United States Court of Appeals
For the First Circuit
No. 07-1414
ERNEST and KARLA EDWARDS,
Plaintiffs, Appellants,
v.
LEXINGTON 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
Boudin, Chief Judge,
Torruella, Circuit Judge,
and Schwarzer,* Senior District Judge.
Verne E. Paradie, Jr. with whom Trafton & Matzen, LLP was on
brief for appellants.
John S. Whitman with whom Richardson, Whitman, Large & Badger
was on brief for appellee.
November 5, 2007
*
Of the Northern District of California, sitting by
designation.
BOUDIN, Chief Judge. On October 11, 2002, Ernest Edwards
suffered injuries during a hunting excursion when a safety harness
securing him to a tree malfunctioned, causing him to fall seventeen
feet to the ground. On July 9, 2004, Edwards filed suit in the
federal district court in Maine against the safety harness's
manufacturer, Game Tracker, Inc. (Edwards' wife was also a
plaintiff in the action but nothing turns on her participation.)
On February 8, 2006, Edwards obtained a $1,964,931.23 default
judgment against Game Tracker, which by then had filed for
bankruptcy protection.
Unable to execute on the judgment against Game Tracker,
Edwards (and his wife) sued in the same federal court under Maine's
reach and apply statute, 24-A M.R.S.A. § 2904 (2000), seeking to
collect from Lexington Insurance Company, Game Tracker's insurer.1
Lexington had previously received notice of Edwards' suit against
Game Tracker and had disclaimed coverage under all three policies
that Lexington had issued to Game Tracker and its affiliates.
In due course, Lexington moved for summary judgment,
which the district court granted, finding that none of the three
policies at issue covered Edwards' claim against Game Tracker: a
1
Maine's reach and apply statute allows an injured party who
has obtained a final judgment against an insured tortfeasor to
institute a separate civil action against the insurer to satisfy
the judgment if, among other things, the tortfeasor "was insured
against such liability." 24-A M.R.S.A. § 2904; see also Ashe v.
Enterprise Rent-a-Car, 838 A.2d 1157, 1162 (Me. 2003).
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"claims-made policy"2 because Edwards had failed to provide notice
of the claim to Game Tracker or Lexington within the required
period; an "occurrence policy" because the policy contained an
endorsement excluding injuries caused by safety belts and
harnesses; and a third policy both because notice was not timely
made and because the insured was Gorilla, Inc., not Game Tracker.
Edwards now appeals the rulings as to the first two policies.
We review a district court's entry of summary judgment de
novo, taking the evidence in the light most favorable to the non-
moving party and indulging reasonable inferences in his favor.
Iverson v. City Of Boston, 452 F.3d 94, 98 (1st Cir. 2006). The
moving party is entitled to summary judgment if the record
demonstrates "that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter
of law." Fed. R. Civ. P. 56(c); see also Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986).
Claims-Made Policy--Policy #6478065. Edwards first seeks
satisfaction of the judgment against Game Tracker under a claims-
made policy issued by Lexington to Game Tracker. The policy would
2
"Claims-made" policies cover claims arising out of incidents
that occurred during or prior to the policy period, depending on
the terms of the policy, but only if a claim is made during the
policy period. With claims-made policies, the insured event is the
claim. By contrast, "occurrence policies" cover insured events
that occur during the policy period. With occurrence policies, the
insured event is the occurrence, not the claim. See DiLuglio v.
New Eng. Ins. Co., 959 F.2d 355, 358 (1st Cir. 1992); 7 Russ &
Segalla, Couch on Insurance § 102:20 (3d ed. 1997 & Supp. 2007).
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have covered an incident such as the one suffered by Edwards, but
only if notice of a claim was provided to either Game Tracker or
Lexington during the claim period, which ran from April 2002 to
June 2003.
During discovery, Lexington sought proof that Edwards had
provided notice within the claim period. Although asked the
question three different ways, Edwards could not state that he had
provided notice to Game Tracker, its affiliates, or Lexington
during the notice period. Instead, he said that attempts to locate
and contact Game Tracker were made in the winter of 2003, that his
attorney at some unspecified point had telephone conversations with
one or more Game Tracker representatives, and that formal notice
was provided to Game Tracker in January 2004--after the required
cut-off date.
Based on Edwards' failure to provide evidence
establishing timely notice--evidence that one would expect to be
available to a plaintiff or his attorney if timely notice was
given--the district court found that there was no genuine dispute
of material fact and that for lack of timely notice, the claims-
made insurance policy did not cover Edwards' claim. Edwards does
not now argue that notice was timely provided but instead offers
reasons why the policy's unambiguous notice requirement should not
preclude coverage.
