United States Court of Appeals
For the First Circuit
No. 08-2439
AMERICAN NATIONAL FIRE INSURANCE COMPANY,
Plaintiff, Appellant,
v.
YORK COUNTY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. George Z. Singal, U.S. District Judge]
Before
Howard, Selya and Ebel,* Circuit Judges.
David D. Dowd, with whom Curley & Curley, P.C., Jeffrey T.
Edwards, and Preti, Flaherty, Beliveau & Pachios, LLP were on
brief, for appellant.
Thomas C. Newman, with whom Nicole L. Bradick and Murray,
Plumb & Murray were on brief, for appellee.
August 5, 2009
*
Of the Tenth Circuit, sitting by designation.
SELYA, Circuit Judge. Class actions, by their very
nature, can alter the usual dynamics of litigation and bring to
bear on defendants and insurers alike intense pressure to settle.
See, e.g., Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 293
(1st Cir. 2000) (discussing situations in which "the grant of class
status raises the stakes of the litigation so substantially that
the defendant likely will feel irresistible pressure to settle").
Faced with such a situation, defendant-appellant American National
Fire Insurance Company (ANFIC) attempted to have its cake and eat
it too: it joined in an advantageous settlement of a potentially
costly class action and then attempted to recoup from its own
insured (York County, Maine) the lion's share of the payment that
it had made.
The district court ruled that ANFIC was not entitled to
reimbursement. See Am. Nat'l Fire Ins. Co. v. York County (D. Ct.
Op.), 582 F. Supp. 2d 69, 81 (D. Me. 2008). Discerning no error,
we affirm.
I. BACKGROUND
We assume the reader's familiarity with the district
court's exegetic account of the underlying facts, see id. at 70-77.
Thus, we rehearse here only those particulars that are helpful to
place the appeal itself into a workable perspective. Because the
appealed decision follows a bench trial and there is no clear error
in the district court's factfinding, we state the facts as found
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and draw all reasonable inferences therefrom in the light most
favorable to the judgment.
We bifurcate our survey, first discussing the class
action and then moving to the instant case.
A. The Class Action.
In October of 2002, three persons who had been strip-
searched at the York County Jail following misdemeanor arrests
filed suit against the County. The suit was filed as a putative
class action on behalf of the named plaintiffs and others similarly
situated. See Nilsen v. York County, 219 F.R.D. 19, 20 (D. Me.
2003). It sought damages on account of an alleged pattern and
practice of illegally strip-searching arrestees.
During what would become the class period — October 14,
1996 through April 30, 2004 — York County had in force a series of
law enforcement liability (LEL) insurance policies underwritten by
Twin Cities Insurers Company, ANFIC, and Maine County Commissioners
Association Risk Pool, respectively.
Each insurer had covered York County for a portion of the
class period: Twin Cities covered the County for a span that
included the first sixteen days; ANFIC's coverage ran from November
1, 1996 through January 1, 1998; and the Risk Pool afforded
coverage from the expiration of ANFIC's policy to a date past the
end of the class period.
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When the putative class action was filed, the Risk Pool
was the insurer of record. Consequently, it assumed the defense on
York County's behalf and retained Peter Marchesi as defense counsel
for the County. It also retained Jim Poliquin as separate counsel
to represent its own interests. York County retained Gene Libby to
represent its (uninsured) interests.
The district court certified the class in 2003. On an
interlocutory appeal, we upheld the certification. Tardiff v. Knox
County, 365 F.3d 1, 7 (1st Cir. 2004). While that appeal was
pending, the County notified its other insurers, each of which
ultimately agreed to participate in a coordinated defense of the
now-certified class action.
As noted above, ANFIC's LEL coverage was in effect for a
fourteen-month interval (all of which fell within the class
period). As a member of the coordinated defense group, ANFIC
agreed to pay twenty-five percent of the collaborative defense
costs.
The declarations page of ANFIC's policy made its coverage
subject to both a $5,000 per claim deductible and an aggregate per-
occurrence limit of $1,000,000. Defense costs under the policy
were supplementary; they were, therefore, neither set off against
liability limits nor capped in any amount.
