peabody essex museum, inc. v. us fire insurance company, 1st cir. (2015)

7/26/2019 Peabody Essex Museum, Inc. v. US Fire Insurance Company, 1st Cir. (2015)

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United States Court of AppealsFor the First Circuit

Nos. 13- 1528, 13- 1602

PEABODY ESSEX MUSEUM, I NC. ,

Pl ai nt i f f , Appel l ee/ Cr oss- Appel l ant ,

v.

UNI TED STATES FI RE I NSURANCE COMPANY,

Def endant / Thi r d- Par t y Pl ai nt i f f , Appel l ant / Cr oss- Appel l ee,

v.

CENTURY I NDEMNI TY COMPANY,

Thi r d- Par t y Def endant , Appel l ee.

APPEALS FROM THE UNI TED STATES DI STRI CT COURTFOR THE DI STRI CT OF MASSACHUSETTS

[ Hon. Nancy Ger t ner , U. S. Di st r i ct J udge][ Hon. Nat hani el M. Gor t on, U. S. Di st r i ct J udge]

Bef ore

Howard, Chi ef J udge,Sel ya and St ahl , Ci r cui t J udges.

Thomas M. El cock, wi t h whomMi t chel l S. Ki ng and Pr i nce LobelTye LLP wer e on br i ef , f or appel l ant / cr oss- appel l ee.

Mar t i n C. Pent z, wi t h whom J eremy A. M. Evans and Fol ey HoagLLP wer e on br i ef , f or appel l ee/ cross- appel l ant .

Br i an G. Fox, wi t h whomSi egal & Par k was on br i ef , f or t hi r d-par t y def endant , appel l ee.


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September 4, 2015


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HOWARD, Chief Judge. Some decades ago, a subst ant i al

oi l spi l l occur r ed on t he Sal em, Massachuset t s pr oper t y of

pl ai nt i f f Peabody Essex Museum ( "t he Museum") . That pol l ut i on

event ual l y mi gr at ed to t he l and of a down gr adi ent nei ghbor ,

Her i t age Pl aza, whi ch di scover ed t he subsur f ace cont ami nat i on i n

2003. Her i t age Pl aza not i f i ed t he Museum i n l at e 2003, and t he

Museum gave pr ompt not i ce t o both t he st at e envi r onment al

aut hor i t i es and i t s i nsur er , def endant Uni t ed St at es Fi r e

I nsur ance Company ( "U. S. Fi r e" ) . I n 2006, t he Museum f i l ed a

cover age sui t agai nst U. S. Fi r e and event ual l y secur ed a si zabl e

j udgment i n 2013. The par t i es now chal l enge numer ous di st r i ct

cour t r ul i ngs, and sever al of t he i nsur ance i ssues ar e gover ned by

st ate l aw under Bost on Gas Co. v. Cent ur y I ndemni t y Co. , 910 N. E. 2d

290 ( Mass. 2009) , a deci si on whi ch r ej ect ed j oi nt and sever al

l i abi l i t y i n pr ogr essi ve pol l ut i on cases i n f avor of pr o r at a

al l ocat i on of i ndemni t y, i ncl udi ng f or sel f - i nsur ed year s on t he

r i sk.

Af t er car ef ul r evi ew, we af f i r m t he chal l enged r ul i ngs

r el at ed to i nsur ance cover age but r ever se a f i ndi ng of Chapt er 93A

l i abi l i t y agai nst U. S. Fi r e under Massachuset t s l aw.

I.

The sur r oundi ng f act s ar e wel l - r ehear sed i n t he di st r i ct

cour t or der s bel ow. See, e. g. , Peabody Essex Museum, I nc. v. U. S.

Fi r e I ns. Co. , 623 F. Supp. 2d 98 ( D. Mass. 2009) ; Peabody Essex


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Museum, I nc. v. U. S. Fi r e I ns. Co. , No. 06- 11209- NMG, 2012 WL

2952770, at *1 ( D. Mass. J ul y 18, 2012) . A br i ef synopsi s i s

enough t o set t he st age.

The pr i nci pal par t i es share a cont r act ual r el at i onshi p

under a compr ehensi ve gener al l i abi l i t y pol i cy whi ch, as per t i nent

her e, had a pol i cy per i od t hat ext ended f r om December 19, 1983 to

December 19, 1985. Gener al l y speaki ng, t he pol i cy cover ed pr oper t y

damage occur r i ng dur i ng t hat t wo- year per i od as l ong as t he damage

ar ose out of a sudden and acci dent al di schar ge of pol l ut ant s. 1

Under t he pol i cy, U. S. Fi r e al so pr omi sed t o def end t he Museum

f r omany sui t seeki ng damages agai nst i t on account of any cover ed

pr oper t y damage and to i nvest i gat e any cl ai m as i t deemed

expedi ent .

Once t he Museum r ecei ved not i ce of t he pol l ut i on damage

f r om Her i t age Pl aza i n 2003 ( "t he pr i vat e demand") , i t r et ai ned

t he Ropes & Gr ay l aw f i r m as l egal counsel and ENSR I nt er nat i onal

as an envi r onment al consul t ant . The Museumconf i r med t he exi st ence

of subsur f ace oi l pol l ut i on on i t s pr oper t y and i mmedi at el y

not i f i ed t he Massachuset t s Depart ment of Envi r onment al Protect i on

1 The 1983- 1985 pol i cy excl uded cover age f or al l pr oper t ydamage ar i si ng out of t he di schar ge, di sper sal , r el ease or escapeof pol l ut ant s i nt o t he gr ound. But an except i on t o t hat excl usi onr eserved cover age f or "sudden and acci dent al " di schar ges. SeePeabody Essex Museum, 623 F. Supp. 2d at 102- 03. A subsequentU. S. Fi r e pol i cy i ncor por at ed an absol ut e pol l ut i on excl usi onpr ovi si on and, t hus, i s not r el evant t o t hi s l i t i gat i on.


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of t he pol l ut i on. The Depar t ment , i n t ur n, i ssued t he Museum a

Not i ce of Responsi bi l i t y i n ear l y 2004 ( "t he publ i c cl ai m") , and

ENSR cont i nued i t s si t e i nvest i gat i on wor k t hr oughout 2004. I n

i t s I ni t i al Si t e I nvest i gat i on Repor t compl et ed t hat November ,

ENSR i dent i f i ed sever al i sol at ed spi l l s t hat had occur r ed on t he

Museum' s pr opert y over t he years. ENSR concl uded, however , t hat

t he l i kel y cause of t he pol l ut i on i nvol ved one or mor e of t hr ee

oi l st or age t anks or t hei r pi pel i nes pr evi ousl y bur i ed on t he

Museum' s pr oper t y: a 10, 000- gal l on tank had been i nst al l ed i n the

ear l y 1960s and r emoved i n 1973, and t wo 10, 000- gal l on t anks had

been i nst al l ed i n 1973 and r emoved i n J une 1986.

Meanwhi l e, t he Museum not i f i ed U. S. Fi r e of bot h t he

pr i vat e demand, i n Oct ober 2003, and t he publ i c cl ai m, i n Febr uary

2004. U. S. Fi r e deni ed a dut y t o def end f or t he pr i vat e demand

but accept ed def ense f or t he publ i c cl ai m wi t h a reser vat i on of

r i ght s. Despi t e t ender i ng bot h l egal and envi r onment al consul t ant

bi l l s t o U. S. Fi r e i n Apr i l 2005, t he Museum r ecei ved no payment

f or t he def ense of t he publ i c cl ai m - - t he one t hat U. S. Fi r e had

agr eed t o def end. I n J une 2006, t he Museum f i l ed a f our - count

compl ai nt agai nst U. S. Fi r e i n st at e cour t , al l egi ng t hat U. S.

Fi r e had br eached i t s cont r act ual dut i es t o i nvest i gat e t he

pol l ut i on cl ai ms and t o def end and i ndemni f y t he Museum i n

connect i on wi t h both t he pr i vat e demand and t he publ i c cl ai m

( count s I and I I ) . The Museum al so al l eged t hat U. S. Fi r e had


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vi ol ated st ate consumer pr otect i on l aws, Mass. Gen. Laws ch. 93A,

2, and cer t ai n common l aw dut i es owed t o i t s i nsur ed ( count s I I I

and I V) . At t he behest of U. S. Fi r e, t he case was r emoved t o

f eder al cour t wher e i t f i l ed a t hi r d- par t y compl ai nt f or equi t abl e

cont r i but i on agai nst anot her of t he Museum' s i nsur er s, ACE

Pr oper t y & Casual t y I nsur ance.

The ext ensi ve, mul t i - phase l i t i gat i on i ncl uded several

r ounds of summary j udgment pr oceedi ngs and a j ur y t r i al r esol vi ng

i ndemni t y i ssues. About mi dway t hr ough t he l i t i gat i on, t he

Massachuset t s Supr eme J udi ci al Cour t ( "SJ C" ) deci ded Bost on Gas

Co. , 910 N. E. 2d 290, t o whi ch t he di st r i ct cour t moor ed i t s

deci si on on al l ocat i on of l i abi l i t y bet ween U. S. Fi r e and t he

Museum as sel f - i nsured on t he r i sk af t er December 19, 1985. 2 I n

t he end, t he di st r i ct cour t ' s 2013 j udgment r equi r ed U. S. Fi r e t o

pay t he Museumover $1. 5 mi l l i on, i ncl udi ng puni t i ve damages under

Chapt er 93A, at t or ney' s f ees, cost s, and st at ut or y i nt er est .

Our r evi ew of t he var i ous r ul i ngs on appeal i s l ar gel y

de novo, and we abi de by t he wel l - est abl i shed summary j udgment

st andar ds. Fed. R. Ci v. P. 56( c) ; see Cel ot ex Cor p. v. Cat r et t ,

477 U. S. 317, 322- 23 ( 1986) . We ar e not r est r i ct ed by t he di st r i ct

cour t ' s anal yses and may af f i r m on any i ndependent gr ound made

2 The par t i es agr ee t hat t he oper at i ve l anguage i n t he U. S.Fi r e pol i cy does not meani ngf ul l y di f f er f r om t hat at i ssue i nBost on Gas.


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mani f est i n t he r ecor d. See J ones v. Secor d, 684 F. 3d 1, 5 ( 1st

Ci r . 2012) . Wher e appr opr i at e, we i dent i f y ot her r evi ew st andar ds

al ong t he way.

II.

