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Winbrook Communication Services, Inc. v. United States Liability Insurance Co.

Appeals Court of Massachusetts, Suffolk

June 14, 2016

WINBROOK COMMUNICATION SERVICES, INC., & others[1]
v.
UNITED STATES LIABILITY INSURANCE COMPANY.

          Heard: March 8, 2016.

         Civil action commenced in the Superior Court Department on December 20, 2011.

         The case was heard by Geraldine S. Hines, J., on a motion for summary judgment, and a motion for reconsideration and a second motion for summary judgment were heard by Bonnie H. MacLeod, J.

          Eric F. Eisenberg for the plaintiffs.

          John B. DiSciullo for the defendant.

          Present: HANLON, SULLIVAN, & MASSING, JJ.

          SULLIVAN, J.

         In this insurance coverage dispute we consider whether the factual record on cross motions for summary judgment is adequate to permit either party to establish entitlement to judgment as matter of law. Plaintiff Winbrook Communication Services, Inc. (Winbrook[2]), appeals from a summary judgment declaring that the defendant, United States Liability Insurance Company (USLIC), had no obligation under a directors and officers liability policy to pay a judgment obtained by Winbrook against USLIC's insureds, DeSales Group, LLC (DSG), and William York (collectively, DSG). We conclude that it was error to grant USLIC's motion for summary judgment because there remain genuine issues of material fact as to the applicability of the policy's personal profit exclusion. More precisely, there is a genuine dispute of material fact whether DSG received any profit, benefit, remuneration, or advantage to which DSG was not legally entitled. Accordingly, we vacate and remand for further proceedings.

         Background.

         The procedural history of the litigation is both material and undisputed. Winbrook filed suit against DSG and York on August 24, 2010, alleging that York had made a series of negligent misrepresentations concerning DSG the entity's financial condition that induced Winbrook to continue to work on the development of a children's storybook series and associated promotional items. The series never went to market and Winbrook sued, seeking compensation for work performed.

         DSG gave notice to USLIC of Winbrook's claims in advance of suit. USLIC replied that the policy would not cover the claims. After suit was filed, Winbrook notified USLIC of the suit and of a pending motion for entry of default. DSG reportedly told USLIC that it did not intend to defend. USLIC again denied coverage, citing two reasons: (1) the claims were for the failure to pay contractual debts, and such claims did not allege a "Wrongful Act" as required for coverage under the insuring agreements, [3] and (2) the claims were excluded by exclusion C, the so-called "personal profit exclusion."[4] USLIC declined to defend under a reservation of rights, and did not seek declaratory relief while the underlying liability action was pending. DSG defaulted. After a hearing, a judge of the Superior Court (first judge) adopted proposed findings outlining the claimed misrepresentations, and Winbrook's calculation of losses. The judge then entered a default judgment in favor of Winbrook in the amount of $597, 633.25 plus interest.[5]

         With judgment in hand, Winbrook brought this action against USLIC in December of 2011, seeking a declaratory judgment that USLIC is obligated to pay the judgment obtained by Winbrook against DSG, damages for breach of contract as a third-party beneficiary of the insurance contract, and damages for unjust enrichment and for violation of G. L. c. 93A. Winbrook moved for summary judgment, and also moved for a protective order to bar discovery by USLIC. A different Superior Court judge (second judge) concluded that the existence of a claim for misrepresentation was conclusively established in the previous action, and that the claim fell within the coverage provisions of the policy. She granted the motion for a protective order, reasoning that the sole purpose of USLICs discovery requests was to "marshal additional evidence in support of its position that the insureds are properly liable under a theory of breach of contract, not negligent misrepresentation, " and that because that claim was barred by the default, discovery was not warranted. Finally, she determined that there was a genuine dispute of material fact as to the applicability of exclusion C, and denied summary judgment.[6]

         The summary judgment order was silent as to discovery regarding exclusion C, and neither party sought discovery regarding exclusion C.[7]Rather, Winbrook filed a request for reconsideration of the summary judgment as to the applicability of exclusion C, and USLIC filed a cross motion for summary judgment. Winbrook provided additional affidavits in support of the motion for reconsideration, and supplied the record supporting the default judgment. In opposing Winbrook's motion to reconsider and in supporting its own cross motion for summary judgment, USLIC relied exclusively on materials submitted by Winbrook.

         On the basis of the record as supplemented, a third judge of the Superior Court ruled that coverage was barred by exclusion C because the insureds had reaped a gain "in fact, " that is, an advantage or an opportunity to profit. The third judge concluded that the insured had secured an advantage or opportunity, to wit, an extension of credit from Winbrook by persuading Winbrook to work without payment. As a result, the judge ordered the entry of summary judgment in favor of USLIC.

         Discussion.

         The standard of review of a grant of summary judgment is whether, viewing the evidence in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the moving party is entitled to a judgment as a matter of law. Commissioners of the Bristol County Mosquito Control Dist. v. State Reclamation & Mosquito Control Bd., 466 Mass. 523, 528 (2013). See Mass.R.Civ.P. 56(c), as amended, 436 Mass. 1404 (2002). Where, as here, both parties have moved for summary judgment, "the evidence is viewed in the light most favorable to the party against whom judgment is to enter." Albahari v. Zoning Bd. of Appeals of Brewster, 7 6 Mass.App.Ct. 245, 248 n.4 (2010). See DiLiddo v. Oxford St. Realty, Inc., 450 Mass. 66, 70 (2007). "We review a decision to grant summary judgment de novo." Boazova v. Safety Ins. Co., 462 Mass. 346, 350 (2012).

         1. W ...


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