United States Court of Appeals
For the First Circuit
No. 08-2525
MEDICAL MUTUAL INSURANCE COMPANY OF MAINE,
Plaintiff, Appellant,
v.
INDIAN HARBOR INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge]
Before
Howard, Ripple,* and Selya, Circuit Judges.
Jeffrey T. Edwards, with whom Preti, Flaherty, Beliveau &
Pachios, LLP was on brief, for appellant.
Leslie S. Ahari, with whom Troutman Sanders LLP, Louis K.
Thomas, and Pierce Atwood LLP were on brief, for appellee.
October 8, 2009
*
Of the Seventh Circuit, sitting by designation.
SELYA, Circuit Judge. This appeal presents the question
of whether a corporation can recover under a director and officer
(D&O) liability insurance policy for losses stemming from judicial
and administrative complaints filed against the company but which
alleged wrongful conduct on the part of its directors and officers.
In typical fashion, the policy language limits coverage to losses
resulting from claims made against the directors and officers
themselves.
D&O policies exist to fund indemnification covenants that
protect corporate directors and officers from personal liability,
not to protect the corporation by which they are employed. The
position advanced by the company in this case — extending coverage
to situations in which the directors and officers are not
themselves the actual targets of the claims made — would if
accepted transmogrify D&O policies into comprehensive corporate
liability policies. Because such a transmogrification is contrary
to both the letter and the spirit of the D&O policy at issue here,
we affirm the district court's entry of summary judgment in favor
of the insurer.
I. BACKGROUND
This case had its genesis in a dispute between Medical
Mutual Insurance Company of Maine (MMIC) and Patrick A. Dowling,
who suffered a stroke in April of 2005. MMIC did not wait very
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long before ousting Dowling from his position as its chief
executive officer.
Dowling retained counsel who, in October of 2005, wrote
a demand letter to MMIC, seeking compensation for alleged
disability discrimination. When the demand letter failed to
produce the desired response, Dowling filed an administrative
complaint against MMIC with the Maine Human Rights Commission and
the federal Equal Employment Opportunity Commission. The statement
of charge named MMIC as the lone respondent, but alleged
discriminatory conduct on the part of MMIC, its directors, and its
officers.
After the agencies issued right-to-sue letters, Dowling
filed a civil complaint against MMIC in the United States District
Court for the District of Maine. Dowling did not name any director
or officer as a defendant, but the complaint contained allegations
of wrongful conduct attributable to MMIC's directors and officers.
The complaint sought damages against MMIC and, among a series of
other prayers for relief, also requested that the court "[e]njoin
MMIC, its agents, employees, and successors, from continuing to
violate" Dowling's rights.
The named parties eventually settled the case. MMIC paid
$325,000 out of its own coffers in exchange for Dowling's execution
of a release of all claims against MMIC and its "officers, agents,
employees, attorneys, [and] members of the Board of Directors."
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MMIC subsequently sought reimbursement from Indian Harbor
Insurance Company, which had issued a D&O policy (styled in this
instance as a management liability policy) to MMIC. That policy
provided reimbursement for any loss(es) to MMIC arising out of
claims made against its directors and officers. Indian Harbor
refused to pay the piper, concluding that Dowling's claims had been
made only against the company (MMIC) and not against its directors
or officers.
Undaunted by this rebuff, MMIC filed the instant action
against Indian Harbor in the district court, seeking to compel
payment under the Indian Harbor policy. On cross-motions for
summary judgment, the court concluded that the policy did not cover
losses resulting from either of the complaints (administrative or
judicial) filed by Dowling against MMIC. Consequently, it granted
summary judgment in Indian Harbor's favor. This timely appeal
ensued.
II. ANALYSIS
We operate under a familiar legal framework. This is a
diversity case, 28 U.S.C. § 1332(c), in which Maine law supplies
the substantive rules of decision. See Erie R.R. Co. v. Tompkins,
304 U.S. 64, 78 (1938). The district court, applying Maine law,
made its dispositive ruling at the summary judgment stage, and that
ruling engenders de novo review. Houlton Citizens' Coal. v. Town
of Houlton, 175 F.3d 178, 184 (1st Cir. 1999).
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Under Maine law, the general rule is that ambiguous
language in an insurance policy must be construed against the
insurer. Seaco Ins. Co. v. Davis-Irish, 300 F.3d 84, 86 (1st Cir.