U. S. Fi r e f i r st appeal s t he di st r i ct cour t ' s 2007 or der

t hat i t br eached i t s dut y t o def end agai nst t he publ i c cl ai m, and

t hus st at e l aw r equi r ed i t t o bear t he t r i al bur den of pr ovi ng no

cover age. See Pol ar oi d Cor p. v. Tr avel er s I ndem. Co. , 610 N. E. 2d

912, 922 & n. 22 ( Mass. 1993) ( " [ A] n i nsur er t hat wr ongf ul l y

decl i nes t o def end a cl ai m [ must bear ] t he bur den of pr ovi ng t hat

t he cl ai m was not wi t hi n i t s pol i cy' s cover age" i ncl udi ng, i n

pol l ut i on cases, " t he exi st ence or nonexi st ence of a sudden and

acci dent al di schar ge. ") . Fol l owi ng t hi s Pol ar oi d bur den- shi f t i ng

r ul e, t he di st r i ct cour t set f or t h t he ant i ci pat ed t r i al pr ocedur e

i n whi ch t he Museum was expect ed t o produce cr edi bl e evi dence

demonst r at i ng t hat an occur r ence t ook pl ace dur i ng t he t er mof t he

i nsur ance pol i cy, and t hen U. S. Fi r e woul d bear t he bur den of

pr ovi ng no cover age. El ect r oni c Or der ( Ger t ner , J . , Dec. 19,

2007) ; see Peabody Essex Museum, 623 F. Supp. 2d at 106- 10

( cl ar i f yi ng how t he Pol ar oi d bur den- shi f t i ng r ul e appl i es i n t he

summar y j udgment cont ext ) . 3

3 The di st r i ct cour t hel d i n abeyance t he i ssue of whet herU. S. Fi r e al so had a dut y t o def end on t he Her i t age Pl aza pr i vat edemand. See El ect r oni c Or der ( Ger t ner , J . , Dec. 19, 2007) .Event ual l y, t he Museum set t l ed t he pr i vat e demand f or $300, 000.


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U. S. Fi r e at t acks t hi s summary j udgment order on sever al

f r ont s, al l ai med at f or ecl osi ng appl i cat i on of t he Pol ar oi d

bur den- shi f t i ng r ul e. Thi s i s under st andabl e i n l i ght of t he

cascade of pr act i cal ef f ect s t hat Pol ar oi d had t hr oughout t hi s

l i t i gat i on, especi al l y gi ven t he dear t h of evi dence showi ng how

t he pol l ut i ng event occur r ed. However , t he di st r i ct cour t ' s br each

r ul i ng - - gr ounded i n U. S. Fi r e' s cat egor i cal f ai l ur e f or

appr oxi mat el y t wo years t o make any payment f or def ense cost s - -

i s unassai l abl e on t hi s r ecor d. Onl y a f ew snapshot s of t he

undi sput ed f act s are necessary t o show why. 4

U. S. Fi r e agr eed i n Mar ch 2004 t o honor i t s cont r act ual

dut y t o def end t he publ i c cl ai m under a r eser vat i on of r i ght s and

t hen pai d not hi ng t o i t s i nsur ed unt i l cor ner ed by t he Museum

t hr ough i t s Oct ober 2007 mot i on f or summary j udgment . Fr om t he

out set , U. S. Fi r e pr ot est ed t he hour l y rat e char ged by Ropes &

The di st r i ct cour t subsequent l y deter mi ned t hat whi l e t he Pol ar oi dbur den- shi f t i ng r ul e appl i ed t o t he set t l ement f i gur e, an openquest i on r emai ned on whet her t he pr i vat e demand l et t er t r i gger edU. S. Fi r e' s dut y to def end dur i ng t he per i od of t i me af t er U. S.Fi r e r ecei ved t he pr i vat e demand but bef or e i t r ecei ved t he publ i ccl ai m. See El ect r oni c Or der ( Ger t ner , J . , J une 19, 2009) . Noi ssue on the dut y t o def end the pr i vat e demand has sur f aced onappeal .

4 The 2007 summary j udgment r ecord i s r obust and i ncl udescommuni cat i ons among the var i ous pl ayer s f r om2004 t hrough 2007 asexpl ai ned by, i nt er al i a, t he deposi t i on t est i mony of t he t hi r d-par t y cl ai ms admi ni st r at or s f or bot h U. S. Fi r e and ACE. Themat er i al f act s r egar di ng U. S. Fi r e' s br each i nvol ve t hei nt er act i ons bet ween t he Museum and U. S. Fi r e, i ncl udi ng t hei ragent s.


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Gr ay but f ai l ed t o pay even a part i al payment despi t e r epeated

r equest s f or some measur e of payment. For exampl e, i n 2005, t he

Museum sent U. S. Fi r e t he bi l l i ng i nvoi ces f r om bot h Ropes & Gr ay

and ENSR and, soon af t er , pr ovi ded f ur t her det ai l f or t he ENSR

bi l l s. 5 St i l l , no money came. Then, U. S. Fi r e r emai ned si l ent

when di r ect l y asked i n an August 2005 emai l whether i t had pai d

any def ense cost s t o dat e. Accor di ng t o t he r ecor d, about a year

passed bef or e U. S. Fi r e i nf or med the Museum t hat i t was unabl e t o

conf i r mwhet her i t had ever r ecei ved any bi l l i ng f or def ense cost s.

The Museumf i l ed sui t agai nst U. S. Fi r e i n J une 2006 and

agai n sent copi es of t he Ropes & Gr ay bi l l s t o t he i nsur er . The

Museum al so sent U. S. Fi r e addi t i onal l egal bi l l s at t he end of

2006. Yet , another s i x mont hs passed bef ore U. S. Fi r e i nf ormed

t he Museum, i n J une 2007, t hat i t had l ost t he bi l l i ng i nf or mat i on

and asked f or addi t i onal copi es. The Museum pr ompt l y compl i ed.

Af t er anot her t hr ee- mont h l apse wi t hout any payment i n hand, t he

Museum f i l ed a mot i on f or summary j udgment t o enf orce U. S. Fi r e' s

def ense obl i gat i on. Fi nal l y, i n conj uncti on wi t h i t s obj ecti on,

U. S. Fi r e sent i t s f i r st payment t o t he Museum t ot al i ng $611. 41.

Thi s amount r epresent ed what U. S. Fi r e consi dered t o be a f ai r

por t i on of t he Ropes & Gr ay bi l l s f or t he publ i c cl ai m: i t

5 The l egal bi l l s r el at ed t o wor k f or bot h t he pr i vat e demandand t he publ i c cl ai m but some i nvoi ces cl ear l y i dent i f i ed t hepubl i c c l ai m wor k.


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uni l at er al l y reduced t he char ged at t or ney' s f ees r at e to $200 per

hour , and f ur t her r educed t o 40%6 t he revi sed t ot al l egal bi l l s .

No payment was of f ered f or any of t he 2004 ENSR bi l l s whi ch t ot al ed

r oughl y $70, 000. 00 at t hat t i me. 7

U. S. Fi r e' s per si st ent f ai l ur e to make any payment

t oward def ense cost s despi t e havi ng nomi nal l y accept ed t hat dut y

may be t r eated as a wr ongf ul r ef usal t o def end upon r ecei pt of

not i ce of a cl ai m. The SJ C has sai d expl i ci t l y t hat "[ a] n i nsur er

whi ch r eser ves i t s r i ght s and t akes no act i on i n def ense of i t s

i nsured, when i t knew, or shoul d have known, of a cover ed cl ai m,

or whi ch f ai l s t o i nvest i gat e di l i gent l y, despi t e r epeat ed cl ai ms

of cover age and r equest s f or a def ense f r om an i nsur ed f aci ng

demands f or i mmedi at e act i on, coul d be f ound t o have commi t t ed a

br each of t he dut y t o i t s i nsur ed. " Sar naf i l , I nc. v. Peer l ess

I ns. Co. , 636 N. E. 2d 247, 253 ( Mass. 1994) ; accor d Chi . Ti t l e I ns.

Co. v. Fed. Deposi t I ns. Cor p. , 172 F. 3d 601, 604- 06 ( 8t h Ci r .

1999) ( hol di ng t hat t he i nsur er ' s f ai l ur e t o pay even what i t had

6 U. S. Fi r e and ACE pur por t edl y agr eed t o a 40/ 60 spl i t oft he def ense cost bi l l s f or t he publ i c cl ai m. ACE had agr eed t odef end both t he pr i vat e demand and t he publ i c cl ai m. I n any event ,t he apport i onment agr eed t o by t he i nsurer s was not bi ndi ng on t he

i nsur ed.

7 The pr eci se dol l ar f i gur e f or t he ENSR bi l l i ngs on t hepubl i c cl ai m t hat wer e pr ovi ded t o U. S. Fi r e i n 2005 i s uncl ear i nt he r ecor d. St i l l , t he t ens of t housands of dol l ar s f or t he si t ework t hat ENSR l argel y conduct ed i n 2004 was i n excess of$66, 000. 00 but l ess t han $85, 000. 00. As expl ai ned, U. S. Fi r e' sbr each does not depend on t he exact cal cul at i on.


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consi der ed t o be a reasonabl e sumf or def ense cost s, despi t e havi ng

nomi nal l y accept ed t he t ender of def ense, const i t ut es a br each of

t he dut y t o def end) .

None of t he f act ual i ssues i dent i f i ed by U. S. Fi r e ar e

mat er i al t o t he br each quest i on her e. See Ander son v. Li ber t y

Lobby, I nc. , 477 U. S. 242, 248 ( 1986) . Fi r st , i t i s i mmat er i al

t hat t he i ndi vi dual empl oyee who was managi ng the publ i c cl ai m

does not r ecal l ever havi ng per sonal l y r ecei ved t he packet . U. S.

Fi r e does not cont est t he val i di t y of t he Feder al Expr ess r ecei pt

si gned by an empl oyee of i t s t hi r d- par t y cl ai ms admi ni st r at or and

dated Apr i l 11, 2005, whi ch i ndi sput abl y shows t hat t he 2005

bi l l i ng packet was act ual l y r ecei ved by U. S. Fi r e' s agent . See

Bockser v. Dor chest er Mut . Fi r e I ns. Co. , 99 N. E. 2d 640, 642 ( Mass.

1951) ( not i ng t hat a pr i nci pal i s gener al l y bound by t he act i ons

of i t s agent s) ; Chow v. Mer r i mack Mut . Fi r e I ns. Co. , 987 N. E. 2d

1275, 1279- 80 ( Mass. App. Ct . 2013) ( same) . Moreover , ot her

undi sput ed document s show t hat t he same i ndi vi dual cl ai ms adj ust er

di d r ecei ve f ol l ow- up i nf or mat i on about t he ENSR bi l l s t hat t he

Museum had sent t hat same summer. I n shor t , any f ai l ur e on t he

par t of t he company ser vi ng as U. S. Fi r e' s t hi r d- par t y

admi ni st r at or f or t he publ i c cl ai m does not bear on t he l egal

di sput e bet ween t he i nsur er and i t s i nsur ed. Cf . Pal er mo v.

