
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 94-1106                                 TOWN OF ALLENSTOWN,                                Plaintiff, Appellant,                                          v.                              NATIONAL CASUALTY COMPANY,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF NEW HAMPSHIRE                    [Hon. Paul J. Barbadoro, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                               Torruella, Circuit Judge,                                          _____________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Boudin, Circuit Judge.                                          _____________                                 ____________________            Glenn R.  Milner with  whom Cook  & Molan,  P.A. was on  brief for            ________________            ____________________        appellant.            John A.  Lassey with whom Wadleigh,  Starr, Peters,  Dunn & Chiesa            _______________           ________________________________________        was on brief for appellee.                                 ____________________                                  September 30, 1994                                 ____________________                 BOUDIN, Circuit Judge.   In May 1986, an officer  of the                         _____________            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                                         -2-                                         -2-            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,                                          _______     __________________            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.                                         -3-                                         -3-                 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                                         -4-                                         -4-            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                                              __________            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,                                            ____________________                 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.                                         -5-                                         -5-            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                                                    ____            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                                                       _______    _______            Ins. Co., 498 A.2d 757, 759 (N.H. 1985).            _______                 Jackson involved  a  declaratory action  in state  court                 _______            where  the  underlying liability  suit  had  been brought  in            federal court.  A  year later, this court applied  Jackson to                                                               _______            bar  a declaratory  action  under section  491:22 brought  in            federal court;  as in Jackson, the  underlying liability suit            _______               _______            had  been brought  in  federal court.    Volpe v.  Prudential                                                     _____     __________            Property & Casualty Ins. Co., 802 F.2d 1 (1st Cir. 1986).  It            ___________________________                                            ____________________                 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.                                         -6-                                         -6-            might  have  been enough  in Volpe  to  say that  the federal                                         _____            action was barred because (as in Jackson) the underlying suit                                             _______            had  been brought in federal  court, but this  court in Volpe                                                                    _____            went  even  further and  held  that section  491:22  was "not            available to litigants proceeding in  federal court."  Id. at                                                                   ___            5.                 The  implication of  Volpe  was that  the federal  court                                      _____            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                                                       _______            Jackson's plain  language argument  rested  on the  statute's            _______            reference to a "writ"--focusing attention on the forum of the            underlying suit--Jackson had also described section 491:22 as                             _______            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                            _______      _____            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                                         -7-                                         -7-            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.,            ____________________________________      _________________            611 A.2d 635, 636 (N.H. 1992).                 Scully  was  a declaratory  action  brought  in the  New                 ______            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            ______                                         -8-                                         -8-            reiterated the court's earlier reasoning in Jackson.  What we                                                        _______            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                                                          ______  _______            Peterborough v.  Hartford Fire Ins.  Co., 824 F.  Supp. 1102,            ____________     ______________________            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                                                                   ______            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                            ____  ____________     ____________            343, 347 (1st Cir. 1986).3                                            ____________________                 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.                                         -9-                                         -9-                 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                                               __________________________            Co. v.  Oliver, 335 A.2d  666 (N.H. 1975),  explicitly places            ___     ______            the burden of showing notice upon the insured where notice is            a  condition  in  the policy.    If  New  Hampshire law  were                                         -10-                                         -10-            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                            __________            the burden of showing  that notice of the accident  was given            [to the insurer]  as soon  as reasonably possible."   Id.  at                                                                  ___            668; accord Sutton Mutual  Ins. Co. v. Notre Dame  Arena, 237                 ______ ______________________     _________________            A.2d 676, 679 (N.H. 1968).                 The town's  argument to  the contrary is  based entirely            upon   White  Mountain   Construction  Co.   v.  Transamerica                   __________________________________        ____________            Insurance  Co., 631 A.2d 907 (N.H. 1993).  White involved the            _____________                              _____            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                                                        ___            assistance.   The burden of proof  as to notice was  not even            explicitly discussed in White, apparently  because notice was                                    _____            evident from the  facts.  See  631 A.2d at  484.  The  town's            attempt  to extend White, because it cited cases from a state                               _____            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                                         -11-                                         -11-            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                     _______________     ____________            (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                                            ____________________                 4See also Seaward Constr. Co. v. City of Rochester,  383                  ___ ____ __________________     _________________            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.,                          ______    ___________________________________            392 A.2d  576 (N.H. 1978) (insurer's  discretion to determine            the  time of  payment  limited to  a commercially  reasonable            time).                                         -12-                                         -12-            no reasonable  jury could find  in favor of  the town  on the            evidence presented, and we review this determination de novo.                                                                 _______            See Peckham  v. Continental Casualty Insurance  Co., 895 F.2d            ___ _______     __________________________________            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            __________            "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                         __________            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            __________            defendant  takes, or  declines  to take,  action pursuant  to            discretionary   authority,   commercial  reasonableness   may            measure how far the defendant can go.                                         -13-                                         -13-                 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                                         -14-                                         -14-            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.                        _______     _______            1984); see also Carillo v. Westbulk, 514 F.2d 1214, 1219 (1st                   ___ ____ _______    ________            Cir.), cert. denied,  423 U.S.  1014 (1975).   In this  case,                   ____________                                         -15-                                         -15-            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).            ___ ____     _____________________            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                      ____            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                                         -16-                                         -16-            to the instruction on timeliness, we  think there was neither            error nor prejudice.                 Affirmed.                 ________                                         -17-                                         -17-
