Zurich American Insurance Company v. Electricity Maine, LLC

United States Court of Appeals
For the First Circuit
No. 18-1968
ZURICH AMERICAN INSURANCE COMPANY,
Plaintiff, Appellant,
v.
ELECTRICITY MAINE, LLC; EMILE CLAVET; KEVIN DEAN;
SPARK HOLDCO, LLC; PROVIDER POWER, LLC; KATHERINE VEILEUX AND
JENNIFER CHON, individually and behalf of all other similarly
situated parties,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Nancy Torresen, Chief U.S. District Judge]
Before
Howard, Chief Judge,
Boudin and Barron, Circuit Judges.
John S. Whitman, Esq., with whom Richardson, Whitman, Large,
& Badger were on brief for appellant.
Timothy E. Steigelman, with whom Melissa A. Hewey, and
Drummond Woodsum were on brief for appellees.
June 17, 2019

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BARRON, Circuit Judge. Electricity Maine LLC is a
private energy company that serves customers in Maine. It held a
D&O insurance policy (the "Policy") with Zurich American Insurance
Co. ("Zurich") when, in November of 2015, a class action was
brought against it, Spark Holco LLC, Emile Clavet, and Kevin Dean
(together "Electricity Maine"). The named plaintiffs were two of
Electricity Maine's customers, Jennifer Chon and Katherine
Veilleux. They sought to represent a class of nearly 200,000 of
the company's customers. The complaint alleged that Electricity
Maine had engaged in misconduct that resulted in customers
receiving higher bills than Electricity Maine had represented that
they would be. The complaint sought class-wide damages totaling
approximately $35 million for a variety of Maine state common law
claims, as well as for claims under the federal Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§
1962, 1964; and the Maine Unfair Trade Practices Act, Me. Rev.
Stat. Ann. tit. 5 § 207.
Electricity Maine tendered notice of the suit to Zurich.
Zurich then initiated the present action against Electricity Maine
in the United States District Court for the District of Maine on
May 3, 2017, based on diversity jurisdiction. 28 U.S.C. § 1332.
Zurich seeks a declaratory judgment that it has no duty to defend
Electricity Maine against the underlying action. Zurich contends

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that Electricity Maine's policy 1 with Zurich provides, in relevant
part, that Zurich has a duty to defend Electricity Maine against
any lawsuit that seeks damages for "bodily injury" caused by an
"occurrence" and that the complaint in the underlying action fails
to allege that Electricity Maine engaged in conduct that qualifies
as an "occurrence" or that caused any "bodily injury."
Zurich and Electricity Maine cross-moved for summary
judgment on a stipulated record. The District Court ruled for
Electricity Maine. Zurich Am. Ins. Co. v. Electricity Maine LLC,
325 F. Supp. 3d 198, 202-03 (D. Me. 2018). This appeal followed.
We affirm.
I.
We review the District Court's decisions on the parties'
motions for summary judgment de novo. See Utica Mut. Ins. Co. v.
Herbert H. Landy Ins. Agency, Inc., 820 F.3d 36, 41 (1st Cir.
2016). We must affirm the judgments below if there is no genuine
issue of material fact in dispute and the District Court's
conclusions are correct as a matter of law. See id.
The parties agree that the only issues presented on
appeal concern the District Court's interpretation of the relevant
provisions of the Policy. Those issues present matters of law,
1 The terms of the Policy were set forth in three successive
contracts. The parties agree that the relevant language is
identical from one contract to the next, and, therefore, should be
treated as one policy.

