State Farm Fire and Casualty Company v. Pike et al

Filing 55

District Judge Timothy S. Hillman: ORDER AND MEMORANDUM entered denying 31 Motion for Summary Judgment. (Castles, Martin)

Case 4:17-cv-40172-TSH Document 55 Filed 06/25/19 Page 1 of 9

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
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STATE FARM FIRE AND CASUALTY
)
COMPANY, an Illinois Corporation,
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CIVIL ACTION
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Plaintiff,
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NO. 17-40172-TSH
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v.
)
)
BARBARA PIKE, and JANE DOE, by and )
through her next friend, KIM PIKE,
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Defendants.
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______________________________________ )
ORDER AND MEMORANDUM ON PLAINTIFF’S MOETION FOR SUMMARY
JUDGMENT (Docket No. 31)
June 25, 2019
HILLMAN, D.J.
John Pike (“Pike”) sexually abused his granddaughter, Jane Doe. Subsequently, Jane Doe
brought a claim against her grandmother and Pike’s wife, Barbara Pike (“Barbara”) for negligently
allowing Pike to abuse her. Barbara sought defense and indemnity from her insurer, State Farm
Fire and Casualty Company (“State Farm”).
State Farm now seeks declaratory judgment that the policies do not provide coverage for
abuse that occurred while the policies were not in effect and regardless of the number of incidents
of abuse that occurred while the policies were in effect, only one “occurrence” or “loss” occurred
under the meaning of the policies. Further, State Farm moves for summary judgment on Jane
Doe’s counterclaim that State Farm breached its duty to make a settlement offer where liability is
reasonably clear.
For the reasons stated below, State Farm’s motion (Docket No. 31) is denied.

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Background
1. Abuse
This Court’s review of the record is in the light most favorable to the party opposing
summary judgment. Santiago-Ramos v. Centennial P.R. Wireless Corp., 217 F.3d 46, 50 (1st Cir.
2000).
Jane Doe is a minor female resident of Massachusetts who was sexually abused by her
grandfather, Pike. Jane Doe previously sued Pike and judgment was entered against him in the
amount of $5,000,000. See Doe v. Pike, 15-CV-40057-TSH. Barbara, Pike’s wife and Jane Doe’s
maternal grandmother, occasionally cared for Jane Doe while her mother, Kim Pike (“Kim”), was
at work. Although Kim requested that Barbara supervise Doe, Pike would accompany Barbara to
Jane Doe’s home.
Pike sexually abused Jane Doe at her home. Jane Doe further alleges that abuse occurred
at her homes in Upton and Centerville, Massachusetts, and Pike and Barbara’s condo in Laconia,
New Hampshire. Pike made Jane Doe do headstands and, while Jane Doe was upside down, put
his mouth on her vulva. Pike admits that he performed oral sex on Doe up to six times. On one
occasion in 2010, Pike kissed Doe and inserted his tongue into her mouth. Pike also made Jane
Doe play the “penny game” where Pike would hide a penny in the foreskin of his penis and make
Jane Doe find it. Jane Doe suffered significant and enduring emotional distress as a result of the
abuse. She lost her motivation to attend school and her desire to socialize. The emotional distress
also had physical manifestations and symptoms such as stomach pain, headaches, and nightmares.
Much of the abuse occurred while Barbara was supposed to be supervising Jane Doe but
was instead napping, reading outside, or otherwise occupied. According to Jane Doe, Barbara was
also present during some of the abuse. For instance, Doe described one incident when she was

