The U.S. Court of Appeals for the First Circuit, affirming a decision by the U.S. District Court for the District of Maine, has ruled that an insurer must defend a private energy company serving customers in Maine against a lawsuit alleging that the company had engaged in misconduct that resulted in customers receiving higher bills than expected.
The Case
Jennifer Chon and Katherine Veilleux, customers of Electricity Maine LLC, a private energy company serving customers in Maine, sued Electricity Maine, Spark Holco LLC, Emile Clavet, and Kevin Dean (collectively, “Electricity Maine”), seeking to represent a class of nearly 200,000 of the company's customers. The customers' complaint alleged that Electricity Maine had engaged in misconduct that resulted in customers receiving higher bills than Electricity Maine had represented that they would receive. The customers' 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”) and the Maine Unfair Trade Practices Act.
Electricity Maine tendered notice of the suit to its insurance carrier, Zurich American Insurance Company. Zurich then initiated an action against Electricity Maine in federal court, seeking a declaratory judgment that it had no duty to defend Electricity Maine against the underlying action because it failed to allege that Electricity Maine had engaged in conduct that qualified as an “occurrence” or that caused any “bodily injury.”
Zurich and Electricity Maine cross-moved for summary judgment. The district court ruled for Electricity Maine, and Zurich appealed.
The First Circuit's Decision
The First Circuit affirmed.
In its decision, the circuit court first explained that the customers' complaint set forth a number of claims for intentional torts, but that it also included a claim for “negligence” and a claim for “negligent misrepresentation” – claims that appeared “to seek recovery for the kind of conduct” that fit “comfortably” within the definition of an “accident.”
The First Circuit was not persuaded by Zurich's contention that the facts alleged in the customers' complaint made it “impossible to sustain the fiction that Electricity Maine was 'negligent' and expected no harm to befall its customers.” In the circuit court's view, the customers' complaint's negligence and negligent misrepresentation claims did not require proof of intentional conduct, and even if neither claim had merit they were sufficient to trigger Zurich's duty to defend as the allegations showed “a potential that liability will be established within the insurance coverage.”
Next, the First Circuit acknowledged that Electricity Maine conceded that the customers' complaint did not allege that its conduct had caused “bodily injury.” The circuit court ruled, however, that the customers' complaint did not have to do so to trigger Zurich's duty to defend.
According to the First Circuit, although the Zurich policy's definition of “bodily injury” stated that it “includes” “mental injury, shock, [or] fright resulting from bodily injury,” it did not state that it excluded coverage for “bodily injury” caused by those markers of emotional distress. Because Maine law required that ambiguous policy language be construed in favor of the insured, the First Circuit said, it rejected Zurich's “restrictive construction” of the policy. The First Circuit concluded that Zurich had a duty to defend because the customers' complaint “could potentially support an award of covered damages for bodily injury caused by emotional distress.”
The case is Zurich American Ins. Co. v. Electricity Maine, LLC, No. 18-1968 (1st Cir. June 17, 2019). Attorneys involved include: 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.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].