USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1106
TOWN OF ALLENSTOWN,
Plaintiff, Appellant,
v.
NATIONAL CASUALTY COMPANY,
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
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Before
Torruella, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Boudin, Circuit Judge.
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Glenn R. Milner with whom Cook & Molan, P.A. was on brief for
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appellant.
John A. Lassey with whom Wadleigh, Starr, Peters, Dunn & Chiesa
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was on brief for appellee.
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September 30, 1994
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BOUDIN, Circuit Judge. In May 1986, an officer of the
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Allenstown, New Hampshire, Police Department arrested Paul
Cutting for a number of traffic offenses. At trial Cutting
was acquitted of all charges. In April 1988, counsel for
Cutting and his wife wrote a letter to the Allenstown Board
of Selectmen advising that his clients were making a claim
for damages against the town, arising from the arrest.
At that time the National Casualty Company had in force
a comprehensive law enforcement liability policy protecting
Allenstown and its employees against claims of the kind made
by the Cuttings. National Casualty opened a file on the
incident and obtained from the town copies of various
documents relating to the Cutting arrest. In June 1988 the
Cuttings brought a civil rights action against the town and
the arresting officer in the federal district court in New
Hampshire.
When the federal suit was filed, the Cuttings served
copies of their summons and complaint on the town. The
National Casualty policy provided if a claim is made or suit
brought against the insured, the insured "shall immediately
forward to the Company every demand, notice, summons or other
process" received by the insured; the policy made compliance
with this requirement a condition precedent to any suit
against National Casualty. Allenstown contends that it
mailed the summons and complaint to National Casualty about
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eight days after it received them; National Casualty says
that it never received the papers and denies that they were
mailed.
Neither the town nor National Casualty appeared to
defend against the Cuttings' suit, and a default judgment was
entered. After a hearing on damages, the district court in
March 1989 entered judgment for $424,909.88 in favor of the
Cuttings, including compensatory damages, punitive damages
and attorneys' fees. After a year's wait, Fed. R. Civ. P.
60, the Cuttings obtained a writ of execution in April 1990.
Allenstown then moved for relief from the default judgment.
In August 1990, the district court denied the motion. On
appeal this court affirmed. Cutting v. Town of Allenstown,
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936 F.2d 18 (1st Cir. 1991).
In May 1990, after the writ of execution had issued,
National Casualty learned--assertedly, for the first time--
that the Cuttings filed their threatened suit. Not long
afterwards, Allenstown wrote to National Casualty requesting
it to provide coverage for the Cuttings' law suit and the
judgment they had obtained. In June 1990, National Casualty
declined to do so on the ground that the town had failed to
notify National Casualty of the law suit's filing in a timely
fashion and had failed immediately to forward the summons and
complaint as required by the policy.
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Allenstown then sued National Casualty in New Hampshire
state court seeking a declaratory judgment under N.H. Rev.
Stat. Ann. 491:22 that National Casualty was required to
provide coverage for the Cuttings' suit. Section 491:22
permits declaratory actions to determine insurance coverage,
if such an action is brought within six months of the
underlying suit that seeks to impose liability on the
insured. Section 491:22-a provides that in an action under
section 491:22, "the burden of proof concerning the coverage
shall be upon the insurer . . . ." There is also a provision
for attorneys' fees. N.H. Rev. Stat. Ann. 491:22-b.
National Casualty removed the town's declaratory action
against it to federal district court in New Hampshire on
grounds of diversity. Thereafter, the town amended its
complaint to include claims for breach of contract and bad
faith against National Casualty. After a number of delays
because of reassignment of the case from one judge to
another, and finally to a third, the trial commenced on
November 30, 1993.
At trial, the town presented testimony of one of its
police officers that he had mailed the summons and complaint
in the Cuttings' suit to National Casualty within two weeks
after they had been served on the town. A witness for
National Casualty testified that no such documents had been
received and that the company had no record that the suit had
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been filed. There was also some, but not conclusive,
evidence that might suggest that the officer who claimed to
have mailed the summons and complaint might have partly
misaddressed it. Under these circumstances, the burden of
proof has assumed some importance.
Well before trial, in July 1993, the district court had
ruled that section 491:22, and its ancillary burden shifting
and attorney's fee provisions, did not apply in this case.
The court ruled that under New Hampshire law, a declaratory
action under section 491:22 could be brought to determine
insurance coverage only where the underlying action to impose
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liability on the insured had been brought in New Hampshire
state court. The district court also took the view that
where the statute did not apply, the burden under New
Hampshire law was upon the insured to establish coverage.