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being molested by Pike under a blanket and Barbara walked in and made eye contact with her.
Barbara, however, alleges that she first learned about the abuse when her son Scott called her in
2014. Barbara also observed Pike playing the “turn on the radio” game with his grandchildren,
where Pike would twist their nipples. Jane Doe alleges Barbara watched Pike play this game with
her. Barbara testified, however, that she did not specifically recall Pike playing the game with
Jane Doe and that she thought the game was simply innocent horseplay. Barbara was also aware
of the 1998 allegations against Pike of sexual abuse of another grandchild.
After the abuse began, Jane Doe attempted to avoid Barbara and Pike when they were at
her home. She locked herself in her room and put duck-tape on the door. Jane Doe befriended
neighbors so she could leave the home while Barbara and Pike were there. According to Jane Doe,
Barbara became angry that Jane Doe avoided her and Pike and pressured Jane Doe to spend more
time with them. Barbara never told Kim that she had left Jane Doe alone with Pike or informed
Kim about the risk that Pike posed.
2. State Farm Policies
State Farm issued three insurance policies that are the subject of this litigation: A
Condominium Unitowners Policy with an effective date of October 1, 2009, a Homeowners Policy
with an effective date of September 23, 2009, and a Personal Liability Umbrella Policy with an
effective date of October 1, 2009. See Docket No. 32-10, at 3-102.
On January 4, 2017, Jane Doe, as a third-party beneficiary under the Policies, sent a
demand to State Farm pursuant to Mass. Gen. Laws ch. 93A and ch. 176D, demanding that State
Farm make a fair and reasonable settlement offer. On February 28, 2017, State Farm refused to
grant relief following receipt of Jane Doe’s demand letter because Barbara’s liability was not
“reasonably clear.” See Docket No. 32-10, at 109.

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Standard of Review
Rule 56 of the Federal Rules of Civil Procedure provides that the court shall grant summary
judgment if the moving party shows, based on the materials in the record, “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. A factual dispute precludes summary judgment if it is both “genuine” and “material.”
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). An issue is “genuine” when the
evidence is such that a reasonable factfinder could resolve the point in favor of the nonmoving
party. Morris v. Gov’t Dev. Bank of Puerto Rico, 27 F.3d 746, 748 (1st Cir. 1994). A fact is
“material” when it might affect the outcome of the suit under the applicable law. Id.
The moving party is responsible for “identifying those portions [of the record] which it
believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986). It can meet its burden either by “offering evidence to disprove an
element of the plaintiff’s case or by demonstrating an ‘absence of evidence to support the
nonmoving party's case.’” Rakes v. United States, 352 F. Supp. 2d 47, 52 (D. Mass. 2005), aff'd,
442 F.3d 7 (1st Cir. 2006) (quoting Celotex, 477 U.S. at 325). Once the moving party shows the
absence of any disputed material fact, the burden shifts to the non-moving party to place at least
one material fact into dispute. Mendes v. Medtronic, Inc., 18 F.3d 13, 15 (1st Cir. 1994) (citing
Celotex, 477 U.S. at 325). When ruling on a motion for summary judgment, the court must “view
the facts in the light most favorable to the non-moving party, drawing all reasonable inferences in
that party's favor.’” Barbour v. Dynamics Research Corp., 63 F.3d 32, 36 (1st Cir. 1995).
Discussion
1. Choice of Law

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When a district court’s jurisdiction is based upon diversity of citizenship, the court must
apply the choice-of-law rules of the forum state. Klaxon v. Stentor Elec. Mfg., 313 U.S. 487, 496
(1941). However, “[t]he first step in a choice of law analysis is to determine whether an actual
conflict exists between the substantive laws of the interested jurisdictions.” Reicher v. Berkshire
Life Ins. Co. of Am., 360 F.3d 1, 4 (1st Cir. 2004). The First Circuit has explained that when “the
outcome is the same under the substantive law of either jurisdiction,” there is no actual conflict
and the court “need not resolve the [choice-of-law] issue.” Lambert v. Kysar, 983 F.2d 1110, 1114
(1st Cir. 1993). The parties agree that New Hampshire and Arizona laws govern this dispute.
Accordingly, I need not resolve this issue. See Artuso v. Vertex Pharma., Inc., 637 F.3d 1, 5 (1st
Cir. 2011) (“In determining which state’s law applies, a diversity court is free to honor the parties’
reasonable agreement.”).
If the Court cannot discern any controlling New Hampshire or Arizona authority on a
certain point, it must make an informed guess as to how the state’s highest court would resolve the
issue. Sanders v. Phoenix Ins. Co., 843 F.3d 37, 42 (1st Cir. 2016). That “prediction may be
guided, inter alia, by persuasive case law from other jurisdictions and relevant public policy
considerations.” Id. (quotation marks omitted).
2. Declaratory Judgment
The Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, is “an enabling Act, which
confers a discretion on the courts rather than an absolute right upon the litigant.” Wilton v. Seven
Falls Co., 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm’n of Utah v. Wycoff Co., 344 U.S.
237, 241 (1952)). It permits federal courts to award declaratory relief when an actual case or
controversy is present. See Verizon New England, Inc. v. Int’l Broth. of Elect. Workers, Local No.
2322, 651 F.3d 176, 187 (1st Cir. 2011) (“Requests for a declaratory judgment may not be granted

