American Guarantee & Liability Insurance Company v. Lamond et al

Filing 58

Judge Richard G. Stearns: ORDER entered granting 44 Motion for Summary Judgment. "For the foregoing reasons, plaintiffs motion for summary judgment on defendants counterclaims is ALLOWED. The Clerk will enter judgment for plaintiff and close the case." (RGS, int2)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 13-13168-RGS
AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY
v.
JOHN F. LAMOND; SEAN F. MURPHY; TREMONT REALTY
INVESTMENTS, LLC; SEAMUR ENTERPRISES, LLC; and
COLUCCI, COLUCCI, MARCUS & FLAVIN, P.C.
MEMORANDUM AND ORDER ON
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT ON
DEFENDANTS’ COUNTERCLAIMS
April 4, 2016
STEARNS, D.J.
The remaining dispute in this litigation is whether plaintiff American
Guarantee & Liability Insurance Company (AGLI) is estopped from denying
professional liability insurance coverage to defendant John F. Lamond
because it did not issue to Lamond a second reservation of rights letter in the
underlying state court litigation. The facts of this case, taken in part from
the court’s earlier memorandum and order on AGLI’s partial summary
judgment motion for a declaration of the policy scope, are not disputed by
the parties.
[AGLI] issued [] Lamond, then a licensed attorney, a professional
liability policy covering the period from May 20, 2007, through
May 20, 2008. During the policy period, Lamond represented

defendant Sean F. Murphy and two defendant companies in
which he is the principal – Tremont Realty Investments, LLC,
and Seamur Enterprises, LLC (collectively Murphy) – in the
purchase of several lots of land for development. Prior to the
closing, Lamond learned that the land was the site of an Indian
burial ground and was subject to a preservation restriction. He
nonetheless certified to Murphy’s mortgagor – Hill Financial
Services Company – that titles to the land were free from any
encumbrances. After the purchase, the truth was discovered, and
Murphy was unable build on the land as planned and defaulted
on the mortgage. Hill foreclosed on the lots, but could not
develop or sell them because of the burial ground.
In 2009, Hill brought suit against Murphy and Lamond in the
Norfolk Superior Court. Murphy, in turn, brought third-party
claims against Lamond for, inter alia, professional negligence
and violations of Mass. Gen. Laws Ch. 93A.
Dkt. # 36 at 1-2.
In May of 2009, after Hill initiated the state court lawsuit, AGLI sent
Lamond a letter informing him that while it had arranged for attorney
Joseph Berman of the law firm of Looney & Grossman to defend him, it was
“reserv[ing] all rights and defenses available under the Policy and at law to
deny coverage on any of the [] bases” identified in the letter.1 AGLI Ex. I at
SJ37 - 38. Specifically, the reservation letter quoted that Lamond’s policy
“That kind of letter, generally known as a reservation of rights letter,
avoids the aforementioned risks [of the insurer of either breaching the
contractual duty to defend or being liable for damages as a result of the
principles of estoppel], and has been approved by [the Supreme Judicial
Court] on several occasions.” Sarnafil, Inc. v. Peerless Ins. Co., 418 Mass.
295, 309 (1994).
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does not apply . . . “[t]o any intentional, criminal, fraudulent,
malicious or dishonest act or omission by an Insured; except that
this exclusion shall not apply in the absence of a final
adjudication or admission by an Insured that the act or omission
was intentional, criminal, fraudulent, malicious or dishonest[.]”
Id. at SJ36.
[T]he [Hill] Complaint alleges the Insured’s failure to advise of
the Indian issue was deceitful and claims the Insured’s failure to
advise Hill Financial of the Indian issue was done so fraudulently
so that Hill Financial would loan money. . . . To the extent that
this exclusion applies, American Guarantee may be able to deny
coverage and reserves the right to do so.
Id. The reservation letter also noted that the definition of covered damages
under the policy excluded
4.
criminal or civil fines, penalties (statutory or
otherwise), fees or sanctions;
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punitive, exemplary or multiple damages; . . .

7.
legal fees, costs and expenses paid to or incurred or
charged by the Insured . . .
To the extent that Claimant may seek relief that is not included
in the definition of “Damages,” American Guarantee may be able
to deny coverage and reserves the right to do so.
Id. at SJ37.

