Salvati v. Fireman's Fund Ins. Co.

368 F.Supp.3d 85

Lucia SALVATI, et al., Plaintiffs,

v.FIREMAN'S FUND INSURANCE COMPANY d/b/a The American Insurance Company and Allianz Global Risks United States Insurance Company, Defendants.

Civil Action No. 18-11289-FDS

United States District Court, D. Massachusetts.

Signed March 1, 2019

Donald R. Grady, Jr., Frank J. Federico, Jr., Sara W. Khan, Sheff Law Offices, Boston, MA, for Plaintiffs.

Gregory P. Varga, Jonathan E. Small, Robinson & Cole LLP, Hartford, CT, for Defendants.

MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS

F. Dennis Saylor IV, United States District Judge

This is an insurance dispute that arises from the tragic death of Gerardo Salvati. Plaintiff Lucia Salvati, Mr. Salvati's wife and the executor of his estate, seeks to recover $ 5 million she alleges she is owed under an excess liability insurance policy issued by the American Insurance Company ("AIC").¹ Jurisdiction is based on diversity of citizenship.

Defendants have moved to dismiss the amended complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. For the following reasons, the motion to dismiss will be granted.

I. Background

The facts are taken from the amended complaint and earlier court opinions.

Gerardo Salvati worked for Ajax Management Partners, LLC. Salvati v. American Insurance Co. , 855 F.3d 40, 42 (1st Cir. 2017). On June 17, 2010, at the direction of his supervisor, Mr. Salvati climbed a ladder to inspect the façade of the Lovejoy Wharf building in Boston. Id. During the inspection, a large chunk of brickwork fell from the building and crashed into Mr. Salvati, causing him to fall to his death. Id.

In September 2011, Lucia Salvati ("Salvati"), Mr. Salvati's wife and the executor of his estate, filed a wrongful-death lawsuit in Suffolk County Superior Court against Mr. Salvati's supervisor, Robert Easton, and a group of limited liability companies that owned the Lovejoy Wharf building. Id.

Easton and the LLCs had two insurance policies: a $ 1 million primary policy through Western World Insurance Company and a $ 9 million excess policy through AIC. Id. at 42-43. The excess policy agreement called upon AIC to "pay on behalf of any Insured those sums in excess of the Primary Insurance that any Insured becomes legally obligated to pay as damages." Id. at 45.

After an unsuccessful attempt at mediation, Salvati ultimately reached a settlement agreement with Easton and the LLCs in December 2014. Id. at 43. The settlement agreement "ha[d] three key elements." Id. First, the agreement "provided for the total payment of $ 6,000,000 to Salvati." Id. Second, the agreement "released [ ] Western World, [Easton, and the LLCs,] from any further liability" in exchange for them "tendering the full $ 1 million of the Western World primary insurance policy" to Salvati. Id. Third, the agreement "assigned all rights previously held by [Easton and the LLCs] against AIC" to Salvati, which allowed her "to seek recovery of the remaining $ 5 million from" AIC's excess policy. Id. Although Salvati was assigned these rights, the agreement also specifically stipulated "that the settlement was not contingent on the ultimate availability of the excess coverage [ ] and specified that [Easton and the LLCs] did not represent that excess coverage was necessarily available." Id.

On December 29, 2014, the Superior Court approved the settlement agreement and dismissed Salvati's suit with prejudice and without entering a judgment against Easton and the LLCs. AIC, however, declined to defend or indemnify Easton and the LLCs. In its view, the excess policy "did not apply to liability stemming from any injury to an employee of the insured party during the course of his employment." Salvati v. American Insurance Company , 2016 WL 9049596 at *1 (D. Mass. Mar. 15, 2016).

In April 2015, Salvati, acting as the assignee of Easton and the LLCs, filed a complaint against AIC in the Superior Court. The complaint raised two claims: (1) a breach-of-contract claim alleging that AIC had breached the excess policy agreement by failing to indemnify Easton and the LLCs and (2) a declaratory-judgment claim seeking a "decree[ ] that [defendants] [were] compelled to perform under the [excess policy agreement] in the amount of $ 5,000,000."

AIC removed the case to this court in August 2015. In October 2015, Salvati filed an amended complaint that added four claims: a count alleging a violation of Mass. Gen. Laws ch. 93A; a count alleging a violation of Mass. Gen. Laws ch. 176D; and two counts of professional negligence. AIC then filed a motion to dismiss.

