United States Court of Appeals
For the First Circuit
No. 08-2287
PAUL A. GARGANO and GARGANO & ASSOCIATES, P.C.,
Plaintiffs, Appellants,
v.
LIBERTY INTERNATIONAL UNDERWRITERS, INC.,
GREENWICH INSURANCE COMPANY, and
NCMIC INSURANCE COMPANY,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Lipez, Hansen,* and Howard,
Circuit Judges.
David T. Barrat, with whom Paul A. Gargano was on brief, for
appellant.
William T. Bogaert, with whom Hinna M. Upal was on brief, for
Liberty International Underwriters, Inc., appellee.
Marissa I. Delinks, with whom David A. Grossbaum was on brief,
for Greenwich Insurance Company, appellee.
Brooks L. Glahn, with whom Alexandra B. Harvey was on brief,
for NCMIC Insurance Company, appellee.
July 14, 2009
*
Of the Eighth Circuit, sitting by designation.
HANSEN, Circuit Judge. Paul A. Gargano and his law firm,
Gargano & Associates P.C., (collectively "Gargano"), appeal the
district court's dismissal of the complaint in this diversity-based
lawyer's professional liability insurance coverage dispute.
Because Gargano's insurance claim was not both made and reported
within the relevant policy coverage periods, Gargano states no
plausible claim for breach of contract or for deceptive business
practices under Massachusetts law, and we affirm the judgment of
the district court. See Fed. R. Civ. P. 12(b)(6).
I.
Gargano brought suit in Massachusetts state court against
Liberty International Underwriters, Inc. ("Liberty"), Greenwich
Insurance Company ("Greenwich"), and NCMIC Insurance Company
("NCMIC"), asserting breaches of contract and violations of
Massachusetts General Laws Chapters 176D and 93A (protecting
consumers from deceptive business practices) for each insurance
company's alleged failure to investigate or settle the claim.
Gargano had obtained three separate professional liability
insurance policies, one from each company, covering three different
successive years. This suit is based on each company's denial of
Gargano's claim for coverage and its alleged refusal to pay without
conducting a reasonable investigation. The case was removed to
federal court, and the insurance companies each moved to dismiss
the complaint for failure to state a claim.
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The complaint indicates that Gargano obtained a
professional liability "claims made and reported" policy from
NCMIC, covering himself and his law firm for the period from
September 1, 2004, through September 1, 2005. The next year, the
policy was allowed to expire, and Mr. Gargano obtained a similar
"claims made and reported" policy from Greenwich, covering the
period from September 1, 2005, through September 1, 2006. When
that policy expired, Gargano obtained a "claims made and reported"
policy from Liberty for coverage from September 1, 2006, through
September 1, 2007. The policies are referenced in, and attached
to, the complaint. It is significant that each of these
professional liability insurance policies expressly "provides
coverage only for claims that are both first made against the
insured and reported to the insurance company during the term of
the policy." Gargano v. Liberty Int'l Underwriters, Inc., 575 F.
Supp. 2d 300, 303 (D. Mass. 2008).
The complaint avers that Gargano reported a claim to
NCMIC, Greenwich, and Liberty, seeking investigation and payment of
a state-court judgment that was entered against Gargano in July
2007. See Hug v. Gargano & Assocs., P.C., No. 05-1147, 23 Mass. L.
Rptr. 322, 2007 WL 4358191 (Mass. Super. Ct. July 5, 2007).1 The
1
While we ordinarily do not consider materials that are
outside the complaint when reviewing a motion to dismiss under Rule
12(b)(6), we make "narrow exceptions for documents the authenticity
of which are not disputed by the parties; for official public
records; for documents central to plaintiffs' claim; or for
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suit had been filed in March 2005, seeking to enforce an attorney's
lien for fees and for damages resulting from deceptive business
practices under Massachusetts law, see Mass. Gen. Laws ch. 93A.
The state court entered an order establishing Gargano's liability
to Mr. Hug in December 2005 and held a hearing on damages in March
2007.