Fi r eman' s Fund I ns. Co. , 676 N. E. 2d 1158, 1163 ( Mass. App. Ct .


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1997) ( emphasi zi ng t hat pr oof of good f ai t h has no r el evance t o

t he Pol ar oi d bur den- shi f t i ng r ul e) .

The r easonabl eness of t he Ropes & Gr ay hour l y r at e al so

i s i mmat er i al . I t i s U. S. Fi r e' s pr ol onged f ai l ur e t o pay any

por t i on of i t s acknowl edged r esponsi bi l i t y t hat gi ves r i se t o t he

br each her e. See, e. g. , Chi . Ti t l e I ns. Co. , 172 F. 3d at 604- 06.

Thus, any qui bbl i ng about t he hour l y r at e si mpl y r el at es t o damages

t hat ar e owed to t he Museum.

U. S. Fi r e' s pl ai nt about t he di vi si bi l i t y of t he ENSR

bi l l s bet ween def ense and i ndemni t y cost s i s si mi l ar l y i mmat er i al .

U. S. Fi r e t aci t l y acknowl edged i n i t s 2007 paper s ( and al so bef or e

us now) t hat some por t i on of t he ENSR bi l l s r el at i ng t o t he 2004

si t e wor k const i t ut es r ecover abl e def ense cost s. 8 Yet , as wi t h

t he l egal f ees, U. S. Fi r e made no at t empt t o pay a si ngl e cent ,

nor i s t her e any recor d evi dence t hat i t made any ef f or t t o r esol ve

t he si zabl e r emuner at i on i ssue.

U. S. Fi r e' s apat hy stands i n shar p cont r ast t o t he

Museum' s mul t i pl e request s f or some measur e of cont r act ual def ense

benef i t s i n 2004 and 2005; i t s r equest f or cl ar i f i cat i on i n August

2005 of what "def ense expendi t ur es [ i t s i nsurer may have pai d] t o

8 Appr opr i at el y so. See, e. g. , Chemi cal Leaman Tank Li nes,I nc. v. Aet na Cas. & Sur . Co. , 117 F. 3d 210, 223- 24, 225 n. 20 ( 3dCi r . 1999) ; Endi cot t J ohnson Cor p. v. Li ber t y Mut . I ns. Co. , 928F. Supp. 176, 183- 84 ( N. D. N. Y. 1996) ; Si l t r oni c Cor p. v. Emp' r sI ns. Co. of Wasau, No. 3: 11- CV- 1493- ST, 2104 WL 901161, at *7 ( D.Or . Mar . 7, 2014) .


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dat e [ and] on what t erms" ; and i t s expr ess r emi nder about t he ENSR

bi l l s i n i t s November 2006 cor r espondence. Cf . Vt . Mut . I ns. Co.

v. Magui r e, 662 F. 3d 51, 56- 58 ( 1st Ci r . 2011) ( hol di ng as a mat t er

of l aw t hat t he i nsur er ' s di l i gent i nvest i gat i on ef f or t s and

r eadi ness t o compl y negat ed al l egat i ons of br each, especi al l y when

compar ed t o t he i nsur ed' s l ackadai si cal conduct ) .

We al so r ej ect U. S. Fi r e' s at t empt t o t r ansf or m i t s

acknowl edged dut y t o def end i nt o a dut y onl y t o rei mbur se

r easonabl e f ees and cost s. Accor di ng t o U. S. Fi r e, as soon as t he

Museum opt ed t o r et ai n cont r ol of i t s own def ense f or t he publ i c

cl ai m, t he i nsur er no l onger had a dut y to def end and t hus i t s

subsequent conduct cannot amount t o a def ense br each t r i gger i ng

Pol ar oi d' s bur den- shi f t i ng r ul e. But t hi s newl y mi nt ed t heor y was

not pr esent ed t o t he di st r i ct cour t and, so, i t "cannot be sur f aced

f or t he f i r st t i me on appeal . " Gol dman v. Fi r st Nat ' l Bank of

Bos. , 985 F. 2d 1113, 1116- 17 n. 3 ( 1st Ci r . 1993) ( i nt er nal ci t at i on

and quotat i on marks omi t t ed) .

I n any event , t he st at e cases t hat U. S Fi r e ci t es i n

suppor t of i t s t r ansf or mat i on t heor y addr ess onl y how an i nsur ance

company sat i sf i es i t s dut y t o def end af t er t he i nsur ed opt s t o

mai nt ai n the def ense due to t he i nsurance company' s r eservat i on of

r i ght s. See, e. g. , Her ber t A. Sul l i van, I nc. v. Ut i ca Mut . I ns.

Co. , 788 N. E. 2d 522, 528 ( Mass. 2003) ; N. Sec. I ns. Co. v. R. H.

Real t y Tr ust , 941 N. E. 2d 688, 691 ( Mass. App. Ct . 2011) ; Wat t s


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Wat er Techs. , I nc. v. Fi r eman' s Fund I ns. Co. , 22 Mass. L. Rpt r .

659, 2007 WL 2083769, at *6, *9- 10 ( Mass. Super . Ct . 2007) . Whi l e

i t i s t r ue that an i nsur ance company' s obl i gat i on t o pay def ense

cost s may i n some ci r cumst ances st em f r om i t s cont r act ual dut y t o

i ndemni f y, r at her t han i t s dut y t o def end, any cont r act ual

f r amewor k t o t hat ef f ect i s di ct at ed by t he mut ual l y agr eed upon

l anguage i n t he pol i cy or ot her compar abl e evi dence. See, e. g. ,

Li ber t y Mut . I ns. Co. v. Pel l a Cor p. , 650 F. 3d 1161, 1168- 71 ( 8t h

Ci r . 2011) ; St onewal l I ns. Co. v. Asbest os Cl ai ms Mgmt . Cor p. , 73

F. 3d 1178, 1218- 19 ( 2d Ci r . 1995) ; Shapi r o v. Am. Home Assurance

Co. , 616 F. Supp. 906, 910- 11 ( D. Mass. 1985) ; Heal t h Net , I nc. v.

RLI I ns. Co. , 141 Cal . Rpt r . 3d 649, 660, 670- 71 ( Cal . App. 2012) .

The r ecor d does not suggest t hi s t o be t he nat ure of t he agreement

between t he par t i es here. 9 Mor eover , t he summar y j udgment r ecor d

cont ai ns numerous i nt ernal document s aut hored by U. S. Fi r e and

evi dence of i t s communi cat i ons wi t h ot her s pl ai nl y showi ng t hat i t

under st ood t he def ense cost s quest i on t o be t et her ed t o i t s

cont r act ual dut y to def end t he publ i c cl ai m, even af t er t he Museum

chose t o r emai n wi t h Ropes & Gr ay. On t he whol e, U. S. Fi r e' s

9 The pol i cy pr ovi des t hat U. S. Fi r e "shal l have t he r i ghtand dut y t o def end any sui t agai nst t he i nsur ed seeki ng damages onaccount of such . . . pr oper t y damage, even i f any of t heal l egat i ons of t he sui t ar e gr oundl ess, f al se or f r audul ent , . .. but t he company shal l not be obl i gat ed . . . t o def end any sui taf t er t he appl i cabl e l i mi t of t he company' s l i abi l i t y has beenexhaust ed by payment of j udgment s or set t l ement s. "


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si l ence bel ow on thi s t r ansf or mat i on ar gument f or ecl oses f ur t her

i ndul gence.

Last l y, U. S. Fi r e ar gues t hat appl i cat i on of t he

Pol ar oi d bur den- shi f t i ng r ul e i s f or ecl osed her e by t he l ack of

evi dence t hat t he Museum suf f er ed any pr ej udi ce due t o the del ay

i n U. S. Fi r e' s payment of t he de mi ni mi s def ense cost s owed as of

Oct ober 2007. The SJ C' s Pol ar oi d hol di ng does not r equi r e pr oof

of pr ej udi ce, however . I n adopt i ng a new br i ght - l i ne r ul e

r egul at i ng t he bur den of pr oof wher e a def ense def aul t has

occur r ed, t he SJ C exami ned t he natur al consequences t hat

or di nar i l y f l ow f r om such a br each. For exampl e, t he st at e cour t

expl ai ned t hat a del ay i n honor i ng def ense obl i gat i ons may cause

an i nsur ed t o accept gr eat er l i abi l i t y due t o a l ack of f i nanci al

r esour ces t o def end i t sel f , or t hat del ay may hi nder t he i nsur ed' s

abi l i t y t o l at er pr ove cover age. Pol ar oi d Cor p. , 610 N. E. 2d at

922. The SJ C di d not t hen sear ch f or evi dence of act ual pr ej udi ce

i n or der t o di scer n whet her t he new bur den- shi f t i ng r ul e appl i ed

t o t he case bef or e i t . I d. I ndeed, i t appear s t hat t he i nsur ed

i n t hat case may ver y wel l have had t he f i nanci al wher ewi t hal t o

pay f or i t s own def ense. See i d. ( r emar ki ng t hat t he i nsur ed had

"t he benef i t of cont r ol l i ng t he def ense") .

To ci nch t he mat t er , l at er Massachuset t s cases provi de

no i ndi cat i on t hat appl i cat i on of t he Pol ar oi d r ul e f i r st r equi r es

a showi ng of pr ej udi ce. See, e. g. , Hi ghl ands I ns. Co. v. Aer ovox


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I nc. , 676 N. E. 2d 801, 804 n. 6 ( Mass. 1997) ; Li quor Li ab. J oi nt

Under wr i t i ng Ass' n v. Her mi t age I ns. Co. , 644 N. E. 2d 964, 968, 969

& n. 6 ( Mass. 1995) ; Ut i ca Mut . I ns. Co. v. Font neau, 875 N. E. 2d

508, 513 ( Mass. App. Ct . 2007) ; Swi f t v. Fi t chbur g Mut . I ns. Co. ,

700 N. E. 2d 288, 293- 94 ( Mass. App. Ct . 1998) ; Pal ermo, 676 N. E. 2d

at 1163.

A caut i onar y t al e t o be sur e. The f ul l amount of t he

Ropes & Gr ay bi l l s t hat wer e pendi ng i n Oct ober 2007 f or t he publ i c

cl ai m was f ai r l y modest . However , t he dol l ar amount s of t he ENSR

bi l l s - - most l y l ef t i gnor ed by U. S. Fi r e i n i t s advocacy - -

number ed i n t he t ens of t housands as of J anuar y 2005. Even st i l l ,

U. S. Fi r e' s br each of i t s dut y t o def end does not r est on

cal cul at i ons, but on i t s whol esal e apat hy towar ds i t s cont r act ual

def ense obl i gat i on t hat i t owed t o i t s i nsur ed - - and t hat i t had

af f i r mat i vel y accept ed as of Mar ch 2004.