ANFIC commenced its participation in the joint defense
after issuing a reservation-of-rights letter on January 22, 2004.
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In that letter, a company hierarch, William Curtin, unilaterally
declared that "the $5,000 deductible will apply to each claim
brought for illegal strip search within the coverage period."
ANFIC never explicitly withdrew this reservation of rights.
As a prelude to a planned mediation of the class action,
members of the defense group (including representatives from York
County, Twin Cities, ANFIC, and the Risk Pool) held a private
meeting. At this session, Marchesi stated the obvious: a
settlement was desirable from everyone's point of view because the
defense was faced with a sizable class, liability was a near-
certainty, and total damages would likely be sky-high. Marchesi
predicted that the award would far exceed the face value of all
available insurance and that, in the bargain, there would be "very
significant" litigation costs.1 Libby explained that, aside from
available insurance, York County had less than $100,000 to
contribute to any settlement fund.
The first mediation session took place on September 20,
2004. At that session, Marchesi acted as the principal negotiator
for the defense group, but all members of the group were
individually represented. Curtin restated ANFIC's position that
its coverage was subject to a $5,000 per claim deductible. He also
1
Around the same time, the attorney for the class estimated
that the class had over 8,000 members. If the case were tried, the
attorney envisioned a damage award in the neighborhood of
$22,000,000, plus ancillary items (counsel fees, expenses, and
costs) totaling over $11,000,000.
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maintained that ANFIC's contribution to any settlement should be
limited to no more than fifteen percent of the total fund. The
parties did not reach a settlement, but the defense group achieved
a consensus favoring settlement "within the existing insurance and
risk pool coverage."
Following this mediation session, Libby wrote to Curtin,
acknowledging ANFIC's position vis-à-vis the policy deductible but
explaining that York County viewed the $5,000 deductible as
applying "to the entire class and not [to] individual class
members." Regardless of how the deductible operated, Libby warned,
it was likely that a verdict would exhaust the entire $1,000,000 in
coverage afforded by the ANFIC policy. On that basis, Libby asked
that the entire $1,000,000 be made available "to conclude
negotiations with plaintiffs."
ANFIC, through Dowd, "respectfully but unequivocally
rejected" York County's interpretation of how the deductible
operated. It did not comment as to Libby's prediction about what
would happen if the case went to trial.
On September 29, 2004, the parties attended a second
mediation session. By the end of the session, each member of the
defense group had agreed to up the ante. Specifically, the Risk
Pool had authorized $1,850,000 toward a global settlement; Twin
Cities had authorized $10,000; York County had authorized $25,000
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in County funds; and ANFIC had authorized $650,000.2 When agreeing
to contribute $650,000 toward settlement, Curtin did not
communicate any restrictions on the contribution, nor did he
mention that ANFIC intended to seek recoupment based on the
policy's deductible provision.
In late October, Dowd sent another letter to Libby
admonishing that ANFIC would be liable only "for loss in excess of
$5,000 [on] each claim." In reply, Libby reiterated that ANFIC's
potential exposure exceeded $1,000,000 regardless of which
interpretation of the deductible provision prevailed. In a
separate letter, Marchesi made a similar observation and exhorted
ANFIC to loosen the purse strings and increase its proposed
contribution to the global settlement.
Following this exchange of correspondence, Libby
scheduled a conference call with Dowd and Marchesi. This call
lasted for almost an hour. The protagonists discussed at length
ANFIC's appropriate share of a global settlement. The policy
deductible was not mentioned.
Shortly thereafter, Curtin received approval from ANFIC's
claims committee to make a $750,000 contribution. The claims
committee neither imposed any conditions on that authority nor
stipulated that such an offer could be extended only if payment was
2
These contributions were agreed to within the defense group
but not offered at that time to class counsel.
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made subject to the policy deductible. Dowd then called Marchesi
and hiked ANFIC's proposed contribution to $750,000, provided that
all other members of the defense group contributed the amounts
previously authorized.