The underlying facts in the Hug case, taken from the
ruling of the Massachusetts Superior Court, indicate that
Christopher N. Hug, an attorney, had represented one Anthony
Pirelli on a worker's compensation claim for permanent disability
benefits. Pursuant to a contingency fee arrangement with Pirelli,
Mr. Hug had worked on the case for four years, during which time he
had succeeded in ratcheting up the settlement offer to $200,000, a
sum that Mr. Hug thought he could still increase with further
negotiations. At that point, Pirelli discharged Mr. Hug and hired
Mr. Gargano. Mr. Hug relinquished his case file to the Gargano law
firm, spoke to the firm about recovering his share of the fees, and
filed a Notice of Attorney's Lien for the work he had done on the
case. He sent the lien notice to the appropriate state agencies
and twice to Gargano by certified mail. In January 2005, Mr. Hug
learned that Pirelli's case had been settled in June 2004 for a
documents sufficiently referred to in the complaint." Watterson v.
Page, 987 F.2d 1, 3-4 (1st Cir. 1993) (collecting cases
illustrating this exception). The Massachusetts Superior Court's
judgment and the complaint in Hug fit squarely within this
exception.
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lump-sum payment of $300,000 and that the Department of Industrial
Accidents ("DIA") had authorized a payment of attorney's fees to
the Gargano firm in the amount of $58,760. The state court found
that, to secure the fee award, Gargano had assisted Pirelli in
falsely representing to the DIA that Mr. Gargano and his firm had
represented Pirelli all along and that there were no outstanding
attorney's fee liens. The Massachusetts Superior Court concluded
that Gargano's "numerous misrepresentations or material omissions
of fact" amounted to an "unfair and deceptive business practice,"
and ordered Mr. Gargano and his law firm to pay over $102,000 in
damages, treble damages, and attorney's fees. Id. at *5.
After the entry of the Hug judgment in July 2007, Mr.
Gargano reported it as a claim on each of his professional
liability policies. Mr. Gargano did not report the claim when the
Hug lawsuit was initially filed in March 2005, and the Gargano law
firm itself defended the suit. Because Mr. Gargano did not report
the claim until 2007, NCMIC and Greenwich denied coverage on the
ground that the claim was not reported during the term of coverage
under their policies. Liberty denied coverage because, although
the claim was reported within its policy's coverage period, it was
first made prior to that term of coverage. Gargano asserts in the
complaint that each insurance company failed to deliver its policy
to him and should therefore be precluded from relying on policy
language to deny the claim. The district court granted the
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insurance companies' motions to dismiss for failure to state a
claim, concluding that the insurance companies were not obligated
to provide coverage under their "claims made and reported"
policies, and thus the facts did not state either a breach of
contract claim or a viable Chapter 93A claim for deceptive business
practices. Gargano appeals.
II.
"We review de novo the district court's dismissal of the
complaint under Rule 12(b)(6)." Thomas v. Rhode Island, 542 F.3d
944, 948 (1st Cir. 2008). We accept as true all well-pleaded facts
in the complaint and draw all reasonable inferences in favor of the
plaintiffs. Fitzgerald v. Harris, 549 F.3d 46, 52 (1st Cir. 2008).
The general rules of pleading require "a short and plain statement
of the claim showing that the pleader is entitled to relief." Fed.
R. Civ. P. 8(a)(2). This short and plain statement need only "give
the defendant fair notice of what the . . . claim is and the
grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (internal marks omitted), quoted in Erickson v.
Pardus, 551 U.S. 89, 93 (2007); see also Thomas, 542 F.3d at 948.
"To survive a motion to dismiss, the complaint must allege 'a
plausible entitlement to relief.'" Fitzgerald, 549 F.3d at 52
(quoting Twombly, 550 U.S. at 559); see also Ashcroft v. Iqbal, 129
S. Ct. 1937, 1949 (2009) (discussing the plausibility standard).
In this diversity case, there is no dispute that Massachusetts law
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governs, and we review de novo the district court's interpretation
of state law. See Salve Regina Coll. v. Russell, 499 U.S. 225, 231
(1991).
