Massamont Insurance Agency, Inc. v. Utica Mutual Insurance

United States Court of Appeals
For the First Circuit

No. 06-2465

MASSAMONT INSURANCE AGENCY, INC.,

Plaintiff, Appellant,

v.

UTICA MUTUAL INSURANCE COMPANY,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Boudin, Chief Judge,

Cyr and Stahl, Senior Circuit Judges.

John J. Davis with whom Pierce, Davis & Perritano, LLP was on
brief for appellant.
Russell F. Conn with whom Erin K. Higgins, Jacob A. Labovitz
and Conn Kavanaugh Rosenthal Peisch & Ford, LLP were on brief for
appellee.

June 7, 2007
 BOUDIN, Chief Judge. Massamont Insurance Agency, Inc.

("Massamont") is a licensed insurance agency in Massachusetts,

specializing in the placement and administration of insurance

programs for specialty markets. It has two programs known as

Metrogard and Diplomax, which provide property insurance to schools

and municipalities.

In January 2001, Massamont entered into an agreement, to

continue indefinitely until terminated according to the terms of

the agreement, with the corporate parent of Westchester Fire

Insurance Company ("Westchester"), whereby Westchester would write

policies under the two programs, with Massamont acting as the

managing general agent for the policies (collecting premiums,

promoting the program, maintaining records) and performing certain

underwriting activities (based on guidelines from Westchester).

The agreement contained an exclusivity clause, central to

this case, stating:

During the term of this Agreement [Massamont]
will not solicit for any other insurance
carrier, except [Westchester], the Program
business. If [Westchester] elects not to
write such business, then [Massamont] is
granted the right to submit such business to
other insurance carriers under the same terms
and conditions as presented to [Westchester].

After disputes between the two companies in late 2002 and

early 2003, on July 1, 2003, Massamont placed Metrogard and

Diplomax business for eastern Massachusetts and Rhode Island with

Axis Specialty Insurance Company ("Axis"). Massamont says it

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thought Westchester no longer wanted the business. On July 9,

2003, Westchester sent a letter to Massamont purporting to

terminate the agency agreement because of breach of the exclusivity

clause.

Thereafter, invoking an arbitration clause in the

agreement, Westchester demanded damages from Massamont. Although

Westchester asserted that Massamont had poorly managed the

insurance (e.g., by poor risk assessment, lack of adjustment of

premium on policies with repeated loss claims, and poor file

maintenance), its demand sought damages because--allegedly in

breach of the agreement--Massamont had diverted business to Axis

without first offering it to Westchester.

Massamont then notified Utica Mutual Insurance Company

("Utica"), which provided Massamont with insurance under an

Insurance Agents and Brokers Errors and Omissions ("E&O") Liability

Insurance Policy--a counterpart for insurance agents of legal or

medical malpractice insurance. The Utica policy promised to defend

against claims of, and indemnification for, "loss" that "arise[s]

out of" a "wrongful act[]" allegedly "committed in the conduct of

the insured's business . . . in rendering or failing to render

professional services" as an insurance agent.

Utica refused to defend Massamont in the arbitration,

taking the position that Westchester's demand claimed losses not

covered by the policy. Massamont defended itself in the

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arbitration proceeding which resulted in an award against Massamont

for $2.6 million. When Utica refused to indemnify Massamont for

this award or defense costs incurred by Massamont in the

arbitration, Massamont brought the present suit against Utica in

federal district court alleging contractual breach of the Utica

policy and for multiple damages under Mass. Gen. Laws. ch. 93A, §

11 (2006).

On summary judgment, the district court held that the

arbitration demand sought damages for breach of the exclusivity

provision of the agency agreement. Massamont Ins. Agency, Inc. v.

Utica Mut. Life Ins. Co., 448 F. Supp. 2d 329, 331 (D. Mass. 2006).

The court further held that "the transfer of accounts to another

company in breach of the exclusivity clause . . . is not a

'professional' act . . . but rather was simply a business decision"

outside the policy's coverage. Id. at 332.

This court reviews grants of summary judgment de novo.

Nicolo v. Philip Morris, Inc., 201 F.3d 29, 33 (1st Cir. 2000).

