United States Court of Appeals
For the First Circuit
No. 02-1799
AUTO EUROPE, LLC,
Plaintiff, Appellee,
v.
CONNECTICUT INDEMNITY COMPANY,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge]
Before
Lynch, Circuit Judge,
Coffin and Campbell, Senior Circuit Judges.
Andrew J. Gallogly with whom Margolis Edelstein was on brief
for appellant.
Catherine R. Connors with whom Louise K. Thomas and Pierce
Atwood were on brief for appellee.
March 4, 2003
COFFIN, Senior Circuit Judge. A Maine company, Auto Europe,
LLC, brought this diversity action against Connecticut Indemnity
Company ("CI"), seeking a declaratory judgment that the insurance
company has a duty to defend Auto Europe in a pending consumer
fraud suit. The district court, over CI's objection, concluded
that Maine is the proper venue for the coverage dispute, Maine
substantive law governs it, and CI has a duty to defend Auto
Europe. After careful review of the law and the record, we
conclude that CI's challenges to those determinations are
unavailing. We also affirm the district court's award of
attorney's fees against the insurer.1
I. Background
Auto Europe is a defendant in a lawsuit ("the Harter action")
filed in June 2001 by four Illinois residents who claim that the
Maine company and two other travel businesses "deceptively
concealed" an "add-on" to their charges for foreign car rentals.
The Harter plaintiffs contend that the defendants calculated
foreign sales tax on a car rental base price that included a non-
taxable broker's fee, effectively increasing the brokers' fees in
the guise of a charge they claimed was a foreign tax. The
1
Auto Europe's complaint contained a second count for breach
of contract, which, as the magistrate judge noted, was subsidiary
to the primary count seeking a declaratory judgment on the duty to
defend: "[I]t necessarily follows that, if a duty to defend exists
and the insurer has refused to provide a defense, the contract has
been breached." Recommended Decision at 12. We agree and
therefore do not separately discuss the contract claim.
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complaint alleged that the price information given to consumers was
"designed to mislead and conceal" the nature of the additional
charge, and it accused the defendants of engaging in a "fraudulent
scheme of overcharges." The complaint alleged various violations
of federal and state law, including both the Maine and Illinois
consumer fraud acts.
CI coincidentally insured all three Harter defendants under
separate policies, each of which provided the same coverage. Auto
Europe's policy promises payment for all sums that the insured
becomes obligated to pay because of "any negligent act, error or
omission of the 'insured' . . . in the conduct of 'travel agency
operations' by the 'named insured.'" The policy excludes coverage,
however, for "liability arising out of any act, error or omission
which is wilfully dishonest, fraudulent or malicious, or in wilful
violation of any penal or criminal statute or ordinances, and is
committed (or omitted) by or with the knowledge or consent of the
'insured.'"
Based on the exclusion, CI refused to defend Auto Europe in
the Harter action, and Auto Europe thereafter filed this suit.2
CI filed a counterclaim in the Maine litigation, seeking a
2
Auto Europe also sought defense from another of its
insurers, Commercial Union, based on a different policy.
Commercial Union sought a declaratory judgment in Illinois on its
duty to defend, and after rejecting Auto Europe's attempt to
transfer that action to Maine, the Illinois court ruled that
Commercial Union did not have a duty to defend based on an
exclusion not contained in the CI policy.
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declaratory judgment that it had no duty to defend, and it filed
suit in Illinois against all three Harter defendants, seeking that
same relief. It also filed a motion in Maine to transfer venue of
Auto Europe's action to Illinois.
The magistrate judge in Maine denied the transfer motion,
determined that Maine law applied to the action, and concluded that
CI had a duty to defend Auto Europe. The district court, after a
de novo review that included oral argument, affirmed the decision
denying transfer of venue and adopted the magistrate judge's
recommendation that summary judgment be granted for Auto Europe on
the duty to defend. Under Maine law authorizing an award of
attorney's fees to an insured when the insurer's duty to defend was
"clear," the district court awarded reasonable fees and costs to
Auto Europe.3
Subsequently, the district court in Illinois also ruled, in
the lawsuit filed by CI, that the insurer had a duty to defend in
the Harter action. That ruling, applying Illinois law, was not
directly applicable to Auto Europe, however, because the Maine
company had been dismissed from the Illinois proceedings.
