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Utica Mut. Ins. Co. v. Herbert H. Landy Ins. Agency, Inc.

United States Court of Appeals, First Circuit

April 19, 2016


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[Copyrighted Material Omitted]

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         Erin K. Higgins, with whom Russell F. Conn, Katherine A. Kelter, and Conn. Kavanaugh Rosenthal Peisch & Ford LLP were on brief, for appellant.

         John A.K. Grunert, with whom Goganian & Associates, P.C. was on brief, for appellee.

         Before Howard, Chief Judge, Lynch and Lipez, Circuit Judges.


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          HOWARD, Chief Judge.

          Utica Mutual Insurance Company (" Utica" ) appeals from a summary judgment order requiring it to defend its insured Herbert H. Landy Insurance Agency (" Landy" ) in a California state court lawsuit. Agreeing with the district court that Utica is obligated to defend Landy under its professional liability insurance policy, we affirm.

         I. Background

         Landy and Utica each are insurance companies. Landy provides insurance to real estate professionals, and Utica insured Landy under a professional liability insurance policy. This policy, which the parties agree is governed by Massachusetts law, contains a " duty to defend" obligation that required Utica to defend Landy in certain lawsuits arising from errors and omissions in Landy's provision of professional services as an insurance broker and agent.

         Landy alleges that Utica's duty to defend was triggered when Landy was sued by CRES Insurance Services, LLC (" CRES" ). CRES is a competitor of Landy in the California real estate professional liability insurance market. CRES sued Landy in California state court, alleging that Landy had engaged in unfair business practices in violation of California state law.[1]

         Specifically, CRES alleged that California law divides the relevant insurance market between " admitted" and " surplus" insurers. See generally Cal. Ins. Code § 1763; Cal. Code Regs. tit. 10, § § 2131-2140; 39 Cal.Jur. 3d Insurance Companies § 227.[2] According to CRES's complaint, admitted insurers generally charge higher premiums than surplus insurers. Nevertheless, California law favors the admitted insurers. See Cal. Code Regs. tit. 10, § 2132(a). California permits an insurance broker to offer a surplus insurer's policy only in limited circumstances when the admitted pool is deemed inadequate. See Cal. Ins. Code § 1763(a); Cal. Code Regs. tit. 10, § 2132(b). CRES alleged that Landy improperly offered surplus insurers' policies despite the adequacy of the admitted market.

         Based on these facts, CRES asserted two causes of action. CRES's first claim was a statutory claim alleging that Landy's violation of the state insurance code constituted

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unfair business practices. See Cal. Bus. & Prof. Code § 17200, et seq.

         CRES's second claim was for negligence, alleging that Landy's conduct negligently interfered with CRES's prospective economic advantage. Specifically, CRES asserted that Landy " failed to act with reasonable care," including " in the solicitation and placement of [insurance policies]." It further alleged that Landy " failed to conduct a diligent search of the admitted market, filed falsified documentation relating to the search, and evaded scrutiny . . . by failing to file required statements."

         Landy demanded that Utica defend it in the CRES lawsuit under the policy. In response, Utica filed this action in Massachusetts federal district court, seeking a declaration that CRES's negligence claim did not trigger its duty to defend.[3]

         The parties dispute the meaning of two policy provisions. First, the policy covers only suits arising from Landy's errors or omissions in " rendering or failing to render professional services" as an insurance broker or insurance agent.[4] It does not provide comprehensive liability insurance. Utica argues that CRES's negligence claim did not arise from alleged errors in Landy's professional insurance services, but rather from Landy's allegedly unfair business practices. Landy's position is that the two are not mutually exclusive: Landy's allegedly unfair business practices were committed in the course of providing allegedly negligent professional insurance services.

         Second, the policy expressly excludes coverage for " unfair competition of any type." The policy also contains an exclusion for intentional misconduct.[5] Utica argues

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that, in order to give independent meaning to both the unfair competition and intentional misconduct exclusions, the unfair competition provision excludes not only intentional unfair competition, but also negligent unfair competition. Utica characterizes CRES's negligence claim as just such a claim of negligent unfair competition.

         Landy disagrees for two reasons. It says that under Massachusetts law, " unfair competition" encompasses only conduct that misleads consumers, and the CRES complaint includes no allegations of consumer confusion. Alternatively, Landy argues that the exclusion does not apply to negligent performance of ...

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