”) to West Lake, Health
and Education Services, Inc. (“HES,” a corporate parent of West
Lake), and their employees, including Hovestadt (collectively “the
insureds”).
In November 1997 Doe filed a suit in Massachusetts
Superior Court against Senechal, West Lake, and HES. Doe asserted,
inter alia, that Senechal’s sexual activity with her was actionable
and that West Lake and HES were negligent in their security,
hiring, training, and supervision. Doe later amended her complaint
to add as defendants several additional West Lake employees,
including Hovestadt, on a theory that they negligently allowed
Senechal to be alone with Doe. After trial, Senechal and
Hovestadt were found liable to Doe. Doe obtained a judgment
against Senechal alone in the amount of $500,000 for intentional
infliction of emotional distress and against Senechal and Hovestadt
jointly in the amount of $750,000 on the theory that Hovestadt was
negligent in allowing Senechal to transport Doe alone, which
proximately caused Doe’s injury. See Doe v. Senechal, 845 N.E.2d
418 (Mass. App. Ct. 2006). The total judgment was for $1.25
million plus interest, and this judgement was affirmed on appeal
-4-
and became final. Doe’s claims against National Union in the
present case are based on the judgement for $750,000 plus interest
against Hovestadt. As will be seen, Doe asserts that under the
policy National Union was obligated to pay Hovestadt the amount of
Doe’s judgment against him. She asserts a right to stand in
Hovestadt’s shoes insofar as Hovestadt had claims against National
Union by virtue of the National Union insurance policy.
On July 28, 2000, National Union filed suit in the
District Court for the District of Massachusetts against its
insureds, including West Lake, HES, Senechal, and Hovestadt.
National Union’s complaint sought a declaratory judgment limiting
its exposure under the policy. Among a series of exclusions from
the commercial general liability coverage, the National Union
policy included an “Abuse or Molestation Exclusion,” which excluded
from coverage claims based on abuse or molestation of anyone in the
custody of the insureds. Limited coverage for such claims was
provided through a “Sexual Abuse Endorsement.” National Union’s
theory was two-fold. National Union asserted that the Abuse or
Molestation Exclusion and the Sexual Abuse Endorsement limited
coverage for the claims at issue to $100,000 per occurrence and
$300,000 in total.1 National Union also asserted that the policy
1
With respect to Senechal, National Union sought a further
declaration that because Senechal engaged in intentional sexual
contact with Doe, he was not covered under National Union’s policy
with respect to that contact. Senechal failed to answer National
Union’s complaint, and as a result was deemed to have defaulted as
to this claim.
-5-
coverage provided by the Sexual Abuse Endorsement was what is known
in the industry as a “wasting” policy. Under a wasting policy, the
coverage provided is reduced by the amount paid by the insurance
company to defend against claims brought by third parties against
the insured. There is no dispute that the commercial general
liability provisions of the National Union policy were not wasting,
but National Union contended that coverage under the Sexual Abuse
Endorsement was wasting.
The insureds (with the exception of Senechal), in turn,
answered and counterclaimed against National Union asserting
violations of Massachusetts insurance regulations and consumer
protection statutes, including claims under Mass. Gen. Laws chs.
176D, § 3(9)(f) and 93A, § 9 (hereinafter the “Chapter 93A claim”)
that National Union failed to take reasonable steps to effectuate
prompt settlement of Doe’s claim against Hovestadt after liability
had become reasonably clear.2 The insureds also asserted third-
party claims against other parties, including The Travelers
Indemnity Company of Illinois (“Travelers”), which had issued an
umbrella liability policy covering the insureds, and Doe. While
2
Section 9 of Chapter 93A provides a private cause of action
on behalf of “[a]ny person . . . who has been injured by another
person’s use or employment of any method, act or practice declared
to be unlawful” by, among other statutory provisions, section 3(9)
of Chapter 176D. Mass. Gen. Laws ch. 93A, § 9(1). Section 3(9) of
Chapter 176D prohibits certain “Unfair claims settlement practices”
including “[f]ailing to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear.” Mass. Gen. Laws ch. 176D, § 3(9)(f).
-6-
the Travelers dispute was settled and is not directly involved in
this appeal, the dispute between the insureds and Travlers
nonetheless is pertinent for reasons described below.
Doe answered as a third-party defendant, and later
amended her answer to include fourth-party claims against National
Union (and other parties, including Travelers), asserting the same
claims that Hovestadt, as an insured, had asserted against these
parties. She claimed to stand in Hovestadt’s shoes both as
Hovestadt’s judgment creditor and as his assignee.3 Doe ultimately
asserted three claims against National Union. First, Doe alleged
that she had a right to recover on the insurance policy, up to the
applicable policy limits, to satisfy the judgment against
Hovestadt. She contended that the policy limits were not limited
by the Abuse or Molestation Exclusion and that the coverage
provided by the Sexual Abuse Endorsement was not wasting. Second,
Doe asserted a Chapter 93A claim for failure to settle. Finally,
Doe asserted (apparently in the alternative) a claim that National
Union misrepresented to the insureds the nature and scope of
coverage available, leading the insureds to believe that the policy
3
While this case was pending in the district court, Doe
obtained an assignment of rights from Hovestadt, and now asserts
his counterclaims against National Union, as well as her own
claims. There has been no showing that there is any difference in
the substance of these claims based on whether Doe pursues them in
her own name or as Hovestadt’s assignee.
