Capitol Specialty Ins. Corp. v. Higgins

953 F.3d 95

CAPITOL SPECIALTY INSURANCE CORPORATION, Plaintiff, Appellee/Cross-Appellant,

v.Kailee M. HIGGINS, individually and as assignee of PJD Entertainment of Worcester, Inc., d/b/a Centerfolds II, Defendant, Appellant/Cross-Appellee,PJD Entertainment of Worcester, Inc., d/b/a Centerfolds II, Defendant.

Nos. 19-1496

19-1609

United States Court of Appeals, First Circuit.

March 11, 2020

Joan A. Lukey, with whom Justin J. Wolosz, Choate Hall & Stewart LLP, Boston, MA, Peter A. Palmer, John P. Donohue, and Fuller, Rosenberg, Palmer & Beliveau LLP, Worcester, MA, were on brief, for appellant/cross-appellee.

Kevin J. O'Connor, with whom Peter C. Netburn, Michael C. Kinton, and Hermes, Netburn, O'Connor & Spearing, P.C., Boston, MA, were on brief, for appellee/cross-appellant.

Before Lynch, Circuit Judge, Souter,^* Associate Justice, and Lipez, Circuit Judge.

LYNCH, Circuit Judge.

The origins of this case are in a November 2010 serious car accident in which Kailee Higgins was grievously injured. She was only twenty years old, and the two-car collision was shortly after she left a nightclub called Centerfolds II while heavily intoxicated. She worked there as an exotic dancer and there was evidence she had been served alcohol there. Her state court lawsuit against the nightclub did not go to trial or result in a judgment after verdict. After the club's insurer tendered the policy limit, the club and Higgins privately settled the state court lawsuit, and a consent judgment for $7.5 million was entered. That judgment was entered without judicial evaluation or approval. The nightclub's payment was limited to $50,000, and the nightclub assigned its claims against its insurer to Higgins.

In federal court, Higgins sued the nightclub's insurer, Capitol Specialty Insurance Corp. (Capitol) under Massachusetts General Laws c. 93A and c. 176D. She alleged the insurer violated these laws by "[r]efusing to pay claims without conducting a reasonable investigation," Mass. Gen. Laws c. 176D, § 3(9)(d), and for "[f]ailing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear," id. § 3(9)(f), both in violation of c. 93A. The federal district court ruled for Higgins on these claims and assessed actual damages of $1.8 million against Capitol, which it then trebled after concluding that Capitol's violations were willful. The trebled damages award was $5.4 million.

Both parties appealed. Higgins asserts that the district court erred by: (1) refusing to use the $7.5 million amount of the consent judgment between her and the nightclub, the insured, as the base for trebling her damages in the suit against Capitol; and (2) allegedly failing to rule on the claims against the insurer assigned to her by her employer as part of the settlement.

Capitol, in turn, opposes Higgins' appeal and asserts the district court erred: (1) by finding it violated c. 176D; (2) by finding any violation was willful; (3) in the calculation of Higgins' actual damages for any such violation; and (4) by awarding prejudgment interest on the treble damages award and not the actual damages amount of $1.8 million.

On the whole, we affirm and leave the parties where they were except that we reverse and remand for calculation of prejudgment interest based on Higgins' actual damages and not the treble damages figure.

I.

A. Facts

In 2010, Kailee Higgins began work as an exotic dancer at a Worcester nightclub called Centerfolds II, owned by P.J.D. Entertainment of Worcester, Inc. (collectively PJD). PJD told Higgins that she should encourage customers to buy drinks, and PJD commonly served alcohol to dancers that customers had purchased for them. This policy was consistent with Higgins' experience working at other clubs. Higgins was under the age of twenty-one, which PJD knew because PJD had required her to provide her driver's license when she was hired. Still, the drink servers at PJD never requested proof of her age and served her alcohol.

Alcoholic drinks at PJD came from the bar, the private "Champagne Room," and "Shot Girls" on the nightclub floor. Higgins regularly drank while performing at PJD. PJD also provided dancers, including Higgins, with a free drink at the beginning of their shifts.

PJD had a policy of a bouncer escorting dancers to their cars at the end of their shifts and if the dancers were intoxicated, calling a cab for them. PJD's bouncer, Duane Prince, was supposed to ensure the safety of dancers.

