FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Rya W. Zobel, U.S. District Judge]
L. Schreckinger, with whom Anderson & Kreiger LLP were on
brief, for appellants.
Melinda B. Margolies, with whom Kaufman Borgeest & Ryan
LLP, William A. Schneider, and Morrison Mahoney LLP were on
brief, for appellee.
Thompson, Kayatta, and Barron, Circuit Judges.
BARRON, CIRCUIT JUDGE.
appeal concerns a 2013 suit that BioChemics, Inc.
("BioChemics"), a pharmaceutical company based in
Massachusetts, and John Masiz ("Masiz"), its
president and chief executive officer, brought in the
District of Massachusetts to enforce a directors and officers
("D&O") insurance policy (the
"Policy") with AXIS Reinsurance Company
("AXIS"). BioChemics and Masiz seek damages for
what they contend is AXIS's breach, under the Policy, of
its "duty to defend" them in connection with a
Securities and Exchange Commission ("SEC")
investigation against the company and its officers.
and Masiz moved for partial summary judgment in 2013, and the
District Court denied the motion. BioChemics, Inc. v.
Axis Reinsurance Co., 963 F.Supp.2d 64, 70-71 (D. Mass.
2013). They filed a renewed motion for partial summary
judgment in 2015, and AXIS cross-moved for summary judgment.
AXIS contended in that motion that it did not breach its duty
to defend under the Policy because, among other things,
BioChemics and Masiz were seeking to enforce that duty in
relation to a "Claim" that -- given when the SEC
investigation commenced -- was "first made" before
the Policy took effect and thus was not "covered"
by the Policy. The District Court granted AXIS's motion.
BioChemics and Masiz now appeal from the grant of summary
judgment to AXIS. We affirm.
undisputed facts are the following. On May 5, 2011, the SEC
began a "Non-Public Formal Investigation" by
issuing a Formal Order captioned "In the Matter of
BioChemics, Inc., B-02641" (the "2011 Order").
The 2011 Order mentioned Masiz by name, described him as the
sole officer of the company, and identified several
"possible" securities violations. These
"possible" violations included instances of fraud
and misrepresentation, beginning as early as 2009, that were
aimed at distorting the value of BioChemics securities. The
2011 Order also noted that Masiz had been sanctioned for
securities violations in the past and that, due to those
sanctions, he had been barred from serving as an officer or
director of any publicly traded company until 2009.
9, 2011, and then again on September 12, 2011, the SEC served
subpoenas on BioChemics. The 2011 subpoenas requested
documents pertaining to, among other things, the
company's finances, operations, drugs under development,
interactions with pharmaceutical companies, and payments to
Masiz. These subpoenas bore the same caption as the 2011
Order and expressly referenced the 2011 Order as authorizing
their issuance. In a cover letter that accompanied the
September 2011 subpoena, the SEC stated that the
"investigation . . . should not be construed as an
indication by the [SEC] that any violation of law has
receiving the May 2011 subpoena, BioChemics retained legal
counsel and a consulting firm to assist with its response. At
that time, BioChemics had a D&O insurance policy with
Greenwich Insurance Company. BioChemics did not, at any
point, notify that insurer about the ongoing SEC
October of 2011, BioChemics and Masiz, in his individual
capacity, applied to have AXIS take over as the D&O
insurer for the policy period that ran from November 2011 to
November 2012. In that application, BioChemics and Masiz
represented that there were no legal claims pending against
them. AXIS agreed to provide the D&O insurance for the
requested policy period.
January of 2012, the SEC served deposition subpoenas on Masiz
and other individuals. In March of that same year, the SEC
followed up by serving documents subpoenas on BioChemics and
Masiz. Each of these 2012 subpoenas -- eight in total -- bore
the same caption as the 2011 Order and the 2011 subpoenas.
One of these subpoenas was served on Masiz in his individual
capacity for deposition testimony and one was served on him
in his individual capacity for document production.
in December of 2012, the SEC commenced an Enforcement Action
("2012 Action") against BioChemics, Masiz, and two
other individuals. The 2012 Action "allege[d]"
that, beginning as early as 2009, Biochemics and Masiz had
"engaged in a fraudulent scheme" to mislead
investors about the company's value. At least one of the
"allege[d]" misrepresentations, concerning a
topical ibuprofen product, took place after the 2011 Order
and the 2011 subpoenas were issued.
receiving the March 2012 documents subpoenas, BioChemics and
Masiz notified AXIS of them, as well as of the subpoenas that
the SEC had issued in January of 2012. AXIS "agree[d]
that the SEC Investigation . . . constitute[d] a D&O
Claim" under the Policy. AXIS asserted, however, that
BioChemics and Masiz were necessarily seeking -- given the
terms of the Policy -- "coverage" for a single
"Claim" that encompassed the SEC investigation as a
whole and that this "Claim" was "first
made" in May of 2011 when the SEC issued the documents
subpoena to BioChemics and thus that this "Claim"
was "first made" "prior to the inception of
the Policy Period." On the basis of that assertion, AXIS
stated that "because the Claim was not made during the
Policy Period, coverage is not available for the SEC
later took the same position with respect to the 2012 Action.