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coverage was not limited to the Sexual Abuse Endorsement and that
the Endorsement coverage was not wasting.
On February 27, 2007, the district court granted summary
judgment in favor of National Union as to Doe’s coverage and
misrepresentation claims, finding that coverage for the claims at
issue was limited by the Abuse or Molestation Exclusion and that
the coverage provided by the Sexual Abuse Endorsement was wasting.
The court also found that there was no misrepresentation by
National Union concerning the policy’s wasting nature. The
district court denied summary judgment as to Doe’s failure-to-
settle claim under Chapter 93A, concluding that there was a
material issue of fact as to whether National Union had offered to
settle Doe’s claim. Doe’s Chapter 93A claim for failure to settle
proceeded to a jury trial. On May 11, 2007, the jury returned a
verdict in favor of National Union as to the Chapter 93A claim.
The district court entered a final judgment in National Union’s
favor on the same day. On May 25, 2007, Doe moved for judgment as
a matter of law, or, alternatively, a new trial. The district
court denied Doe’s motion on July 2, 2007.
Doe timely appealed the district court’s judgment, and we
have jurisdiction pursuant to 28 U.S.C. § 1291. Although National
Union prevailed below on Doe’s Chapter 93A claim, it cross appeals
on the question of whether Doe should have had to prove that she
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would have accepted a policy-limit offer in order to recover on the
claim.
II. Policy Interpretation
Doe urges that the district court erred in construing the
limitations of coverage imposed by the National Union policy.
“Under Massachusetts law, the interpretation of an insurance policy
and the application of policy language to known facts pose
questions of law for the court to decide. In the absence of an
ambiguity, we must construe the words of the policy in their usual
and ordinary sense.” Nascimento v. Preferred Mut. Ins. Co., 513
F.3d 273, 276 (1st Cir. 2008) (internal citations omitted). We
“construe an insurance policy under the general rules of contract
interpretation. We begin with the actual language of the policies,
given its plain and ordinary meaning. In so doing, we consider
what an objectively reasonable insured, reading the relevant policy
language, would expect to be covered.” Brazas Sporting Arms, Inc.
v. Am. Empire Surplus Lines Ins. Co., 220 F.3d 1, 4 (1st Cir. 2000)
(internal citations and quotation marks omitted).
A. Abuse or Molestation Exclusion
Doe contends that the district court erred in
interpreting the Abuse or Molestation Exclusion to bar coverage for
her claims under the commercial general liability provisions of the
National Union policy. If Doe were to prevail on this coverage
issue, she asserts that a new trial would be required on her
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Chapter 93A claim, and that she should be entitled to summary
judgment on her claim to recover up to $1,000,000 under the policy
to satisfy her judgment against Hovestadt (including post-judgment
interest).
The commercial general liability provisions of the
National Union policy include limitations of $1,000,000 per
occurrence and $3,000,000 aggregate, while the coverage provided by
the Sexual Abuse Endorsement is limited to $100,000 per occurrence
and $300,000 aggregate. The district court granted summary
judgment on this issue. The district court reasoned that because
Doe’s Massachusetts Superior Court claims against Hovestadt arose
out of sexual abuse, the Sexual Abuse Endorsement of National
Union’s policy limited the available coverage to $100,000.
We think that the district court properly interpreted the
Abuse or Molestation Exclusion to limit coverage to that provided
by the Sexual Abuse Endorsement.
In establishing coverage under a commercial general
liability policy, such as the National Union policy here, “the
insured bears the burden of proving coverage . . . . If the
insured satisfies his burden, then the insurer must prove that an
exclusion applies in order to avoid coverage.” Nascimento, 513
F.3d at 277 (internal citations omitted).
Consistent with the Massachusetts general rule
favoring insureds in policy interpretation,
any ambiguities in the exclusion provision are
strictly construed against the insurer.
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Ambiguity exists when the policy language is
susceptible to more than one rational
interpretation. But it does not follow that
ambiguity exists solely because the parties
disagree as to the provision’s meaning.
Brazas Sporting Arms, 220 F.3d at 4-5 (internal citations omitted).
The commercial general liability provisions of the
National Union policy provided that National Union would “pay those
sums that the insured becomes legally obligated to pay as damages
because of ‘bodily injury’ or ‘property damage’ to which this
insurance applies.” J.A. at 3811. The Abuse or Molestation
Exclusion, however, excluded certain types of claims from coverage
under the commercial general liability provisions. It stated:
This insurance does not apply to “bodily
injury,” “property damage,” “advertising
injury” or “personal injury arising out of:
(a) the actual or threatened abuse or
molestation by anyone of any person while in
the care custody, or control of any insured,
or
(b) the negligent: (i) employment; (ii)
investigation; (iii) supervision; (iv)
reporting to the proper authorities, or
failure to so report; or (v) retention; of a
person for whom any insured is or ever was
legally responsible and whose conduct would be
excluded by (a) above.