2002); Union Mut. Fire Ins. Co. v. Comm'l Union Ins. Co., 521 A.2d
308, 310 (Me. 1987). The very articulation of this rule indicates
its limitations: unambiguous language does not fall within the rule
but, rather, must be given its plain and ordinary meaning.
Alternative Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267
F.3d 30, 35 (1st Cir. 2001); Lidstone v. Green, 469 A.2d 843, 846
(Me. 1983). When a term is expressly defined within the four
corners of an insurance policy, an inquiring court must defer to
that definition and thereby give effect to the intent of the
parties. See John Hancock Life Ins. Co. v. Abbott Labs., 478 F.3d
1, 7-8 (1st Cir. 2006); see also In re Blinds to Go Share Purchase
Litig., 443 F.3d 1, 7 (1st Cir. 2006) ("Where the parties to a
contract take pains to define a key term specifically, their
dealings under the contract are governed by that definition.").
In the case at hand, the parties' dispute centers on
Section I(B) of the policy's insuring agreements.2 Section I(B)
provides:
The Insurer shall pay on behalf of the Company
Loss which the Company is required or
permitted to pay as indemnification to any of
the Insured Persons resulting from a Claim
2
The parties agree that Section I(B) is the only policy
provision that might entitle MMIC to reimbursement.
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first made against the Insured Persons during
the Policy Period or, if applicable, the
Optional Extension Period, for a Wrongful Act
or Employment Practices Wrongful Act.
The policy defines "Insured Person" as "any past, present or future
director or officer, or member of the Board of Managers, of the
Company." The policy further defines the word "claim" to include
any one of the following four iterations:
(1) a written demand for monetary or non-
monetary relief;
(2) any civil proceeding in a court of law or
equity, or arbitration;
(3) any criminal proceeding which is commenced
by the return of an indictment; and
(4) a formal civil, criminal, administrative
regulatory proceeding or formal investigation
of an Insured Person or the Company (but with
respect to the Company only for a Company
Wrongful Act) which is commenced by the filing
or issuance of a notice of charges, formal
investigative order or similar document
identifying in writing such Insured Person or
the Company as a person or entity against whom
a proceeding as described in (C)(2) [civil
proceeding] or (3) [criminal proceeding] above
may be commenced, including any proceeding
before the Equal Employment Opportunity
Commission or any similar federal, state or
local governmental body . . . .
We bring these policy provisions to bear here. To
establish coverage under Section I(B), MMIC had to show both that
Dowling made a "claim" as defined in the policy and that Dowling's
claim was made against MMIC's directors and officers. In the
district court, MMIC pointed to two separate "claims" that it
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deemed sufficient to satisfy this two-part test: the administrative
complaint and the judicial complaint. In its reply brief in this
court, MMIC for the first time enlarged this list, contending that
a demand letter from Dowling's counsel to MMIC, dated October 13,
2005, constitutes a third such "claim."
We take the newest contention first, and reject it out of
hand. For one thing, MMIC did not advance this contention in the
district court and, therefore, it is procedurally defaulted. See
United States v. Slade, 980 F.2d 27, 30 (1st Cir. 1992) ("It is a
bedrock rule that when a party has not presented an argument to the
district court, she may not unveil it in the court of appeals.").
For another thing, MMIC waived the contention by failing to allude
to it in its opening brief in this court. See DeCaro v. Hasbro,
Inc., ___ F.3d ___, ___ (1st Cir. 2009) [2009 WL 2767296, at *7]
("It is common ground that contentions not advanced in an
appellant's opening brief are deemed waived."); Sandstrom v.
ChemLawn Corp., 904 F.2d 83, 86 (1st Cir. 1990) (similar).
This leaves the administrative complaint and the judicial
complaint. We address them in chronological order, beginning with
the administrative complaint.
The administrative complaint fails to satisfy the
policy's definition of a "claim." In order for an administrative
complaint to constitute a claim under that definition, the filing
must "identif[y] in writing [an] Insured Person . . . as a person
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. . . against whom a proceeding . . . may be commenced."3
Dowling's notice of charge names MMIC as the sole respondent and
does not identify any particular directors or officers. The
accompanying statement of charge makes a few categorical references
to MMIC's agents, representatives, and board members, but it does
not name any specific director or officer. Reading the policy as
it is written, the administrative complaint simply does not
comprise a "claim" for purposes of coverage under Section I(B).
We turn next to Dowling's judicial complaint. That
pleading satisfies the definition of "claim" because it marks the
commencement of a "civil proceeding in a court of law." The larger
question is whether the claim is one "made against" an insured
person.