Gi ven t he undi sput ed f act s, t he di st r i ct cour t pr oper l y

f aul t ed U. S. Fi r e as a mat t er of l aw f or br eachi ng i t s dut y t o

def end. Accor di ngl y, we uphol d t he cour t ' s 2007 deci si on on

def ense breach and, t hus, t he i nsurance company must swal l ow

Pol aroi d' s bi t t er pi l l .

III.

The pr i nci pal par t i es next appeal di scr et e aspect s of

t he di st r i ct cour t ' s al l ocat i on deci si on, whi ch i s woven out of

por t i ons of t he cour t ' s Sept ember 2010 and August 2011 orders.


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See Peabody Essex Museum, I nc. v. U. S. Fi r e I ns. Co. , No.

06CV11209- NG, 2010 WL 3895172 (D. Mass. Sept . 30, 2010) ( Ger t ner ,

J . ) ; i d. , 2011 WL 3759728 ( D. Mass. Aug. 24, 2011) ( Ger t ner , J . ) .

Under at t ack ar e t he cour t ' s r ul i ngs t hat : ( i ) t he pr o r at a

al l ocat i on r ul e under Bost on Gas appl i ed i n t hi s case; ( i i ) t he

appr opr i at e st ar t dat e f or t he al l ocat i on per i od was t he f i r st day

of U. S. Fi r e' s 1983- 1985 pol i cy per i od, i . e. , December 19, 1983;

( i i i ) t he f act - based appr oach, r at her t han t i me- on- t he- r i sk,

gover ned t he al l ocat i on cal cul us; and ( i v) def ense cost s wer e not

subj ect t o pr o r at a al l ocat i on. 10 We r evi ew de novo t he di st r i ct

cour t ' s i nt er pr et at i on and appl i cat i on of st at e l aw, and f or abuse

of di scret i on t he cour t ' s under st andi ng of t he j ur y' s ver di ct and

sel ect i on of al l ocat i on met hod. See Sal ve Regi na Col l . v. Russel l ,

499 U. S. 225, 231- 234 ( 1991) ; Bost on Gas Co. v. Cent ur y I ndem.

Co. , 708 F. 3d 254, 259- 66 ( 1st Ci r . 2013) .

The proceedi ngs f ol l owi ng t he cour t ' s 2007 or der on

def ense obl i gat i ons i ncl uded a 2008 pr e- t r i al summary j udgment

or der r esol vi ng cer t ai n i ndemni t y i ssues, a 2009 j ur y t r i al

est abl i shi ng i ndemni t y l i abi l i t y, and t hen, t he 2010 and 2011 post -

t r i al summar y j udgment or der s r esol vi ng t he al l ocat i on of

i ndemni t y as bet ween U. S. Fi r e and t he Museum' s sel f - i nsured

10 One of t he many l egal r ul i ngs t hat nei t her par t y appeal si s t he di st r i ct cour t ' s concl usi on t hat l anguage i n t he U. S. Fi r epol i cy i s most consi st ent wi t h an i nj ur y- i n- f act tr i gger . SeePeabody Essex Museum, 2010 WL 3895172, at *11- 12.


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por t i on. We note f our aspect s of t hese pr oceedi ngs t hat hel p

i nf or m t he anal ysi s.

Fi r st , t he compet i ng evi dence. An est i mat ed r el ease of

t en t housand gal l ons11 caused a si gni f i cant subsur f ace oi l pl ume,

a por t i on of whi ch pol l ut ed t he Her i t age Pl aza pr oper t y. The

Museum' s exper t bl amed t he under ground st orage t anks or associ at ed

pi pi ng on t he Museum' s pr oper t y t hat , he asser t ed, may have begun

r el easi ng oi l no l at er t han 1979. By cont r ast , U. S. Fi r e' s exper t

t i ed the pol l ut i on t o a compr omi sed f uel l i ne t hat was damaged on

t he Museum' s pr oper t y dur i ng r econst r uct i on act i vi t i es i n 1987,

more t han one year af t er t he concl usi on of t he 1983- 1985 pol i cy

per i od.

Second, t he i ndemni t y r ul i ngs and f i ndi ngs. The

di st r i ct cour t r ul ed i n Mar ch 2009 t hat because of t he "scant

evi dence" on how t he oi l r el ease occur r ed, U. S. Fi r e coul d not

pr ove, pur suant t o i t s bur den under Pol ar oi d, t hat any oi l r el ease

f r om t he under gr ound st or age tanks or pi pi ng was not sudden;

" [ t ] her e i s si mpl y no evi dence on t hi s i ssue, ei t her way. " Peabody

Essex Museum, I nc. , 623 F. Supp. 2d at 106- 11 ( not i ng that t he

par t i es di d not di sput e whet her t he oi l r el ease was acci dent al ) .

Then, wi t h r espect t o t he t i mi ng of t he cont ami nat i on, i n J une

2009 a j ur y f ound t hat U. S. Fi r e had not pr oven t hat t he pol l ut i on

11 Whi l e t he r ecor d i s not ent i r el y consi st ent , t he par t i esevent ual l y seemed t o set t l e on t hi s est i mat ed cal cul at i on.


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f i r st began af t er the pol i cy per i od. Thi s f i ndi ng t r i gger ed

i ndemni t y. The j ur y al so f ound t hat U. S. Fi r e f ur t her f ai l ed t o

pr ove any date on whi ch t he pol l ut i on had f i r st begun. 12

Thi r d, t he Bost on Gas deci si on. As not ed ear l i er , t he

SJ C i ssued i t s deci si on i n Bost on Gas about one mont h af t er t he

2009 i ndemni t y t r i al i n t hi s case but bef or e t he di st r i ct cour t

had r esol ved al l ocat i on quest i ons. Bost on Gas r ej ect ed t he j oi nt

and sever al l i abi l i t y appr oach f or i ndemni t y i n pr ogr essi ve

pol l ut i on cases, i nst ead adopt i ng a pr o r at a al l ocat i on r ul e t hat

appl i es even f or pol l ut i on year s i n whi ch t he pr oper t y owner i s

sel f - i nsured. 910 N. E. 2d at 299- 311, 315- 16 ( hol di ng depends on

t he pol i cy l anguage at hand) . The SJ C f ur t her hel d t hat , whi l e a

f act - based met hod of al l ocat i on i s "i deal , " t i me- on- t he- r i sk

serves as a def aul t appr oach absent suf f i ci ent evi dence that may

al l ow f or a mor e accur at e est i mat i on of t he quant um of pr oper t y

damage dur i ng t he r i sk per i od. I d. at 312- 16.

12 Expl i cat i on of t r i gger and al l ocat i on of i ndemni t y i nMassachuset t s i s pr ovi ded i n Bost on Gas Co. , 910 N. E. 2d at 300-01. Of not e, pr or at i on i n pr ogr essi ve i nj ur y cases r equi r es

set t i ng a star t and end dat e f or t he pol l ut i on i n or der t o devi sean al l ocat i on per i od. See, e. g. , Peabody Essex Museum, 2010 WL3895172, at *6- 12. I n t hi s case, knowi ng t hat cert i f i ed quest i onswer e pendi ng bef or e Bost on Gas, t he di st r i ct cour t r equi r ed counselt o submi t pr oposed j ur y i nst r uct i ons f or addr essi ng al l ocat i oni ssues i n or der t o ai d t he post - t r i al r esol ut i on of t he scope ofi ndemni t y. Nei t her par t y appeal s t he cour t ' s deni al of t he j oi ntr equest f or bi f ur cat i on.


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Four t h, t he post - t r i al pr ocedur al post ur e. Whi t t l ed

down, t he par t i es' pl eadi ngs show t hat t hey ul t i mat el y agr eed t hat

t he di st r i ct cour t coul d deci de t he Bost on Gas al l ocat i on i ssues

wi t hout t he ai d of a second j ur y t r i al .

Wi t h t hi s groundi ng, we tur n to t he appel l at e ar gument s.

A.

The Museum cont ends t hat U. S. Fi r e' s f ai l ure t o prove

when t he pol l ut i on f i r st began f or ecl oses t he i nsur er f r omr el yi ng

on Bost on Gas t o pr or at e t he i ndemni t y cost s t hat i t owes t o i t s

i nsur ed. Essent i al l y, t he Museumadvocat es f or a j oi nt and sever al

l i abi l i t y appr oach i n t hi s case. We concl ude, however , t hat t he

di st r i ct cour t pr oper l y pr esaged t he SJ C' s appr oach when i t

decl i ned t o adopt t he i nsur ed- f r i endl y posi t i on ur ged by t he

Museum. See Bost on Gas, 708 F. 3d at 264 ( expl ai ni ng f ederal

cour t ' s dut y to "make an i nf or med pr edi ct i on" as t o st at e cour t ' s

pr obabl e deci si on i f i t f aced t he st at e l aw quest i on) .

No doubt t he al l ocat i on i ssue i s compl i cat ed i n t hi s

case by t he absence of a f act ual f i ndi ng f r om t he j ur y t hat mar ks

a def i ni t e st ar t dat e. But a dear t h of evi dence i s no anomal y

wher e l ong- t er m pol l ut i on has gone undet ect ed f or decades. Even

so, as t he di st r i ct cour t expl ai ned, l i mi t ed evi dence on t he t i mi ng

of known pol l ut i on i n a gi ven case may di spl ay a r ange of possi bl e

al l ocat i on per i ods, any of whi ch woul d r esul t i n l ess t han 100%

i ndemni t y f r om a par t i cul ar i nsur er . I n such ci r cumst ances, t he


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pr i nci pl es of Pol ar oi d and Bost on Gas woul d not count enance f ul l

i ndemni t y based on f ai l ur e of pr oof al one.

I n bot h Pol ar oi d and Bost on Gas, t he SJ C r ej ect ed

pr oposed l egal r ul es t hat woul d have enabl ed i nsur eds t o recei ve

wi ndf al l j udgment s t hat ext ended i ndemni t y beyond the cont r actual

l i mi t s set f or t h i n t he oper at i ve pol i ci es. See Bost on Gas, 910

N. E. 2d at 299- 312 ( r ej ect i ng j oi nt and sever al al l ocat i on f or

pr ogr essi ve pol l ut i on cases as i ncongr uous wi t h bot h t he pol i cy

l anguage and i mpor t ant publ i c pol i cy obj ect i ves) ; Pol ar oi d Cor p. ,

610 N. E. 2d at 920- 22 ( decl i ni ng t o aut omat i cal l y i mpose f ul l

i ndemni t y l i abi l i t y f or a br each of t he dut y t o def end as

i ncongr uous wi t h both t he pol i cy l anguage and i mport ant publ i c

pol i cy obj ect i ves) . I nst ead, t he SJ C has opt ed f or a bal anced

appr oach t hat af f ords i ndemni t y cover age onl y up t o the ext ent

secur ed by t he pol i cy cont r act bet ween t he part i es, even wher e

f act ual ci r cumst ances may muddy the evi dent i ar y wat er s. See, e. g. ,

Bost on Gas, 910 N. E. 2d at 293, 301, 312, 314, 317 (not i ng absence

of evi dence f or pr ovi ng t i mi ng of pr oper t y damage i n pr ogr essi ve

pol l ut i on cases, whi l e st i l l endor si ng a f act - based cal cul us wher e

pl ausi bl e) .

