             United States Court of Appeals
                        For the First Circuit

No. 08-1733

                  EMPLOYERS REINSURANCE CORPORATION,

                         Plaintiff, Appellee,

                                     v.

          GLOBE NEWSPAPER COMPANY, INC. and RICHARD A. KNOX,

                        Defendants, Appellants.


             APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF MASSACHUSETTS

               [Hon. Rya W. Zobel,    U.S. District Judge]


                                Before

                       Boudin, Siler* and Howard,

                            Circuit Judges.


     Jonathan M. Albano with whom Robert A. Buhlman, Carol E. Head,
Bingham McCutchen LLP, and George Freeman, The New York Times
Company, were on brief for appellants.
     Richard E. Quinby with whom Daniel C. Reiser, Lauren J.
Coppola and Craig and Macauley Professional Corporation were on
brief for appellee.


                            March 19, 2009




     *
         Of the Sixth Circuit, sitting by designation.
           BOUDIN, Circuit Judge. This case involves a dispute over

whether insurance coverage is barred by the "known loss" doctrine

under Massachusetts law.              The appellants are Globe Newspaper

Company which owns the Boston Globe (we refer to both as "the

Globe") and Richard Knox, a former Globe columnist; plaintiff-

appellee   is    the       insurer,    Employers   Reinsurance     Corporation

("Employers").         A    condensed    description   of    the   events   and

litigation will set the scene.

           In November 1994, a doctor at the Dana-Farber Cancer

Institute in Boston mistakenly gave two breast cancer patients a

chemotherapy dose four times greater than that specified in the

experimental treatment protocol.              One of the patients, Betsy

Lehman, then a Globe columnist, died of heart failure on December

3, 1994.    The other patient survived but suffered debilitating

heart damage.

     After the cause of the deaths was uncovered in February 1995,

the Globe published a series of articles beginning on March 23,

1995.    This first article, by columnist Richard Knox, identified

Dr. Lois Ayash, who was the protocol chair and chief investigator

for the treatment, as the "leader of the team" and said that she

had countersigned the mistaken overdose order.              In fact, Dr. Ayash

had become Lehman's attending physician on December 1, 1994, after

the overdose had been administered, and had not countersigned the

order.


                                        -2-
     There followed Globe articles in March which criticized Dana-

Farber in scorching terms; they did not mention Dr. Ayash, but she

was the only person the Globe had previously named.          On March 31,

1995, Joan Lukey, a highly experienced litigator with a large

Boston law firm, contacted the Globe's outside counsel, Jonathan

Albano, about the March 23 article.          After checking into these

complaints, Albano concluded that Ayash had not countersigned the

order but that she could properly be characterized as the "leader"

of the team.

       After further conversations by Lukey with Albano and Knox,

Knox published an article on May 2, 1995, saying: "Ayash did not

sign the erroneous drug order, as the Globe reported on March 23,

Lukey said."   Lukey wrote a week later, complaining that the Globe

had not admitted its factual error but merely described Lukey's

position,   and   stating   that   it   "would   also   appear   to   be   an

appropriate time to discuss how the Globe will recompense Dr.

Ayash's damages."

     Follow up discussions led to a Globe correction published on

June 4, 1995, which admitted that Dr. Ayash had been incorrectly

identified as countersigning the order in question.               Over the

summer, Lukey had further discussions with Knox about forthcoming

stories about the incident and related matters but apparently did

not contact Albano again until late October. Albano had made clear




                                   -3-
that the Globe was not planning to pay damages; but Lukey had not

withdrawn the request for damages included in her May letter.

      On October 12, 1995, the Globe applied for an insurance policy

with Employers.          In its application, the Globe listed actual past

and present litigation but did not list Lukey's demand, noting only

that it received many threats from people seeking to have the Globe

print   more       favorable    information    about    them    and   that        it   was

difficult to separate the inconsequential threats from the serious

ones.

      Employers         opted   to   provide    coverage      for    various       torts

including libel, and to provide defense costs for covered law

suits; the coverage began on October 20, 1995.                      The policy also

contained      a    prior   acts     endorsement,     which    covered      liability

stemming from pre-policy acts as long as the Globe did not have

notice of them and no other insurer provided coverage.

      On October 31, 1995, despite an objection by Lukey, the Globe

ran a new article referring to Ayash as the "doctor in charge of

the   treatment         protocol";    noted    that    she    had    been    formally

reprimanded        by   Dana-Farber;    and    asserted      that   she     was    under

investigation by the state medical licensing board--information

Lukey claimed to be confidential.              Thereafter, in February 1996,

Dr. Ayash sued the Globe and others including Knox in state court;

the claims against the Globe and its columnist included libel and

invasion of privacy.