J.A. at 3821 (emphasis added). The Sexual Abuse Endorsement
provided more limited coverage. It provided, in relevant part, as
follows:
It is hereby agreed that Section 1 COVERAGES,
COVERAGE A, 1. Insuring Agreement and COVERAGE
B, 1. Insuring Agreement are replaced by the
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following Insuring Agreement with respect to
the coverages provided by this endorsement:
Insuring Agreement
We will pay for those sums that the insured
becomes legally obligated to pay as damages
because of “bodily injury” or “personal
injury” arising from sexual abuse, sexual
molestation or sexual exploitation but only if
(1) “bodily injury” or “personal injury” is
caused by an “occurrence” that takes place in
the “coverage territory”, and (2) the “bodily
injury” or “personal injury” occurs during the
policy period. . . .
J.A. at 3831-32 (emphases added). Coverage under the Sexual Abuse
Endorsement was limited to: “$100,000 per occurrence ‘bodily
injury’ as defined . . . below and ‘personal injury’ as defined in
the policy. $300,000 Aggregate.” J.A. at 3831.
Doe argues that, while the exclusion bars recovery for
sexual “abuse or molestation” under the commercial general
liability provisions of the policy, those provisions must be
interpreted to provide coverage for “sexual exploitation.” She
notes that, although the Sexual Abuse Endorsement uses the terms
“sexual abuse,” “sexual molestation,” and “sexual exploitation”
separately, the Abuse or Molestation Exclusion excludes from
coverage under the commercial general liability provisions of the
policy only “abuse” and “molestation.” Doe contends that sexual
exploitation claims are accordingly not excluded from the
commercial general liability provision, apparently contending that
sexual exploitation claims are covered both under the Endorsement
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and the commercial general liability provisions of the policy.
Finally, she asserts that her claims against Hovestadt and Senechal
arose from sexual exploitation rather than abuse or molestation.
Despite the slight difference in wording, it is obvious
that the Abuse or Molestation Exclusion and the Sexual Abuse
Endorsement are intended to have the same scope, and that the
Endorsement is designed to provide more limited coverage for the
same risks that the exclusion removes from coverage under the
commercial general liability provision. We thus think it likely
that Doe is incorrect in urging that “sexual exploitation” is
covered by the commercial general liability provisions of the
policy. However, even if we were to assume that the commercial
general liability provisions of the National Union policy provided
coverage for sexual exploitation, as Doe contends, we think that
the present case involves sexual abuse rather than sexual
exploitation.
The general definition of “sexual abuse” is “[a]n illegal
sex act, esp[ecially] one performed against a minor by an adult.”
Black’s Law Dictionary 10 (8th ed. 2004).4 The general definition
of “sexual exploitation” is “[t]he use of a person, esp[ecially] a
child, in prostitution, pornography, or other sexually manipulative
activity that has caused or could cause serious emotional injury.”
4
Black’s defines the more general term “abuse” as “[p]hysical
or mental maltreatment, often resulting in mental, emotional,
sexual, or physical injury.” Black’s Law Dictionary 10.
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Id. at 1407.5 Under this definition the acts in question involved
sexual abuse rather than exploitation.
Senechal admitted that he engaged in sexual intercourse
with Doe, and he was deemed the father of Doe’s child. Thus, there
is no question that Senechal engaged in an “illegal sex act,”
consistent with sexual abuse, but there has been no contention that
Senechal used Doe to further some advantage of his own through
prostitution, pornography, or other such “sexually manipulative
activity.” We conclude that the district court properly held that
Doe’s claim arose from sexual abuse, that Doe’s claim was excluded
from the commercial general liability provisions of the National
Union policy, and that Doe’s claim was covered only under the
Sexual Abuse Endorsement, thus making Doe’s claim subject to the
limitations of coverage provided in the Endorsement.6
5
Black’s defines the more general term “exploitation” as “[t]he
act of taking advantage of something; esp[ecially], the act of
taking unjust advantage of another for one’s own benefit.” Black’s
Law Dictionary 619.
To be sure, the Federal Sentencing Guidelines Manual uses a
broader definition of the joint term “sexual abuse or
exploitation.” See U.S. Sentencing Guidelines Manual § 2G2.2 cmt.
n.1 (2007). Although this definition would encompass Doe’s claim,
we think it unlikely that an insurance policy should be viewed as
adopting the specialized definition used in the Guidelines manual.
In any event, because this definition combines the concepts of
sexual abuse and exploitation, it offers no guidance as to what
conduct would constitute sexual exploitation, as opposed to sexual
abuse.
6
Doe also appears to contend that National Union
misrepresented the scope of the Abuse or Molestation Exclusion to
the insureds. The district court properly rejected this
contention, which is without basis in the record.
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B. Wasting
Doe also urges that the district court erred in granting
summary judgment to National Union by interpreting the Sexual Abuse
Endorsement of the National Union policy to be a wasting policy and
in determining that the entire available coverage had been
exhausted by defense costs. The district court concluded that
“[d]efense costs may reduce the aggregate limit under the sexual
abuse endorsement,” and that “the expenditure by National Union of
more than $300,000 in defense of this action . . . has exhausted
the limits of its insurance policy.” J.A. at 1127.