Accor di ngl y, we hol d t hat t he di st r i ct cour t cor r ect l y

r ul ed t hat Bost on Gas appl i es t o t hi s case such t hat t he "st ar t

and end dat es [ must be] const r ued agai nst t he par t y wi t h t he bur den

of pr oof , so l ong as t hey ar e consi st ent wi t h t he j ur y' s ver di ct "


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and t he t r i al r ecord. Peabody Essex Museum, 2010 WL 3895172, at

*7. Thi s appr oach compor t s wi t h Pol ar oi d by hol di ng U. S. Fi r e

r esponsi bl e f or t he pr obl ems of pr oof t hat wer e pr esumpt i vel y

caused by i t s br each of t he dut y t o def end. See Pol ar oi d Cor p. ,

610 N. E. 2d at 922.

B.

Wi t h that under st andi ng of Pol aroi d and Bost on Gas, we

t ur n t o t he di st r i ct cour t ' s sel ect i on of t he begi nni ng of t he

1983- 1985 pol i cy per i od as t he st ar t dat e f or t he al l ocat i on

per i od. U. S. Fi r e cont ends t hat t he cour t mi sconst r ued t he j ur y' s

f i ndi ngs and t hat 1979 shoul d be t he st ar t dat e i n or der t o al i gn

wi t h t he test i mony of t he Museum' s exper t and t r i al concessi ons.

We ar e unper suaded that t her e was any r ever si bl e er r or .

The ver di ct f or m t hat was present ed t o t he j ury posed

t hr ee quest i ons t hat addr essed t he t i mi ng of t he pol l ut i on f or

pur poses of bot h t r i gger i ng cover age and mar ki ng a st ar t dat e f or

an al l ocat i on per i od. Quest i on 1 essent i al l y asked whet her U. S.

Fi r e had pr oven i t s f act ual t heor y t hat t he 1987 oi l spi l l was t he

sour ce of t he pol l ut i on, r at her t han t he ol der under gr ound st or age

t anks or pi pel i nes. Quest i on 2 asked whet her U. S. Fi r e had pr oven

t he dat e on whi ch t he r el ease of oi l f i r st caused pr oper t y damage,

t o be answer ed onl y i f t he j ur y di sbel i eved U. S. Fi r e' s t heor y

about t he 1987 spi l l . Quest i on 3 t hen asked t he j ur y t o sel ect a

pr oven begi nni ng dat e f r om a l i st of r anges i n t he event t hat i t


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answer ed Quest i on 2 af f i r mat i vel y. The j ur y answer ed t he f i r st

t wo quest i ons i n t he negat i ve and di d not answer t he t hi r d.

I n l i ght of t he t r i al t empl at e, t he di str i ct cour t

di scer ned t hat t hese j ur y f i ndi ngs, par t i cul ar l y i n answer t o

Quest i on 2, meant ei t her t hat t he j ur ors had accept ed t he Museum' s

exper t evi dence on t he sour ce and t i mi ng of t he pol l ut i on r el at i ng

t o t he ol der under gr ound st or age t anks, or t hat t he j ur y had

di scredi t ed t he evi dence pr esent ed by bot h par t i es. Af t er al l ,

pur suant t o Pol aroi d, t he Museum onl y bore t he bur den of pr oduci ng

cr edi bl e evi dence t o t r i gger i ndemni t y; i t had no bur den t o pr of f er

any evi dence of a def i ni t i ve st ar t dat e f or t he oi l r el ease( s) ,

much l ess t o pr ove i t . And, so, t o det er mi ne a st ar t dat e f r om

t hi s ver di ct ambi gui t y, t he di st r i ct cour t r et ur ned t o t he Pol ar oi d

bur den- shi f t i ng r ul e: gi ven U. S. Fi r e' s f ai l ur e of pr oof , t he cour t

"const r ue[ d] t he j ur y' s f i ndi ngs t o mean t hat t he al l ocat i on per i od

begi ns on t he f i r st day of U. S. Fi r e' s pol i cy" as "t he l east

f avor abl e dat e f or an i nsur er t hat coul d not meet i t s bur den of

pr oof " whi l e st i l l r emai ni ng "br oadl y consi st ent wi t h t he j ur y' s

verdi ct . " Peabody Essex Museum, 2010 WL 3895172, at *8.

U. S. Fi r e pr ot est s t hi s const r uct i on. Accor di ng t o U. S.

Fi r e, " t he j ur y was never asked t o det er mi ne t he st ar t dat e. " U. S.

Fi r e reasons t hat because i t "never at t empt ed to pr ove a rel ease

pr i or t o December 19, 1985, " i t necessar i l y coul d not have pr oven

by a pr eponderance of t he evi dence t he dat e on whi ch t he rel ease


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of f uel oi l f i r st caused pr oper t y damage. Thus, i t says, t he

j ury' s negat i ve answer t o Quest i on 1 ( r ej ect i ng t he 1987 spi l l

t heor y) aut omat i cal l y requi r ed a negat i ve answer t o Quest i on 2 ( a

l ack of a st ar t dat e) , wi t hout any f ur t her del i ber at i on. Thi s

posi t i on, however , i s out of st ep wi t h t he l anguage of t he ver di ct

f or m, t he j ur y i nst r ucti ons, and t he cont ext of t he l i t i gat i on.

The ver di ct f or m pl ai nl y prompt ed t he j ury t o deci de

Quest i on 2 onl y i f i t answer ed t he f i r st quest i on i n t he negat i ve,

a poi nt t hat t he cour t i ncl uded i n i t s i nst r uct i ons t o t he j ur y. 13

The cour t al so i nst r uct ed t he j uror s t o answer "no" t o Quest i on 2

i f t hey f ound t he evi dence was " i nsuf f i ci ent t o make a deci si on

one way or t he other " or coul d not " f i gur e out t he dat e" of a pr e-

December 1983 oi l r el ease.

Mor eover , t he di st r i ct cour t had abundant l y f or ewar ned

t he par t i es t hat t he i ndemni t y t r i al l i kel y woul d ser ve as st agi ng

f or pot ent i al al l ocat i on i ssues gi ven t he pendi ng st at us of Bost on

Gas pr e- t r i al . The cour t r equest ed, and r ecei ved, pr oposed

13 Begi nni ng af t er Quest i on 1, t he per t i nent par t of t hever di ct f or m pr ovi des:

If your answer is "Yes," there is no coverage andyou should not go on.

2. I f you answer ed "No" t o Quest i on 1, has U. S.Fi r e pr oven, by a pr eponder ance of t he evi dence, t hedat e on whi ch t he r el ease of f uel oi l f i r st causedpropert y damage?

( Bol ded f or mat i s i n t he or i gi nal . )


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al l ocat i on i nst r ucti ons f r om t he par t i es. And col l oqui es wi t h

counsel dur i ng t r i al show t hat U. S. Fi r e expr essl y assent ed t o a

st ar t dat e quest i on t et her ed t o t he under gr ound oi l t anks as t he

possi bl e pol l ut i on sour ce, i n or der t o avoi d a pot ent i al second

t r i al f or al l ocat i on.

I n shor t , U. S. Fi r e' s sel f - chosen t r i al str at egy of

f ocusi ng t he j ur y' s at t ent i on on t he 1987 event i n or der t o avoi d

i ndemni t y does not al t er t he t r i al r eal i t i es t hat t he st ar t dat e

quest i on was di r ect l y posed t o and answer ed by t he j ur y, wi t h U. S.

Fi r e bear i ng t he bur den of pr oof . 14

We al so r ej ect U. S. Fi r e' s cont ent i on t hat t he di st r i ct

cour t er r ed i n f ai l i ng t o sel ect 1979 as t he st ar t dat e i n keepi ng

wi t h t he Museum' s expert ' s test i mony. As not ed, t he Museum was

not r equi r ed t o pr ove any def i ni t i ve st ar t dat e at al l . Nor di d

t he Museum' s counsel concede t hat a negat i ve answer t o Quest i on 1

meant t hat t he j ur y necessar i l y f ound t hat t he pol l ut i on began no

l at er t han 1979. I ndeed, t he Museum' s summat i on at t he cl ose of

t r i al expr essl y bel i es U. S. Fi r e' s cur r ent supposi t i on. To t he

ext ent t hat U. S. Fi r e r el i es on pr i nci pl es of equi t y t o advance a

1979 st ar t dat e, i t pr ovi des no basi s f or hol di ng t hat t he di st r i ct

14 U. S. Fi r e di d not obj ect t o t he j ur y i nst r ucti ons, nor t ot he f or mat of t he ver di ct f or m i n r el at i on t o t he st ar t dat equest i on. See Pal er mo, 676 N. E. 2d at 1162 n. 7, 1163. Thus, U. S.Fi r e' s oppor t uni t y f or chal l engi ng t he f r ami ng of t he ver di ct f or mas " i mpr oper l y dr af t ed" has l ong si nce passed.


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cour t abused i t s di scret i on i n r ej ect i ng t hi s posi t i on. See Bost on

Gas, 708 F. 3d at 259- 64.

I n t he end, we acknowl edge as anyone must t hat t he

December 19, 1983 st ar t dat e has a make bel i eve qual i t y. Lean

evi dence has been t he nemesi s of t hi s case f r om t he i ncept i on of

t he l i t i gat i on. But t he di st r i ct cour t di d not abuse i t s

di scr et i on, on t hi s r ecor d, i n const r ui ng t he j ur y' s f i ndi ngs i n

a manner t hat maxi mi zes U. S. Fi r e' s i ndemni t y exposur e i n l i ne

wi t h i t s bur den under Pol ar oi d.

C.

U. S. Fi r e next ar gues t hat t he di st r i ct cour t er r ed i n

opt i ng t o appl y a f act - based met hod f or al l ocat i on r at her t han t he

def aul t t i me- on- t he- r i sk met hod. I n so deci di ng, t he cour t adopt ed

t he Museum' s post - t r i al r evi sed exper t r epor t whi ch pr oj ect ed t hat

9, 000 square f eet of soi l damage occur r ed dur i ng t he t wo- year

pol i cy per i od. See Peabody Essex Museum, 2011 WL 3759728, at *1.