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Edwards first argues that Lexington breached its duty to
defend Game Tracker in Edwards' initial action against Game
Tracker. On this premise, he argues that Lexington is estopped
from disclaiming coverage now; alternatively, Edwards says that
under Maine law Lexington at least bore the burden of proving non-
coverage as a result of that earlier alleged dereliction in failing
to provide a defense.
Edwards was not a party to the insurance contract, or a
third party beneficiary, or the insured's assignee. Maine's reach
and apply statute places Edwards in Game Tracker's shoes to the
extent he seeks whatever indemnification might have been owed to
Game Tracker under its insurance policies. Less clear is Edwards'
ability to claim benefits or advantage based on other contractual
duties owed by the insurer to the insured, such as the duty to
defend.3
Indeed, the extent to which an injured third party steps
into the shoes of the insured when proceeding against the insurer
is a question that arises in diverse contexts, affecting the claims
available to the injured party and the defenses available to the
3
Compare Smith v. Allstate Ins. Co., 483 A.2d 344, 346 (Me.
1984) (injured third party "has no judicially protectible interest
in whether [the insurer] or independent counsel secured by
[insured] provides [the insured's] defense in [a] negligence action
against him"), with Restatement (Second) of Judgments § 57, cmt. g
(1982) ("When allowed to proceed directly against the indemnitor,
the injured party does so by subrogation and has the benefit of the
same rules of preclusion and estoppel as the indemnitee would
have.").
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insurer. Case law varies among the states.4 The answer may also
vary depending on the nature of the insurance contract, the
language of the statute under which the injured third party is
proceeding, and the balancing of competing policy concerns.
The Maine SJC has not yet clearly determined whether an
injured third party may generally seek the collateral benefits of
a breach of the duty to defend which would otherwise belong to the
insured. Compare Elliott v. Hanover Ins. Co., 711 A.2d 1310, 1311
(Me. 1998) (allowing claim by an injured third party who was an
assignee of the insured), with Smith v. Allstate Ins. Co., 483 A.2d
344, 346 (Me. 1984) (injured third party "has no judicially
protectible interest in whether [the insurer] or independent
counsel secured by [insured] provides [the insured's] defense in
[a] negligence action against him").
However, Edwards' estoppel argument was expressly
rejected in Elliott, which said that "[a]n insurer that breaches
its duty to defend . . . is not estopped from asserting noncoverage
as a defense in a subsequent action brought by the insured or the
4
Compare, as to an insurer's bad faith refusals to settle,
Thompson v. Commercial Union Ins. Co. of New York, 250 So. 2d 259,
264 (Fla. 1971), with Moradi-Shalal v. Fireman's Fund Ins. Cos.,
758 P.2d 58, 68 (Cal. 1988); see also Right of Injured Person
Recovering Excess Judgment Against Insured to Maintain Action
Against Liability Insurer for Wrongful Failure to Settle Claim, 63
A.L.R.3d 677 (1975); and compare, as to insurer's use of a defense
like non-cooperation when sued by injured party, Peters v.
Saulinier, 222 N.E.2d 871, 874 (Mass. 1967), with Michaud v. Mut.
Fire, Marine & Inland Ins. Co., 505 A.2d 786, 788-89 (Me. 1986).
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insured's assignee." 711 A.2d at 1313; see also Bucci v. Essex
Ins. Co., 393 F.3d 285, 295 (1st Cir. 2005). Elliott does say that
an insurer that breached its duty to defend may be bound in an
indemnity action by "any factual issues that might have been
litigated in the underlying negligence action," 711 A.2d at 1314,
but here the timing of the claim was not among the facts necessary
to prove the insured's liability. See Bucci, 393 F.3d at 296.
Nor has Edwards established that the duty to defend was
breached, which under Maine law might have triggered a shift in the
burden of proof as to coverage for the purpose of indemnification.
Elliott, 711 A.2d at 1313-14. The problem for Edwards is that in
order to shift the burden of proof with regard to indemnification,
he first had to show that there was a breach of the duty to defend.
And to do so, he had to prove that a claim was timely made;
otherwise, there was neither a duty to defend nor to indemnify the
insured.
The evidence as to notice is clearly inadequate to prove
timely notice was given. Lexington, in an affidavit and in
response to an interrogatory from Edwards, said that it did not
receive notice of Edwards' claim from Edwards, Game Tracker, or
anyone else, until July 9, 2004, over a year after the expiration
of the claim period. And, as already explained, Edwards offered
evidence only that "'formal written' Notice of Claim," was provided
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to Game Tracker in January of 2004, that is, after the close of the
claim period.
