First Circuit holds insurer does not have duty to defend or investigate when allegations of complaint do not sketch facts showing coverage

Denise Doherty sued Lundgren Management Group, Inc., a building management company, alleging negligence and other claims stemming from water infiltration into her condominium unit beginning in 2004 in a building managed by Lundgren.  She alleged that Lundgren did not make timely or appropriate repairs.

Lundgren was insured by Clarendon National Insurance Company from June 24, 2004 to June 24, 2005.  It was insured by Philadelphia Indemnity Insurance Company from September 1, 2007 to September 1, 2008.

Philadelphia denied coverage in part on the ground that there were no occurrences during its policy period.  Clarendon defended Lundgren.  After the underlying case settled Clarendon sued Philadelphia for contribution.  That case eventually arrived at the United States Court of Appeals for the First Circuit.  In Clarendon Nat't Ins. Co. v. Philadelphia Indemnity Ins. Co., 954 F.3d 397 (1st Cir. 2020), the court affirmed summary judgment for Philadelphia.

COMPLAINT DID NOT REASONABLY SKETCH FACTS LEAVING OPEN THE POSSIBILITY OF COVERAGE

Clarendon first argued that although the underlying complaint alleged that one leak occurred in 2004, it did not allege specific information as to the time of other leaks.  Therefore, the complaint was reasonably susceptible of an interpretation that some of the leaks occurred during Philadelphia's policy period.

It initially appeared that the First Circuit was going to decide the issue under the law relating to the perennial question of when reasonably knowable facts outside the complaint can affect the duty to defend.  But the court pivoted and held that the allegations of the complaint itself showed that there was no coverage under the Philadelphia policy. 

The First Circuit pointed out that an insurer does not have a duty to defend if there is "undisputed, readily knowable, and publicly available information" in court records that demonstrates that the insurer has no duty to defend, or if "there is an undisputed extrinsic fact that takes the case outside the coverage and that will not be litigated in the trial of the underlying action." 

But the court held that there was no coverage because allegations in the complaint itself showed that the loss was outside of Philadelphia's policy period.  The complaint alleged that the leaks started in 2004, that repairs were not made in an appropriate manner, and that Doherty continued to request repairs. The complaint also referenced chronic dampness that began before the Philadelphia policy period.  The duty to defend was not triggered.

NO DUTY TO INVESTIGATE CLAIMS THAT ARE NOT REASONABLY SUSCEPTIBLE TO AN INTERPRETATION THAT THERE IS COVERAGE

Clarendon argued that Philadelphia had a duty to investigate the loss regardless of the language of the underlying complaint.  The court disagreed, holding that while an insurer must look at facts "known or readily knowable by the insurer" to determine whether a duty to defend has been triggered, that does not apply when the complaint does not adumbrate a claim.  (In other words, where coverage is unclear based on allegations in a complaint -- for example, the complaint does not allege the date of a car accident -- the insurer must investigate.  If lack of coverage is not ambiguous based on allegations in a complaint -- the complaint alleges a date of a car accident prior to the coverage period -- there is no duty to investigate.)