With ANFIC's contribution in hand, Marchesi was able to
settle the class action by agreeing to establish a $3,300,000
settlement fund. The defense group funded the settlement as
follows: the Risk Pool contributed $2,400,000, Twin Cities
contributed $100,000, York County contributed $50,000, and ANFIC
contributed $750,000. The settlement extinguished all claims
(whether or not previously asserted) by arrestees who were
unlawfully strip-searched at the York County Jail during the class
period. An express condition of the settlement was that counsel
for York County "provide an affidavit and/or testimony regarding
the relative lack of assets available to fund a settlement that
[exceeded $3,300,000]." The parties secured court approval for the
settlement, releases were expected, a judgment was entered, and the
matter appeared to have been concluded.
Ultimately, the district court designated 1,410 claimants
to receive payments from the settlement fund. Each approved
claimant received a payment of $1,719.08. Of these claimants, 273
were strip-searched during the currency of ANFIC's policy. None of
these 273 claimants received more than $5,000.
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B. The Recoupment Action.
After the class action was put to bed, ANFIC invoked
diversity jurisdiction, 28 U.S.C. § 1332(a)(1), and sued York
County in Maine's federal district court. It sought to recover the
$750,000 it had contributed to the class settlement on the ground
that the funds represented deductibles owed to it by York County.
ANFIC posited that because each and every individual claim was
settled for less than the $5,000 deductible amount, its settlement
contribution was composed entirely of deductibles (advanced by it
on behalf of its insured (York County)). York County denied the
thrust of the complaint and asserted various affirmative defenses
(including equitable estoppel and accord and satisfaction), see
Fed. R. Civ. P. 8(c).
In due season, the parties cross-moved for partial
summary judgment concerning the meaning of the policy's "per claim"
deductible language. The district court accepted ANFIC's reading
of the provision. It ruled, in effect, that "per claim" means "per
claimant," not "per class." Am. Nat'l. Fire Ins. Co. v. York
County, No. 06-200, 2007 WL 4531720, at *1 (D. Me. Dec. 18, 2007).
That ruling has not been challenged on appeal.
The battleground then shifted to York County's
affirmative defenses. After a bench trial, the district court
found, in the alternative, that an accord and satisfaction had
occurred, D. Ct. Op., 582 F. Supp. 2d at 77; and that, in all
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events, ANFIC was equitably estopped from pursuing its claim for
reimbursement of deductibles, id. This timely appeal followed.
II. ANALYSIS
In this venue, ANFIC challenges each of the district
court's alternative holdings. Where, as here, a district court
makes alternative holdings, each independently sufficient to ground
its decision, a reviewing court must sustain the judgment as long
as either holding is viable. See United States v. Barletta, 652
F.2d 218, 220 (1st Cir. 1981). Because we agree with the district
court that equitable estoppel bans any recovery by ANFIC on the
claim asserted, we do not reach the question of whether the parties
achieved an accord and satisfaction.
We review a district court's legal determinations
following a bench trial de novo. United States v. 15 Bosworth St.,
236 F.3d 50, 53 (1st Cir. 2001). We regard a district court's
findings of fact more deferentially; we accept such findings unless
they are clearly erroneous. Fed. R. Civ. P. 52(a)(6); Wine &
Spirits Retailers, Inc. v. Rhode Island, 481 F.3d 1, 4 (1st Cir.
2007). Put another way, the trier's factual determinations will be
set aside only if, "after careful evaluation of the evidence, we
are left with an abiding conviction that those determinations and
findings are simply wrong." State Police Ass'n v. Comm'r, 125 F.3d
1, 5 (1st Cir. 1997). This respectful standard takes into account
that the trial court "sees and hears the witnesses at first hand
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and comes to appreciate the nuances of the litigation in a way
which appellate courts cannot hope to replicate." Cumpiano v.
Banco Santander P.R., 902 F.2d 148, 152 (1st Cir. 1990).
The standard of review is important here. At several
junctures, more than one plausible inference can be drawn from the
raw facts. In each instance here, we are duty-bound to honor the
trial judge's choice of which inference to draw. See Anderson v.
City of Bessemer City, 470 U.S. 564, 573 (1985); see also United
States v. Ladd, 885 F.2d 954, 957 (1st Cir. 1989) ("Where, as in
this case, a trier chooses among plausible (albeit competing)
inferences, appellate courts should not intrude.").