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unless they arise in a context of a controversy ‘ripe’ for judicial resolution.”); Abbot Labs. V.
Gardner, 387 U.S. 136, 148-49 (1967), abrogated on other grounds by Califano v. Sanders, 430
U.S. 99, 105 (1977).
A duty to indemnify “arises only after the insured’s liability has been established and is
between the insurer and the insured,” Wilkinson v. Citation Ins. Co., 447 Mass. 663, 671 (2006),
and must be “determined by the facts, which are usually established at trial.” Travelers Ins. Co. v.
Waltham Indus. Labs. Corp., 883 F.2d 1092, 1100 (1st Cir. 1989). Accord Great Am. Dining, Inc.
v. Philadelphia Indem. Ins. Co., 164 N.H. 612, 626-28, 62 A.3d 843 (2013); Lennar Corp. v. AutoOwners Ins. Co., 214 Ariz. 255, 260-61, 151 P.3d 538 (Ct. App. 2007); INA Ins. Co. of North
America v. Valley Forge Ins. Co., 150 Ariz. 248, 255, 722 P.2d 975 (App. 1986).
Accordingly, “a declaratory judgment is not yet ripe for consideration regarding the duty
to indemnify where, as here, the underlying action has not determined liability or adjudicated
factual disputes.” Narragansett Bay Ins. Co. v. Kaplan, 146 F. Supp. 3d 364, 372 (D. Mass. 2015);
see also Johansen v. Liberty Mutual Grp., Inc., 2016 WL 7173753, at *10 (D. Mass. Dec. 8, 2016)
(noting that “a declaratory judgment action regarding an insurer’s duty to indemnify is premature
if the underlying claim for liability has not been resolved”); Lee Kennedy Co., Inc. v. Arch Ins.
Co., 357 F. Supp. 3d 81, 86 (D. Mass. 2019) (“[A] contractual obligation to defend or indemnify
must be preceded by a formal adjudication to determine liability and/or damages.”).
Because Barbara’s underlying liability has not been established, it is premature to rule on
the indemnity issue. Further, while State Farm argues that the instances of abuse are one
“occurrence” or “loss” as those term is defined in the policies, that analysis is fact intensive and I
elect to wait until after trial to decide that issue. Therefore, the portion of State Farm’s motion
seeking declaratory judgment that there is no coverage for events that occurred before the effective

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dates and that there was only one “occurrence” under the policies is denied. State Farm may renew
its request after the trial. 1
3. Settlement Offer (Counterclaim Count II)
Jane Doe claims that State Farm refused to make a fair and reasonable settlement offer in
violation of Mass. Gen. Laws ch. 93A and ch. 176D.
An insurer’s duty to settle does not arise until “liability has become reasonably clear.”
Mass. Gen. Laws ch. 176D, §3(9)(f). Typically, the determination of whether an insurer has met
this duty is reserved for a finder of fact. Bobick v. U.S. Fid. & Guar. Ins. Co., 57 Mass.App.Ct. 1,
3-4 (2003) (“Whether an insurer has conducted an adequate investigation before denying a claim,
whether liability has become reasonably clear, and whether a settlement offer is reasonable are
factual determinations.”). “However, certain actions may fall outside of the scope of a fact finder’s
determination.” Scott v. Vermont Mut. Ins. Co., 2011 WL 4436984, at *6 (D. Mass. Sep. 22, 2011).
“Although whether a particular set of facts, in their factual setting, is unfair or deceptive is a
question of fact, the boundaries of what may qualify for consideration as a Chapter 93A violation
is a question of law.” Arthur D. Little, Inc. v. Dooyang Corp., 147 F.3d 47, 54 (1st Cir. 1998)
(quoting Ahern v. Scholz, 85 F.3d 774, 797 (1st Cir. 1996)) (brackets omitted).
“Massachusetts courts have emphasized that this provision does not ‘penalize insurers who
delay in good faith when liability is not clear and requires further investigation.” Scott, 2011 WL
4436984, at *8 (citing Clegg v. Butler, 424 Mass. 413, 676 N.E.2d 1134, 1140 (1997)). Therefore,
“[l]iability under c. 176D and 93A does not attach merely because an insurer concludes that it has
no liability under an insurance policy and that conclusion is ultimately determined to have been