Thi s cal cul at i on r el i ed on t he assumpt i on t hat t he 10, 000- gal l on

oi l r el ease began on December 19, 1983, t he st ar t date sel ect ed by

t he cour t , and def i ni t i vel y ceased i n J une 1986 when t he oi l t anks

were r emoved f r om t he ground. 15

U. S. Fi r e cont ends t hat t he r evi sed r epor t cannot

suppor t a f act - based al l ocat i on because t he December 19, 1983 st art

15 The par t i es agr eed t hat oi l mi gr at i on cont i nued t o causepr opert y damage af t er t he t anks were removed f r om t he gr ound.


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dat e i s purel y f i ct i onal . I t al so f aul t s t he di st r i ct court f or

consi der i ng U. S. Fi r e' s i ndemni t y bur den under Pol ar oi d when

assessi ng whet her t he r epor t ' s est i mat i on of t he spr ead of oi l

warr ant ed a f act - based appr oach. Agai n, we are not persuaded of

any r ever si bl e er r or . 16

I n deci di ng Bost on Gas, t he SJ C gr ant ed t r i al cour t s

consi der abl e l eeway i n sel ect i ng bet ween t i me- on- t he- r i sk and

f act - based al l ocat i on i n pr ogr essi ve pol l ut i on cases. Bost on Gas,

910 N. E. 2d at 316. Cour t s f ace t hi s choi ce i n compl ex cases i n

whi ch t he f act ual event s are al r eady t hi ckl y cl ouded by evi dent i ar y

uncer t ai nt y, see i d. at 300- 02, 305; t he ul t i mat e deci si on r equi r es

a car ef ul r evi ew of t he i nt r i caci es of t he case as wel l as

equi t abl e consi der at i ons, see i d. at 316; see al so New Eng.

I nsul at i on Co. v. Li ber t y Mut . I ns. Co. , 988 N. E. 2d 450, 454 ( Mass.

App. Ct . 2013) . The SJ C emphasi zed t hat i t f avor s a f act - based

appr oach as mor e ref l ect i ve of t he par t i es' cont r act ual

obl i gat i ons, expl ai ni ng t hat t hi s met hod shoul d be appl i ed wher e

t he r ecord cont ai ns " evi dence more cl osel y appr oxi mat i ng t he

act ual di st r i but i on of pr oper t y damage" t han t i me- on- t he- r i sk

cal cul at i ons. Bost on Gas, 910 N. E. 2d at 293. Thus, f act - based

al l ocat i on shoul d appl y when "a mor e accur at e est i mat i on" of t he

16 Whi l e t he di st r i ct cour t r el i ed on t wo exper t r epor t spr of f er ed by t he Museum, U. S. Fi r e' s appeal r el at es onl y t o t her epor t t hat we di scuss.


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quant um of pr oper t y damage t hat t ook pl ace dur i ng t he t r i gger ed

pol i cy year s i s "f easi bl e. " I d. at 314, 316.

As we have noted, moor i ng the st ar t of t he pr oper t y

damage to t he commencement of t he pol i cy per i od on December 19,

1983 i ndeed bear s a f i ct i onal qual i t y. The r evi sed r epor t ,

however , adopt ed t hat st ar t date as pr evi ousl y deter mi ned by t he

di st r i ct cour t i n i t s 2010 or der , whi ch was gener al l y based on t he

evi dence and on t he j ur y' s f i ndi ngs. Al t hough t he Pol ar oi d bur den-

shi f t i ng r ul e al so i nf l uenced t he st ar t dat e f i ndi ng, t hat dat e i s

no l ess a f act ual f i ndi ng under t he ci r cumst ances of t hi s case.

No more i s r equi r ed under Bost on Gas. Cf . Bost on Gas, 708 F. 3d at

259, 260 ( hol di ng t hat t he t r i al cour t ' s deci si on t o appl y t i me-

on- t he- r i sk was "r easonabl e" because the r ecord woul d not al l ow a

f act f i nder t o speci f y damages " i n t i me and degr ee wi t h any l evel

of cer t ai nt y" ( emphasi s added) ) .

Nei t her di d t he di st r i ct cour t er r i n consi der i ng U. S.

Fi r e' s bur den under Pol ar oi d when eval uat i ng t he est i mat i on of t he

spr ead of t he oi l pl ume. The cour t f aced t he al l ocat i on met hod

quest i on i n a case not onl y r i f e wi t h t he nor mal pr obl ems of pr oof

i n pr ogr essi ve pol l ut i on cases, see Bost on Gas, 910 N. E. 2d at 316,

but al so couched i n an at ypi cal l egal set t i ng i n whi ch t he

i nsurance company had cont r ol l ed t he evi dent i ary t empl ate dur i ng


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t he i ndemni t y t r i al . 17 I n shor t , we cannot say t hat i t was er r or

f or t he di st r i ct cour t t o hew t o t he Pol ar oi d r ul e, whi ch compel s

i nsurance compani es t o shoul der t he i ndemni t y shar e t hat i s

associ at ed wi t h pr oof pr obl ems when t hat company def aul t ed on i t s

dut y t o def end.

I n t he f i nal anal ysi s, t he di st r i ct cour t j udge - - who

had pr esi ded over t he ent i r et y of t he l i t i gat i on t hr ough t he August

2011 or der - - conf r ont ed t wo somewhat unsat i sf act or y f act ual

si t uat i ons i n sel ect i ng t he appr opr i at e al l ocat i on met hod. 18 Af t er

a car ef ul scr ut i ny of t he compl exi t i es, we see no sound r eason f or

di st ur bi ng t he cour t ' s di scret i onar y deci si on t hat f act - based

al l ocat i on al i gned cl oser t o t he evi dence and t he equi t i es i n t hi s

case. 19

17 Tel l i ngl y, U. S. Fi r e r emai ned si l ent i n t he f ace of t heMuseum' s post - t r i al accusat i on t hat t he i nsur er had never pur suedany di scover y on the dur at i on of cont ami nat i on r espect i ng t heunder gr ound oi l t anks.

18 Two di st r i ct cour t j udges presi ded over t he l engt hyl i t i gat i on. J udge Ger t ner r esol ved t he bul k of t he mer i t s whi l epr esi di ng f r om2006 t hr ough August 2011, and J udge Gort on r esol vedt he t ai l - end of t he mat t er such as t he i nevi t abl e mot i ons f orr econsi der at i on, modi f i cat i on of j udgment , at t or ney' s f ees, andpr ej udgment i nt er est .

19 U. S. Fi r e' s assor t ed compl ai nt s about t he di st r i ct cour t ' s"si l ence" r espect i ng t he r evi sed r epor t ' s " ser i es of assumpt i ons"r i ng hol l ow. I t s asser t i ons f ai l t o account f or t he cour t ' si mpl i ci t adopt i on of t he Museum' s r esponsi ve pl eadi ngs andexhi bi t s, r ecapi t ul at e t he "ar t i f i ci al " st ar t dat e ar gument , andot her wi se i gnor e t he t r i al t est i mony i ncl udi ng t hat of i t s ownexper t .


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D.

As a f i nal al l ocat i on mat t er , U. S. Fi r e cont ends t hat

t he di st r i ct cour t er r ed i n r ul i ng t hat def ense cost s f or t he

publ i c cl ai m ar e not subj ect t o t i me- on- t he- r i sk pr or at i on under

Bost on Gas. U. S. Fi r e acknowl edges t hat t he SJ C di d not r each t he

quest i on of whet her or how def ense cost s shoul d be pr orated, and

i t s ar gument on appeal i s not r obust . See Powel l v. Tompki ns, 783

F. 3d 332, 348- 49 ( 1st Ci r . 2015) ( expl ai ni ng appel l at e wai ver ) .

We go onl y so f ar as t he ar gument t akes us, whi ch i s not f ar enough

t o di vvy up def ense cost s her e.

U. S. Fi r e br i ef l y of f er s two "si gni f i cant i ndi cat or s"

f r om Bost on Gas t o suppor t i t s pi t ch t hat def ense cost s shoul d be

pr or at ed: t he SJ C' s ci t at i on t o case l aw t hat appl i es t i me- on- t he-

r i sk pr or at i on t o bot h def ense cost s and i ndemni t y, 20 and t he SJ C' s

deci si on t o appl y pr or at i on pr i nci pl es t o sel f - i nsur ed r et ent i ons

whi ch, U. S. Fi r e poi nt s out , gener al l y i ncl ude def ense and

i ndemni t y. These supposed i ndi cators, however , appear di mi nut i ve

20 U. S. Fi r e i dent i f i es j ust one case ci t ed i n Bost on Gas,whi ch i s r eadi l y di st i ngui shabl e f r om t he ci r cumst ances at hand.I n I nsur ance Company of Nor t h Amer i ca v. For t y- Ei ght I nsul at i ons,

I nc. , t he Si xt h Ci r cui t pr or at ed def ense cost s t o avoi d at r oubl esome scenar i o i n whi ch t he i nsured manuf actur er , "whi ch hadi nsur ance cover age f or onl y one year out of 20[ , ] woul d be ent i t l edt o a compl et e def ense of [ about 1, 300 di f f er ent ] asbest os act i onst he same as a manuf act urer whi ch had cover age f or 20 years out of20. " 633 F. 2d 1212, 1225 ( 6t h Ci r . 1980) ; cf . GMAC Mort g. , LLC,985 N. E. 2d at 827 ( not i ng t hat t he compl et e def ense rul e t ypi cal l yappl i es f or cl ai ms asser t ed i n t he same l awsui t ) .


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next t o l ong- st andi ng st ate pr ecedent on t he br oad and f ormi dabl e

cont r act ual dut y t o def end t hat heavi l y f avor s i nsur eds and t hat

st ands apar t f r om i ndemni t y obl i gat i ons. See, e. g. , GMAC Mor t g. ,

LLC v. Fi r st Am. Ti t l e I ns. Co. , 985 N. E. 2d 823, 827 ( Mass. 2013) ;

Doe v. Li ber t y Mut . I ns. Co. , 667 N. E. 2d 1149, 1151 ( Mass. 1996) ;

see al so Dr yden Oi l Co. of New Engl and, I nc. v. Tr avel er s I ndem.

Co. , 91 F. 3d 278, 282 ( 1st Ci r . 1996) ( not i ng t hat under

Massachuset t s l aw, " [ t ] he dut y to i ndemni f y i s def i ned l ess

gener ousl y [ t han t he dut y t o def end] as i t depends on t he evi dence,

r at her t han an expansi ve vi ew of t he compl ai nt " ( i nt er nal ci t at i on

omi t t ed) ) . And dut y t o def end pr ot ect i on i s al l - encompassi ng.

