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Scottsdale Insurance Co. v. Byrne

United States District Court, D. Massachusetts

May 2, 2018

SCOTTSDALE INSURANCE COMPANY, Plaintiff and Counter-Defendant,
TIMOTHY BYRNE and ROBERT BOLTON, Defendants and Counter-Claimants.


          F. Dennis Saylor IV United States District Judge

         This is an insurance coverage dispute involving whether an insurer was obligated to defend an investment fund accused of mismanagement and self-dealing. Wellesley Advisors Funds was an investment advisor for the investment fund WARF Realty Fund I, LLC (“WARF”), in which the Plumbers and Pipefitters Local 51 Pension and Annuity Funds (the “Pension Funds”) had invested. Defendants Timothy Byrne and Robert Bolton are co-chairs of the Board of Trustees of the Pension Funds.

         Wellesley purchased an insurance policy on behalf of WARF from plaintiff Scottsdale Insurance Company. WARF's alleged mismanagement and self-dealing precipitated a lawsuit alleging negligence and an ERISA violation. Scottsdale declined to defend WARF, citing various coverage exclusions. WARF then went into receivership and did not defend the suit, leading to a default judgment against it for $5, 005, 422.12.

         In this action, Scottsdale sought a declaratory judgment stating that it had no duty to defend or indemnify WARF, and defendants counterclaimed for the amount of the default judgment, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A.[1] Scottsdale moved for summary judgment, and defendants cross-moved for partial summary judgment on their breach of contract counterclaims.

         On March 1, 2018, the Court granted defendants' motion for partial summary judgment and denied Scottsdale's motion for summary judgment, finding that Scottsdale breached the insurance contract by refusing to defend WARF. In its memorandum and order, the Court suggested that it would award defendants the amount of the coverage limit ($3, 000, 000) and directed the parties to file motions “concerning the form of judgment” by March 15, 2018.

         Scottsdale has now moved for clarification and/or reconsideration of the memorandum and order. In support of its motion, Scottsdale contends that the Court failed to address the substance of defendants' bad-faith claims, and that because those claims remain outstanding, judgment cannot issue. Defendants have also moved for Scottsdale to pay the entire judgment in the underlying action. For the reasons set forth below, the Court will grant Scottsdale's motion for reconsideration and deny defendants' motion for payment of the entire judgment.

         I. Motion for Reconsideration

         A. Legal Standard

         District courts have “substantial discretion and broad authority” to grant a motion for reconsideration pursuant to Fed.R.Civ.P. 59(e). Ruiz Rivera v. Pfizer Pharms., LLC, 521 F.3d 76, 81 (1st Cir. 2008). A motion for reconsideration will be granted upon a showing of (1) a “manifest error of law, ” (2) new evidence, or (3) a misunderstanding or other error “not of reasoning but apprehension.” Id. at 82. Rule 59(e) motions cannot be used to “advance a new argument that could (and should) have been presented prior to the district court's original ruling.” Cochran v. Quest Software, Inc., 328 F.3d 1, 11 (1st Cir. 2003). Nor is a Rule 59(e) motion an appropriate means to “repeat old arguments previously considered and rejected.” Nat'l Metal Finishing Co., Inc. v. Barclays American/Commercial, Inc., 899 F.2d 119, 123 (1st Cir. 1990).

         B. Analysis

         Plaintiff correctly notes that the Court's memorandum and order only granted partial summary judgment to defendants on Counts 1 and 2 of their counterclaims. Accordingly, defendants' bad-faith claims (Counts 3-6) remain outstanding, and entry of final judgment is inappropriate until those claims are resolved. See Fed. R. Civ. P. 54(b).[2] The Court erred in failing to address the bad-faith claims, and reconsideration is therefore warranted.

         Counts 3 and 4 allege breach of the implied covenant of good faith and fair dealing. (Ans. ¶¶ 37-46). Under Massachusetts law, a covenant of good faith and fair dealing is implied in every contract. UNO Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 385 (2004). The covenant provides that “neither party shall do anything that will have the effect of destroying or injuring the rights of the other party to receive the fruits of the contract.” Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471 (1991). The implied covenant may not, however, be invoked to create rights and duties not contemplated by the provisions of the contract or the contractual relationship. UNO Restaurants, 441 Mass. at 385; AccuSoft Corp. v. Palo, 237 F.3d 31, 45 (1st Cir. 2001).

         Counts 5 and 6 allege unfair and deceptive conduct in violation of Mass. Gen. Laws ch. 93A. (Ans. ¶¶ 47-62). “Conduct is unfair or deceptive if it is ‘within at least the penumbra of some common-law, statutory, or other established concept of unfairness' or ‘immoral, unethical, oppressive, or unscrupulous.'” Cummings v. HPG Int'l Inc., 244 F.3d 16, 25 (1st Cir. 2001) (quoting PMP Assoc. Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975)). In addition, the plaintiff must show “an injury or loss” and a “causal connection between the defendant's deceptive act or practice and the plaintiff's injury.” Gorbey ex rel. Maddox v. Am. Journal of Obstetrics and Gynecology, 849 F.Supp.2d 162, 165 (D. Mass. 2012).

         In their summary judgment briefs, the parties agreed that the disposition of the bad-faith claims turned on whether plaintiff's conduct in declining to defend WARF in the underlying litigation and subsequent refusal to pay on the policy was based on a “reasonable or plausible interpretation of the policy.” Peterborough Oil Co., Inc. v. Great Am. Ins. Co., 397 F.Supp.2d 230, 244 (D. Mass. 2005). Here, plaintiff's interpretation of the applicable exclusions was ultimately incorrect, but it was not unreasonable. For example, a letter mailed to WARF's counsel on December 30, 2014, parsed the policy language and provided relevant case law in an effort to ...

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