It concluded that the 2012 Action was also part of the same
single "Claim" that was "first made" when
the SEC issued the May 2011 documents subpoena, which was
prior to the start of the policy period.
response, on February 27, 2013, BioChemics and Masiz sued
AXIS in Massachusetts Superior Court. BioChemics and Masiz
alleged breach of contract and breach of fiduciary duty,
under Massachusetts law, based on the contention that AXIS
had breached its duty to defend under the Policy. The case
was subsequently removed to the United States District Court
for the District of Massachusetts based on diversity
jurisdiction. 28 U.S.C. § 1332. BioChemics and Masiz
filed a Motion for Partial Summary Judgment in the District
Court on June 5, 2013. They argued that each of what they
contended were the "Claim[s]" that triggered
AXIS's duty to defend under the Policy -- respectively,
each of the 2012 subpoenas and the 2012 Action -- had been
brought by the SEC after the policy period began to run and
thus was "first made" within the policy period.
District Court denied that motion in August of 2013.
BioChemics, Inc. v. Axis Reinsurance Co., 963
F.Supp.2d 64 (D. Mass. 2013). In reaching this decision, the
District Court did not address the relevance of the 2011
Order, as BioChemics and Masiz had not yet disclosed the 2011
Order to AXIS or the District Court.
February 14, 2014, BioChemics and Masiz filed a renewed
Motion for Partial Summary Judgment. They again argued that,
under the Policy, AXIS had a duty to defend that was
triggered by "Claim[s]" -- each of the 2012
subpoenas and the 2012 Action -- that had been "first
made" during the policy period. AXIS cross-filed a
Motion for Summary Judgment. AXIS argued that it had no such
duty because, among other things, the SEC filings were
properly treated as a single "Claim" that had been
"first made" when the SEC issued the May 2011
documents subpoena and thus that was "first made"
prior to the policy period.
January 6, 2015, the District Court entered an order granting
AXIS's Motion for Summary Judgment and denying BioChemics
and Masiz's Motion for Partial Summary Judgment.
BioChemics, Inc. v. Axis Reinsurance Co., 83
F.Supp.3d 405 (D. Mass. 2015) [hereinafter BioChemics
II]. By that time, the District Court had been made
aware of the 2011 Order. Equipped with that knowledge, the
District Court held that the 2012 Action, and the multiple
2012 subpoenas, were all part of a "Claim" that had
been "first made" when the 2011 Order issued (May
5, 2011). Id. at 408. BioChemics and Masiz then
appealed the District Court's order.
Policy incorporates four separate Insuring Agreements: the
D&O Corporate Liability Agreement, the Employment
Practices Liability Agreement, the Fiduciary Liability
Agreement, and the Outside Executive Liability Agreement. The
only agreement that is at issue in this appeal is the D&O
Corporate Liability Agreement.
agreement obligates AXIS to cover "all Loss on behalf of
any Insured arising from any D&O Claim for a Wrongful Act
. . . first made against such Insured . . . during the Policy
Period ." The Policy defines "Loss" as
"the amount(s) which the Insureds become legally
obligated to pay on account of a Claim, including damages,
judgments, any award of pre-judgment and post-judgment
interest, settlement amounts, costs and fees awarded pursuant
to judgments, and Defense Costs." (Emphasis
added). The Policy separately provides that AXIS has
"both the right and duty to defend and appoint counsel
with respect to any Claim made against the Insureds alleging
a Wrongful Act, even if such a Claim is groundless, false or
Policy defines a "D&O Claim" as:
a. a written demand against an Insured for monetary or
b. a civil, arbitration, administrative or regulatory
proceeding against any Insured commenced by:
(i) the service of a complaint or similar pleading;
(ii) the filing of a notice of charge, investigative order or
like document; or
(iii) written notice or subpoena from an authority
identifying such Insured as an entity or person against whom
a formal proceeding may be commenced; or
c. a criminal investigation or proceeding against any Insured
Individual commenced by:
(i) the return of an indictment, information, or similar
(ii) written notice or subpoena from an authority identifying
such Insured Individual as an individual against whom a
formal proceeding may be commenced.
"Wrongful Act," in turn, is defined as "any
actual or alleged error, misstatement, misleading statement,
act, omission, ...