See GMAC Mort g. , LLC, 985 N. E. 2d at 827 ( expl ai ni ng t he " i n f or

one, i n f or al l " or " compl et e def ense" r ul e t hat appl i es t o

i nsur er s i n t he gener al l i abi l i t y i nsur ance cont ext ) ; Deut sche

Bank Nat ' l Ass' n v. Fi r st Am. Ti t l e I ns. Co. , 991 N. E. 2d 638, 641-

42, n. 10 ( Mass. 2013) ; see al so Li ber t y Mut . I ns. Co. v. Met . Li f e

I ns. Co. , 260 F. 3d 54, 63- 64 ( 1st Ci r . 2001) ( r evi ewi ng

Massachuset t s l aw on al l ocat i on of def ense cost s gener al l y) ; Chi .

Br i dge & I r on Co. v. Cer t ai n Under wr i t er s at Ll oyd' s, London, 797

N. E. 2d 434, 444- 45 ( Mass. App. Ct . 2003) ( r ef usi ng t o al l ocat e

def ense cost s wher e t he l i t i gat i on r el at i ng t o cont ami nat i on si t es

cover ed under t he pol i cy al so r esol ved l i abi l i t y quest i ons f or

si t es t hat wer e not ) .


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Even narr owi ng our vi ew t o Bost on Gas i t sel f , we observe

t hat t he SJ C car ef ul l y ci r cumscr i bed i t s deci si on t o t he i ndemni t y

al l ocat i on quest i ons that wer e bef or e i t . See, e. g. , 910 N. E. 2d

at 301, 311 n. 38. 21 And, i n i t s al l ocat i on anal ysi s - - i ncl udi ng

t he sel f - i nsur ed r et ent i on di scussi on - - t he st at e cour t pl aced

si gni f i cant wei ght on t he speci f i c l anguage embodi ed i n t he

i ndemni t y pr ovi si ons of t he pol i cy bef or e i t . I d. at 304- 09, 315-

16.

I n shor t , we decl i ne U. S. Fi r e' s i nvi t at i on t o ext end

t he Bost on Gas al l ocat i on hol di ng t o def ense cost s i n t hi s case,

par t i cul ar l y wher e t he i nsurance company has made no at t empt t o

addr ess i t s own pol i cy l anguage on t he dut y t o def end. Cf . i d. at

306 n. 33 ( r ef er r i ng t o ci t ed pol i cy l anguage t hat expr essl y

pr ovi ded f or pr or at i on of def ense cost s) . Af t er al l , U. S. Fi r e

pur sued r emoval of t hi s case f r om st at e cour t t o f eder al cour t ,

and " [ w] e have war ned, t i me and agai n, t hat l i t i gant s who rej ect

a st at e f or um i n [ f avor of ] f eder al cour t under di ver si t y

j ur i sdi ct i on cannot expect t hat new st at e- l aw t r ai l s wi l l be

bl azed" by t he f eder al cour t . Car l t on v. Wor cest er I ns. Co. , 923

21 We ar e awar e t hat at l east one di st r i ct cour t deci si onappear s t o have i nt er pr et ed Bost on Gas as endor si ng al l ocat i on ofdef ense cost s. SeeGr aphi c Ar t s Mut . I ns. Co. v. D. N. Lukens,I nc. , No. 11- CV- 10460, 2013 WL 2384333, at *7 ( D. Mass. May 29,2013) ( Hi l l man, J . ) . That deci si on does not , however , addr ess t her obust , cont r ar y st at e l aw pr ecedent on the cont r act ual dut y t odef end. And U. S. Fi r e does not r el y on Gr aphi c Ar t s f or t hi sar gument .


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F. 2d 1, 3 ( 1st Ci r . 1991) ( i nt er nal quot at i on mar ks and br acket s

omi t t ed) .

Accor di ngl y, we af f i r m t he di st r i ct cour t ' s Sept ember

2010 and August 2011 al l ocat i on rul i ngs t hat t he par t i es have

chal l enged on appeal .

IV.

U. S. Fi r e appeal s t he di st r i ct cour t ' s Chapt er 93A

r ul i ng t hat i t knowi ngl y and wi l l f ul l y f ai l ed t o ef f ect a f ai r

set t l ement f or t he unr ei mbur sed def ense cost s af t er t he cour t

i ssued t he 2007 order on i t s def ense def aul t . See Peabody Essex

Museum, I nc. , 2011 WL 3759728, at *2; see al so Mass. Gen. Laws ch.

93A, 2, 11. The cour t ' s rul i ng was gr ounded i n t he busi ness-

t o- busi ness pr ovi si on under Chapt er 93A, 11, as t he Museum had

pi t ched i t s cl ai m. Af t er r evi ewi ng t he l i t i gat i on r ecor d22 and

gover ni ng st at e l aw, we concl ude t hat r ever sal i s r equi r ed because

t he cour t ' s deci si on r est s on a l egal er r or and t he r ecor d does

not , as a mat t er of l aw, suppor t a f i ndi ng of unf ai r set t l ement

conduct act i onabl e under Chapt er 93A. See Fed. I ns. Co. v. HPSC,

I nc. , 480 F. 3d 26, 34 ( 1st Ci r . 2007) ; Aher n v. Schol z, 85 F. 3d

774, 797 ( 1st Ci r . 1996) .

22 We have consi der ed t he mater i al s t hat both part i es provi dedt o t he di st r i ct cour t , mi ndf ul t hat U. S. Fi r e does not pr ess bef or eus t he evi dent i ary obj ect i on about t he set t l ement document s t hatwas r ai sed bel ow.


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Chapt er 93A pr ecl udes " unf ai r or decept i ve act s or

pr act i ces i n t he conduct of t r ade or commer ce" and penal i zes

"wi l l f ul or knowi ng" vi ol at i ons wi t h awar ds of mul t i pl e damages.

Mass. Gen. Laws ch. 93A, 2, 9, 11; see Barr on Chi r opr act i c &

Rehab. v. Nor f ol k & Dedham Gr p. , 17 N. E. 3d 1056, 1065- 66 ( Mass.

2014) ( descr i bi ng per t i nent f act or s) . To be act i onabl e, t he

chal l enged mi sconduct must r i se t o t he l evel of an "ext r eme or

egr egi ous" busi ness wr ong, "commer ci al ext or t i on, " or si mi l ar

l evel of " r ascal i t y" t hat r ai ses " an eyebr ow of someone i nur ed t o

t he r ough and t umbl e of t he wor l d of commerce. " Baker v. Gol dman

Sachs & Co. , 771 F. 3d 37, 49- 51 ( 1st Ci r . 2014) ; Zabi n v.

Pi cci ot t o, 896 N. E. 2d 937, 963 ( Mass. App. Ct . 2008) . The cor e

i nqui r y f ocuses on " t he natur e of chal l enged conduct and on t he

pur pose and ef f ect of t hat conduct . " Mass. Emp' r s I ns. Exch. v.

Pr opac- Mass, I nc. , 648 N. E. 2d 435, 438 ( Mass. 1995) .

I n t he i nsur ance cont ext , busi ness mi sconduct t hat i s

act i onabl e under Chapt er 93A may i ncl ude unf ai r set t l ement

pr act i ces t hat ar e def i ned under Chapt er 176D, 3. Hal l mar ks of

such mi sconduct gener al l y i nvol ve t he "absence of good f ai t h and

t he pr esence of ext or t i onat e t act i cs. " Gui t y v. Commer ce I ns.

Co. , 631 N. E. 2d 75, 7778 ( Mass. App. Ct . 1994) . Such

ci r cumst ances i ncl ude wi t hhol di ng payment f r om t he i nsur ed and

"st r i ngi ng out t he pr ocess" by usi ng shi f t i ng, speci ous def enses

wi t h t he i nt ent t o f or ce t he i nsur ed i nt o an unf avor abl e


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set t l ement . Commer ci al Uni on I ns. Co. v. Seven Pr ovi nces I ns.

Co. , 217 F. 3d 33, 40 ( 1st Ci r . 2000) ( pr ovi di ng exampl es under

Massachuset t s l aw) . By cont r ast , nei t her a good f ai t h di sput e

over bi l l i ng, nor t he mer e f ai l ur e t o set t l e a cl ai m when anot her

r easonabl y pr udent i nsurer woul d have done so, est abl i shes Chapt er

93A l i abi l i t y. See i d. at 43; see gener al l y Har t f or d Cas. I ns.

Co. v. N. H. I ns. Co. , 628 N. E. 2d 14, 17- 18 ( Mass. 1994) .

Rat her t han appl y these Chapt er 93A st andards, t he

di st r i ct cour t sol el y r el i ed on an unf ai r set t l ement pr act i ce

pr ovi si on under Chapt er 176D as t he l i t mus t est f or f i ndi ng Chapt er

93A, 11 busi ness- t o- busi ness l i abi l i t y. See Mass. Gen. Laws ch.

176D, 3( 9) ( f ) ( pr oscri bi ng t he f ai l ur e "t o ef f ect uat e pr ompt ,

f ai r and equi t abl e set t l ement s of cl ai ms i n whi ch l i abi l i t y has

become r easonabl y cl ear " ) . However , unl i ke consumer cl ai ms under

Chapt er 93A, 9, a vi ol at i on of Chapt er 176D const i t ut es onl y

pr obat i ve evi dence, not per se pr oof , of egr egi ous busi ness

mi sconduct f or a Chapt er 93A, 11 busi ness- t o- busi ness cl ai m.

SeePol ar oi d Cor p. , 610 N. E. 2d at 917; Tr ansamer i ca I ns. Gr p. v.

Turner Const r . Co. , 601 N. E. 2d 473, 477 ( Mass. App. Ct . 1992) .

The di st r i ct cour t di d not r ecogni ze t hi s wel l - est abl i shed l egal

di st i nct i on under st at e l aw. See Mass. Gen. Laws ch. 93A, 9( 1) ;

see al so Hopki ns v. Li ber t y Mut . I ns. Co. , 750 N. E. 2d 943, 950

n. 12 (Mass. 2001) ( expl ai ni ng 1979 amendment t o Ch. 93A, 9


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consumer - t o- busi ness cl ai ms) . Accor di ngl y, i t s r ul i ng on Chapt er

93A, 11 l i abi l i t y cont ai ns a l egal er r or .

Mor eover , t he recor d does not di spl ay t he t ype of

egr egi ous set t l ement mal f easance t hat may be act i onabl e under

Chapt er 93A, 11. The di st r i ct cour t t ar get ed, al bei t t hr ough

t he Chapt er 176D l ens, t wo aspect s of U. S. Fi r e' s conduct : i t s

f r act i onal payment as of J une 2009 ( about $9, 000) of si gni f i cant

def ense cost s t hen- i ncur r ed by t he Museum and i t s subsequent

f ai l ur e t o r each a f ai r set t l ement on t he r emai ni ng amount , f or ci ng

t he Museum t o cont i nue t o l i t i gat e def ense cost s. The di st r i ct

cour t ' s vi ew of t he r ecor d, however , i s t oo const r i ct ed.