It cannot be gainsaid that the directors and officers
composed the entire roster of "Insured Persons" for purposes of the
coverage in question. MMIC itself is not included. It is equally
clear that Dowling brought his action only against MMIC. But even
though the judicial complaint named MMIC as the sole defendant,
MMIC notes that the complaint alleged a series of wrongful acts on
3
To be sure, the omitted portion of the definition mentions
"the Company," but this refers only to coverage under Section I(C)
of the policy. That section, in turn, covers only losses resulting
from securities claims "made against the Company . . . for a
Company Wrongful Act." The policy's definition of "claim" makes
this distinction pellucid: "'Claim' means . . . a formal civil,
criminal, administrative regulatory proceeding or formal
investigation of an Insured Person or the Company (but with respect
to the Company only for a Company Wrongful Act) . . . ."
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the part of its directors and officers. Thus, MMIC says, the
complaint constitutes a "claim . . . made against the Insured
Persons," as required by the policy.
This counter-intuitive proposition depends entirely on
the premise that the words "made against" are ambiguous and,
therefore, are subject to a broad construction in favor of
coverage. We reject this premise.
The mere fact that a party says that it understands words
in a contract of insurance differently than the insurer understands
those words does not make the words ambiguous. Greenly v. Mariner
Mgmt. Group, Inc., 192 F.3d 22, 26 (1st Cir. 1999) ("[A]n insurance
policy is not considered ambiguous merely because a dispute arises
over the meaning of a particular provision."). By the same token,
the mere fact that a phrase such as "made against" is not
specifically defined in the policy does not mean that the phrase is
ambiguous. As long as language in an insurance policy, read in
context, has a plain and generally accepted meaning, that language
is free from ambiguity. See Am. Employers' Ins. Co. v. DeLorme
Publ'g Co., 39 F. Supp. 2d 64, 82 (D. Me. 1999). Relatedly, "[a]
contract need not negate every possible construction of its terms
in order to be unambiguous." Alternative Energy, 267 F.3d at 35.
These principles are controlling here. Both plain
meaning and common usage require that, in order for a judicial
complaint to be "made against" a person, that complaint must be
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filed in court and must identify the person as a defendant in the
action. See Gargano v. Liberty Int'l Underwriters, Inc., 572 F.3d
45, 49 (1st Cir. 2009) (finding that a claim was "made" when
plaintiff filed suit); see also Fed. R. Civ. P. 3 ("A civil action
is commenced by filing a complaint with the court."); cf. Fed. R.
Civ. P. 4 (providing that a summons must name the parties, be
directed to the defendant, and be served upon the defendant after
the complaint is filed). Because this is the only reasonable
interpretation of "made against" in the context of the policy as a
whole, that phrase is not ambiguous. See Alternative Energy, 267
F.3d at 34 (holding that a contract is ambiguous only when it is
"reasonably susceptible of different interpretations"); Lidstone,
469 A.2d at 846 (similar).
MMIC's rejoinder is that the factual basis for the
judicial complaint consists largely of allegations of misconduct on
the part of its directors and officers. That may be true, but it
does not take MMIC very far.
The insurance policy at issue here is not implicated
because, no matter what conduct the complaint describes, it is not
a claim "made against" any of the directors or officers. That
contention is the linchpin of coverage. See Bank of Carbondale v.
Kan. Bankers Surety Co., 755 N.E.2d 543, 544, 547 (Ill. App. Ct.
2001) (finding no coverage under D&O policy where counterclaim
named only the company even though it alleged wrongful conduct on
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the part of directors and officers); 85-10 34th Ave. Apart. Corp.
v. Nationwide Mut. Ins. Co., 725 N.Y.S.2d 98, 99 (N.Y. App. Div.
2001) (holding that complaint alleging wrongful conduct on
directors' part was not a claim made against directors and officers
"since no directors or officers were named as defendants in the
underlying action"); see also 17 Eric Mills Holmes, Holmes'
Appleman on Insurance § 120.1 (2d ed. 2001) (remarking that because
D&O polices "do not provide coverage to the employer for its
liabilities, a discrimination complaint that names only the
employer . . . usually will not trigger coverage under a D&O
policy"). That linchpin is missing here.
