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Biochemics, Inc. v. Axis Reinsurance Co.

United States District Court, D. Massachusetts

September 28, 2017

BIOCHEMICS, INC., and JOHN MASIZ
v.
AXIS REINSURANCE COMPANY, BROWN & BROWN OF NEW YORK, INC., and JOHN P. RAUCCI

          MEMORANDUM OF DECISION

          RYA W. ZOBEL SENIOR UNITED STATES DISTRICT JUDGE.

         In 2011, the Securities and Exchange Commission (“SEC”) issued a formal order directing an investigation of plaintiffs BioChemics, Inc. (“BioChemics”), and its founder John Masiz. BioChemics made a claim under its directors and officers (“D&O”) liability insurance policy for defense costs arising out of the SEC investigation and resulting enforcement action. After their D&O carrier, AXIS Reinsurance Company (“AXIS”), denied that claim, plaintiffs brought this suit.

         I allowed AXIS's motion for summary judgment, see Docket # 88, at 5-6. Plaintiffs seek damages, fees, and costs from the remaining defendants, BioChemics's insurance broker Brown & Brown of New York, Inc. (“Brown & Brown”), and insurance producer John P. Raucci. Claiming that defendants' handling of their account resulted in the denial of D&O coverage for the SEC action, plaintiffs allege negligence, breach of fiduciary duty, and violations of Massachusetts General Laws chapter 93A. Defendants move for summary judgment on Counts II through VII. Docket # 108.

         I. Factual Background

         I summarize the relevant facts in the light most favorable to plaintiffs, the non-moving parties. See Planadeball v. Wyndham Vacation Resorts, Inc., 793 F.3d 169, 172 (1st Cir. 2015).

         BioChemics is a specialty pharmaceutical company focused on transdermal drug delivery products. Masiz was the president and chief executive officer of BioChemics at all times relevant to this action. BioChemics purchased its first D&O coverage in 2005 from Brown & Brown's corporate predecessor through a consultant named Greg Kroning. After Kroning's 2009 departure from what was by then Brown & Brown, Raucci was designated the producer on the BioChemics account. Despite this designation, the parties agree that Raucci has had no personal involvement in the account.

         A. The D&O Policies

         Brown & Brown obtained for plaintiffs from XL Insurance a D&O policy providing coverage from November 13, 2010, to November 13, 2011 (“the XL policy”). The XL policy was written on a claims made basis, meaning it only covered claims made against BioChemics during the policy period. As the expiration date of the XL policy approached, Brown & Brown informed plaintiffs that because XL would be restricting D&O coverage and increasing premiums in the coming year, it recommended renewing with a different carrier. As part of the renewal process, Brown & Brown consulted a wholesale broker, who asked XL for a report of any claims BioChemics had made during the policy period. XL responded that, as of September 13, 2011, it had not received notice of any claims from BioChemics.

         On November 9, 2011, Brown & Brown sent BioChemics a proposal for D&O coverage with a different carrier, AXIS. Page 4 of the proposal states under the heading “Requirements”:

REQUIREMENTS PRIOR TO BINDING
The following items must be received and accepted by the underwriter(s) prior to binding. Underwriters reserve the right to amend/rescind terms until such time the required documents have been received, reviewed, and deemed satisfactory and acceptable.
AXIS NEW BUSINESS APPLICATION
CONFIRMATION THAT ALL KNOWN CLAIMS HAVE BEEN ...

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