Utica Mutual Insurance v. Herbert H. Landy Insurance Agency, Inc.

United States Court of Appeals
For the First Circuit

No. 15-1220

UTICA MUTUAL INSURANCE COMPANY,

Plaintiff, Appellant,

v.

HERBERT H. LANDY INSURANCE AGENCY, INC.,

Defendant, Appellee,

CRES INSURANCE SERVICES, LLC,

Defendant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Indira Talwani, U.S. District Judge]

Before

Howard, Chief Judge,
Lynch and Lipez, Circuit Judges.

Erin K. Higgins, with whom Russell F. Conn, Katherine A.
Kelter, and Conn Kavanaugh Rosenthal Peisch & Ford LLP were on
brief, for appellant.
John A.K. Grunert, with whom Goganian & Associates, P.C. was
on brief, for appellee.

April 19, 2016
 HOWARD, Chief Judge. Utica Mutual Insurance Company

("Utica") appeals from a summary judgment order requiring it to

defend its insured Herbert H. Landy Insurance Agency ("Landy") in

a California state court lawsuit. Agreeing with the district court

that Utica is obligated to defend Landy under its professional

liability insurance policy, we affirm.

I. Background

Landy and Utica each are insurance companies. Landy

provides insurance to real estate professionals, and Utica insured

Landy under a professional liability insurance policy. This

policy, which the parties agree is governed by Massachusetts law,

contains a "duty to defend" obligation that required Utica to

defend Landy in certain lawsuits arising from errors and omissions

in Landy's provision of professional services as an insurance

broker and agent.

Landy alleges that Utica's duty to defend was triggered

when Landy was sued by CRES Insurance Services, LLC ("CRES"). CRES

is a competitor of Landy in the California real estate professional

liability insurance market. CRES sued Landy in California state

court, alleging that Landy had engaged in unfair business practices

in violation of California state law.1

1 The underlying action is CRES Ins. Servs. LLC v. Sun Coast
Gen. Ins. Agency, Inc., Herbert H. Landy Ins. Agency, Inc.,
Alexander Anthony Ins., LLC, d/b/a Alexander Anthony Ins. Agency,

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 Specifically, CRES alleged that California law divides

the relevant insurance market between "admitted" and "surplus"

insurers. See generally Cal. Ins. Code § 1763; Cal. Code Regs.

tit. 10, §§ 2131-2140; 39 Cal. Jur. 3d Insurance Companies § 227.2

According to CRES's complaint, admitted insurers generally charge

higher premiums than surplus insurers. Nevertheless, California

law favors the admitted insurers. See Cal. Code Regs. tit. 10, §

2132(a). California permits an insurance broker to offer a surplus

insurer's policy only in limited circumstances when the admitted

pool is deemed inadequate. See Cal. Ins. Code § 1763(a); Cal.

Code Regs. tit. 10, § 2132(b). CRES alleged that Landy improperly

offered surplus insurers' policies despite the adequacy of the

admitted market.

Based on these facts, CRES asserted two causes of action.

CRES's first claim was a statutory claim alleging that Landy's

violation of the state insurance code constituted unfair business

practices. See Cal. Bus. & Prof. Code § 17200, et seq.

CRES's second claim was for negligence, alleging that

Landy's conduct negligently interfered with CRES's prospective

LLC, and Does 1 to 100, No. 30–2009–00332596–CU–BT–CJC, (Cal. Sup.
Ct., Orange Cty.). This action has since settled.
2 "Admitted" insurers are those admitted to do business in

California by the state insurance commissioner. See Cal. Ins.
Code § 700. "Surplus" insurers, also known as nonadmitted
insurers, are those that are not so admitted and are subject to
restrictions on their ability to provide insurance in California.
See Cal. Ins. Code §§ 25, 1763.

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economic advantage. Specifically, CRES asserted that Landy

"failed to act with reasonable care," including "in the

solicitation and placement of [insurance policies]." It further

alleged that Landy "failed to conduct a diligent search of the

admitted market, filed falsified documentation relating to the

search, and evaded scrutiny . . . by failing to file required

statements."