AGLI did not send Lamond a second reservation letter

specifically addressing Murphy’s third-party claims.
In 2013, Murphy’s claims against Lamond were tried to a jury,
which awarded $20,000 to Murphy for Lamond’s professional
negligence, and $397,000 in actual damages for Lamond’s
deceptive acts and practices under Chapter 93A, doubled by the
jury to $794,000 after it found that Lamond had acted
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willfully. . . . Pursuant to Chapter 93A, the court also awarded
$111,190.62 in attorneys’ fees to Murphy.
Dkt. # 36 at 2.
While the appeal of the jury verdict was pending, AGLI brought this
lawsuit seeking a declaration that the terms of Lamond’s policy excluded
coverage of the assessed damages. 2 In addition to its estoppel defense,
defendants asserted four counterclaims: Negligent Misrepresentation
(Count I); Breach of Contract (Count II); Violations of Mass. Gen. Laws ch.
93A (Count III); and Violations of Mass. Gen. Laws ch. 176D. 3
Subsequent to the jury trial, Lamond assigned his claim against AGLI
to Murphy and his attorney, defendant Colucci, Colucci, Marcus & Flavin,
P.C. The court stayed Lamond’s counterclaims against AGLI in this action
pending the outcome of the state court appeal (in which he was represented
by Berman) because of his
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insoluble conflict of loyalties – he [was] contractually bound to
assist and cooperate with American Guarantee on his defense in
the underlying state action (the abdication of which would
provide an independent basis for the denial of coverage under his
professional liability policy), and he ha[d] similarly promised to
assist and cooperate with Murphy and Colucci (his adversary in
the underlying action) in pursuing his claim against American
Guarantee.
Dkt. # 21. Colucci is also representing Lamond in this case.
AGLI contends that the breach of contract claim fails as a matter of
law because it undeniably fulfilled its contractual obligation to provide
Lamond a defense in the Hill case. Herbert A. Sullivan, Inc. v. Utica Mut.
Ins. Co., 439 Mass. 387, 396 (2003) (“Although the duty [to defend] arises
out of the contract and is measured by its terms, negligence in the manner of
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In July of 2014, the court allowed AGLI’s partial summary judgment
motion on its declaratory judgment claim. See Dkt. # 36. In May of 2015,
the Appeals Court of Massachusetts affirmed the jury’s verdict in the
underlying case. See Hill Fin. Servs. Co. v. Murphy, 87 Mass. App. Ct. 1122
(2015). The Supreme Judicial Court declined Lamond’s invitation for
further review.
DISCUSSION
Summary judgment is warranted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56.
To prevail on their negligent misrepresentation claims, the
[defendants] must establish in this context that the [plaintiff], “in
the course of [their] business, profession or employment, or in
any other transaction in which [they had] a pecuniary interest,
suppli[ed] false information for the guidance of others in their
business transactions” without exercising “reasonable care or
competence in obtaining or communicating the information,”
that those others justifiably relied on the information, and that
performing that duty as distinguished from mere failure to perform it,
causing damage, is a tort.”). AGLI also asserts that Mass. Gen. Laws ch. 176D
does not itself authorize a private right of action, and is only enforceable by
the commissioner of insurance. Thorpe v. Mutual of Omaha Ins. Co., 984
F.2d 541, 544 n.1 (1st Cir. 1993). Defendants “concur [that] their claims for
breach of contract and violations of Mass. Gen. Laws ch. 176D are subsumed
by their claims for negligence and estoppel. . . . As such, the parties are in
agreement that summary judgment may enter properly on Counts II and IV
of the counterclaim[s].” Opp’n at 14 n. 3.
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they suffered pecuniary loss caused by their justifiable reliance
upon the information.
Cumis Ins. Soc’y, Inc. v. BJ’s Wholesale Club, Inc., 455 Mass. 458, 471-472
(2009) (citation omitted). The elements of the estoppel defense are similar.
Circumstances that may give rise to an estoppel are (1) a
representation intended to induce reliance on the part of a
person to whom the representation is made; (2) an act or
omission by that person in reasonable reliance on the
representation; and (3) detriment as a consequence of the act or
omission.
Bongaards v. Millen, 440 Mass. 10, 15 (2003).
As a threshold matter, the absence of a second reservation letter is not
reasonably understood as a representation that AGLI did not intend to
reserve its rights with respect to Murphy’s third party claims against Lamond
in light of the first letter. Defendants cite to Am. Family Mut. Ins. Co. v.
Westfield Ins. Co., 2011 IL App (4th) 110088, ¶ 20 for the proposition that
while “[t]here is no requirement that a reservation-of-rights letter be sent
after the filing of the complaint, [] a second letter might be required if the
filed complaint raised new issues.” Defendants make much of the fact that
Hill did not assert a Chapter 93A claim against Lamond with respect to the
Indian burial ground issue, while Murphy later did.