Where facts are not in dispute, the interpretation and application

of the policy language is a question of law. Liberty Mut. Ins. Co.

v. Metro. Life Ins. Co., 260 F.3d 54, 61 (1st Cir. 2001). The

parties and the district court agree that Massachusetts law

governs, and we accept this premise. One Nat'l Bank v. Antonellis,

80 F.3d 606, 608 (1st Cir. 1996).

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 In delineating the duty to defend, Massachusetts courts

say that "if the allegations of the complaint are 'reasonably

susceptible' of an interpretation that they state or adumbrate a

claim covered by the policy terms, the insurer must undertake the

defense." Sterilite Corp. v. Cont'l Cas. Co., 458 N.E.2d 338, 340-

41 (Mass. App. Ct. 1983) (internal citations omitted); see also

Cont'l Cas. Co. v. Gilbane Bldg. Co., 461 N.E.2d 209, 212 (Mass.

1984). The duty to indemnify depends on whether the judgment, if

any, is for a covered loss. Boston Symphony Orchestra, Inc. v.

Commercial Union Ins. Co., 545 N.E.2d 1156, 1158 (Mass. 1989).

We agree with the district judge that the gravamen of the

arbitration demand was the breach of the exclusivity provision.

Although Westchester's charges of negligent operation by Massamont

were set forth as "background," the next section of the demand was

titled "Massamont Breaches the Exclusivity Provision of the

Agreement" and focused on Massamont's discussions with Axis and the

subsequent transfer of $12 million worth of business to Axis.

Consonantly, in the section of the demand entitled

"Damages Suffered by Westchester," Westchester sought to recover

damages to Westchester caused by Massamont's breach of the

exclusivity provision in the agreement. Thus, both the claim and

ad damnum were directed to the exclusivity provision. Also,

pertinent to the duty to indemnify, the arbitrator's award stated

that "Massamont breached the Agency Agreement" and awarded $2.6

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million in damages to Westchester; the parties' post-hearing briefs

in the arbitration make clear that the breach in question was the

transfer of the business to Axis.

We also agree with the district judge that the diversion

of business by Massamont in breach of its exclusivity obligation is

not within the coverage provided by the Utica policy. As noted,

that coverage is for wrongful acts "committed in the conduct of the

insured's business . . . in rendering or failing to render

professional services as" an insurance agent. This would include

services, whether for Westchester or for Massamont's own clients,

but only insofar as they were "professional services."

A promise by an agent to represent one insurer

exclusively for certain lines of insurance is not itself a

professional service, nor does a diversion of business in breach of

such a contract comprise the performance of professional service.

The closest cases interpreting Massachusetts insurance law hold

that overcharging clients in fees, even though for work done in a

professional capacity, is not itself a professional service covered

by malpractice or E&O policies.1

1
Reliance Nat'l Ins. Co. v. Sears, Roebuck & Co., 792 N.E.2d
145, 148 (Mass. App. Ct. 2003) (lawyer fee setting not within
malpractice policy); Med. Records Assocs., Inc. v. Am. Empire
Surplus Lines Ins., 142 F.3d 512, 515-16 (1st Cir. 1998) (E&O
policy did not cover billing practices of a medical records
processing business).

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 Both sides have cited Smartfoods, Inc. v. Northbrook

Prop. & Cas. Co., 618 N.E.2d 1365 (Mass. App. Ct. 1993), in part

because it involved breach of an exclusivity agreement; but the

policy in that case was a commercial general liability policy with

quite different language. PMI Mortgage Ins. v. Am. Int'l Specialty

Lines Ins. Co., 394 F.3d 761, 763 (9th Cir. 2005), cited by

Massamont, involved a policy that defined "professional services"

quite broadly.

Often courts construing such policies treat as a

touchstone whether or not the wrongful act draws on professional

skills as opposed to ordinary business decision-making; and this

criterion too works against Massamont. The SJC, in a malpractice

case otherwise quite different than our own, quoted approvingly the

Supreme Court of Nebraska's description of "professional services":

Something more than an act flowing from mere
employment or vocation is essential. The act
or service must be such as exacts the use or
application of special learning or attainments
of some kind. . . . A 'professional' act or
service is one arising out of a vocation,
calling, occupation, or employment involving
specialized knowledge, labor, or skill . . . .

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

Marx v. Hartford Accident & Indem. Co., 157 N.W.2d 870, 871-72

(Neb. 1968)).