Doe argues that the Sexual Abuse Endorsement does not
unambiguously state that defense costs erode the limitations of
coverage provided in the Endorsement, emphasizing that any
ambiguity must be resolved against the insurer. See, e.g., Mt.
Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997)
(“‘[W]here the language permits more than one rational
interpretation, that most favorable to the insured is to be
taken.’” (quoting Boston Symphony Orchestra, Inc. v. Commercial
Union Ins. Co., 406 Mass. 7, 12, 545 N.E.2d 1156, 1159 (1989))).
Although Doe is correct that the language of the Sexual Abuse
Endorsement is not a model of clarity, we do not agree that it is
ambiguous in this respect.
Two provisions of the policy are involved here, the
Supplementary Payments provision of the general policy and the
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language of the Sexual Abuse Endorsement. The Supplementary
Payments provision of the general policy, entitled “SUPPLEMENTARY
PAYMENTS—COVERAGES A AND B”, provides coverage for costs associated
with defending a covered suit, including “all expenses we [National
Union] incur,” in addition to the coverage for damages for “bodily
injury.”7 J.A. at 3814. The Supplementary Payments provision
7
The “SUPPLEMENTARY PAYMENTS—COVERAGES A AND B” language of the
main commercial general liability policy provides, in relevant
part:
We will pay, with respect to any claim or “suit” we
defend:
1. All expenses we incur.
2. Up to $250 for cost of bail bonds required because of
accidents or traffic law violations arising out of the
use of any vehicle to which the Bodily Injury Liability
Coverage applies. We do not have to furnish these bonds.
3. The cost of bonds to release attachments, but only
for bond amounts within the applicable limit of
insurance. We do not have to furnish these bonds.
4. All reasonable expenses incurred by the insured at
our request to assist us in the investigation or defense
of the claim or “suit”, including actual loss of earnings
up to $100 a day because of time off from work.
5. All costs taxed against the insured in the “suit”.
6. Pre-judgment interest awarded against the insured on
that part of the judgment we pay. If we make an offer to
pay the applicable limit of insurance, we will not pay
any pre-judgment interest based on that period of time
after the offer.
7. All interest on the full amount of any judgment
[that] accrues after entry of the judgment and before
[we] have paid, offered to pay, or deposited in court
[the] part of the judgment that is within the
applic[able] limit of insurance.
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expressly states that “These payments will not reduce the limits of
insurance,” J.A. at 3814, and National Union does not dispute that
the commercial general liability provisions of the National Union
policy are not wasting. However, National Union asserts that the
coverage under the Sexual Abuse Endorsement is wasting.
We agree with National Union that the Sexual Abuse
Endorsement unambiguously states that the $300,000 aggregate limit
is reduced by defense costs. The first paragraph of the
Endorsement establishes a coverage limit of “$100,000 per
occurrence ‘bodily injury’ as defined . . . below and ‘personal
injury’ as defined in the policy,” and in the next sentence limits
such payments to “$300,000 Aggregate.” J.A. at 3831. The wasting
nature of the policy is made clear by paragraph (B) of the
Endorsement, which states that “[t]he aggregate limits shall
include all Supplementary Payments as described in the section of
this policy SUPPLEMENTARY PAYMENTS COVERAGES A AND B in addition to
all damages paid for ‘bodily injury’ or ‘personal injury’ under
this endorsement.”8 J.A. at 3831 (emphasis added). Thus, while
These payments will not reduce the limits of insuranc[e].
J.A. at 3814.
8
In full, paragraph (B) of the Sexual Abuse Endorsement
provides as follows:
B) The most we will pay under this policy for damages
for such “bodily injury” and “personal injury” is
limited to the per occurrence limits and the total
damages to the aggregate limits shown above in the
ADDITIONAL DECLARATIONS [which provides “$100,000
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National Union’s liability for payments for “bodily injury” or
“personal injury” is limited to $300,000 in aggregate, paragraph
(B) also states that “in addition” to including “all damages paid”
for bodily or personal injury, “the aggregate limits shall
include”–-that is, take account of, or be reduced by--“all
Supplementary Payments.” Id.
That the aggregate limit includes both damages for injury
and Supplementary Payments such as defense costs (and hence is
wasting) is confirmed by the second provision of paragraph (B).
While the Supplementary Payments provision of the commercial
general liability policy states that such supplemental “payments
will not reduce the limits of insurance,” J.A. at 3814, this
provision is “overridden by [the] endorsement.” J.A. at 3831. The
second provision of paragraph (B) of the Endorsement states that
per occurrence” and “$300,000 Aggregate”]. The
aggregate limits shall include all Supplementary
Payments as described in the section of this policy
SUPPLEMENTARY PAYMENTS COVERAGES A AND B in
addition to all damages paid for “bodily injury” or
“personal injury” under this endorsement.
Notwithstanding the statement in that section that
payments will not reduce the limits of insurance
now overridden by this endorsement, the per
occurrence and Aggregate limits expressed are the
only limits regardless of the number of (1)
insureds; (2) claims made or suits brought; or (3)
persons or organizations making or bringing suits.