However, the

reservation letter is clear that what was excluded under the policy was
Lamond’s conduct and certain categories of damages, and not a technical
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formulation of the legal claims.

The policy excluded “any intentional,

criminal, fraudulent, and malicious or dishonest act or omission by an
Insured.” AGLI Ex. I. at SJ36. The letter identified the allegations that
Lamond’s “failure to advise of the Indian issue was deceitful and . . . [his]
failure to advise . . . was done so fraudulently.” Id. As Murphy’s third-party
claims were based on the same allegations of misconduct, no new issues were
raised.
Assuming, arguendo, that the absence of a second letter implied a
conflicting message from the first letter, Lamond’s reliance, without any
efforts to rectify the two positions, was not reasonable. “Although usually a
question for the jury, whether the [claimant’s] reliance was reasonable and
justifiable can be a question of law where the undisputed facts permit only
one conclusion.” Cumis, 455 Mass. at 474.
Confronted by such conflict a reasonable person investigates
matters further; he receives assurances or clarification before
relying. A reasonable person does not gamble with the law of the
excluded middle, he suspends judgment until further evidence is
obtained. Explicit conflict engenders doubt, and to rely on a
statement the veracity of which one should doubt is
unreasonable.
Trifiro v. New York Life Ins. Co., 845 F.2d 30, 33-34 (1st Cir. 1988). The
record is devoid of any evidence that Lamond obtained assurance or
clarification from AGLI on his interpretation of the absence of a second
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letter.4 As a matter of law, he cannot now “rel[y] on one of a pair of
contradictories simply because it facilitates the achievement of [his] goal.”
Id. at 34.
With respect to the Chapter 93A claim, defendants also allege that
AGLI engaged in unfair and deceptive business practices by failing to settle
Murphy’s claims against Lamond in good faith. See Silva v. Steadfast Ins.
Co., 87 Mass. App. Ct. 800, 803 (2015) (unfair settlement practices claims
may be brought under Chapter 93A). Defendants complain at length that
Berman did not dutifully advocate for Lamond’s best interests by
recommending to AGLI to reject a pre-verdict settlement that was below his
project damages for the trial. As the court previously noted in denying
defendants’ motion to amend the complaint to add a count for an alleged civil
conspiracy between AGLI and Berman, see Dkt. # 56, “[s]ince the conduct of
the litigation is the responsibility of trial counsel, the insurer is not
vicariously liable for the negligence of the attorneys who conduct the defense
for the insured.”5 Sullivan, 439 Mass. at 408.

The only anecdote cited is Lamond’s recollection that he queried
Berman as to whether AGLI was providing coverage for the claims against
him, and Berman replied that he did not know.
4

AGLI points out that Lamond has initiated a separate lawsuit against
Berman in the Massachusetts Superior Court for Suffolk County.
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AGLI’s duty to settle the claims against Lamond “does not arise until
liability has become reasonably clear. Determining if a claim is covered by
the policy is essential to evaluating the reasonableness of the insurer’s
response to a demand.” Pacific Indem. Co. v. Lampro, 86 Mass. App. Ct. 60,
64 (2014) (internal quotation marks and citation omitted). Having identified
the specific provisions of the policy that excluded coverage of Lamond’s
conduct and damages in its reservation letter (those policy exclusions having
also been confirmed by this court), it was never reasonably clear that AGLI’s
policy covered the claims against Lamond. Absent such clarity, AGLI had no
duty to settle Lamond’s claims.
ORDER
For the foregoing reasons, plaintiff’s motion for summary judgment on
defendants’ counterclaims is ALLOWED. The Clerk will enter judgment for
plaintiff and close the case.
SO ORDERED.
/s/ Richard G. Stearns
__________________________
UNITED STATES DISTRICT JUDGE

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