Even accepting as true all of the well-pleaded facts of
the complaint, Mr. Gargano and his firm have failed to state a
claim of breach of contract or deceptive business practices in
violation of Massachusetts law, because the claim they made for
coverage did not fall within the coverage period of any of the
three professional liability insurance policies. Each was a
"claims made and reported" policy, stating explicitly that its
coverage applied only to claims first made against the insured
during the policy period and reported to the company during the
policy period. See Appellants' App. at 24 (NCMIC policy); 40
(Greenwich policy), 55 & 62 (Liberty policy).
"A claims-made policy covers the insured for claims made
during the policy year and reported within that period or a
specified period thereafter regardless of when the covered act or
omission occurred." Chas. T. Main, Inc. v. Fireman's Fund Ins.
Co., 551 N.E.2d 28, 29 (Mass. 1990); see also J.I. Corp. v. Fed.
Ins. Co., 920 F.2d 118, 120 n.2 (1st Cir. 1990) (construing
Massachusetts law). It is clear under Massachusetts law that for
a "claims made and reported" policy, "the insured event" is the
combination of both requirements: (1) the claim must be first made
against the insured during the policy period, and (2) the claim
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must be reported to the insurer within the policy period. Chas. T.
Main, Inc., 551 N.E.2d at 30. This notice within the policy period
"is of the essence in determining whether coverage exists." Id.
The claim in this case was first "made" when Mr. Hug
filed suit against Gargano in March 2005, at the latest. The NCMIC
policy provided coverage from September 2004 through September
2005. The Hug suit was filed within that coverage period, but
Gargano did not report it to NCMIC until 2007, well outside the
coverage period. While the Hug proceedings remained pending
throughout the term of the Greenwich policy, from September 2005
through September 2006, Gargano met none of the Greenwich policy
requirements. The claim was first made against Gargano prior to
the Greenwich policy coverage period and was not reported until
2007, well after the coverage period expired. Finally, although
Gargano reported the claim to Liberty within its policy coverage
period of September 2006 through September 2007, the claim, first
made when the Hug suit was filed in 2005, was made prior to
Liberty's coverage period. Because the claim was not both made and
reported during the term of any of Gargano's three professional
liability insurance policies, Gargano has not "'state[d] a claim to
relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949
(quoting Twombly, 550 U.S. at 570).
Gargano asserted in the complaint, and argues on appeal,
that each insurance company's failure to deliver its policy to him
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rendered him unaware of the "claims made and reported" language,
and thus, the companies should not be permitted to rely on the
policy language to deny the claim. Gargano cites no cases
dictating this result. The cases Gargano cites illustrate that a
failure to deliver a policy in some circumstances may aid in
preventing the formation of a contract or may provide a defense to
the insurance company. See, e.g., Larsen v. Metro. Life Ins. Co.,
194 N.E. 664, 665 (Mass. 1935) (permitting no recovery on a policy
where the premium was never paid and the policy was not delivered);
Gabbett v. Conn. Gen. Life Ins. Co., 21 N.E.2d 950, 951-52 (Mass.
1939) (noting that a policy does not become operative without a
showing that the claimant's application had been accepted and the
policy delivered but also finding a valid defense for the insurer
where circumstances had changed before the policy was delivered).
As a general matter, "neither delivery nor actual possession by the
insured is essential to the making of an insurance contract unless
the contract expressly sets out a requirement of delivery."
Vinnie's Wholesale Fish Market, Inc. v. Can. Marine Underwriters
Ltd., 441 F. Supp. 341, 344 (D. Mass. 1977) (citing Pac. Mut. Life
Ins. Co. v. Barton, 50 F.2d 362, 365 (5th Cir. 1931) (finding that
where payment of the premium was accepted and there was "no
agreement to postpone the operation of this insurance until the
delivery of the policy," the policy was in force without
delivery)). Here, Gargano paid the premiums, he admits the
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formation of a contract, and the terms of the policies at issue do
not set forth a delivery requirement.