These limits will be the only limits available for
coverage under this endorsement not withstanding
anything contained in Section III – LIMITS OF
INSURANCE.
J.A. at 3831.
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“Notwithstanding the statement in [the Supplementary Payments]
section that payments will not reduce the [commercial general
liability policy] limits of insurance now overridden by this
endorsement, the per occurrence and Aggregate limits expressed are
the only limits . . . .” Id. (emphasis added). This language
makes clear that “payments” under the Supplementary Payments
provision will reduce available coverage under the Endorsement,
even though such “payments will not reduce the limits” under the
general policy. And paragraph (C) further underscores the wasting
nature of the Endorsement, stating that National Union’s “right and
duty to defend end when [National Union] ha[s] used up the
applicable limit of insurance as described above.” J.A. at 3832
(emphasis added). We conclude that the district court correctly
interpreted the Sexual Abuse Endorsement as a wasting policy.
Doe additionally contends that defense costs are not
included within the term “expenses” as used in paragraph (1) of the
“SUPPLEMENTARY PAYMENTS—COVERAGES A AND B” provision of the
National Union policy, and therefore do not count against the
Sexual Abuse Endorsement’s aggregate limit because they are neither
damages for injury nor Supplementary Payments. However, we have no
doubt that defense costs are included as “expenses” within the
meaning of Supplementary Payments. There is no dispute that the
commercial general liability provisions of the National Union
policy were designed to obligate National Union to defend the
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insureds and to pay defense costs. Excluding defense costs from
the Supplementary Payments covered would defeat this purpose. We
agree with the district court that defense costs are included
within the category of “expenses,” which are Supplementary Payments
that count against the Endorsement’s aggregate limit.
In short, we conclude that given its “plain and ordinary
meaning,” Brazas Sporting Arms, 220 F.3d at 4, the language of the
Sexual Abuse Endorsement unambiguously indicates that payments for
defense costs erode the $300,000 aggregate limit of coverage
provided by the Endorsement, and the district court did not err in
so holding.9
III. Chapter 93A Claim--Evidence of a Policy-Limit Offer
Doe contends that the jury verdict in favor of National
Union as to her Chapter 93A claim is against the overwhelming
weight of the evidence. Doe’s theory at trial was that National
Union had violated Chapter 93A by failing to make a reasonable
offer of settlement in the policy amount, even if the policy limit
was $100,000. National Union contended that it had made a $100,000
offer of settlement. Doe urges on appeal that no reasonable juror
could conclude that such an offer was made. We disagree.
9
We also agree with the district court that Doe’s claim that
National Union misrepresented the wasting nature of the Endorsement
is unsupported by the record. Indeed, record evidence shows that
before the policy’s effective date, HES’s insurance broker was
informed that the Endorsement was wasting via a fax transmission
stating: “Note, defense costs are within the sexual abuse limits.”
J.A. at 10.
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Although the issue was disputed at trial, there was ample
evidence from which a reasonable juror could conclude that National
Union offered to settle Doe’s claim for $100,000. National Union’s
witnesses described at least two occasions when they made such an
offer. Janette Woodbury, a director in National Union’s complex
claims unit who managed Doe’s claim for National Union, testified
that she made an offer to one of Doe’s lawyers, Richard Brody, by
telephone in approximately February 1999, and that Brody rejected
this offer.
I told him [Brody] that there was only
$100,000 coverage available in the case and
that I was offering the money as settlement if
it could settle the case and preclude further
litigation.
. . . .
He [Brody] said that $100,000 was not going to
settle the case and that HES was going to have
to come to the table, was his term, with some
money of their own.
J.A. at 2439-40.
Woodbury also testified that she told one of the defense
lawyers retained by National Union, Daniel Gibson, about this
conversation. Gibson testified at trial, and his testimony
confirmed that a $100,000 offer had been made and rejected: “I had
a discussion with Rick [Brody] in which I said to Rick I understand
that a hundred thousand dollars has been offered to settle the
case. And he said it has and it will not, my demand is 3 million
and there’s other assets we can collect against.” J.A. at 2832.
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Finally, Woodbury testified that she followed up by
reiterating her offer to Brody in June 1999 when she told Brody “I
still only had a hundred thousand dollars available” and Brody
“basically again said that the hundred thousand wasn’t going to
settle the case and that our insured was going to have to
contribute some money to get . . . the case settled.” J.A. at
2460.
Brody testified that neither Woodbury nor anyone else had
ever made an offer to settle Doe’s claim for $100,000. J.A. at
2617. However, the fact that Brody’s testimony conflicts with
Woodbury’s certainly does not entitle Doe to judgment as a matter
of law on her Chapter 93A claim. It is precisely the jury’s role
to resolve such conflicting factual testimony. We conclude that
the evidence was sufficient to allow a reasonable juror to conclude
that National Union offered to settle Doe’s claim for $100,000.10
IV. Lack of a Written Settlement Offer
10
Woodbury also testified that during a mediated settlement
conference, she authorized the mediator, Mr. Fitzgerald, to convey
to Doe an offer to settle the case for $100,000. “I told Mr.
