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Scottsdale Insurance Co. v. Byrne

United States Court of Appeals, First Circuit

January 16, 2019

SCOTTSDALE INSURANCE COMPANY, Plaintiff, Appellant,
v.
TIMOTHY L. BYRNE, as Co-Chairman of the Board of Trustees for the Plumbers and Pipefitters Local 51 Pension and Annuity Funds; ROBERT BOLTON, as Co-Chairman of the Board of Trustees for the Plumbers and Pipefitters Local 51 Pension and Annuity Funds, Defendants, Appellees.

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. F. Dennis Saylor, IV, U.S. District Judge]

          Alexis J. Rogoski, with whom Edward C. Carleton and Skarzynski Black LLC were on brief, for appellant.

          Miranda S. Jones, with whom O'Reilly, Grosso, Gross & Jones, P.C. was on brief, for appellee.

          Before Lynch, Stahl, and Barron, Circuit Judges.

          STAHL, Circuit Judge.

         In late 2014, the appellees in this case brought suit against Wellesley Advisory Reality Fund I, LLC ("WARF"). Acting in their capacity as representatives of the Board of Trustees for the Plumbers and Pipefitters Local 51 Pension and Annuity Funds (the "Funds"), Appellees alleged that WARF had mismanaged and squandered money that the Funds had invested in that entity. Following entry of default judgment against WARF in that case, WARF assigned the Funds its rights in WARF's insurance policy with Appellant Scottsdale Insurance Company ("Scottsdale"), which had declined to defend WARF on the basis of several exceptions within the policy.

         Scottsdale brought an action against Appellees seeking a declaration that it did not owe WARF a duty to defend or indemnify under the policy and so owed the Funds nothing, and the Funds counterclaimed. On cross-motions for summary judgment, the United States District Court for the District of Massachusetts ruled that the exclusions in Scottsdale's policies did not relieve the insurer of its duty to defend WARF in the prior action. In a subsequent order, the district court awarded the Funds $3 million, the full limits of the insurance policy, plus post-judgment interest.

         Scottsdale appeals, arguing both that it did not breach its duty to defend under the policy under Massachusetts law and that, even if it did, damages should be limited to the costs of the defense. After careful consideration, we affirm.

          I. A. The Policy

         The dispute in this appeal stems from a "Business and Management Indemnity Policy" (the "Policy") issued by Scottsdale to WARF, a real estate investment vehicle developed by Wellesley Advisors.[1] The Policy covered the period from November 15, 2013, to December 15, 2014, [2] and carries a coverage limit of $3 million. The Policy contains the following coverage clauses:

1. The Insurer shall pay the Loss of the Management Insureds for which the Management Insureds are not indemnified by the [Company and] which the Management Insureds have become legally obligated to pay by reason of a Claim first made against the Management Insureds during the Policy Period . . . and reported to the Insurer . . . for any Wrongful Act taking place prior to the end of the Policy Period.
2. The Insurer shall pay the Loss of the Company for which the Company has indemnified the Management Insureds and which the Management Insureds have become legally obligated to pay by reason of a Claim first [made against] the Management Insureds during the Policy Period . . . and reported to the Insurer . . . for any Wrongful Act taking place prior to the end of the Policy Period.
3. The Insurer shall pay the Loss of the Company which the Company becomes legally obligated to pay by reason of a [Claim first] made against the Company during the Policy Period . . . and reported to the Insurer . . . for any Wrongful Act taking place prior to the end of the Policy Period.

         As relevant here, the Policy defines "Claim" as "a civil proceeding against any Insured seeking monetary damages or non-monetary or injunctive relief . . . ." "Loss" is defined as "damages, judgments, settlements, pre-judgment or post-judgment interest awarded by a court, and Costs, Charges, and Expenses incurred by" the entities covered under the Policy. "Wrongful Act" is defined as "any actual or alleged error, omission, misleading statement, misstatement, neglect, breach of duty or act allegedly committed or attempted by" the insured entities.

         The Policy contains a number of exclusions, three of which are claimed to be relevant to the present appeal. First, the Policy includes a "Professional Services Exclusion" which states:

Insurer is not liable for Loss . . . on account of any Claim[] alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving the rendering or failure to render Professional Services. . . .
Solely for purposes of this exclusion, Professional Services means services as a real estate broker or agent, multiple listing agent, real estate appraiser, title agent, title abstractor or searcher, escrow agent, real estate developer, real estate consultant, property manager, real estate inspector, or construction manager. Such services shall include, without limitation, the purchase, sale, rental, leasing or valuation of real property; the arrangement of financing on real property; or any advice proffered by an Insured in connection with any of the foregoing.

         Second, the Policy provides an "ERISA Exclusion" which states that Scottsdale

shall not be liable for Loss . . . on account of any Claim . . . for any actual or alleged violation of the responsibilities, obligations or duties imposed by [the] Employee Retirement Income Security Act of 1974, as amended ["ERISA"], or any rules or regulations promulgated thereunder, or similar ...

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