Here, the decision to divert business may have been

caused by friction over insurance matters but it was a distinct

business decision by Massamont as to whether to maintain a

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relationship with a particular insurer--like leasing a building,

buying supplies or charging for services. Such a decision is not

the provision of professional services--the target of an E&O or

malpractice policy. The Massachusetts case law supporting this

view, see note 2, above, is bolstered by case law elsewhere

specifically directed toward insurance agents.

For example, in holding that a trade secret claim brought

against an insurance agent was not within "professional services,"

the New York Court of Appeals explained in Albert J. Schiff

Associates, Inc. v. Flack, 417 N.E.2d 84, 88 (N.Y. 1980):

The renting of an office, the engagement of
employees, arrangements to expand the size of
one's activities, these may all have some
connection with a covered business or
profession. But, while they may set the stage
for the performance of business or
professional services, they are not the
professional services contemplated by this
special coverage. An errors and omissions
policy is intended to insure a member of a
designated calling against liability arising
out of the mistakes inherent in the practice
of that particular profession or business.

Other cases are similar.2

Massamont argues that its alleged mismanagement of

insurance for Westchester played a causal role in the "background"

2
Employers Reins. Corp. v. Caswell, 490 N.W.2d 145, 149 (Minn.
App. Ct. 1992) (diversion of revenues for improper purposes);
Richards v. Fireman's Fund Ins. Co., 417 N.W.2d 663, 668 (Minn.
App. Ct. 1988) (employment dispute between general insurance agents
and managing agent); cf. Bayer v. Employers Reins. Corp., 383
N.W.2d 858, 862 (S.D. 1986) (insurance agents also acting as
mortgage brokers for insurance clients).

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disagreements between the two companies; that the disagreements led

Massamont to divert business to Axis; and that the diversion

underlies the alleged breach of the exclusivity provision. But

while the policy does use "arising out of" language (construed

generously in Massachusetts, Bagley v. Monticello Ins. Co., 720

N.E.2d 813, 816 (Mass. 1999)), a mere remote causal connection is

not enough.3

Massamont also says that Utica violated governing law by

looking outside the four corners of the arbitration demand and the

policy in denying coverage. There are limits on the insurer's

right to rely on facts extrinsic to the complaint and policy in

refusing to defend a suit otherwise colorably triggering a duty to

defend. E,g., Desrosiers v. Royal Ins. Co. of Am., 468 N.E.2d 625,

627-28 (Mass. 1984). The aim is to make the duty to defend operate

mechanically.

Such limits play no role in this case. Whatever the

scope of Utica's investigation before it declined to defend,

Utica's duty to defend Massamont is negated by merely comparing the

arbitration demand with the E&O policy's language. That comparison

3
See, e,g., Rischitelli v. Safety Ins. Co., 671 N.E.2d 1243,
1246 (Mass. 1996) (auto insurance does not cover an assault that
grows out of a driving incident); Roe, 587 N.E.2d at 218. Although
Massachusetts case law is not seamless, these cases seem to us more
on point than a reference to "but for" causation in Bagley, 720
N.E.2d at 816, and Fuller v. First Fin. Ins. Co., 858 N.E.2d 288,
292 (Mass. 2006) (rape arose out of excluded assault and battery in
"a single criminal episode").

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shows that the demand's gravamen was breach of an exclusivity

agreement, not a professional services decision, and was therefore

outside the scope of an E&O policy.

The duty to indemnify, also asserted by Massamont, is

ordinarily narrower than the duty to defend. "If an insurer has no

duty to defend, based on the allegations in the plaintiff's

complaint, it necessarily follows that the insurer does not have a

duty to indemnify." Bagley, 720 N.E.2d at 817. Further, the basis

for the award, which may be consulted, Travelers Ins. Co. v.

Waltham Indus. Labs. Corp., 883 F.2d 1092, 1099 (1st Cir. 1989),

confirms that the damages were awarded for breach of the agency

agreement.

Finally, as to Massamont's Chapter 93A claim for unfair

or deceptive practices, this too was dismissed by the district

court. Much of this count rested on Utica's denial of coverage,

which we have ruled proper. Delays in resolving the coverage

question are also charged but, given that Utica had no duty to

defend, Massamont had to explain why delay alone increased its

defense costs and this it has not done. Dryden Oil Co. of New

England, Inc. v. Travelers Indem. Co., 91 F.3d 278, 290 n.17 (1st

Cir. 1996).

Affirmed.

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