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which we review de novo. Massamont Ins. Agency, Inc. v. Utica
Mut. Ins. Co., 489 F.3d 71, 72 (1st Cir. 2007).
The parties agree that Maine law controls the
interpretive questions at issue on appeal. Under Maine law, "[i]f
the allegations in the underlying . . . action are within the risk
insured against and there is any potential basis for recovery, the
insurer must defend the insured regardless of the actual facts on
which the insured's ultimate liability may be based." Elliott v.
Hanover Ins. Co., 711 A.2d 1310, 1312 (Me. 1998).
To determine if the allegations in the underlying action
are within the risk insured, we must "compar[e] the complaint with
the terms of the insurance contract." Id. The key terms in the
Policy that define the "risk insured" are "occurrence" and "bodily
injury."
II.
The Policy defines an "occurrence" to be "an accident,
including continuous or repeated exposure to substantially the
same general harmful conditions." The Policy does not define what
constitutes an "accident," but the Maine Law Court (the "Law
Court") has explained that an "accident" is "commonly understood
to mean . . . an event that takes place without one's forethought
or expectation; an undesigned, sudden, and unexpected event."
Kelley v. N.E. Ins. Co., 168 A.3d 779, 782 (Me. 2017) (quoting
Patrick v. J.B. Ham Co., 111 A. 912, 915 (Me. 1921)).

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The complaint in the underlying action sets forth a
number of claims for intentional torts, but also includes a claim
for "negligence" and a claim for "negligent misrepresentation."
The negligence and negligent misrepresentation claims would appear
to seek recovery for the kind of conduct that fits comfortably
within the definition of an "accident," as these claims require
proof only of "event[s] that take[] place without one's forethought
or expectation." Kelley, 168 A.3d at 782. Indeed, the Law Court
has held multiple times that "broad conclusory allegations of
'negligence,'" pled in the alternative to claims that require proof
of intentional misconduct, constitute allegations of "accidental"
or "[un]intentional" activity that suffice to trigger the duty to
defend under policies that cover "accidents." Travelers Indem.
Co. v. Dingwell, 414 A.2d 220, 225-27 (Me. 1980) (finding a duty
to defend for an "accident[]" where the complaint alleged negligent
acts in the alternative to intentional conduct); Lavoie v.
Dorchester Mut. Fire Ins. Co., 560 A.2d 570, 571 (Me. 1989)
(finding a duty to defend under a policy with an exclusion for
"intentional" acts where a complaint alleged negligence as an
alternative to its intentional assault and battery claims).
To blunt the force of this precedent, Zurich relies on
two Law Court cases -- Allocca v. York Ins. Co. of Maine, 169 A.3d
938 (Me. 2017) and Vermont Mut. Ins. Co. v. Ben-Ami, 193 A.3d 178
(Me. 2018) -- that were decided after Travelers and Lavoie. But,

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neither Allocca nor Ben-Ami involved complaints that, like the
complaint at issue here, expressly allege claims for negligence
(or negligent misrepresentation) alongside claims for intentional
torts. Allocca, 169 A.3d at 940-41; Ben-Ami, 193 A.3d at 180-81.
Zurich also attempts to distinguish Travelers and Lavoie
from the present case on the ground that, unlike in those cases,
the facts alleged in the complaint here "make it impossible to
sustain the fiction that Electricity Maine was 'negligent' and
expected no harm to befall its customers." Zurich is right that
the portion of the complaint that sets forth the RICO claims,
alleges that Electricity Maine promised its customers rates that
were lower than those offered by the public utilities, raised those
rates unexpectedly after the first year of the customers'
contracts, notified its customers about the rate increases through
emails that were sent to the customers' spam folders, and required
that customers pay a $100 fee if they wanted to leave these more
expensive contracts. And, Zurich is also right that this portion
of the complaint does allege that the company engaged in that
conduct intentionally, just as one would expect, given that RICO
claims seek recovery for intentional torts.
But we do not see why, when the complaint goes on to
incorporate by reference the same factual allegations into its
claims for negligence and negligent misrepresentation, it must be
read to be alleging, with respect to those claims, that Electricity