In its appeal of the Maine decision, CI argues that the
district court, as reflected in the decisions of both the
magistrate judge and district judge, erred on the procedural issues
3
The district court also dismissed without prejudice, as
premature, CI's request for a declaratory judgment on
indemnification.
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of venue and choice of law as well as in finding a duty to defend
under Maine law. The insurer further objects to the imposition of
attorney's fees and costs. We address each issue in turn.
II. The Motion to Transfer Venue4
The propriety of the venue ruling warrants little discussion.
The magistrate judge fully considered and discussed CI's motion and
its judgment, particularly when affirmed by the district court, is
entitled to considerable deference. See Osband v. Woodford, 290
F.3d 1036, 1041 (9th Cir. 2002) (noting that magistrate judge's
pretrial order is reversible by the district court, under 28 U.S.C.
§ 636(b)(1)(A), only if it is "'clearly erroneous or contrary to
law,'" and that same standard applies to appellate review); Phinney
v. Wentworth Douglas Hosp., 199 F.3d 1, 4 (lst Cir. 1999) (same);
see also Coady v. Ashcraft & Gerel, 223 F.3d 1, 11 (lst Cir. 2000)
(appellate standard of review for venue motion is abuse of
discretion).
Although it may have been more efficient to determine CI's
duty to defend with respect to all three Harter defendants in the
same forum, we do not agree that the district court was obliged to
transfer the case to Illinois. Its reasons for declining to do so
4
The motion invoked 28 U.S.C. § 1404(a), which states:
For the convenience of parties and witnesses, in the
interest of justice, a district court may transfer any
civil action to any other district or division where it
might have been brought.
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were sound and appropriate, focusing on the weight accorded to
plaintiff's choice of the forum in which it is located, the
unlikelihood of any witness inconvenience because of the
probability of a document-based determination of the duty to
defend, and the absence of any compelling reason related to
judicial economy. We therefore find no error in the court's denial
of the transfer motion.
III. Choice of Law
CI next challenges the district court's decision to apply
Maine law to the coverage dispute. A federal court sitting in
diversity jurisdiction must employ the choice-of-law principles of
the forum state, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 491 (1941); Crellin Techs., Inc. v. Equipmentlease Corp., 18
F.3d 1, 4 (lst Cir. 1994), and the district court's choice of law
pursuant to the state framework is reviewed de novo, Crellin
Techs., 18 F.3d at 4.
Under Maine law, when an insurance contract does not specify
the jurisdiction that should govern disputes arising under it,
the rights and duties of the parties . . . are to be
determined at the forum level by the local law of the
state which, with respect to that particular issue, has
the most significant relationship to the transaction and
the parties. Specifically, in a casualty insurance
contract . . . the validity of the contract and the
rights and duties created thereby, are to be determined
. . . by the local law of the state which the parties
understood was to be the principal location of the
insured risk during the term of the policy, unless with
respect to the particular issue involved, some state has
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a more significant relationship to the transaction and
the parties . . . .
Baybutt Constr. Corp. v. Commercial Union Ins. Co., 455 A.2d 914,
918 (Me. 1983), overruled on other grounds, Peerless Ins. Co. v.
Brennon, 564 A.2d 383 (Me. 1989) (adopting Restatement (Second) of
the Law, Conflict of Laws 2d (1971) [hereinafter "Restatement"], §§
188, 193).
As with the venue ruling, the magistrate judge offered a
thoughtful assessment of the choice of law question. Noting that
the underlying complaint purported to assert the claims of a
nationwide class against Auto Europe, he rejected the relevance of
the location of the named plaintiffs' individual transactions
because "an unknown number of plaintiffs in an unknown number of
locations may have claims that fit within the purported class." He
also noted that the complaint alleged that Auto Europe's principal
place of business was in Portland, Maine, and because no other
business location is identified, "[b]y terms of the complaint Auto
Europe could only have acted in Maine." Recommended Decision at 7.
The magistrate judge thus viewed Maine as "the principal location
of the insured risk," and ruled that, under Baybutt, Maine law
should apply.
