Gargano v. Liberty International Underwriters, Inc.

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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