More importantly, however, Gargano cannot claim ignorance
of the terms of policies that were delivered to his insurance agent
or broker. See Vinnie's Wholesale Fish Market, Inc., 441 F. Supp.
at 344 ("[I]t is established that delivery of a policy to a broker
employed by the insured to procure that policy constitutes delivery
to the insured."). In the complaint, immediately after stating
that the insurers had failed to deliver the policies, Gargano
asserts that "[t]he agencies through which the [p]olicies were
issued eventually delivered the [p]olicies [to Gargano]. . . after
being advised of a judgment." (Appellants' App. at 13.) This
assertion admits that the policies "were issued" to the agencies,
and Gargano makes no contrary representation. Under Massachusetts
law, the agent's knowledge of the policy's terms is imputed to the
insured in this circumstance. See Aguiar v. Generali Assicurazioni
Ins. Co., 715 N.E.2d 1046, 1048 (Mass. App. Ct. 1999).
Additionally, "[a]lthough an insured is entitled to rely on his
broker as his agent, an insured cannot abandon all responsibility
for ascertaining the terms of the coverage his broker obtained."
Wilson v. James L. Cooney Ins. Agency, 845 N.E.2d 1187, 1193 (Mass.
App. Ct. 2006) (internal marks omitted).
Gargano makes no attempt to explain why the delivery of
the policies to his insurance agent or broker, and the
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corresponding knowledge of the terms of those policies, should not
be imputed to him. Instead, he urges this court to give effect to
his broad assumption that he was covered by professional liability
insurance. That assumption is not reasonable. As noted above, the
"claims made and reported" policies purchased specifically insure
against the event of a claim being both first made against the
insured, and reported to the insurer, during the policy period.
Chas. T. Main, Inc., 551 N.E.2d at 30. This is not a hidden or
obscure exception to coverage but the very "essence" of the policy,
id., and the policy language is neither misleading nor ambiguous,
see Aguiar, 715 N.E.2d at 1048-49 (noting that the reasonable
expectations of a purchaser of insurance are more likely to come
into play "when the [court's] task is to interpret an ambiguous
provision rather than an unambiguous one whose meaning, in this
case, no one disputes"). It was Gargano's responsibility to
understand the type of coverage he purchased through the agent or
broker, and we are not at liberty to rewrite either the policy or
Massachusetts law to conform to Gargano's alleged expectations.
We reject out of hand Gargano's assertion that the
insurance companies must demonstrate prejudice from his untimely
notice in order to escape liability. To require the insurer of a
"claims made and reported" policy to demonstrate prejudice from the
insured's failure to report a claim within the relevant policy
period "would defeat the fundamental concept on which claims-made
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policies are premised," with the likely result "that claims-made
policies, which offer substantial benefits to purchasers of
insurance as well as insurance companies, would vanish from the
scene."2 Chas. T. Main, Inc., 551 N.W.2d at 30.
III.
Because Gargano has not alleged a claim that was first
made and reported during the coverage period of any of the policies
at issue, the complaint states no plausible breach of contract
claim for denial of coverage and no plausible claim under Chapter
93A for failure to investigate or settle. We reject Gargano's
remaining arguments without discussion, except to note that the
district court did not err in relying on the facts and conclusions
set forth in the state-court judgment in Hug, as noted in footnote
1 above. See In re Sonus Networks, Inc., S'holder Derivative
Litig., 499 F.3d 47, 56 (1st Cir. 2007)(noting under Massachusetts
law issue preclusion bars relitigation of issues that were actually
litigated and decided in the first litigation).
Affirmed.
2
In fact, the policies issued to Gargano included express
provisions permitting the insured to purchase an extended reporting
period upon payment of an additional premium. Gargano is
attempting to gain extra coverage without having paid the extra
consideration.
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Gargano v. Liberty International Underwriters, Inc.
Court: Court of Appeals for the First Circuit
Date filed: 2009-07-14
Citations: 572 F.3d 45
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