CI contends that the law of either Florida or Illinois would
be more appropriate than Maine law because both "would appear to
have more significant interests in this coverage litigation and
greater contacts with the transactions underlying the dispute than
-7-
does Maine." According to CI, Florida is significant because the
contract that provides the insurance coverage at issue in this case
was negotiated and delivered there to Auto Europe's corporate
parent. The policy insured more than two dozen affiliates or
subsidiaries in a variety of locations, and Auto Europe apparently
was the only one located in Maine. CI also cites Illinois' central
importance to this case as the home state of the named plaintiffs
in the Harter litigation. The two plaintiffs who did business with
Auto Europe booked their rental cars through local travel agents in
Chicago, and Illinois is also where the underlying lawsuit is
pending.
We can easily eliminate the law of Florida as more appropriate
than Maine law for resolving the coverage issue. Our reading of
the authorities indicates that a policy covering numerous related
companies located in different states would be deemed a multiple
risk policy that, for Maine choice of law purposes, would be viewed
in a particular case as if a separate policy had been issued to
cover each entity. See Baybutt, 455 A.2d at 919; Restatement, §
193, comment f. Because Florida's status stems only from its role
with respect to the overall policy, its significance in this case
thus drops away, and the question becomes whether Maine – Auto
Europe's principal location – should provide the substantive legal
principles, or whether, "with respect to the particular issue
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involved, [Illinois] has a more significant relationship to the
transaction and the parties," Baybutt, 455 A.2d at 918.
We think the district court got it right. Auto Europe, a
Maine business with offices only in Maine, is alleged to have
committed consumer fraud by its conduct in Maine.5 Although the
named plaintiffs live in Illinois, and presumably for that reason
found it convenient to file their lawsuit there, Illinois cannot be
said to have a more significant relationship to the parties and
transaction than does Maine. To be sure, the plaintiffs' home
state has a substantial interest in ensuring that its citizens are
not defrauded by out-of-state companies operating through local
agents. Under Maine's choice of law principles, however, its own
substantial interests take precedence because, as Auto Europe's
home base, Maine is "the principal location of the insured risk."6
5
Paragraph 82 of the amended complaint alleges that "the
deceptive pricing and other deceptive acts took place at the Auto
Europe's principal place of business which is Maine . . . ."
6
We recognize that the location of the risk in Baybutt and
similar cases, see, e.g., Gates Formed Fibre Prods., Inc. v.
Plasti-Vac, Inc., 687 F. Supp. 688 (Me. 1988), differs from the
scenario here because the underlying plaintiffs in those cases were
physically located where the insured activity – the alleged harm –
occurred. This is not a difference that affects our analysis,
however. An insured risk is "'the object or activity which is the
subject matter of the insurance,' and 'has its principal location
. . . in the state where it will be during at least the major
portion of the insurance period.'" Id. at 690 (quoting
Restatement, § 193, comment b). The insured risk here was the
conduct of a travel agency whose only business location was in
Maine; the physical location of its customers does not change the
location of the risk.
-9-
The district court therefore correctly ruled that Maine law governs
the coverage dispute.7
IV. Duty to Defend
Under Maine law, the duty to defend is determined by means of
the comparison test: the complaint in the underlying lawsuit is
compared with the insurance policy to ascertain if "'there exists
any legal or factual basis which could be developed at trial which
would obligate the insurers to pay under the policy.'" United Bank
v. Chicago Title Ins. Co., 168 F.3d 37, 39 (lst Cir. 1999) (quoting
NE Props., Inc. v. Chicago Title Ins. Co., 660 A.2d 926, 927 (Me.
1995)); see also Me. Mut. Fire Ins. Co. v. Gervais, 715 A.2d 938,
940 (Me. 1998).
If the complaint shows even a possibility that the events
giving rise to it are within the policy coverage, the
insurer must defend the suit. Any ambiguity must be
resolved in favor of a duty to defend.
Mass. Bay Ins. Co. v. Ferraiolo Constr. Co., 584 A.2d 608, 609 (Me.
1990); see also York Ins. Group of Maine v. Lambert, 740 A.2d 984,
985 (Me. 1999).
7
We offer two passing thoughts. First, as the magistrate
judge observed and our discussion reveals, CI's complaint about
inadequate opportunity for discovery is without force; the
information it sought to obtain, regarding other insureds on the
policy with Auto Europe, was unnecessary for the choice-of-law
inquiry because the information already available showed that the
covered businesses were located in various states. Second, on the
primary substantive issue – the duty to defend – the choice of law
is likely of no consequence because the relevant law in Maine and
Illinois, and probably Florida as well, appears to be the same.
See infra at 11-13.