The district court (Zobel, J.) granted the motion to dismiss in full. Id. As to Salvati's contention that AIC had breached the excess policy agreement, Judge Zobel held that pursuant to the agreement's terms, AIC's duty to indemnify could only be triggered once Easton or the LLCs "bec[ame] legally obligated to pay" damages to Salvati. Salvati , 855 F.3d at 44. Because the Superior Court had dismissed her suit against Easton and the LLCs with prejudice and without having entered a judgment against the defendants, Judge Zobel concluded that "there [had] never [been] any legal determination of liability." Id. at 45. Accordingly, Judge Zobel concluded that AIC was not bound to pay Salvati the $ 5 million.²

Salvati appealed. On April 26, 2017, the First Circuit affirmed, but on somewhat different grounds. Judge Zobel's holding relied on the conclusion that only a judgment can "legally obligate[ ]" a party to pay damages. The First Circuit, however, held that such obligation can also arise from a "settlement agreement that is wholly contractual in nature." Id. The First Circuit, however, also concluded that the plain language of the December 2014 agreement, although it created a settlement in the amount of $ 6 million, only required the actual payment of $ 1 million from Western World. Id. at 47. The "remaining value" of the settlement, the court concluded, was "attributed to the assignment to Salvati of all rights [Easton and the LLCs] may have" had under the excess policy. Id. That language, the court concluded, did not legally obligate Easton or the LLCs to pay anything beyond $ 1 million, and accordingly did not "trigger AIC's duty to indemnify." Id.

The plain language of the settlement agreement, coupled with Salvati's "failure to explain how the [s]ettlement [a]greement triggered the [e]xcess [p]olicy's indemnification provision," left the court "without a rationale for finding that AIC's refusal to indemnify constituted a breach" of the excess policy. Id. at 48. Accordingly, it affirmed the dismissal.

The First Circuit noted that the "outcome [had] not [been] inevitable," and that a "settlement structured differently could have" triggered the excess policy by creating a legal obligation on the part of Easton and the LLCs. Id. Although the court acknowledged that the difference between such a settlement and the actual 2014 settlement may have "seem[ed] technical," and that the court's "adherence to the terms" of the excess policy may have "seem[ed] unforgiving," the court concluded that it could not "rewrite" either the settlement agreement or the excess policy. Id. at 49.

In December 2017, Salvati returned to Superior Court and filed an "Unopposed Motion to Remove Stipulation of Dismissal and Enter an Agreement for Judgment in Favor of the Plaintiff" along with a corresponding "Agreement for Judgment" on the docket of her 2011 wrongful death action.³ Both documents were signed by her attorney and by an attorney representing Easton, the LLCs, and various other "defendants," but not AIC.

The "Agreement for Judgment" is largely identical to the 2014 settlement agreement, with two changes: (1) it deletes references to Western World's payment under the primary policy and the stipulation of dismissal and (2) it adds the following sentence to the preamble: "WHEREAS, it is the express intention of the parties to create a legally binding obligation on the part of the Defendants to settle/pay Salvati's claim."

On January 3, 2018, the Superior Court allowed the motion and vacated the stipulation of dismissal. On January 8, the court entered judgment in favor of Salvati.

On May 18, 2018, Salvati filed this action against AIC (and its parent companies) in the Superior Court. AIC removed the action to this court on June 20, 2018.

On July 17, 2018, Salvati filed an amended complaint. The amended complaint alleges that AIC breached the excess policy agreement and seeks a declaratory judgment "that [AIC is] compelled to perform under the [agreement] in the amount of $ 5,000,000."

AIC has moved to dismiss the amended complaint for failure to state a claim, contending both that the suit is barred by the doctrine of claim preclusion and that the "Agreement for Judgment" does not "obligate any of AIC's insureds to pay damages to [Salvati] in excess of the $ 1 million paid in 2014."

II. Analysis

A. Choice of Law

The first question is whether Massachusetts or federal law of claim preclusion should apply.⁴

Federal courts sitting in diversity are to apply "the law that would be applied by state courts in the State in which [it] sits" in all situations other than those "in which the state law is incompatible with federal interests." Semtek Intern. Inc. v. Lockheed Martin Corp. , 531 U.S. 497, 508-09, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001). The First Circuit has interpreted Semtek to "apply[ ] in successive diversity actions," as is the case here. Hatch v. Trail King Industries, Inc. , 699 F.3d 38 (1st Cir. 2012). Accordingly, and because there is no indication that the Massachusetts law of claim preclusion is incompatible with federal interests, the court will apply the law that a Massachusetts court would apply.

Determining what law a Massachusetts court would apply, however, is not straightforward. In an opinion predating Semtek , the Supreme Judicial Court stated that "[w]hen a State court is faced with the issue of...