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Maine acted intentionally rather than inadvertently. Those
claims, unlike the RICO claims, do not require proof of intentional
conduct. We note, moreover, that this conclusion accords with
Harlor v. Amica Mut. Ins. Co, 150 A.3d 793 (Me. 2016). There, the
Law Court explained that the duty to defend is triggered so long
as a complaint "reveals . . . any legal or factual basis that could
potentially be developed at trial" for proving conduct that would
fall within the risk insured. Id. at 797 (emphasis added). And,
as we explained in Auto Europe, LLC v. Conn. Indem. Co., after
canvassing Maine law, the duty to defend is triggered under the
state's law "where a narrow reading of the complaint's factual
allegations might preclude coverage, but the alleged cause of
action is sufficiently broad that a modified version of the facts
could be developed at trial to show liability." 321 F.3d 60, 68
(1st Cir. 2003).
That is not to say that either the negligent
misrepresentation claim or the negligence claim has merit. But,
even a "broad, conclusory allegation, such as negligence" that is
"legally insufficient to withstand a motion to dismiss" will
trigger an insurer's duty to defend "whenever the allegations show
a potential that liability will be established within the insurance
coverage." Travelers , 414 A.2d at 226.
Zurich does point to precedents in which various courts,
including our own, have, in construing Maine law, concluded that

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a particular complaint in an underlying suit failed to set forth
factual allegations of a type that could trigger an insurer's duty
to defend its insured against claims that had been set forth in
that complaint. See Lyman Morse Boatbuilding, Inc. v. N. Assurance
Co. of Am., 772 F.3d 960, 966 (1st Cir. 2014); Prime Tanning Co.
v. Liberty Mut. Ins. Co., 750 F. Supp. 2d 198, 214-15 (D. Me.
2010); Baywood Corp. v. Me. Bonding & Casualty Co., 628 A.2d 1029,
1031 (Me. 1993); A. Johnson & Co., Inc. v. Aetna Casualty and
Surety Co., 933 F.2d 66, 75 (1st Cir. 1991). But, none of the
complaints in those cases pled claims for both intentional and
unintentional torts and incorporated by reference facts that
pertained to the former to support the latter in the way that the
complaint at issue here does. Thus, none of those precedents
undermines our conclusion that this complaint is fairly read to
set forth -- at least in a "broad, conclusory" fashion, Travelers ,
414 A.2d at 226 -- factual allegations of negligent conduct by
Electricity Maine. Accordingly, none of those precedents supplies
a basis for concluding that this complaint fails to allege facts
that fall within the risk insured by the Policy, at least insofar
as that risk is defined by the Policy's definition of an
"occurrence." Id.
III.
Zurich separately contends that the Policy's definition
of "bodily injury" does not encompass the allegations of misconduct

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by Electricity Maine contained in the complaint at issue. Thus,
the company contends, for this reason as well, that the complaint
fails to contain factual allegations that fall within the risk
insured.
Electricity Maine acknowledges that the complaint does
not allege that its conduct caused "bodily injury." The company
contends, however, that Harlor makes clear that the complaint need
not do so to trigger Zurich's duty to defend. We agree.
In Harlor, as in this case, the underlying complaint did
not allege "bodily injury." Harlor, 150 A.3d at 800.
Nevertheless, the Law Court held that the insurer in that case had
a duty to defend under the policy at issue, because the tortious
conduct alleged in the complaint in the underlying action "could
have resulted in . . . bodily harm due to emotional distress."
Id.; see also York Ins. Grp. of Me. v. Lambert, 740 A.2d 984,
985-86 (Me. 1999) (holding the same). Moreover, Harlor reached
that conclusion even though the complaint in that underlying action
did not expressly allege "emotional distress." Harlor, 150 A.3d
at 800.
Zurich contends that the Policy expressly defines
"bodily injury" to encompass "mental injury, shock, [or]
fright . . . resulting from bodily injury . . . ." (Emphasis
added). Zurich then goes on to argue that, in consequence, the
Policy's definition of "bodily injury" is best read, impliedly, to