I n f act , U. S. Fi r e i mmedi at el y pur sued medi at i on f or

def ense cost s af t er t he cour t ' s December 2007 deci si on, whi ch had

l ef t open per t i nent sur r oundi ng i ssues. 23 But t he Museumr esi st ed,

desi r ous of a gl obal set t l ement despi t e t he f act t hat no exper t

evi dence on t he i ndemni t y i ssues had yet been pr ocur ed at t hat

poi nt . Af t er di scover y, t he par t i es par t i ci pat ed i n t wo

si gni f i cant ef f or t s f or f or mal medi at i on t hr oughout 2009, and U. S.

Fi r e cont i nued t aki ng act i ve st eps t o r esol ve t he def ense cost s

i ssue i n t he mi dst of a var i et y of ent angl ed di sput es. See Pr emi er

23 The open def ense cost s i ssues i ncl uded, f or exampl e, t her easonabl eness of t he hour l y rat e char ged by Ropes & Gr ay, t her el at i onshi p bet ween t he publ i c cl ai m and t he Her i t age Pl azapr i vat e demand, and t he di vi si on between def ense cost s andi ndemni t y r espect i ng ENSR' s t hen- compl et ed work.


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I ns. Co. of Mass. v. Fur t ado, 703 N. E. 2d 208, 210 ( Mass. 1998) ;

Ducl er sai nt v. Fed. Nat ' l Mor t g. Ass' n, 696 N. E. 2d 536, 540 ( Mass.

1998) . On t he whol e, t he unr ei mbur sed def ense cost s i ssue was

shuf f l ed i nt o t he br oader panor ami c of ongoi ng, compl ex

l i t i gat i on whi ch i ncl uded t he pot ent i al l egal r esponsi bi l i t y of

t he Museum' s ot her i nsur er s. See Cul l en Ent er s. , I nc. v. Mass.

Pr op. I ns. Under wr i t i ng Ass' n, 507 N. E. 2d 717, 723 ( Mass. 1987) ;

Wast e Mgmt . of Mass. , I nc. v. Carver , 642 N. E. 2d 1058, 1061 (Mass.

App. Ct . 1994) .

Ther e i s si mpl y no evi dence t hat t he del ay i n payi ng

unr ei mbur sed def ense cost s was at t r i but abl e t o nef ar i ous

l ever agi ng conduct or mot i ves on U. S. Fi r e' s par t . See Bost on

Symphony Or chest r a, I nc. v. Commer ci al Uni on I ns. Co. , 545 N. E. 2d

1156, 1160 ( Mass. 1989) ; cf . N. Sec. I ns. Co. , 941 N. E. 2d at 692.

I n f act , at one poi nt , when U. S. Fi r e chal l enged t he Museum' s

cal cul at i on of i nt er est f or unr ei mbur sed def ense cost s i n 2009,

t he Museum aver r ed "f ut i l i t y [ i n] submi t t i ng f ur t her bi l l s" gi ven

U. S. Fi r e' s over si ght , year s ear l i er , wi t h r espect t o t he f i r st

bi l l i ng packet t hat t he Museum had sent i n 2005. When ef f or t s

t owar d gl obal set t l ement ul t i mat el y f ai l ed, U. S. Fi r e of f er ed t he

Museum a si gni f i cant sum t o set t l e t he unr ei mbur sed def ense cost s

and associ ated i ssues, whi ch apparent l y went unanswer ed. Then, i n

J une 2011, t he Museum spot l i ght ed - - f or t he f i r st t i me - - U. S.


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Fi r e' s post - 2007 set t l ement conduct as t he pr i mar y i mpet us f or

Chapt er 93A, 11 l i abi l i t y and puni t i ve damages.

U. S. Fi r e' s conduct under t hese ci r cumst ances i s not t he

ki nd t hat t he SJ C has condemned as egr egi ous set t l ement mi sconduct

t hat i s act i onabl e under Chapt er 93A. Cf . R. W. Gr anger & Sons,

I nc. v. J & S I nsul at i on, I nc. , 754 N. E. 2d 668, 678- 79 ( Mass. 2001)

( hol di ng t hat t he sur et y' s conduct of unexpl ai ned del ay, hol l ow

set t l ement ef f or t , and gr oundl ess l egal st ance compr i sed cul pabl e

unf ai r busi ness conduct under Chapt er 93A) .

By no means do we endorse some of t he gamesmanshi p t hat

l aces t he pr ot r act ed l i t i gat i on. But t he Museum' s own post ur i ng

i s not uni mpor t ant t o t he Chapt er 93A i nqui r y. See Par ker v.

D' Avol i o, 664 N. E. 2d 858, 864 n. 9 ( Mass. App. Ct . 1996)

( emphasi zi ng i n t he Chapt er 93A cont ext t hat good f ai t h i s a

r eci pr ocal r esponsi bi l i t y bet ween an i nsur er and an i nsur ed) ; see

al so Aher n, 85 F. 3d at 798 ( not i ng that t he Chapt er 93A cal cul us

consi der s " t he equi t i es bet ween t he par t i es, i ncl udi ng what bot h

par t i es knew or shoul d have known") .

Even i f some measur e of U. S. Fi r e' s conduct may have

been i l l - advi sed, and per haps even vi ol at i ve of Chapt er 176D, we

hol d t hat t hi s r ecor d does not i nvoke t he pot ent weaponr y of

Chapt er 93A. 24 Addi t i onal l y, we deem wai ved t he Chapt er 93A

24 Our anal ysi s assumes, wi t hout deci di ng, t hat i n cer t ai ni nst ances set t l ement conduct dur i ng t he cour se of ongoi ng


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t heor i es set f or t h i n t he 2006 compl ai nt t hat t he Museum f ai l ed t o

pur sue i n i t s 2011 pl eadi ngs. Fi nal l y, any cont i nued r el i ance on

U. S. Fi r e' s f ai l ur e t o pay def ense cost s pr i or t o t he December

2007 or der al so f ai l s as a mat t er of l aw si nce t he r ecor d f ai l s t o

show t hat t he i nsur ance company' s conduct , whi l e amount i ng to a

cont r act ual br each, was pur posed by t he ki nd of nef ar i ous

l ever agi ng t hat may gi ve r i se t o Chapt er 93A, 11 l i abi l i t y. Cf .

N. Sec. I ns. Co. , 941 N. E. 2d at 692- 93; Mass. Emp' r s I ns. Exch. ,

648 N. E. 2d at 438.

Accor di ngl y, we r ever se t he di st r i ct cour t ' s deci si on

t hat U. S. Fi r e vi ol at ed Chapt er 93A, 11 and vacat e the awar d of

puni t i ve damages, f ees, cost s and st at ut or y i nt er est associ at ed

wi t h t he Chapt er 93A cl ai m. Our hol di ng obvi at es any need t o

addr ess t he puni t i ve damages i ssues debated by t he par t i es pur suant

t o Rhodes v. AI G Domest i c Cl ai ms, I nc. , 961 N. E. 2d 1067 ( Mass.

2012) and Aut o Fl at Car Cr usher s, I nc. v. Hanover I ns. Co. , 17

N. E. 3d 1066 ( Mass. 2014) .

V.

Two f i nal mi scel l aneous mat t er s go nowhere. Fi r st , t he

Museum appeal s t he di st r i ct cour t ' s deci si on decl i ni ng t o awar d i t

at t or ney' s f ees f or l i t i gat i ng t he scope of def ense obl i gat i ons

l i t i gat i on may gi ve r i se t o Chapt er 93A l i abi l i t y. Compar eMor r i son v. Toys "R" Us, I nc. , 806 N. E. 2d 388, 391 ( Mass. 2004) ,wi t h Commer ci al Uni on I ns. Co. , 217 F. 3d at 41 n. 5.


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af t er t he 2007 summary j udgment order . I t s appel l at e argument s

depend on t he success of i t s Chapt er 93A cl ai m and, t hus, ar e

r ender ed moot by our r ever sal of t he di st r i ct cour t ' s deci si on.

To t he ext ent t hat t he Museum at t empt s t o pur sue ar guments

unr el ated t o i t s Chapt er 93A success bel ow, we deem t hem wai ved

f or i nsuf f i ci ent br i ef i ng. See Powel l , 783 F. 3d at 348- 49.

Second, U. S. Fi r e appeal s t he di st r i ct cour t ' s deci si on

denyi ng i t s mot i on t o amend i t s 2006 t hi r d- par t y compl ai nt agai nst

ACE. U. S. Fi r e' s 2009 mot i on sought t o t r ansf or m t he or i gi nal

si ngl e- count compl ai nt i nt o a f i ve- count compl ai nt enf or ci ng an

al l eged expr ess or i mpl i ed cont r act ual agr eement f or shar i ng

def ense cost s bet ween t he t wo i nsurance compani es. We det ect no

abuse of di scret i on i n t he di st r i ct cour t ' s deci si on gi ven t hat

t he 2006 t hi r d- par t y compl ai nt had al r eady f ai l ed on t he mer i t s

mont hs ear l i er . 25 Addi t i onal l y, U. S. Fi r e' s 2009 pi t ch of newl y

di scover ed f act s i s under mi ned bot h by i t s own expr ess al l egat i ons

i n t he or i gi nal compl ai nt and by i t s appar ent f ai l ur e t o pur sue

t i mel y di scover y f r om t he i ncept i on of t hat 2006 t hi r d- par t y

compl ai nt . See Lombardo v. Lombardo, 755 F. 3d 1, 3- 4 ( 1st Ci r .

25 I n i t s March 2009 summary j udgment order , t he di st r i ctcour t gr ant ed ACE' s mot i on f or summary j udgment due t o U. S. Fi r e' si nsuf f i ci ent pr oof t hat t he oi l r el ease was " sudden and acci dent al "under ACE' s 1980- 1983 pol i cy. See Peabody Essex Museum, 623 F.Supp. 2d at 112.


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2014) ; St ei r v. Gi r l Scout s of t he USA, 383 F. 3d 7, 12 ( 1st Ci r .

2004) .

VI.

To summar i ze, we affirm t hedi st r i ct cour t ' s December

2007 r ul i ng t hat U. S. Fi r e br eached i t s dut y t o def end and i t s

Sept ember 2010 and August 2011 al l ocat i on r ul i ngs t hat are

chal l enged on appeal . We reverse t he di st r i ct cour t ' s August 2011

f i ndi ng of Chapt er 93A l i abi l i t y and vacate i t s associ at ed awar d

of puni t i ve damages. We al so vacate t he awar d of at t or ney' s f ees,

cost s, and st at ut or y i nt er est and remand f or appr opr i at e

r ecal cul at i on consi st ent wi t h t hi s opi ni on. Parties to bear their

own appellate costs.

peabody essex museum, inc. v. us fire insurance company, 1st cir. (2015)

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