                                         -4-
     During the state court proceedings, the Globe suffered a

sanctions order (for refusing to disclose Knox's confidential

sources for certain material) and ultimately a default judgment as

to liability.       Ayash v. Dana-Farber Cancer Inst., No. 96-565-E,

2001 WL 360054 (Mass. Super. Apr. 4, 2001).            A jury awarded Ayash

$420,000 against Knox and $1.68 million against the Globe for

economic damages and emotional distress.        The judgment was upheld,

Ayash v. Dana-Farber Cancer Inst., 822 N.E.2d 667 (Mass.), cert.

denied, 546 U.S. 927 (2005), and Employers later paid the judgment

and defense costs, with a reservation of rights.

     The present case arises from a federal-court declaratory

judgment suit begun earlier by Employers against the Globe to

determine coverage; it was reactivated in the summer of 2005 when

state court proceedings ended.        In the district court, Employers'

complaint denied coverage under the policy and advanced various

claims against the Globe; the Globe countered with a breach of

contract    claim   among   others.     Both   sides    moved   for   summary

judgment.

     On June 20, 2006, the district court granted partial summary

judgment to Employers, holding that the policy did not cover the

Ayash state-court action either as to the damage judgment that the

Globe had suffered or the defense costs it had incurred. Employers

Reins. Corp. v. Globe Newspaper Co., Inc., No. 03-10388-RWZ, 2006

WL 1738342 (D. Mass. 2006).       The court relied on the known loss


                                      -5-
doctrine under Massachusetts law, which prevents the insured from

recovering for a loss already known by the insured to have occurred

when the policy was obtained or to be "substantially probable" at

that time.   SCA Servs., Inc. v. Transp. Ins. Co., 646 N.E.2d 394,

397 (Mass. 1995).

     The district court recognized that the October 31, 2005,

article, which was part of Ayash's suit, occurred after the policy

had been purchased.    But it held that the article republished

material from the earlier March 2005 article for which Lukey had

sought compensation and that to allow recovery for republication

would "pervert the purpose of the known loss doctrine . . . ."

Employers Reins. Corp., 2006 WL 1738342, at *5.   Coverage for the

earlier articles also failed, seemingly for this reason and under

the "notice" provision of the prior acts endorsement.

     The court also granted summary judgment for Employers as to

mirror claims by the Globe requesting a declaration that it had

coverage; but it denied Employers' request for summary judgment

ordering repayment of amounts advanced to or for the Globe, saying

that the request had not yet been justified.    However, the court

granted the parties' joint request that its decision be certified

for interlocutory appeal. 28 U.S.C. § 1292(b) (2006). This appeal

followed.

     Our review on a grant of summary judgment is de novo.   Pineda

v. Toomey, 533 F.3d 50, 53 (1st Cir. 2008) (citation omitted).   We


                                -6-
conclude that the known loss doctrine does not apply in this case,

although coverage may well be barred or limited on other grounds.

Admittedly,    SCA    Services    uses   broad   language:   the    SJC    there

explained that "the basic purpose of insurance is to protect

against fortuitous events and not against known certainties" and

that "an insurable risk is eliminated in the instance where an

insured    knows,    when   it   purchases   a   policy,   that    there   is   a

substantial probability that it will suffer or has already suffered

a loss."    SCA Servs., 646 N.E.2d at 397.

     Loss in this context surely refers to the loss visited by a

judgment (or settlement)--not the loss suffered by the plaintiff.

Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London,

871 N.E.2d 418, 431 (Mass. 2007) (noting that "Allmerica had

knowledge of possible and actual claims . . . but not probable or

actual losses").      Liability insurance for the Globe is designed to

compensate its loss once the Globe's liability is established.

Consonantly, coverage for past acts that have not resulted in

liability is permissible if the policy so provides.

     A refusal to allow recovery for known loss makes sense where

the insured, but not the insurer, already knows before the policy

is procured that a loss has occurred or is certain.                       In SCA

Services the policy was obtained after a court had already ordered

the town waste disposal site to be closed as a nuisance because the

site had contaminated the groundwater and polluted the environment.


                                      -7-
646 N.E.2d at 396.     The follow-on damage suit had to establish

damages but liability was virtually certain based on the nuisance

finding.   Id. at 397-98.

           Accordingly, this court read SCA Services as requiring

that the insured know "that a specific loss has already happened or

is substantially certain to happen."       U.S. Liab. Ins. Co. v.

Selman, 70 F.3d 684, 690 (1st Cir. 1995) (emphasis added).   And the

SJC thereafter cited Selman's clarifying construction with approval

in Allmerica, 871 N.E.2d at 431.   There, the SJC allowed insurance

coverage for law suits involving vanishing premium claims even

though the insured

      knew when it purchased the excess policy that it faced
      multiple individual 'vanishing premium' claims, and as
      part of its policy application disclosed both the
      specific claims against it and the fact that 'vanishing
      premium claims' were being litigated against others in
      the industry.