Landy demanded that Utica defend it in the CRES lawsuit

under the policy. In response, Utica filed this action in

Massachusetts federal district court, seeking a declaration that

CRES's negligence claim did not trigger its duty to defend.3

The parties dispute the meaning of two policy

provisions. First, the policy covers only suits arising from

Landy's errors or omissions in "rendering or failing to render

professional services" as an insurance broker or insurance agent.4

3
Landy concedes that CRES's statutory claim does not trigger
the duty to defend. And Utica does not contest that if CRES's
negligence claim triggers the duty to defend, then Utica is
responsible for defending the entire CRES lawsuit, as well as for
paying Landy's attorney fees and costs in this action.
4 Specifically, the policy provides that in order to trigger

Utica's duty to defend, Landy's
"loss" must arise out of "wrongful acts"
committed in the conduct of the insured's
business, wherever committed or alleged to
have been committed, by the insured or any
person for whose "wrongful acts" the insured
is legally liable in rendering or failing to
render professional services as:
(1) A General Insurance Agent;
(2) An Insurance Broker;

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It does not provide comprehensive liability insurance. Utica

argues that CRES's negligence claim did not arise from alleged

errors in Landy's professional insurance services, but rather from

Landy's allegedly unfair business practices. Landy's position is

that the two are not mutually exclusive: Landy's allegedly unfair

business practices were committed in the course of providing

allegedly negligent professional insurance services.

Second, the policy expressly excludes coverage for

"unfair competition of any type." The policy also contains an

exclusion for intentional misconduct.5 Utica argues that, in order

(3) An Insurance Agent;
(4) An Insurance Consultant;
(5) A Managing, Master, or Brokerage General
Agent;
. . .
(7) A Surplus Lines Broker; . . . .
"Wrongful act" is defined as "any negligent act, error, or
negligent omission to which this insurance applies."
"Loss" means
any amount which an insured becomes legally
obligated to pay as damages for any "claim"
arising out of a "wrongful act" to which this
insurance applies and shall include judgments
and settlements. To the extent allowed by
law, "loss" shall include punitive or
exemplary damages. "Loss" shall not include:
a. Fines or penalties imposed by law;
b. Taxes; and
c. Matters which may be deemed uninsurable
under the law pursuant to which the policy
shall be construed.
5 The intentional misconduct exclusion applies to

[a]ny active and deliberate, dishonest,
criminal, fraudulent, malicious, or knowing
conduct committed or alleged to have been
committed by or at the direction of the

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to give independent meaning to both the unfair competition and

intentional misconduct exclusions, the unfair competition

provision excludes not only intentional unfair competition, but

also negligent unfair competition. Utica characterizes CRES's

negligence claim as just such a claim of negligent unfair

competition.

Landy disagrees for two reasons. It says that under

Massachusetts law, "unfair competition" encompasses only conduct

that misleads consumers, and the CRES complaint includes no

allegations of consumer confusion. Alternatively, Landy argues

that the exclusion does not apply to negligent performance of

professional services, even if that negligence also harmed a

business competitor.

On competing motions for summary judgment, the district

court denied Utica's motion and granted summary judgment to Landy.

UTICA Mut. Ins. Co. v. Herbert H. Landy Ins. Agency Inc., No. 13-

insured. If a "suit" is brought against the
insured alleging both "wrongful acts" within
the coverage of the policy and dishonest,
fraudulent, malicious, or criminal conduct,
then [Utica] will defend the insured in the
trial court, but [Utica] shall not have any
liability for any judgment for dishonest,
fraudulent, malicious, or criminal conduct nor
shall [Utica] have any further obligation to
defend after judgment in the trial court.
This exclusion applies only to insureds who
participated in, acted with knowledge of, or
acquiesced to such conduct.

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11471, 2014 WL 5475038, at *1 (D. Mass. Oct. 29, 2014). It held

that the policy required Utica to defend Landy in the CRES lawsuit

because CRES's negligence claim arose out of Landy's allegedly

negligent performance of professional services, and because the

exclusion for unfair competition did not cover CRES's negligence

claim.