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The magistrate judge, affirmed by the district court, found a
duty to defend based on the possibility that the proof at trial
would establish a non-intentional violation of the Maine Unfair
Trade Practices Act (UTPA), Me. Rev. St. Ann. tit. 5, §§ 205-A-214
(West 2002).8 CI contends that the district court erred because
the Harter complaint alleges only intentional fraud, bringing it
within the policy exclusion for willfully dishonest or fraudulent
acts. CI cites caselaw from Illinois and Florida for the
proposition that coverage is unavailable under exclusions similar
to the one here when the complaint is limited to allegations of
intentional conduct, even if the facts would have permitted
recovery based on theories not covered by the exclusion. See,
e.g., Fed. Ins. Co. v. Applestein, 377 So.2d 229, 231 (Fla. App.
1979) (holding that, notwithstanding policy coverage for libel and
slander generally, allegations that comments were made "'with
malice'" and "in a specific 'attempt to discredit'" the underlying
plaintiff "completely negate coverage by conclusively establishing
that the exclusion applies"); United Fire & Cas. Co. v. Jim Maloof
Realty, Inc., 435 N.E.2d 496, 498-99 (Ill. App. 1982) ("[S]ince the
factual allegations of the complaint are premised upon only one
theory of recovery, that of intentional fraud, and do not fall
within the potential coverage of the insurance policy, United has
8
An act may be deceptive under the statute "even though the
defendant had no purpose to deceive and acted in good faith."
Binette v. Dyer Library Ass'n, 688 A.2d 898, 906 (Me. 1996).
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no duty to defend its insureds."). CI argues that the Maine
comparison test requires the same result, although it notes that no
Maine cases have explicitly addressed the circumstance of a
complaint alleging only intentional conduct where recovery based on
less-than-intentional conduct also could have been sought.
Although we doubt that CI could prevail even under the law of
Florida or Illinois where, as here, the relevant cause of action
does not require intentional conduct for recovery,9 we are certain
that, under Maine law, CI's argument is without merit. We simply
note, in passing, that some of the cases relied upon by CI are
distinguishable because they involved either underlying causes of
action limited to intentional conduct, see, e.g., Ill. Farmers Ins.
9
In the action filed by CI in Illinois against the other
Harter defendants, the district court observed that Maine and
Illinois law are "analogous . . . on an insurer's duty to defend,"
Conn. Indem. Co. v. Auto Europe, LLC, 2002 WL 1806891 (N.D. Ill.),
at *5, and, applying Illinois law, the court found a duty to defend
the claim brought under the Illinois consumer fraud statute, noting
that "[t]he complaint does not clearly preclude . . . liability
under a reckless or negligence standard, or even through proof of
an innocent misrepresentation," id. at *4. See also Knoll Pharm.
Co. v. Auto. Ins. Co. of Hartford, 152 F. Supp.2d 1026, 1034 (N.D.
Ill. 2001) ("If the underlying complaint alleges facts that fall
within, or even potentially within, the coverage outlined in the
relevant policy, the insurer owes a duty to defend."). Florida
cases also impose a duty when there is a "potential" for coverage.
See, e.g., Lime Tree Vill. Cmty. Club Ass'n, Inc. v. State Farm
Gen. Ins. Co., 980 F.2d 1402, 1406 (11th Cir. 1993) ("The insurer
must defend when the complaint alleges facts which fairly and
potentially bring the suit within policy coverage."); Cabezas v.
Fla. Farm Bureau Cas. Ins. Co., 830 So.2d 156, 158 (Fla. App. 2002)
("If the allegations in a complaint when fairly read[] allege facts
which create potential coverage under the policy, the insurer must
defend the lawsuit.")(emphasis omitted).
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Co. v. Preston, 505 N.E.2d 1343, 1347 (Ill. App. 1987) (noting that
the claim assertedly within the policy's coverage was based on 42
U.S.C. § 1983, which offers "no remedy . . . based upon the mere
negligence of the defendant"); Jim Maloof Realty, Inc., 435 N.E.2d
at 498-99 (observing that underlying complaint "essentially states
one cause of action, that of intentional fraud"), or factual
situations that foreclosed the possibility of unintentional
conduct, see, e.g., Rubloff, Inc. v. Am. Nat'l Fire Ins. Co., 1997
WL 264327, at *6 (N.D. Ill.) ("negligent conduct is not even a
theoretical possibility under [the] complaint"). In other words,
in these cases, the theory of relief chosen by the underlying
plaintiff depended upon a showing of deliberate conduct, placing
any possible recovery outside the policy's coverage, and leaving
the insurer with no duty to defend.