If more were needed — and we doubt that it is — the
policy itself vividly illustrates why free-standing allegations of
wrongful conduct by an insured corporation's directors and officers
cannot be the equivalent of a claim made against those directors
and officers. Section I(B) of the policy entitles MMIC to coverage
for losses "resulting from a Claim . . . made against the Insured
Persons . . . for a Wrongful Act." Each of the capitalized terms
is defined in the policy. The words "Wrongful Act" are defined to
mean "any actual or alleged act, error, omission, misstatement,
misleading statement, neglect, or breach of duty by any Insured
Person." For the company to achieve coverage under this language,
the remonstrant not only would have to allege wrongful acts on the
part of directors or officers, but also would have to bring a claim
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against them. These are complementary requirements, and
allegations of wrongful conduct, without more, do not satisfy them
both. See MGIC Indem. Corp. v. Home State Sav. Ass'n, 797 F.2d
285, 288 (6th Cir. 1986) (explaining that "a claim that a wrongful
act has occurred is not the same thing as a claim for payment on
account of a wrongful act").
In an endeavor to snatch victory from the jaws of defeat,
MMIC points out that "claim" is disjunctively defined in the policy
as "a written demand for monetary or non-monetary relief." With
this in mind, it directs our attention to the tagalong prayer for
relief set out at the end of Dowling's judicial complaint, which
asks the court to enjoin "MMIC, its agents, employees, and
successors, from continuing to violate [his] rights." MMIC then
asseverates that this prayer for injunctive relief against MMIC's
"agents" qualifies as a claim for non-monetary relief made against
MMIC's directors and officers.
A prayer for injunctive relief against a company, which
incidentally refers to the company's agents, does not qualify as a
claim made against the agents because it does not demand relief
from them in their personal capacities. Although the agents can be
enjoined — to the extent that the company itself is enjoined — as
corporate representatives, see Fed. R. Civ. P. 65(d)(2), they
cannot be held legally liable in their personal capacities unless
and until they are joined as parties to the suit. See Nat'l Bank
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of Ariz. v. St. Paul Fire & Marine Ins. Co., 975 P.2d 711, 716
(Ariz. Ct. App. 1999) (holding that because directors and officers
were neither named as defendants nor subject to demands for relief,
no claim was made against them); cf. SEC v. Coffey, 493 F.2d 1304,
1310 (6th Cir. 1974) (reiterating "basic equity principle" that
when an injunction "is directed to a corporation, it also runs
against the corporation's officers, in their corporate capacities"
(emphasis supplied; internal quotation marks omitted)).
So it is here. Because none of the directors or officers
was named as a defendant in Dowling's judicial complaint, that
complaint could not be an effective vehicle for making a meaningful
demand for relief against them. See Buckingham Aparts., Ltd. v.
Liberty Mut. Ins. Co., 508 N.Y.S.2d 493, 495 (N.Y. App. Div. 1986)
(holding that prayer for relief against corporate policyholder and
its "directors, officers, [and] agents" did not amount to a claim
against the directors and officers because "no directors or
officers were named as defendants").
MMIC has one last shot in its sling. It notes the
wording of the general release signed by Dowling and argues that
this wording is an admission that Dowling's civil action
constituted a claim made against MMIC's directors and officers.
This argument runs along the following lines. The release says
that Dowling "hereby releases and agrees to waive any claims he may
have against MMIC, and its officers, agents, employees, attorneys,
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[and] members of the Board of Directors . . . of and from any and
all actions, causes of action, suits, claims or demands for damages
. . . now existing or arising in the future." The breadth of this
taxonomy means, in MMIC's view, that Dowling's claim must have been
made against the same classes of persons (including MMIC's officers
and directors).
This argument is a non-sequitur. Dowling named MMIC
alone as a defendant in the civil action, and Dowling and MMIC
settled the case while it stood in that posture. The fact that
MMIC, as a condition of the settlement, prudently required Dowling
to renounce any potential claims that he might have against its
directors and officers does not expand the parameters of the civil
action. Nor does the release transform, by some mysterious
alchemy, a non-covered allegation of wrongdoing into a covered
claim. See Richardson Elecs., Ltd. v. Fed. Ins. Co., 120 F. Supp.
2d 698, 704 (N.D. Ill. 2000) (holding that a release of potential
liability against a company's officers did not "translate into an
actual claim against them"). It would make no sense to allow an
insured to manufacture coverage by the simple expedient of
insisting, as a condition of settlement, that a plaintiff frame a
release more broadly than the plaintiff had framed the claim
actually made.
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III. CONCLUSION
We need go no further. For the reasons elucidated above,
we hold that the district court did not err in granting summary
judgment in favor of Indian Harbor.
Affirmed.
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