Fitzgerald that we had $100,000 in coverage, that it had been
offered on more than one occasion and that it was still available
if it would settle the claim. J.A. at 2498. Woodbury’s testimony
in this regard was again corroborated by Gibson’s testimony. See
J.A. at 2831. We need not consider whether the testimony that
Woodbury authorized the mediator to make an offer to Doe, standing
alone, would be sufficient to support the jury verdict. To the
extent that Doe is arguing that the evidence of the offer to the
mediator was improperly admitted in the first place, this argument
was not preserved by a timely objection.
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Doe urges that, even if there was evidence sufficient for
the jury to find that National Union made a $100,000 offer,
evidence of a written offer of settlement, rather than a mere oral
offer, is required under Mass. Gen. Laws ch. 93A, § 9(3). Doe
contends that the district court erred in instructing the jury that
a written offer of settlement was not required and that, because it
is undisputed that National Union did not make a written offer of
settlement to Doe, the district court also erred in denying Doe’s
motion for judgment as a matter of law. We conclude that Doe’s
argument rests on an improper construction of the statutory
language.
As discussed above, section 9(1) of Chapter 93A creates
a private cause of action on behalf of “[a]ny person . . . who has
been injured by another person’s use or employment of any method,
act or practice declared unlawful” by a variety of statutory
provisions, including “clause (9) of section three of chapter one
hundred and seventy-six D.” Mass. Gen. Laws ch. 93A, § 9(1).
Section 3(9) of Chapter 176D prohibits, among other things, an
insurer’s failure “to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear.” Mass. Gen. Laws ch. 176D § 3(9)(f). Thus, Doe’s claim
depends on proving a violation of Mass. Gen. Laws ch. 176D, §
3(9)(f), the text of which speaks only to efforts “to effectuate .
. . settlement[]” and does not distinguish between written and oral
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offers of settlement. Id. Mass. Gen. Laws ch. 176D, § 3(9)(f)
imposes no requirement of a writing.
Doe argues, however, that Chapter 93A itself, and in
particular section 9(3) requires a written settlement offer. But
section 9(3) simply establishes a procedure to resolve claims under
Chapter 93A, by requiring a plaintiff to file a written demand
before bringing such a claim and allowing a defendant to avoid
punitive damages by providing a reasonable written settlement offer
in response. Section 9(3) provides in relevant part:
At least thirty days prior to the
filing of any such action, a written demand
for relief, identifying the claimant and
reasonably describing the unfair or deceptive
act or practice relied upon and the injury
suffered, shall be mailed or delivered to any
prospective respondent. Any person receiving
such a demand for relief who, within thirty
days of the mailing or delivery of the demand
for relief, makes a written tender of
settlement which is rejected by the claimant
may, in any subsequent action, file the
written tender and an affidavit concerning its
rejection and thereby limit any recovery to
the relief tendered if the court finds that
the relief tendered was reasonable in relation
to the injury actually suffered by the
petitioner.
Mass. Gen. Laws ch. 93A, § 9(3). This language does not change the
substantive requirements of Mass. Gen. Laws ch. 176D, § 3(9)(f)
prohibiting unfair failure to settle an insurance claim.
We conclude that the district court did not err in
instructing the jury that National Union was not required to
present evidence of a written settlement offer to comply with Mass.
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Gen. Laws ch. 176D, § 3(9)(f). In this case there can be no
liability on Doe’s Chapter 93A failure-to-settle claim if there has
been no violation of Mass. Gen. Laws ch. 176D, § 3(9)(f).
V. Admission of Evidence as to the Travelers Settlement
Doe contends that the district court erroneously admitted
evidence. “The evidentiary rulings of a trial court will not be
upset unless they involve an abuse of discretion.” McInnis v.
A.M.F., Inc., 765 F.2d 240, 242 n.1 (1st Cir. 1985). In Tiller v.
Baghdady, 244 F.3d 9, 14 (1st Cir. 2001), we defined “abuse of
discretion” as follows:
A judge abuses this discretion “when a
relevant factor that should have been given
significant weight is not considered.” United
States v. Hastings, 847 F.2d 920, 924 (1st
Cir. 1988) (quoting United States v. Kramer,
827 F.2d 1174, 1179 (8th Cir. 1987)). We
acknowledge that, “[t]here is no neat,
standardized test for judging abuse of
discretion; each case must be judged on its
own facts and circumstances.” Loinaz[ v. EG &
G, Inc.], 910 F.2d[ 1, 7 (1st Cir. 1990)]; see
also Espeaignnette v. Gene Tierney Co., 43
F.3d 1, 10 (1st Cir. 1994).
We note that “[o]nly rarely--and in extraordinarily compelling
circumstances--will we, from the vista of a cold appellate record,
reverse a district court’s on-the-spot judgment concerning the
relative weighing of probative value and unfair effect.” United
States v. Flemmi, 402 F.3d 79, 86 (1st Cir. 2005) (alteration in
original, quotation marks omitted).
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At trial, National Union sought to introduce evidence of
the amount of the settlement between Doe and Travelers, which had
provided an umbrella liability insurance policy to the insureds.