After the close of all of the evidence, the district
court submitted the town's contract claim to the jury which
found in favor of National Casualty.1 The district court
treated the request for declaratory relief as a matter to be
determined by the court. But, following the jury's lead, the
trial judge ruled in favor of National Casualty, holding that
the town "did not, by a preponderance of the evidence,
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1The bad faith claim was not submitted to the jury
because the district court ruled, after the close of the
town's evidence, that as a matter of law judgment on this
claim should be entered in favor of National Casualty.
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establish that the suit papers in this case were immediately
forwarded."2 The town now appeals to this court.
The principal issue on appeal stems from the district
court's decision that section 491:22, including its burden-
shifting provision, did not apply in this case. At all times
pertinent here, section 491:22 allowed a declaratory judgment
action if sought within six months "after the filing of the
writ which gives rise to the question," i.e., the writ in the
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underlying liability action--here, the Cuttings' law suit.
Because New Hampshire state-court actions are commenced by
the filing of a writ and federal actions by the filing of a
complaint, the New Hampshire Supreme Court had held in 1985
that "[t]he plain language of the statute [section 491:22]
clearly applies only to State actions." Jackson v. Federal
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Ins. Co., 498 A.2d 757, 759 (N.H. 1985).
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Jackson involved a declaratory action in state court
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where the underlying liability suit had been brought in
federal court. A year later, this court applied Jackson to
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bar a declaratory action under section 491:22 brought in
federal court; as in Jackson, the underlying liability suit
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had been brought in federal court. Volpe v. Prudential
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Property & Casualty Ins. Co., 802 F.2d 1 (1st Cir. 1986). It
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2The district court had, of course, already ruled the
declaratory relief was not available under section 491:22;
but it considered declaratory relief to be available under
the federal Declaratory Judgment Act, 28 U.S.C. 2201.
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might have been enough in Volpe to say that the federal
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action was barred because (as in Jackson) the underlying suit
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had been brought in federal court, but this court in Volpe
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went even further and held that section 491:22 was "not
available to litigants proceeding in federal court." Id. at
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5.
The implication of Volpe was that the federal court
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would not entertain a section 491:22 action even if the
underlying liability suit was brought in state court. This
conclusion was not a careless extension of Jackson. Although
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Jackson's plain language argument rested on the statute's
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reference to a "writ"--focusing attention on the forum of the
underlying suit--Jackson had also described section 491:22 as
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a "court cleaning bill," saying that the bill was "intended
to expedite procedures in the State courts." 498 A.2d at
759.
Following Jackson and Volpe, the New Hampshire state
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legislature amended the declaratory judgment statute by
adding section 491:22-c, which provides:
The remedy of declaratory judgment to
determine the coverage of a liability
insurance policy under RSA 491:22, 22-a,
and 22-b shall also be available in the
United States district court for the
district of New Hampshire when the court
may properly adjudicate the matter under
the laws of the United States.
This amendment, in force at the time that Allenstown brought
its declaratory judgment against National Casualty, is the
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focus of the present appeal. The town asserts that the
amendment meant that a section 491:22 action can be brought
in federal court, regardless whether the underlying liability
suit was brought in state or federal court. National
Casualty, by contrast, claims that the amendment merely makes
the section 491:22 remedy available in federal courts to
precisely the same extent that it would be available in New
Hampshire state courts--that is, when the underlying
liability suit was brought in a New Hampshire state court.
The district court agreed with National Casualty's
reading, and we take the same view. The bare language of
section 491:22-c is not conclusive. It is perfectly
consistent with National Casualty's reading; but arguably the
language is general enough so that it is also consistent with
the town's reading. The problem for the town is that
whatever the bare language of the new section, the New
Hampshire Supreme Court in 1992 held "that RSA 491:22 applies
only to underlying suits brought in our State courts."
Scully's Auto-Marine Upholstery, Inc. v. Peerless Ins. Co.,
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611 A.2d 635, 636 (N.H. 1992).
Scully was a declaratory action brought in the New
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Hampshire state court involving underlying liability suits
both in federal district court and in Maine state court.
Although decided after section 491:22-c became effective,
Scully made no reference to the amendment but simply
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reiterated the court's earlier reasoning in Jackson. What we
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have, therefore, is a flat declaration that section 491:22
does not apply unless the underlying liability suit is
brought in New Hampshire state court. Accord Town of
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Peterborough v. Hartford Fire Ins. Co., 824 F. Supp. 1102,
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1107 (D.N.H. 1993). Unfortunately for the town, the
Cuttings' suit was brought in federal court.
Allenstown urges in its brief that the legislative
history of section 491:22-c shows that it was intended to
permit a section 491:22 action in federal court even where
the underlying liability suit was brought in federal court.