1

In Doe v. Pike, 17-cv-40021-TSH, the Defendant, Barbara Pike, has filed a motion for summary judgement
which was heard by this Court at the same hearing that this motion was heard. That motion is under
advisement.

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erroneous.” Pediatricians, Inc. v. Provident Life & Accident Ins. Co., 965 F.2d 1164, 1173 (1st
Cir. 1992); see also Guity v. Commerce Ins. Co., 36 Mass.App.Ct. 339, 344 (1994) (“A plausible,
reasoned legal position that may ultimately turn out to be mistaken—or simply, as here,
unsuccessful—is outside the scope of the punitive aspects of the combined application of c. 93A
and c. 176D.”).
Whether liability is reasonably clear depends on “whether a reasonable person, with
knowledge of the relevant facts and law, would probably have concluded, for good reason, that the
insurer was liable to the plaintiff.” Nyer v. Winterhur Int’l, 290 F.3d 456, 461 (1st Cir. 2002)
(quoting Demeo v. State Farm Mut. Auto. Ins. Co., 38 Mass.App.Ct. 955, 956-57 (1995)); see also
Demeo, 38 Mass.App.Ct. at 956 (“Whether the defendant’s liability in this case became
‘reasonably clear’ calls for an objective standard of inquiry into the facts and the applicable law.”).
“Relevant evidence may include insurance industry practices in similar circumstances, expert
testimony that the insurer violated sound claims practices, the defendant’s own evaluation of the
plaintiff’s claim, and advice given to the insurance company on the probability of success at trial.”
O’Leary-Alison v. Metropolitan Prop. & Cas. Ins. Co., 52 Mass.App.Ct. 214, 217 n.3 (2001).
On February 27, 2017, State Farm responded to Jane Doe’s demand letter and informed
her that its “liability investigation has concluded that the insured, Barbara Pike, was not aware of
the sexual abuse and should not have been aware of the sexual abuse.” (Docket No. 32-10, at 109).
State Farm “reviewed the police reports . . . and [took] into consideration the facts that you [Jane
Doe] allege[d] in [her] correspondence.” Id. Accordingly, State Farm concluded that “[t]he
liability of Barbara Pike is not reasonably clear.” Id.
Interpreting the facts in the light most favorable to the non-moving party as I must,
however, a factfinder might conclude that Barbara’s negligence should have been reasonably clear

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to State Farm. For instance, Barbara was aware of past allegations of sexual abuse and witnessed
Pike touching the nipples of their grandchildren. (Docket No. 40 ¶¶ 115, 122). Nonetheless, she
repeatedly left Jane Doe alone with Pike. These facts, coupled with a relative dearth of information
regarding State Farm’s investigative procedures, caution against resolution of the claim at this
stage. 2
Conclusion
For the reasons stated above, State Farm’s motion is denied.
SO ORDERED
/s/ Timothy S. Hillman
TIMOTHY S. HILLMAN
DISTRICT JUDGE

2

There are also more implicative allegations against Barbara that are disputed. For instance, that she made
eye contact with Jane Doe while Pike was inappropriately touching her. Jane Doe’s contention that
“multiple disputes of fact . . . regarding liability” in fact supports a finding that liability was not clear to
State Farm. (Docket No. 39, at 15). As noted above, however, there are enough agreed upon facts and
insufficient information about State Farm’s own investigative procedures which render resolution of the
claim on summary judgment is improper. Further, the duty to make a reasonable offer of settlement when
liability becomes clear is ongoing as facts are developed. See, e.g., R.W. Granger & Sons, Inc. v. J & S
Insulation, Inc., 435 Mass. 66, 75 (2001) (finding post-verdict violation of Chapter 176D and rejecting
defendant insurer’s argument that liability was not reasonably clear because the amount of attorney’s fees
was still disputed).

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