II. Analysis

We review summary judgment decisions de novo. Batista

v. Cooperativa De Vivienda Jardines De San Ignacio, 776 F.3d 38,

41 (1st Cir. 2015). We may affirm a grant of summary judgment on

any ground supported by the record, so long as there is no genuine

issue as to any material fact and the moving party is entitled to

judgment as a matter of law. Id. at 42. "Where [as here] facts

are not in dispute, the interpretation and application of the

[insurance] policy language is a question of law. The parties and

the district court agree that Massachusetts law governs, and we

accept this premise." Massamont Ins. Agency, Inc. v. Utica Mut.

Ins. Co., 489 F.3d 71, 72 (1st Cir. 2007) (citation omitted).

Generally the insured bears the initial burden of establishing

coverage, while the insurer bears the burden on exclusions from

coverage. Boazova v. Safety Ins. Co., 968 N.E.2d 385, 390 (Mass.

2012).

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 Three sets of settled principles under Massachusetts

decisional law guide our analysis. First, on the duty to defend,

the Massachusetts Supreme Judicial Court has stated that

[a]n insurer has a duty to defend an insured
when the allegations in a complaint are
reasonably susceptible of an interpretation
that states or roughly sketches a claim
covered by the policy terms. . . . In order
for the duty of defense to arise, the
underlying complaint need only show, through
general allegations, a possibility that the
liability claim falls within the insurance
coverage. There is no requirement that the
facts alleged in the complaint specifically
and unequivocally make out a claim within the
coverage. However, when the allegations in
the underlying complaint lie expressly outside
the policy coverage and its purpose, the
insurer is relieved of the duty to investigate
or defend the claimant. The nature of the
claim and not the ultimate judgment against
the insured triggers the duty to defend even
though the plaintiff may not succeed and the
claim may, in fact, be weak or frivolous. . . .

Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 951 N.E.2d 662,

667 (Mass. 2011) (citations and internal formatting omitted).

Second, the Massachusetts court construes insurance

contracts in the same way as ordinary contracts. Id. at 671.

[W]e must construe the words of the policy in
their usual and ordinary sense. Every word
must be presumed to have been employed with a
purpose and must be given meaning and effect
whenever practicable. If in doubt, we
consider what an objectively reasonable
insured, reading the relevant policy language,
would expect to be covered. When confronting
ambiguous language, we construe the policy in
favor of the insured and against the drafter,
who is invariably the insurer, unless specific

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 policy language is controlled by statute or
prescribed by another authority. This rule of
construction applies with particular force to
exclusionary provisions.

See id. (citations and internal formatting omitted).

Third, for purposes of professional service insurance

policies, Massachusetts defines

[a] professional act or service [a]s one
arising out of a vocation, calling,
occupation, or employment involving
specialized knowledge, labor, or skill, and
the labor or skill involved is predominantly
mental or intellectual, rather than physical
or manual. In determining whether a
particular act is of a professional nature or
a professional service we must look not to the
title or character of the party performing the
act, but to the act itself. . . . [T]here
must be a causal relationship between the
alleged harm and the complained-of
professional act or service . . . not an act
or service that requires no professional
skill. Common sense, of course, will always
provide a useful guide in differentiating
covered from uncovered cases.

Roe v. Fed. Ins. Co., 587 N.E.2d 214, 217 (Mass. 1992) (internal

formatting omitted).

The touchstone for professional services coverage is

whether the alleged wrongful act or omission is inherent in the

practice of the profession. See id.; see also Massamont, 489 F.3d

at 73. Thus, professional liability policies generally do not

cover, for example, business management activities, business

decisions of a nonprofessional nature, activities not requiring

professional expertise, or activities totally unrelated to the

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profession. See Med. Records Assocs., Inc. v. Am. Empire Surplus

Lines Ins. Co., 142 F.3d 512, 514-16 (1st Cir. 1998). While these

other acts may "set the stage" for the performance of professional

services, they are not themselves professional services and thus

are not covered by most professional liability policies.

Massamont, 489 F.3d at 74.6

A. Professional Liability

Applying this law to the facts here, CRES's complaint

can be reasonably construed to sketch a professional liability

claim, and it is therefore covered by the policy. CRES's

negligence claim alleged that Landy "failed to act with reasonable

care in the solicitation and placement [of insurance policies]."