On November 27, 2010, a Saturday night, Higgins worked a 10:00 p.m.-to-2:00 a.m. shift at PJD, during which she consumed approximately fifteen shots of tequila and became heavily intoxicated. At no point did a PJD employee prevent her from consuming alcohol. Another PJD dancer stated at deposition that Higgins was unsteady on her feet and unusually loud that night. At 2:00 a.m., on November 28, 2010, Higgins' shift ended, and Prince then escorted her to her car in the parking lot. Prince opened the car door for Higgins, physically put her into the driver's seat, and handed her the keys. At 2:30 a.m. Higgins texted a friend "he he maaadd drunk lol."

Soon after leaving PJD, Higgins was involved in a two-car collision. The other car was driven by an off-duty Worcester police officer. She suffered serious, disabling, disfiguring, and permanent injuries. The accident was at the intersection of Hamilton Street and Puritan Avenue in Worcester, which was about a five-to-seven-minute drive from PJD.

Richard McCabe, the owner of PJD, learned of the accident and spoke with the manager, bartender, waitress, and floor host who were on duty the night of the crash. McCabe said that these individuals told him that no one from PJD served Higgins alcohol, nor had anyone observed her drinking alcohol. McCabe also obtained signed statements from the bartender and waitress stating that they did not serve Higgins any alcohol. McCabe also spoke with Prince, who stated that Higgins was not intoxicated when he walked her to her car. Apparently no one from PJD spoke to the police detail officer usually at the club on Friday and Saturday nights.

On December 8, 2010, McCabe reported the accident to PJD's insurance broker, who informed Capitol, PJD's insurer, by submitting an "ACORD Notice of Occurrence" form. PJD had a $300,000 liquor liability (LL) policy with Capitol.¹ In an email sent with the form, PJD's broker informed Capitol that Higgins was underage, that she had suffered severe injuries, that the Massachusetts State Police (MSP) were investigating the accident, and that representatives of the Alcohol Beverage Board had "been out to the club to take statements from the employees ... working on the night" of the accident. Also included with the email was the signed statement of PJD's bartender stating that she was the only bartender working that night, that she was "solely responsible for pouring and dispensing alcoholic beverages," and that she did not provide any alcohol to Higgins.

A week later, on December 15, 2010, Capitol assigned the claim to Norfield Associates (Norfield) to perform a "limited investigation." On December 28, 2010, Norfield sent Capitol a preliminary report of its investigation. The report primarily relied on Norfield's telephone interviews of Richard McCabe and Robert McCabe, PJD's manager and Richard's brother. Richard McCabe informed Norfield that both PJD and the Worcester Police Department (WPD) interviewed all the employees and that the employees "universally [asserted] that Ms. Higgins had not consumed any alcoholic beverages during the evening in question." He also stated that there is a listing at PJD of all the dancers under the age of twenty-one so that the wait staff know not to serve them alcohol.

Robert McCabe confirmed what Richard had stated about the list of underage dancers and told Norfield that Higgins arrived around 10:00 p.m. and left PJD around 2:00 a.m. that night. He further noted that the bartender was the only employee responsible for serving alcohol on the night of the accident.

Norfield also informed Capitol of the steps it outlined to take next, which included conducting in-person interviews with Robert McCabe and the bartender and seeking out copies of relevant documents, including PJD's employee list and the employee sign-in sheet from the night of the accident. Norfield also told Capitol that it had submitted a request for the WPD accident report.

About two weeks after the Norfield preliminary report, on January 11, 2011, Capitol Claims Manager Michael Wedwick noted in Capitol's claim file that Capitol had received Norfield's report and that there was "no indication of drinking on the part of the [independent] contract dancer." The file also stated that "[n]o claims are being made, [insured] denies service of alcohol to underaged Higgins," and "[t]old [Norfield] to close file." Norfield ceased investigating after Capitol closed the file and so did not take the steps it had outlined.

On February 3, 2012, about fourteen months after the accident, Attorney John Donohue sent a letter to Richard McCabe stating that he would be representing Higgins "regarding damages she has suffered as a result" of the accident. The letter stated that Higgins, only twenty years old, "was served and permitted to consume alcohol to the point where she became intoxicated" and that she was "assisted to her vehicle by the agents, servants, or employees" of PJD, causing her to be in a serious car accident. The letter informed McCabe that PJD was "liable for all the significant damages suffered by Ms. Higgins" and that "[t]his office intends to enforce that liability completely and to the fullest extent of the law." The letter requested the contact information of PJD's insurer and requested the preservation of evidence for any of Higgins' "potential claims."

Capitol received the letter from PJD on February 13, 2012. In an entry in Capitol's claim file notes, Wedwick wrote "reopened file as now [Higgins] is making...