Here, by contrast, not only does the cause of action at issue
– the Maine UTPA – permit liability in the absence of an intent to
deceive, but Maine law also broadly extends the duty to defend to
claims that could be developed either legally or factually at trial
so as to fall within the policy's coverage. Like the district
court, we think it certainly possible in this case that the facts
as developed at trial would reveal an improper practice that was
unaccompanied by an intent to deceive. Thus, even if a jury
rejected the Harter plaintiffs' precise theory of deliberate
misrepresentation, they would retain the possibility of recovery
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under the UTPA. CI consequently is obliged to defend the Harter
lawsuit. See, e.g., Me. Mut. Fire Ins. Co., 715 A.2d at 942
("[B]ecause [the underlying defendant] may be found to have
intentionally inflicted emotional distress without subjectively
intending or foreseeing the alleged distress suffered by [the
plaintiff], the exclusion for intended or expected bodily injury is
inapplicable.").
In sum, when the cause of action alleged as the basis for
liability does not include elements that would foreclose coverage,
and where the events giving rise to the complaint may be shown at
trial to fall within the policy's coverage, Maine law entitles the
insured to a defense. See id. Indeed, we suspect that Maine's
inclusive approach to the duty to defend is designed precisely for
circumstances such as these – where a narrow reading of the
complaint's factual allegations might preclude coverage, but the
alleged cause of action is sufficiently broad that a modified
version of the facts could be developed at trial to show liability.
The district court therefore properly ruled that CI has a duty
to defend the Harter lawsuit.
V. Attorney's Fees
Auto Europe sought reimbursement of the attorney's fees
incurred in pursuing this declaratory judgment action, and
following the district court's grant of that request, the parties
stipulated to the amount of $42,675.91. Maine law authorizes an
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award of attorney's fees against an insurer when its "duty to
defend is clear from the policy and the pleadings," Maine Mut. Fire
Ins. Co. v. Gervais, 745 A.2d 360, 362 (1999) (internal citation
omitted).
To determine whether a duty to defend is "clear" for
purposes of awarding attorney fees, a court must evaluate
state law regarding an insurer's duty to defend as it
existed at the time the insurer initiated the declaratory
judgment action.
Id. Our review of the district court's decision is de novo. Id.
Without elaborating, the district court concluded that Auto
Europe was entitled to fees "because the duty to defend was and is
clear." We agree with that conclusion. Although CI might
legitimately have entertained some doubts about whether the
comparison test inevitably required a defense in all three relevant
jurisdictions,10 the case law in each is unequivocal in directing
that any lack of clarity must be resolved in favor of the insured.
See Ferraiolo Constr. Co., 584 A.2d at 609 ("Any ambiguity must be
resolved in favor of a duty to defend.") (Maine law); Wilkin
Insulation Co., 578 N.E.2d at 930 ("All doubts and ambiguities must
be resolved in favor of the insured.") (Illinois law); Lime Tree
10
As our prior discussion suggests, see supra at 11-12, a
quick review of Florida cases leaves some ambiguity on whether
allegations of intentional conduct eliminate the duty to defend
pursuant to an intentional acts policy exclusion even when facts
could be developed at trial to support judgment for the plaintiff
based on non-intentional conduct. See, e.g., Applestein, 377 So.2d
at 231 (holding that allegations of malice and deliberate "'attempt
to discredit'" negated coverage).
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Vill. Cmty. Club Ass'n, 980 F.2d at 1405 ("If the allegations of
the complaint leave any doubt as to the duty to defend, the
question must be resolved in favor of the insured.") (Florida law).
Regardless of which of the three state's laws applied, the
potential for coverage existed at the time CI refused to defend
Auto Europe. The duty to defend was therefore "clear" and,
accordingly, the district court properly awarded attorney's fees.
VI. Conclusion
The district court properly concluded that this insurance
coverage dispute should be heard in Maine and resolved pursuant to
Maine law. Because CI's duty to defend was clear, the district
court properly awarded attorney's fees to Auto Europe.
The judgment of the district court is therefore affirmed.
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