Id.

      This reading makes good sense.   It is hard to see why as a

matter of policy the Globe should not be able to obtain insurance

for past acts that might lead to liability determinations in due

course.    This is especially so where the insurance is for a class

of contingent risks that are part of newspaper's ongoing business.

Whether the Globe made adequate disclosure under the endorsement is

a different issue to which we will return.

      Many but not all states follow some variant of the known loss

doctrine, using one of several labels, but the standard formulation

                                 -8-
is that "the doctrine usually is applicable only when the insured

actually knows [prior to securing the policy] . . . either that the

loss has occurred or that one is substantially certain to occur."

43 Am. Jur. 2d Insurance § 479 (2008).   The loss here may have been

likely, but it was not substantially certain or known by the Globe

to be so when the policy was obtained.

     Thus the early 1995 articles had been published when the

insurance was procured, but no law suit had been filed, let alone

actually adjudicated (and the October article had not even been

published).   Nor, even if a suit were brought, was liability

certain.   Here, the SJC found that Ayash was a limited purpose

public figure in relation to the overdose, Ayash, 822 N.E.2d at

683, which would have required her to make the heightened actual

malice showing to recover.   New York Times v. Sullivan, 376 U.S.

254, 279-80 (1964).

     The known loss doctrine aside, the Globe may well not enjoy

coverage for Ayash's law suit.   Although seven articles are cited

in the Ayash state court complaint, the central inaccuracy appears

to be the original March 23 statement that Dr. Ayash countersigned

the order and the further arguable inaccuracy--the Globe does not

concede this--that its "leader" references may have conveyed the

false impression that Dr. Ayash had central clinical responsibility

when the overdose was delivered.




                                 -9-
     The   prior   acts   endorsement   has   two   different   coverage

conditions that Employers asserts were not met.        One is that the

Globe not have had, prior to the new policy, "notice or knowledge"

of the claim in question or of "circumstances which would give rise

to such claim."    The second, which Employers also says that the

Globe fails to meet, requires lack of "other valid and collectible

insurance applicable to such claim."          Alternatively, Employers

objects to coverage on public policy grounds because the Ayash

judgment allegedly resulted from "purposeful disobedience" of a

court order.

     Employers invites us to affirm the existing judgment on all or

any of these grounds, and the Globe invites us to reject them.       But

the district court did not pass upon them; the district court

briefly invoked the endorsement's notice condition but not in

detail; nor does the notice condition appear to govern directly the

post-policy October article. We do not propose to decide questions

that have not been squarely resolved by the district court or fully

briefed on this appeal.

     The reason why this is so may be of some interest to the

parties in deciding whether to pause now and consider whether a

settlement is possible.    As to articles published before October,

Employers' reliance on the first condition of the endorsement is

promising; the condition bars insurance not for a known loss but

merely where there is notice on the insured's part, not conveyed to


                                 -10-
the insurer, of "circumstances which would give rise to such

claim."    It is not clear just what answer the Globe has to this

condition.

       Still, the October 31 article occurred after the policy went

into   effect   and   its    relationship     to   the   earlier   articles   is

complicated.       Part of the October article connects to earlier

allegations but part was the basis for a separate invasion of

privacy count in Ayash's state court complaint. While the Superior

Court dismissed that count prior to the sanctions order, Ayash v.

Dana-Farber Cancer Inst., No. Civ. A. 96-0565-E, 1997 WL 438769

(Mass.    Super.   July     9,    1997),   conceivably    it   generated   some

coverage, at least as to defense costs.

       On top of these primary concerns, Employers has other coverage

objections, one of which (the second condition) may raise factual

and legal issues, while the Globe offers alternative arguments

based on policy language which, whether or not promising, further

complicate analysis.        Finally, Massachusetts has case law directed

to the situation in which damage awards may encompass both covered

and uncovered claims.            Liquor Liab. Joint Underwriting Ass'n of

Mass. v. Hermitage Ins. Co., 644 N.E.2d 964, 969 (Mass. 1995).

       So each side faces some risks and the outcome of litigation

might not be an all-or-nothing victory.            The Globe has to face some

uncomfortable facts; the insurer, Massachusetts law that often

favors the insured.       With able law firms on both sides, the costs


                                       -11-
of more litigation, including future appeals and even future

remands, will doubtless be weighed by clients.   This case is not

about principle but about money.   We need not say more.

     The judgment of the district court, denying coverage based on

the known loss doctrine, is vacated and the matter remanded for

further proceedings not inconsistent with this decision. Each side

will bear its own costs on this appeal.

     It is so ordered.




                              -12-