The legislative history is something of a tangle; a broad
expansion of section 491:22 was originally proposed, but the
version enacted was a narrower one supported by the insurance
industry. But even if the legislative history were more
clearly favorable to Allenstown than it appears to be, Scully
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is a holding of New Hampshire's highest court construing a
New Hampshire statute. We are bound by that court's
determination. E.g., Della Grotta v. Rhode Island, 781 F.2d
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343, 347 (1st Cir. 1986).3
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3In April 1994, the state legislature again amended
section 491:22, effective January 1, 1995, to say that a
section 491:22 action can be brought "even though the action
giving rise to the coverage question is brought in a federal
court or another [non New Hampshire] state court." R.S.A.
491:22, as amended by 1994 N.H. Laws ch. 37. No one claims
that the amendment itself applies retroactively to the
present case.
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We turn now to the town's second assignment of error.
The town argues that, even if section 491:22's burden-
shifting provision did not apply in this case, New Hampshire
common law still places the burden of proof on the insurer to
prove that the insured provided a required notice of suit.
Here, of course, the district judge placed the burden of
proof on the insured both when he charged the jury on the
contract claim and when he decided the declaratory action
himself.
There is some dispute about whether the town has
preserved its common-law argument. It made no objection to
the charge on this issue, as required by Fed. R. Civ. P. 51,
and such failures to object normally preclude arguing the
point on appeal. On the other hand, the district court also
made the same ruling on the declaratory action, which is
merely the obverse of the contract claim, and Rule 51 does
not govern legal objections in bench trials. Here, the town
certainly made its position clear to the district court in
advance of its decision on declaratory relief.
Accordingly, we think it best to consider the town's
common-law arguments on the merits, but on the merits we
reject it. Section 491:22 aside, Lumbermens Mutual Casualty
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Co. v. Oliver, 335 A.2d 666 (N.H. 1975), explicitly places
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the burden of showing notice upon the insured where notice is
a condition in the policy. If New Hampshire law were
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otherwise, it is difficult to see why New Hampshire would
have had to enact a separate provision (section 491:22-b)
shifting the burden to the insurer in declaratory actions.
In all events, Lumbermens is explicit: "The insured bears
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the burden of showing that notice of the accident was given
[to the insurer] as soon as reasonably possible." Id. at
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668; accord Sutton Mutual Ins. Co. v. Notre Dame Arena, 237
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A.2d 676, 679 (N.H. 1968).
The town's argument to the contrary is based entirely
upon White Mountain Construction Co. v. Transamerica
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Insurance Co., 631 A.2d 907 (N.H. 1993). White involved the
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question whether a duty to defend arose when the insurer had
notice of a suit or only when it had notice and a request for
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assistance. The burden of proof as to notice was not even
explicitly discussed in White, apparently because notice was
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evident from the facts. See 631 A.2d at 484. The town's
attempt to extend White, because it cited cases from a state
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where the burden of disproving notice may lie on the insurer,
is inventive but not persuasive.
The third issue raised by the town on its appeal
concerns its bad faith claim, an independent cause of action
that the district court withdrew from the jury after the
close of the town's evidence. Under New Hampshire law, there
are different types of good faith requirements; pertinent
here is the precept that a good faith obligation may be
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inferred where a contract allows "the defendant a degree of
discretion in performance tantamount to a power to deprive
the plaintiff of a substantial proportion of the agreement's
value." Centronics Corp. v. Genicom Corp., 562 A.2d 187, 193
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(N.H. 1989).4 Under this rubric, the town sought to submit
to the jury a set of interrelated arguments.
To summarize, the town urged that the good faith
requirement had not been met in this case because National
Casualty had notice of a threatened law suit and failed ever
to contact the Cuttings' lawyer, in spite of the strong
likelihood that the suit would be brought; the company did
not instruct the town as to what to do in the event that a
complaint was served; the company never told the town that it
had previously been sent a letter (the Cuttings' attorney's
letter threatening suit) which had been improperly addressed;
and the company closed its file without ever contacting the
Cuttings or their lawyer. On appeal, the town argues that
there was enough in this cluster of charges to submit the
matter to the jury.
To enter judgment on this claim for National Casualty as
a matter of law, the district judge had to and did find that
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4See also Seaward Constr. Co. v. City of Rochester, 383
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A.2d 707 (N.H. 1978) (city under duty to seek federal funding
where such funding is a condition of payment to the
contractor); Lawton v. Great Southwest Fire Insurance Co.,
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392 A.2d 576 (N.H. 1978) (insurer's discretion to determine
the time of payment limited to a commercially reasonable
time).
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no reasonable jury could find in favor of the town on the
evidence presented, and we review this determination de novo.