In this diversity case, the substantive law of Maine
controls. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
Under Maine law, an insured who seeks to invoke equitable estoppel
against his insurer in a coverage dispute must prove (i)
unreasonable conduct that misleads the insured concerning the scope
of coverage; and (ii) justifiable and detrimental reliance by the
insured on that conduct. See County Forest Prods., Inc. v. Green
Mt. Agency, Inc., 758 A.2d 59, 66 (Me. 2000); Me. Mut. Fire Ins.
Co. v. Grant, 674 A.2d 503, 504 (Me. 1996). The reliance element
ordinarily requires that the insurer's unreasonable conduct incite
the insured "to do what resulted to his detriment and what he would
not otherwise have done." Roberts v. Me. Bonding & Cas. Co., 404
A.2d 238, 241 (Me. 1979). Because equitable estoppel is an
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affirmative defense, the insured bears the burden of proving both
the "misleading conduct" and the "detrimental reliance" elements.
Me. Mut. Fire Ins. Co., 674 A.2d at 504.
With this framework in place, we return to the case at
hand. The district court found that ANFIC's conduct in settling
the class action belied any intention to preserve its rights under
the deductible provision. See D. Ct. Op., 582 F. Supp. 2d at 80-
81. That conduct "misled the County" by inducing "a reasonable
belief that ANFIC was waiving its reserved rights to seek
reimbursement of any deductible when it contributed $750,000 to the
[global] settlement of the York County Jail class action." Id. at
77. The County acted on that belief, to its detriment. Id. at 81.
As we explain below, these findings are not clearly erroneous.
We start with the "conduct" question — whether ANFIC
acted unreasonably and thereby misled York County. There are two
ways to look at this question. ANFIC says that it always intended
to recoup the deductibles. Viewing ANFIC's conduct in that light,
the district court found that "what makes ANFIC's conduct
unreasonable is . . . its failure to disclose that [its $750,000
contribution to the global settlement] was not the contribution it
appeared to be." Id. at 80.
There is another way to look at ANFIC's conduct. The
district court found that ANFIC's decision to pursue its deductible
interest was a post hoc brain-storm, conceived only after the
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global settlement had been achieved. See id. at 81 ("ANFIC's
decision to seek deductible reimbursement from York County was a
strategy developed ex post facto.").
In the end, however, ANFIC's intent is not the issue. On
the one hand, if ANFIC intended all along to recoup the deductibles
yet failed to mention that fact at the appropriate time, it should
have known that York County would reasonably perceive its silence
as an abandonment of the "deductible" claim and consider ANFIC's
$750,000 as an unconditional contribution from ANFIC's own coffers
(not merely a pass-through payment). On the other hand, if ANFIC
made an about-face after the settlement and conceived the plan to
recoup the deductibles at that late date, the County's belief, at
the time of the settlement, that ANFIC had abandoned the
"deductible" claim would be equally reasonable. Either way, the
district court's finding of unreasonable conduct is inexpugnable.
ANFIC defends its position by arguing that it never
formally withdrew its reservation of rights. But actions sometimes
speak louder than words and this is such an instance.
ANFIC also argues that, whichever scenario might apply,
it never portrayed its contribution was anything other than a loss
payment. In its view, simply paying what it was obligated to pay
under the policy cannot plausibly be deemed unreasonable. This
platitude begs the question; that the payment was made with respect
to covered losses and obligated expenses sheds very little light on
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what York County reasonably perceived ANFIC's agreement to be when
it entered into the global settlement.
If more were needed — and we doubt that it is — the
district court's conclusion that ANFIC's conduct was unreasonable
is reinforced by other facts touching upon the negotiations. For
example, there was no attempt during the settlement pavane to reach
an understanding between ANFIC and York County as to how parties'
contributions would interact. By the same token, ANFIC made no
effort to secure an agreement as to how its contribution would be
allocated.3 Moreover, when ANFIC transmitted its draft for
$750,000, it imposed no conditions or reservations on negotiation
of the draft. At no time prior to filing the instant action did
ANFIC attempt to characterize its contribution as an advance of
deductibles or suggest that the payment was anything other than an
outright contribution toward the global settlement. Last — but far
from least — ANFIC was well aware of both York County's financial
plight and the County's representation that the global settlement
would exhaust its available funds (and, hence, leave nothing to
fall back on if an effort was subsequently made to recoup
deductibles).