Edwards counters with the "eight corners rule," according
to which the duty to defend is determined "by comparing the
allegations in the underlying complaint with the provisions of the
insurance policy. If a complaint reveals a potential . . . that
the facts ultimately proved may come within the coverage, a duty to
defend exists.”5 Edwards argues that therefore the district court
should have compared the complaint in the underlying action with
the insurance policy to determine whether there was a duty to
defend, and that the district court erred in considering extrinsic
evidence relating to notice.
Grounded in policy considerations, the so-called "eight
corners rule" is appropriately invoked in the context of occurrence
policies because the complaint in describing the incident will
usually provide adequate information to determine whether--at least
as alleged--the incident is within the scope of the insurance
policy. See Liberty Mut. Ins. Co. v. Graham, 473 F.3d 596, 599-600
(5th Cir. 2006). However, the rule cannot be rigidly applied in
the context of claims-made policies where the determinative event
is the timing of the claim, a fact that likely will be--and in this
5
Me. State Acad. of Hair Design, Inc. v. Commercial Union Ins.
Co., 699 A.2d 1153, 1156 (Me. 1997) (internal quotation marks and
citations omitted) (alteration in original); see also Anderson v.
Va. Sur. Co., 985 F. Supp. 182, 188 (D. Me. 1998).
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case was--irrelevant to the merits of the underlying tort suit, and
therefore absent from the pleadings.6 The district court thus did
not err in finding that Edwards failed to show a wrongful refusal
to defend, given that the uncontradicted evidence established that
their claim was not timely made.
Turning to the insurance contract itself, Edwards argues
that the claims-made policy is ambiguous. He does not say that the
language of the policy is ambiguous; in fact, the policy states in
capital letters, "CLAIMS-MADE POLICY. READ THE ENTIRE POLICY
CAREFULLY" and "CLAIMS-MADE COVERAGE. PLEASE READ THE ENTIRE FORM
CAREFULLY." Further, the policy states clearly: "This insurance
applies to 'bodily injury' and 'property damage' only if . . . [a]
claim for damages . . . is first made against any insured . . .
during the policy period or any Extended Reporting Period." In
this case the policy did extend the reporting period for 60 days
but only until June 2003.
Instead Edwards argues that because the policy did not
provide retroactive coverage--i.e., coverage for incidents that
occurred before the policy effective date, notice of which was
received during the policy period--as is fairly standard with
6
See Patrons Oxford Mut. Ins. Co. v. Garcia, 707 A.2d 384, 386
(Me. 1998) (noting exception to "eight corners" rule where insurer
denies duty to defend based on lack of timely notice); see also
Hasbrouck v. St. Paul Fire & Marine Ins. Co., 511 N.W.2d 364 (Iowa
1993) (upholding grant of summary judgment to insurer based on
evidence outside the scope of the pleadings where coverage was
denied based on tardy notice under a claims-made policy).
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claims-made policies, the policy is unclear as to whether it is a
claims-made policy or an occurrence policy. But a claims-made
insurance policy is not rendered ambiguous simply because it does
not resemble all policies in its class; and Edwards has not
identified any language in the policy that would muddy the claims-
made requirement just quoted. See Alternative Energy, Inc. v. St.
Paul Fire & Marine Ins. Co., 267 F.3d 30, 35 (1st Cir. 2001).
Edwards' ambiguity argument blends into his further
contention that Game Tracker's claims-made policy offended public
policy by offering neither the prospective benefits of an
occurrence policy nor the retrospective benefits of a standard
claims-made policy. This in turn might be best understood as an
argument that the terms of the policy were unconscionable. See
Truck Ins. Exch. v. Ashland Oil, Inc., 951 F.2d 787, 789-90 (7th
Cir. 1992).
Specifically, Edwards relies on Sparks v. St. Paul Ins.
Co., 495 A.2d 406 (N.J. 1985), a case in which the New Jersey
Supreme Court held that a claims-made professional liability
insurance policy that "affords no retroactive coverage whatsoever
during its initial year of issuance" was void as against public
policy. Id. at 415. But even the Sparks court recognized that
"'[c]laims made' policies with no retroactive coverage might be
appropriate in certain contexts. For example . . . to the
professional who changes from 'occurrence' to 'claims made'
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protection." Id. at 415 n.4. As Judge Posner explained in Ashland
Oil,
[I]t is commonplace for issuers of claims-made policies
to limit retroactive coverage by specifying a cut-off
date, such as the date of the first claims-made policy
issued by the insurer to this insured, so that claims
based on occurrences before that date are excluded from
coverage. For protection against old occurrences the
insured must look to his occurrence policies.