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See Peckham v. Continental Casualty Insurance Co., 895 F.2d
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830 (1st Cir. 1990). If the "good faith" label is taken
literally, there is no evidence whatever from which a jury
could infer that National Casualty acted in bad faith in the
sense of conscious wrongdoing or reckless disregard. The
town's only hope lies in diluting the good faith requirement
to one of reasonableness. It must be admitted that
Centronics does refer at one point to the question whether
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"the defendant's exercise of discretion exceeded the limits
of reasonableness." 562 A.2d at 193.
Reading Centronics as a whole and taking account of the
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other cited New Hampshire decisions on good faith
requirements in contract cases, we think that the town's
claim does not fit the cubby hole described by these cases.
The notice provisions of the town's policy do not confer on
the insurance company any latitude or discretion, the
situation for which the pertinent good faith duty appears to
have been crafted. The reasonableness reference in
Centronics appears to be an adjunct concept; where the
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defendant takes, or declines to take, action pursuant to
discretionary authority, commercial reasonableness may
measure how far the defendant can go.
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Finally, we think the town's reading of the cases would
create a highly improbable untethered obligation of care.
Here, the most one can say is that if National Casualty had
been a little more aggressive and alert, it might have saved
the town the consequences of the town's own breach of its
explicit obligation to forward the pleadings. Even if
National Casualty could in some measure be described as
"negligent" in this respect--a point we need not decide--the
policy imposed nosuch generalduty of careon NationalCasualty.
Contracts are, after all, specific agreements to take
specific steps to accomplish particular results, and those
commitments are the central measure of each party's
responsibility. With diffidence, the courts have implied or
imposed ancillary obligations (such as good faith
requirements or implied warranties) in discrete situations.
But the unlimited implication of new, free-floating duties is
a matter in which courts have to be very careful, lest they
undo the bargain struck by the parties. Here, the town
failed to perform an important, expressly stated condition of
coverage. This is one risk that the policy did not cover.
The fourth and last claim made by the town is that the
district court erred in instructing the jury as to the
meaning of the policy's requirement that the insured
"immediately" forward the suit papers to the insurer. The
district court softened this requirement considerably in
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explaining that under New Hampshire law the term
"immediately" was not to be given its literal meaning.
Instead, the law provides that an insured
has fulfilled its duty to immediately
forward suit papers if it used due
diligence under the circumstances of the
case in forwarding the suit papers, and
the papers were forwarded without
unnecessary or unreasonable delay.
Whether the insured forwarded the suit
papers with due diligence and without
unnecessary or unreasonable delay must be
determined by considering the totality of
the surrounding facts and circumstances.
The town objected to the use of the term "due diligence"
prior to the district court's instructions, but the trial
judge rejected the objection. The town did not renew its
objection after the charge was given, even though Fed. R.
Civ. P. 51 requires such a further objection in order to
preserve the point on appeal. Here, the trial judge told the
parties at the pre-charge conference that their objections
would be preserved without renewal of the charge and further
directed the parties not to renew the same objections after
the charge was given.
We have said that Rule 51 cannot be altered by the
district court and that "[o]bjections cannot be carried
forward" even where the trial judge assures the parties that
objections raised at the pre-charge conference will be
preserved. McGrath v. Spirito, 733 F.2d 967, 969 (1st Cir.
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1984); see also Carillo v. Westbulk, 514 F.2d 1214, 1219 (1st
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Cir.), cert. denied, 423 U.S. 1014 (1975). In this case,
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however, the district court not only assured the parties that
their objections were preserved but also told them not to
raise the objections again after the instructions. It would
be harsh, indeed, to punish the town for obeying the trial
judge.
But on the merits, we think there is little to the
town's argument. The "due diligence" phrase actually comes
from a New Hampshire case which, while elderly, is directed
to the very question of what constitutes "immediate" notice.
See Ward v. Maryland Casualty Co., 51 A. 900 (N.H. 1902).
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The town objects that due diligence is merely an example of
immediate notice and unfairly emphasizes the conduct of the
insured rather than the totality of the circumstances. It
seems to us that the conduct of the insured is normally the
precise question posed by a requirement that the insured
provide immediate notice.
One can probably imagine the unusual case where the
insured did not exercise due diligence in giving notice of a
law suit while at the same time this notice was timely
received (e.g., from other sources). In this case, no such
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alternative source of knowledge is alleged. Further, we have
no reason to think that the jury was confused in this case by
any hypothetical difference between "due diligence" and
"reasonableness under all the circumstances." In short, as
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to the instruction on timeliness, we think there was neither
error nor prejudice.
Affirmed.
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