3
This is especially noteworthy because, in prior settlements
in which unresolved coverage disputes lingered, Curtin made a
practice of assuring that there was express agreement to table the
coverage dispute and resolve it after the settlement was completed.
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This brings us to the second element of the equitable
estoppel defense: justifiable detrimental reliance. The district
court found that, had the County known that ANFIC intended to seek
recoupment of its $750,000 contribution, the County would not have
agreed to the global settlement. See D. Ct. Op., 582 F. Supp. 2d
at 81. The district court also found that the County's reliance
was justifiable and detrimental. Id.
While ANFIC challenges the reasonableness of York
County's belief that the global settlement would extinguish the
County's liability to all concerned, the chain of events is
telling. ANFIC agreed to its contribution only after a long,
complicated negotiation among the members of the defense group. It
is transparently clear that each participant was striving to limit
its own exposure to potentially massive damages and substantial
litigation costs.
ANFIC's $1,000,000 liability coverage was plainly at
risk; the dispute about the deductibles bore only marginally on
that risk. Indeed, in urging ANFIC to make a hefty contribution to
the settlement fund, the County specifically noted that even if
ANFIC was right about how the deductible provision operated,
awarded damages should exhaust its $1,000,000 policy limit and, in
the bargain, produce huge defense costs (of which ANFIC had agreed
to pay twenty-five percent). Under these circumstances, ANFIC's
agreement to make the $750,000 contribution without any
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contemporaneous mention of the policy deductible or any renewal of
its reservation of rights was unreasonably deceptive. That
conduct, in turn, led the County to believe, quite reasonably, that
any issue anent the deductible had been swallowed up in the global
settlement.
ANFIC also denigrates the finding that the County
suffered a detriment, asserting that even if a fully informed York
County might have acted differently, it suffered no detriment by
entering into the settlement agreement because the County's
alternative was worse. This is sophistic reasoning.
ANFIC's blithe assertion assumes that, had York County
not acquiesced in the global settlement and agreed to contribute
$50,000, the necessary alternative was a full-dress trial resulting
in a multi-million-dollar verdict against York County (far in
excess of its available insurance coverage). That is incorrect.
The County's non-acquiescence might well have prompted the other
members of the defense group to rethink the matter and, perhaps,
increase their contributions to the common fund (thus allowing the
settlement to be consummated); or the County's non-acquiescence
might have prompted the class representatives to lower their sights
and accept a lesser amount in settlement. Even if the settlement
cratered and the class action went to trial, the County might have
had a viable claim against ANFIC for a bad-faith refusal to settle.
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See, e.g., Me. Rev. Stat. Ann. tit. 24-A, § 2436-A; Wilson v. Aetna
Cas. & Sur. Co., 76 A.2d 111, 113 (Me. 1950).
The lesson is that where, as here, a party reasonably
believes that it is wrapping up its entire exposure and settling a
case for a sum certain, it suffers a detriment whenever it is
required to pay more to fund the settlement. That lesson applies
here: the County reasonably believed that its $50,000 contribution
to the settlement fund would absolve it of all liability but, on
ANFIC's recasting of the scenario, it will be expected to make
additional payments that might aggregate as much as $750,000.
Accordingly, we agree with the lower court that there was a
detriment: the County did something that substantially altered its
legal rights and that it would not otherwise have done. No more is
exigible. See Roberts, 404 A.2d at 241.
III. CONCLUSION
To recapitulate, the district court supportably found
that, under the circumstances, ANFIC's course of conduct was
unreasonable and misleading; that York County reasonably bought
into the impression that ANFIC had created; and that the County,
through that reliance, suffered a cognizable detriment.
Consequently, the finding of equitable estoppel is bulletproof.
We need go no further. For the reasons elucidated above,
we reject ANFIC's appeal.
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Affirmed.
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