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exclude from its scope "bodily injury" that is caused by emotional
distress. And, Zurich contends, this definition of "bodily injury"
differs from the definition of "bodily injury" used in the policy
that was at issue in either Harlor or York, such that neither
precedent supports Electricity Maine's position here.
But, while the Policy's definition of "bodily injury"
states that it "includes" "mental injury, shock, [or] fright
resulting from bodily injury," (emphasis added), the definition
does not state that it excludes coverage for "bodily injury" caused
by those markers of emotional distress. Thus, because Maine law
requires us to construe ambiguous policy language in favor of the
insured, we reject Zurich's restrictive construction of the
Policy. See Foremost Ins. Co. v. Levesque, 868 A.2d 244, 246 (Me.
2005) ("Any ambiguity in an insurance policy must be resolved
against the insurer and in favor of coverage.").
Zurich has one last argument for why, Harlor
notwithstanding, the inclusion of the negligent misrepresentation
and negligence claims provides no basis for concluding that the
complaint sets forth factual allegations that fall within the "risk
insured," at least insofar as the Policy's definition of "bodily
injury" establishes the risk that Zurich has agreed to insure.
Zurich points out that a claim for "negligent misrepresentation"
cannot give rise to damages for emotional distress under Maine
law, see Veilleux v. National Broadcasting Co., 206 F.3d 92, 130

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(1st Cir. 2000), and thus that the negligent misrepresentation
claim here cannot be treated as one that seeks damages -- even
potentially -- for bodily injury that arises from such emotional
distress. Zurich further contends that the putatively stand-alone
negligence claim is in fact just a mirror of the claim that
Electricity Maine committed the tort of negligent
misrepresentation. Accordingly, Zurich argues that, even though
damages for emotional distress often may be recovered for a
negligence claim, see Curran v. Richardson, F. Supp. 2d 228, 231
(D. Me. 2006) (citing Curtis v. Porter, 784 A.2d 18, 27 (Me.
2001)), the negligence claim that is set forth in the complaint at
issue here cannot.
But, Zurich's argument overlooks the fact that the Law
Court has, in construing Maine law, held that claims involving
negligent omissions for which there was no statutory duty to
disclose were not negligent misrepresentation claims, but were,
instead, more appropriately characterized as pure negligence
claims. See Binette v. Dyer Library Ass'n, 688 A.2d 898, 905-06
(Me. 1996). Here, the face of the complaint is fairly read to
permit the conclusion that the negligence claim includes
allegations of negligent omissions of just that sort. The
complaint alleges that Electricity Maine failed to notify its
customers that their contracts would "automatically renew" at
higher rates and, similarly, failed to notify its customers that

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they would face a $100 termination fee if they attempted to leave
their contracts. Thus, in accord with Auto Europe, we conclude
that, even though "a narrow reading of the complaint's factual
allegations might preclude coverage . . . the alleged cause of
action is sufficiently broad that a modified version of the facts
could be developed at trial to show liability." 321 F.3d at 68.
Zurich does make the sweeping contention in its reply
brief that emotional distress damages under Maine law may be
recovered in negligence claims only for conduct that resulted in
physical injuries, presumably to support the contention that
damages may not be recovered in such claims for physical injuries
that result from emotional distress. But, aside from the fact
that arguments that are made for the first time in reply briefs
are waived, see United States v. Torres, 162 F.3d 6, 11 (1st Cir.
1998), Zurich does not cite to any precedent that supports its
broad assertion about the limited circumstances in which damages
for emotional distress may be recovered for the tort of negligence
in Maine. Nor does Zurich address the fact that the Law Court
stated in Curtis that "most tort actions" can give rise to recovery
for emotional distress. Curtis, 784 A.2d at 26. Thus, we treat
as waived for lack of development any argument that a negligence
claim for an omission such as was alleged to have occurred here
cannot give rise to emotional distress damages under Maine law.
See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).

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None of this is to deny that one might doubt whether, in
the context of this case, the alleged negligence is of a type that
could cause distress that would result in bodily injury. But, the
Law Court has made clear that, for purposes of Maine insurance
law, where "general allegations for the particular claims asserted
in the underlying complaint . . . could potentially support an
award of covered damages for bodily injury caused by emotional
distress," the duty to defend exists. Harlor, 150 A.3d at 799
(emphasis added).
IV.
For the foregoing reasons we affirm the District Court's
decisions granting summary judgment in favor of Electricity Maine
and denying the appellants' Motion for Summary Judgment. The
parties shall bear their own costs.

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