It further alleged that Landy "failed to conduct a diligent search

of the admitted market, filed falsified documentation relating to

the search, and evaded scrutiny . . . by failing to file required

statements." As we explain below, these activities -- soliciting

and placing insurance policies, searching the admitted market, and

6This is not to say that a professional liability policy can
never cover errors in non-professional activities. Whether it
does depends on how the policy is worded. See, e.g., Visiting
Nurse Ass'n of Greater Phila. v. St. Paul Fire & Marine Ins. Co.,
65 F.3d 1097, 1102 (3d Cir. 1995) (citing Biborosch v. Transamerica
Ins. Co., 603 A.2d 1050 (Pa. Super. Ct. 1992)) (broadly worded
policy covering profession of "Manager" covered wrongful
employment termination suit). The policy here, however, is not so
broadly worded, but covers the usual, limited range of professional
errors like those recognized in Roe, Massamont, and Medical Records
Associates.

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filing related documentation -- are part of the professional

activity of an insurance agent or broker.

Generally speaking, only insurance professionals solicit

and place insurance policies and conduct due diligence into the

admitted insurance market.7 Indeed, California law criminalizes

7 As described by Landy:
"Placing" a real estate agents and brokers
errors and omissions insurance policy
typically involves, among other things,
understanding the type and extent of coverage
a particular applicant needs; determining what
endorsements may be appropriate for a
particular applicant; determining whether a
particular insurer is a good match for the
particular applicant; rating the applicant and
determining what the premium should be in
light of the applicant's potential exposure,
claims history, and level of coverage;
determining what regulatory requirements must
be met if a particular applicant is placed
with a particular insurer; and making certain
that required regulatory filings are properly
made. . . .
Landy employees were trained, either through
formal education or through experience in the
insurance industry or both, to, among other
things, evaluate the complexity of
transactions applicants typically handle,
investigate and evaluate the claims histories
of applicants, evaluate the level of
experience of applicants' licensed sales
staffs, investigate applicants' relationships
with and degree of control over independent
contractors and part-time employees,
investigate the extent to which an applicant's
service and operations or syndication
activities may affect coverage expectations,
identify and understand specialized statutes
and regulations that are relevant to placement
of coverage for the applicant with particular
insurers, and evaluate the adequacy of filings

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the transaction of insurance without a valid license. Cal. Ins.

Code § 1633. Moreover, these activities are not ordinary business

activities common to other professions -- such as renting a

building, purchasing supplies, charging fees, hiring employees, or

contracting to expand one's business. See Massamont, 489 F.3d at

73-74. Nor are they business decisions of a non-professional

nature, such as violating a contract in order to procure a business

advantage, see id., or stealing trade secrets or other property,

see Albert J. Schiff Assocs., Inc. v. Flack, 417 N.E.2d 84, 87-88

(N.Y. 1980); Crum & Forster Managers Corp. v. Resolution Trust

Corp., 620 N.E.2d 1073, 1079 (Ill. 1993).

Neither are these activities ones not requiring

professional expertise, such as sending a client a bill, answering

a phone call, driving to a specified location, see Med. Records

Assocs., 142 F.3d at 512, or discarding old files, see Saint

Consulting Grp., Inc. v. Endurance Am. Specialty Ins. Co., 699

F.3d 544, 555 (1st Cir. 2012). To the contrary, solicitation and

placement of insurance policies and research of the admitted

that those statutes or regulations may
require.
Placing a real estate agents and brokers
errors and omissions insurance policy
typically draws on special training or
attainments, exacts the use or application of
special learning or attainments, and involves
exercise of professional judgment.
Utica did not contest the factual accuracy of these
statements, although it did assert that they were not material.

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insurance market require knowledge and skills particular to the

insurance profession. Finally, there is no claim that these

activities are wholly unrelated to the insurance profession. Cf.,

e.g., Roe, 587 N.E.2d at 218 (sexual assault is unrelated to

profession of dentistry).

