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Salvati v. American Insurance Co.

United States Court of Appeals, First Circuit

April 26, 2017



          Donald R. Grady, Jr., with whom Frank J. Federico, Jr., Susan E. Bochnak, and Sheff Law Offices, P.C. were on brief, for appellant.

          Gregory P. Varga, with whom Linda L. Morkan, Jonathan E. Small, and Robinson & Cole LLP were on brief, for appellee.

          Before Barron, Stahl, and Lipez, Circuit Judges.

          LIPEZ, Circuit Judge.

         In this insurance dispute, we must decide whether the plaintiff in a wrongful death action, who reached a settlement with the defendants and their primary insurance carrier, can recover the amount exceeding the primary policy limits from the defendants' excess insurer. The district court concluded that the settlement agreement did not trigger the excess policy because the agreement was not accompanied by a court judgment. Hence, it granted the excess insurer's motion to dismiss the plaintiff's claims under the policy. While we disagree with the district court's interpretation of the pertinent policy language, we affirm the dismissal because the plaintiff has not presented a plausible argument that the settlement agreement triggered the excess insurer's duty to indemnify.


         A. The Accident

         On June 17, 2010, Gerardo Salvati died as a result of injuries he sustained while doing maintenance work for Ajax Management Partners, LLC at the Lovejoy Wharf building in Boston. On that day, Mr. Salvati was asked to examine the condition of the brick facade of the building. While he was standing on a ladder inspecting the building, a sizable chunk of brickwork came loose and suddenly fell from the building, crashing into him and causing him to fall to his death. According to the operative complaint before the district court, the building had been in a state of disrepair for years, and the owners of the property were aware that the building's loose and decaying brickwork was in need of repair.

         In September 2011, Gerardo Salvati's wife, Lucia (hereinafter referred to as "Salvati"), filed a lawsuit in Suffolk County Superior Court, seeking damages for wrongful death and loss of consortium individually and in her capacity as executrix of her husband's estate. The defendants in that action (the "Underlying Defendants") were Robert Easton, Gerardo Salvati's supervisor at the time of his death and the person holding the ladder when the accident occurred, and a group of individuals and limited liability companies who owned the building where the accident occurred.[1] The Underlying Defendants had two insurance policies: a primary policy through Western World Insurance Company ("Western World") in the amount of $1 million and an excess policy through the American Insurance Company ("AIC") in the amount of $9 million (the "Excess Policy"). The Underlying Defendants informed both insurance companies of Salvati's claims.

         In October 2012, AIC informed the Underlying Defendants that it would not defend them against, or indemnify them for damages from, Salvati's suit.[2] AIC's disavowal of coverage effectively left the Underlying Defendants with only the primary policy from Western World. The Underlying Defendants thus initially told Salvati that they were insured for only $1 million, although Salvati later learned of the Excess Policy. The parties attempted mediation, during which Salvati requested damages in excess of the primary insurance coverage, but within the coverage amount of the Excess Policy. Despite AIC's refusal to defend the Underlying Defendants, a representative and an attorney from AIC were present at the mediation sessions. The parties failed to reach an accord during mediation. In November 2014, Salvati sent a demand letter to AIC seeking payment under the Excess Policy, but AIC once again refused to provide coverage.

         B. The Settlement Agreement

         Salvati and the Underlying Defendants finally reached a $6 million settlement agreement (the "Settlement Agreement") in December 2014. The Settlement Agreement has three key elements relevant to this appeal. First, as the district court observed, it "provided for the total payment of $6, 000, 000 to Salvati." Salvati v. Am. Ins. Co., No. 1:15-cv-13136-RWZ, slip op. at 2 (D. Mass. Mar. 15, 2016) (Memorandum of Decision and Order). Second, in exchange for tendering the full $1 million of the Western World primary insurance policy, the Agreement released both Western World and the Underlying Defendants from any further liability. Third, the Agreement assigned all rights previously held by the Underlying Defendants against AIC to Salvati, allowing her to seek recovery of the remaining $5 million from the Excess Policy. However, the Agreement also stipulated that the settlement was not contingent on the ultimate availability of the excess coverage, and specified that the Underlying Defendants did not represent that excess coverage was necessarily available. Moreover, the Underlying Defendants expressly disclaimed wrongdoing in the Agreement.

         Pursuant to Massachusetts law, which requires court approval of settlements of cases in which workers' compensation benefits have been paid, see Mass. Gen. Laws ch. 152, § 15, the Superior Court approved the Settlement Agreement, and the case was dismissed with prejudice.

         C. The Present Case

         In April 2015 Salvati, acting as the assignee of the Underlying Defendants, filed a two-count complaint against AIC in Suffolk County Superior Court. In Count I, she alleged that AIC had breached its contract (i.e. the Excess Policy agreement) with the Underlying Defendants by refusing to indemnify them for the liability they had incurred through the Settlement Agreement. In Count II, she sought a declaratory judgment that she was entitled to collect the remainder of the settlement amount from AIC under the Excess Policy.

         AIC removed the case to federal court and filed a motion to dismiss, which the district court denied. Meanwhile, Salvati filed an amended complaint in which she added claims under Massachusetts General Laws chapter 93A (Count III, consumer protection) and chapter 176D (Count IV, unfair and deceptive acts in insurance), as well as two counts of professional negligence based on AIC's failure to settle her claims against the insureds (Counts V and VI). AIC responded with a second motion to dismiss.

         The district court granted this motion, holding that the amended complaint failed to state a cognizable claim for breach of contract (Count I) and declaratory judgment (Count II). The court reasoned that AIC's duty to indemnify could only be triggered when the Underlying Defendants became legally obligated to pay Salvati. Here, however, the Underlying Defendants had not incurred such an obligation "because the Underlying Action was dismissed with prejudice and no judgment entered against the Underlying Defendants, AIC's insured." Moreover, the court noted that "AIC was not a party to the underlying settlement and thus never agreed or became contractually bound to pay the $5, 000, 000." Salvati, No. 1:15-cv-13136-RWZ, slip op. at 5.

         The court also concluded that, because AIC's obligation to pay under the terms of the Excess Policy was a necessary condition to the Chapter 93A consumer protection claim (Count IV) and the professional negligence claims (Counts V and VI), it was appropriate to dismiss those claims. Finally, the court dismissed Count III, which alleged a violation of Massachusetts General Laws chapter 176D for failure to settle an insurance claim in which liability has become reasonably clear, on the ground that Chapter 176D "provides no private cause of action and is enforceable only by the commissioner of insurance." Id. at 6 (quoting Metro. Prop. & Cas. Ins. Co. v. Bos. Reg'l Physical Therapy, Inc., 538 F.Supp.2d 338, 343 (D. Mass. 2008)). On appeal, Salvati argues that the district court erred in dismissing each of her claims.


         We review a district court's dismissal for failure to state a claim de novo. Coll. Hill Props., LLC v. City of Worcester, 821 F.3d 193, 195 (1st Cir. 2016). As this case comes to us through diversity jurisdiction, we look to state law to determine the substantive rules of decision. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). It is undisputed that Massachusetts law applies in this case. The insured risk was located in Massachusetts, and the underlying accident occurred in Massachusetts. See Bushkin Assocs., Inc. v. Raytheon Co., 473 N.E.2d 662, 669 (Mass. 1985).

         A. Count One: Breach of Contract

         We begin with the breach of contract claim because the determination of AIC's contractual obligation will in turn affect our review of most of the remaining claims. We review de novo the district court's interpretation of the excess insurance ...

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