Doe objected to the introduction of testimony as to the amount of
the settlement, arguing that the introduction of evidence of the
result of her settlement negotiations with Travelers was unduly
prejudicial under Rule 403 of the Federal Rules of Evidence and
contrary to Rule 408, which bars the introduction of an offer or
agreement to compromise a disputed claim, or the content of
settlement negotiations, to prove “liability for, invalidity of, or
[the] amount of” the disputed claim. Fed. R. Evid. 408(a). The
district court, in admitting the evidence, reasoned that the amount
of the settlement was relevant not to establish liability but to
enable the computation of punitive damages for Doe’s Chapter 93A
claim, see Mass. Gen. Laws ch. 93A, § 9(3), and was not unduly
prejudicial. The district court reasoned that if the jury
determined to award punitive damages by multiplying actual damages,
it would need to know the amount of the settlement to “deduct[]”
the settlement amount from the amount of Doe’s ultimate judgment
against Hovestadt, i.e., the jury needed the amount to calculate
the actual damages and thus punitive damages. J.A. at 2603.
Doe argued that no deduction for the settlement was
appropriate, and alternatively, that any calculation of the damages
amount could be made by the court without revealing the amount of
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the settlement to the jury. Doe points out that indeed the verdict
form ultimately adopted made it unnecessary for the jury to make
this computation.
We need not decide whether the settlement amount was
correctly admitted for computational purposes, however, since we
may affirm on an alternative ground. See United States v. Nivica,
887 F.2d 1110, 1127 (1st Cir. 1989) (declining to reverse improper
admission of hearsay evidence as business records, based on a
conclusion that the same records could properly be admitted under
the residual hearsay exception); see also Westberry v. Gislaved
Gummi AB, 178 F.3d 257, 262 (4th Cir. 1999) (“[W]e can affirm the
evidentiary ruling of the district court on a ground different from
that employed below . . . .”).
National Union points out that Doe opened the door to the
introduction of the Travelers settlement by asking about the
Travelers settlement in the context of a dispute as to whether
National Union had acted to delay Doe’s Massachusetts litigation in
bad faith, as Doe alleged, or in good faith to facilitate a
settlement with Travelers, as National Union alleged.
At trial, Doe questioned witnesses as to whether National
Union, for purposes of delay and in bad faith, had sought United
States Supreme Court review of an order of the Massachusetts
Supreme Judicial Court requiring Senechal to participate in a
paternity test. So too, Doe’s counsel asked Woodbury whether she
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had delayed mediation proceedings between the various parties
involved in this case (including Travelers) in bad faith “because
you wanted one last shot to see maybe she’s done it, maybe she’s
dead, maybe she’s in an institution, and we can save money.” J.A.
at 2312.11
National Union sought to rebut this allegation of bad
faith by showing that it had delayed the Massachusetts litigation
and had engaged in mediation in good faith to facilitate a
settlement payment from Travelers. On behalf of National Union, in
answer to a question regarding what she did “in that time after the
petition for certiorari [as to the paternity test] was filed,”
Woodbury testified that she “tried to get . . . other insurance
carriers involved to come to the table with some money . . . [t]o
try to get the case settled.” J.A. at 2483.
After Woodbury’s testimony, counsel for Doe asked the
next witness, Martin Foster (an attorney retained by the insureds),
about settlement negotiations between National Union, Travelers,
the insureds, and Doe at a mediated settlement conference. Doe’s
counsel suggested that the negotiations were unproductive, thus
casting doubt upon whether the delay was really designed to produce
a settlement beneficial to Doe.
11
The allegations of bad faith delay led the district court to
instruct the jury that “it’s suggested . . . that here there was
delay for the sake of delay” and that evidence of bad faith delay
could support punitive damages under Doe’s Chapter 93A claim. J.A.
at 2930.
-28-
It was in this context, upon cross examination by
National Union, and over Doe’s objection, that Foster was allowed
to testify that Doe ultimately reached a settlement with Travelers
whereby Travelers paid Doe $980,000.12 Having introduced evidence
regarding the settlement negotiations between National Union and
Travelers, and having suggested that those negotiations were
fruitless, Doe opened the door to introduction of evidence
regarding her ultimate settlement with Travelers. See Willco
Kuwait (Trading) S.A.K. v. deSavary, 843 F.2d 618, 625 (1st Cir.
1988). The district court did not err in admitting evidence of the
settlement amount.
VI. Use of the Travelers Settlement
Doe asserts that, even if the amount of the Travelers
settlement had been properly admitted for purposes of negating her
allegations of bad faith delay, National Union made improper use of
the settlement amount in closing argument to suggest that Doe and
her counsel were greedy. Counsel for National Union argued that
after it had offered Doe the policy limit of $100,000, “[t]he
plaintiffs kept litigating to get more money. I’m not suggesting
that’s wrong. That’s zealous advocacy. But you certainly cannot
hold National Union liable for the plaintiff’s decision or her
lawyer’s decision to press for more money. And in the end they got
12
Later testimony, including cross-examination of Doe, revealed
that Doe’s total settlement with Travelers and several other
parties amounted to just over $1 million.