Utica's counterarguments are unpersuasive. First, Utica

contends that the labels in the complaint, such as "negligence"

and "reasonable care" are not dispositive. Rather, Utica urges us

to assess the source of the alleged injury. And because the

gravamen of the CRES complaint was Landy's unfair business

practices, not its professional negligence, the policy does not

apply.

Utica is correct that labels are not controlling, see

Bagley v. Monticello Ins. Co., 720 N.E.2d 813, 817 (Mass. 1999),

and that professional and business activities are not identical,

see Med. Records Assocs., 142 F.3d at 515. But neither are these

two categories mutually exclusive, for the provision of insurance

is both a profession and a business. Naturally then, some

professional decisions also affect business practices. Such is

the case here. Landy's allegedly unfair business practices derive

from alleged errors in the performance of professional services:

negligent solicitation and placement of insurance policies and

failure to conduct due diligence into the admitted insurance

market.

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 Second, Utica suggests that professional liability

insurance does not cover claims by competitors at all, relying on

an unpublished district court opinion in Welch Foods, Inc. v. Nat'l

Union Fire Ins. Co., No. 09-12087, 2010 WL 3928704, at *5 (D. Mass.

Oct. 1, 2010) aff'd on other grounds, 659 F.3d 191 (1st Cir. 2011).

Welch Foods addressed whether professional liability insurance for

"promotion and marketing services" covered false advertising

claims brought by the insured's competitor. See id. at *5. The

district court in that case observed that professional liability

insurance is "usually intended to provide liability protection for

insureds whose clients hire them to provide professional

services." Id. Such insurance is "not intended to cover claims

by competitors." Id. (citing Visiting Nurse Ass'n, 65 F.3d at

1102).

That general observation is unexceptional, but it is not

a categorical rule. While professional liability policies often

do not cover competitor suits alleging negligent business

decisions, the reason is that the alleged wrongful act is not

inherent in the practice of the profession, not that the suit was

brought by a competitor. See Roe, 587 N.E.2d at 217. The gauge

is the nature of the act, not the identity of the parties. See

id.

Relatedly, Utica argues that the policy does not apply

because Landy did not breach any professional duties owed to CRES.

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It is true that CRES did not allege that Landy breached

professional duties to it. But professional liability coverage is

not necessarily restricted to lawsuits based on allegations of

breach of professional duty to the plaintiff. See Harad v. Aetna

Cas. & Sur. Co., 839 F.2d 979, 984 (3d Cir. 1988). And there is

no reason to read this policy so narrowly.

Here, the policy covers losses "aris[ing] out of

'wrongful acts' . . . in rendering or failing to render

professional services." "The phrase 'arising out of' must be read

expansively," and suggests "but for" causation. Bagley, 720 N.E.2d

at 816. Thus, the policy applies where, as here, CRES alleges

injuries actually caused by Landy's wrongful performance of

professional services. CRES need not allege any breach of

professional duties owed to CRES itself.

B. Exclusion for "Unfair Competition of Any Type"

Turning to the policy's exclusion for "unfair

competition of any type," Utica has not met its burden of

establishing that the exclusion applies. In construing insurance

policies, some Massachusetts courts have interpreted "unfair

competition" according to its common law meaning: "conduct that

causes confusion on the part of consumers, such as palming off or

passing off." Open Software Found., Inc. v. U.S. Fid. & Guar.

Co., 307 F.3d 11, 17 (1st Cir. 2002). See also generally Datacomm

Interface, Inc. v. Computerworld, Inc., 489 N.E.2d 185, 191-92

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(Mass. 1986) (discussing various forms of unfair competition).

Accordingly, "unfair competition" does not encompass the full

range of unfair business practices prohibited by state statutes.

See Open Software, 307 F.3d at 19 n.9 ("Massachusetts courts

construe the term 'unfair competition' in a liability insurance

policy not only to signify that common law tort, but also to

distinguish it from the statutory cause of action for unfair

business practices under Chapter 93A.").

The policy at issue here refers to "unfair competition

of any type." Applying the Massachusetts definition as described

by the cases above, this means "any type" of "conduct that causes

confusion on the part of consumers."8 The CRES lawsuit, however,

did not allege consumer confusion. Therefore, given the meaning

of "unfair" competition in Massachusetts law, Utica has not shown

that the exclusion applies.