951 F.2d at 790 (citation omitted).
That is just what happened here. Game Tracker had
purchased occurrence policies at least as early as April 1998. Any
liability deriving from incidents that occurred during the four
years prior to the adoption of the claims-made policy would have
been covered under the earlier occurrence policies. There was
simply no reason for the claims-made policy to afford retroactive
coverage for incidents that were already covered by existing
occurrence policies.
Finally, Edwards argues that Lexington exacted "an
outrageously high premium, and outrageously high self insured
retention limit" given the narrow scope of coverage. Edwards has
provided no data to show that the premium and self-insurance
retention rates were in fact "outrageously high." More broadly,
"we do not consider it our place to 'rewrite contracts freely
entered into between sophisticated business entities.'" AccuSoft
Corp. v. Palo, 237 F.3d 31, 41 (1st Cir. 2001) (quoting Mathewson
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Corp. v. Allied Marine Indus., Inc., 827 F.2d 850, 855 (1st Cir.
1987)).
Edwards claims that "Lexington had virtually no risk
despite a $525,000 premium," but if Edwards had provided timely
notice to Game Tracker, Lexington would have sustained a loss on
the policy. Lexington had in fact sustained substantial losses due
to the high volume of claims against Game Tracker. Based on that
history, it is unsurprising that Lexington insisted upon high
premium and self-insurance retention rates despite the narrow scope
of coverage.
Occurrence Policy--Policy #1320657. Alternatively,
Edwards seeks coverage under Game Tracker's occurrence policy,
which covered incidents occurring between April 2002 and April
2003, regardless of when the claim was made. Unfortunately for
Edwards, that policy contains an exclusion--Endorsement #8--that
disclaims coverage for injuries arising out of the use of "any
product that is attached or used on a tree; including [but] not
limited to the following: . . . safety belts and harnesses."
Edwards argues that the effective date of the endorsement
is ambiguous, raising a genuine factual dispute as to whether the
exclusion was in effect at the time of his accident. He also
claims ambiguity as to whether the endorsement includes products
manufactured by Game Tracker, as opposed to its affiliates; this in
turn, he says, triggers canons that the insurer bears the burden of
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proving an exclusion, and that such exclusions are narrowly
construed. See Brazas Sporting Arms, Inc. v. Am. Empire Surplus
Lines Ins. Co., 220 F.3d 1, 4 (1st Cir. 2000).
Neither argument can succeed. While there is no
effective date written on the endorsement page itself, the policy
includes a forms schedule listing the effective date of the
endorsement as April 8, 2002. Further support for Lexington can be
found in another endorsement--Endorsement #9--which amends
Endorsement #8, and which has an effective date of April 8, 2002.
Endorsement #9 can hardly predate the endorsement that it purports
to modify.
Lexington also submitted an affidavit from the manager
responsible for Game Tracker's occurrence policy. The affidavit
stated that Endorsement #8 was effective as of April 8, 2002, and
explained that the effective date was listed on the forms schedule
rather than on the endorsement itself because the form used for
that endorsement (and another endorsement not at issue in this
case) did not contain a blank space for the effective date.
Edwards also argues that the schedule for the policy
lists under the classification description, "treesteps, harnesses
and archery accessories," suggesting that the harness he used was
initially a covered product. Lexington's affidavit explained that
the classification was an error corrected by Endorsement #11, which
redefines the description as "archery, arrows and hunting
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accessories." Edwards may be right that Endorsements #8 and #11
were contemporaneous, but Endorsement #11 was effective April 8,
2002, six months before Edwards' accident.
Determining the insured to which the exclusion applies is
slightly more complex, although not less clear. See Peerless Ins.
Co. v. Brennon, 564 A.2d 383, 386 (Me. 1989). The endorsement
excludes coverage for injuries "arising out of any of 'your
products' shown in this Schedule." The term "your products" in
turn is defined as "Any goods or products . . . manufactured . . .
by You." "You" is then defined as "the Named Insured shown in the
Declarations, and any other person or organization qualifying as a
Named Insured under this policy." Finally, the "Named Insured" is
defined as including six entities, including Game Tracker.
Thus any injury caused by a defect in Game Tracker's
harness is excluded from coverage by the terms of Endorsement #8,
and its various cross-references through the definitional
provisions of the policy. There is no ambiguity. Edwards' last
argument, like his others, fails, and summary judgment against him
was properly entered.
Affirmed.
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