-29-
more money.” J.A. at 2958. National Union went on to suggest that
Brody was greedy in rejecting National Union’s offer:
Is there any reason that Mr. Brody would have
to reject the offer? Of course. If he
accepted the offer, . . . he would have
recovered for his client a hundred thousand
dollars. And he would have gotten, or he and
his partners would have shared $35,000. They
put a lot of time and effort into this case.
So they pressed on. And at the end of the day
–- well, we’re not at the end of the day. But
as we sit here today they’ve collected a
million dollars, over a million for their
client, over 40,000 [sic] to share amongst
themselves, but they’re here asking you for
more money.
J.A. at 2959-60.
While the use of the Travelers settlement for this
purpose was likely improper, Doe made no objection to National
Union’s argument. We review allegations of trial misconduct
forfeited due to the lack of any timely objection only for plain
error. See Fonten Corp. v. Ocean Spray Cranberries, Inc., 469 F.3d
18, 21-22 (1st Cir. 2006); Smith v. Kmart Corp., 177 F.3d 19, 25
(1st Cir. 1999) (“[W]hen no timely objection is made, claims of
improper closing argument are forfeited, not waived, and thus
amenable to review for plain error.”).
Under plain error review, we will consider a
forfeited objection only if: (1) an error was
committed; (2) the error was “plain” (i.e.
obvious and clear under current law); (3) the
error was prejudicial (i.e. affected
substantial rights); and (4) review is needed
to prevent a miscarriage of justice. To merit
reversal, the error must have resulted in a
miscarriage of justice or seriously affected
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the fairness, integrity or public reputation
of the judicial proceedings. Plain error is a
rare species in civil litigation, encompassing
only those errors that reach the pinnacle of
fault envisioned by the standard set forth
above.
Smith, 177 F.3d at 26 (internal citations and quotation marks
omitted).
Doe has not established that the error in the use of the
settlement evidence was sufficiently grave to satisfy plain error
review. At a minimum, Doe has failed to show that the improper
remarks by National Union were so grave as to seriously impugn the
fairness and integrity of judicial proceedings. Accordingly, the
district court did not err in denying Doe’s motion for a new trial.
VII. Emotional Distress Damages
Doe contends that the district court erroneously directed
a verdict in National Union’s favor barring emotional distress
damages; the district court ruled that Doe was required to present
expert evidence that her emotional distress was caused by National
Union’s actions. In her principal brief, Doe asserted that
emotional distress damages were a component of actual damages
available under the Chapter 93A failure-to-settle claim. We have
no occasion to consider whether Doe was entitled to present
evidence of emotional distress damages in connection with her
Chapter 93A claim, since we conclude that the district court
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properly upheld the jury’s verdict in National Union’s favor as to
liability on this claim.
However, Doe also argues that the district court
improperly precluded the jury from considering Doe’s claim for
intentional infliction of emotional distress, apparently asserting
that this tort claim was made independent of Doe’s claim under
Chapter 93A. Although Doe moved on February 1, 2007, to amend her
forth-party complaint to add a claim against National Union for
intentional infliction of emotional distress, that motion was
denied by the district court on February 6, 2007. In her opening
brief, Doe made no mention of any independent claim for intentional
infliction of emotional distress, and we conclude that Doe has
waived any argument in this connection.
VIII. Cross-Appeal
National Union cross-appeals on the issue of whether Doe
had to prove that she would have accepted a policy-limit offer in
order to prevail as to causation with respect to her Chapter 93A
claim. We conclude that National Union’s cross-appeal is improper.
A cross-appeal is generally not proper to challenge a
subsidiary finding or conclusion when the ultimate judgment is
favorable to the party cross-appealing. See United States v.
Moran, 393 F.3d 1, 12 (1st Cir. 2004) (“A cross-appeal normally is
improper when taken by a defendant from a favorable judgment.”);
Neverson v. Farquharson, 366 F.3d 32, 39 (1st Cir. 2004)
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(“[R]espondents here do not seek to alter the judgment of the
district court. On the contrary, the district court granted all of
the relief that respondents requested. . . . Under these
circumstances, a cross-appeal would have been improper.”); Harding
v. Fed. Nat’l Bank, 31 F.2d 914, 918-19 (1st Cir. 1929) (explaining
that plaintiff’s cross-appeal from a decree in the plaintiff’s
favor was “improperly taken”). Because the district court’s final
judgment was in favor of National Union as to each of the asserted
claims, National Union’s cross-appeal from this favorable judgment
is not proper, and is dismissed.
Treating the briefing on the cross-appeal as an argument
in support of the judgment, we need not reach the issue of
causation. This issue is relevant only to Doe’s Chapter 93A claim
for failure to settle. Because the jury found in favor of National
Union, there is no need to consider National Union’s challenge to
the district court’s causation instruction. Nor is there any merit
to Doe’s claim that she suffered prejudice from the district
court’s delay in adopting her position on causation.
CONCLUSION
For the reasons set forth above, in Appeal No. 07-2190,
the district court’s judgment in favor of National Union is
affirmed.
Appeal No. 07-2204 is dismissed.
It is so ordered.
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