In an attempt to get around this plain reading, Utica

argues that the modifier "any type" expands "unfair competition"

to encompass CRES's negligence claim -- even though that claim did

not allege consumer confusion. We disagree. Read naturally, the

phrase "any type" refers to every kind of the noun that it

modifies. See, e.g., Ali v. Fed. Bureau of Prisons, 552 U.S. 214,

8 We take Massachusetts law as described in the cases above
but offer no prediction about whether in the future Massachusetts
law might be more flexible so as to encompass other types of
conduct as "unfair competition."

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220 (2008) (The "use of 'any' to modify 'other law enforcement

officer' is most naturally read to mean law enforcement officers

of whatever kind."); see also any, Webster's Third New

International Dictionary (1993) (defining "any" to mean "one or

some indiscriminately of whatever kind"). And while the word "any"

may have an "expansive" meaning, it does not have a

"transformative" one: it can "never change in the least[] the clear

meaning of the phrase" it modifies. Freeman v. Quicken Loans,

Inc., 132 S. Ct. 2034, 2042 (2012); see also Ali, 552 U.S. at 220

n.4. For example, "any type of fruit" includes apples,

blueberries, cranberries, and every other kind of fruit. It does

not include leafy vegetables or red meat.

Similarly, the provision here should be construed

consistently with the term of art "unfair competition." See Lodge

Corp. v. Assurance Co. of Am., 775 N.E.2d 1250, 1252 n.4 (Mass.

App. Ct. 2002) ("technical terms and words of art are given their

technical meaning when used in a transaction within their technical

field" (quoting Restatement (Second) of Contracts § 202(3)(b)

(1981))). Accordingly, "any type of unfair competition" means

every kind of conduct leading to consumer confusion. At the very

least, this is a reasonable construction. Even assuming that a

more expansive construction is also reasonable, Massachusetts law

requires us to adopt the construction more favorable to the

insured, Landy. See Metropolitan, 951 N.E.2d at 671.

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 Utica also makes two further arguments based on the canon

against surplusage. Under this canon, "[e]very word in an

insurance contract must be presumed to have been employed with a

purpose and must be given meaning and effect whenever practicable."

Valley Forge Ins. Co. v. Field, 670 F.3d 93, 99 (1st Cir. 2012).

Utica first argues that the provision must embrace forms of unfair

competition not recognized by the common law -- such as CRES's

negligence claim -- lest the modifier "any type" be surplus.

Even assuming that the provision embraces forms of

competition not recognized by the common law, however, we do not

think that it necessarily covers CRES's negligence claim. As the

Supreme Judicial Court has recognized, the traditional core of

unfair competition is consumer confusion as to the source or origin

of goods or services. Datacomm, 489 N.E.2d at 192. However, some

courts have expanded the term beyond its common law meaning to

include "confusion as to sponsorship, endorsement, or some other

affiliation." Id. Thus, "any type" can be reasonably construed

to embrace these other forms of consumer confusion. But even this

expanded reading does not extend beyond consumer confusion. CRES's

negligence claim would not be excluded, and again, we are required

to adopt the reasonable construction more favorable to the insured.

See Metropolitan, 951 N.E.2d at 671.9

9 By doing so, we do not mean to transform "any type of unfair
competition" into a new term of art under Massachusetts law. "As

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 Utica's second surplusage canon-based argument fares no

better. Utica says that "any type" must embrace negligence claims

since a different provision of the policy excludes intentional

claims. This argument is unavailing, however. To restate, the

CRES lawsuit did not allege any kind of consumer confusion, whether

intentional or negligent.10

III. Conclusion

For the foregoing reasons, the judgment of the district

court is AFFIRMED.

a federal court sitting in diversity, we try to apply our best
understanding of the principles [Massachusetts] has adopted. It
is not our role to expand [Massachusetts] law; that is left to the
courts of [Massachusetts]." Douglas v. York Cty., 433 F.3d 143,
149 (1st Cir. 2005).
10 The parties agree that if the judgment is affirmed on

appeal, then the district court's award of attorney fees and costs
was proper.

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