Blast from the Past: First Circuit Reverses Dismissal of Coverage Dispute Concerning 50-Year Old Missing Policy

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In Cardigan Mountain School v. New Hampshire Insurance Co., 2015 U.S. App. LEXIS 8725 (1st Cir. May 27, 2015), the U.S. Court of Appeals for the First Circuit reversed the dismissal of an action based on events that occurred nearly 50 years ago, nixing the ruling that the lawsuit failed to state a claim under Rule 8 of the Federal Rules of Civil Procedure. The First Circuit instead held that the complaint survives dismissal by pleading the existence of an insurance policy from a variety of old records.

Cardigan Mountain School is a private middle school in Canaan, New Hampshire. In 2013, it received a demand letter asserting a claim based on events that allegedly occurred during the 1967-68 school year. Cardigan forwarded the demand to the New Hampshire Insurance Company (NHIC), the school’s CGL insurer at the time, requesting a defense of the action. NHIC rejected that request, informing Cardigan that it could not locate any policy covering the school during that time period and that it was not the school’s insurance carrier at that time; therefore, NHIC contended it had no duty to defend Cardigan against the suit. After failing to find a copy of the insurance policy in its records, as well, Cardigan filed this declaratory judgment action. NHIC removed the suit to federal court and filed a motion to dismiss for failure to state a cause of action. The district court agreed with NHIC and dismissed the suit. Cardigan appealed.

The First Circuit identified the key issue on appeal as whether the insurance policy was in existence at all. It stated that the complaint must be examined, accepting the facts in the complaint as true, to determine whether it made out a plausible case that the policy at issue did exist.

The complaint relied on a variety of facts to back into the conclusion that a policy existed. Though Cardigan could not find the NHIC policy for the 1967-1968 school year, it provided an audit report from 1970-1971 indicating that the school was insured by NHIC under a “Special Multi-Peril” policy at that time, which included general liability coverage. Further, Cardigan alleged that testimony from a former principal and a local insurance broker would support the existence of Cardigan’s status as NHIC’s insured during the relevant time period.

NHIC argued that this information was “nothing more than speculation and conjecture,” relying on the Iqbal and Twombly Supreme Court decisions for the proposition that “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions,” and that “conclusory statements are not entitled to the assumption of truth.”

The court disagreed with NHIC, noting that the above allegations in the complaint were sufficiently specific and factual, not legal. Further, they were “not bare recitations of the legal conclusion the suit seeks to prove. We thus conclude that the school’s allegations set forth above are entitled to the presumption of truth at the motion to dismiss stage.” However, it noted that because the complaint’s allegations were at best circumstantial evidence of the NHIC policy, the court was also required to consider “whether the factual allegations are sufficient to support the reasonable inference that the insurance at issue was in place.”

To that end, the court began by noting that there appeared to be no case law applying the Rule 8 pleading standard to a “last-insurance-policy” lawsuit. Nevertheless, it determined that the evidence provided, including the allegation that there was no change in insurance coverage for the three years prior to the 1970-1971 policy, was sufficient to “plausibly support the existence of coverage during the 1967-1968 school year.” With regards to the evidence being circumstantial the First Circuit stated, “there is no requirement for direct evidence,” nor was there a “probability requirement at the pleading stage.” Instead, the allegations of the complaint were enough “to nudge the claim across the line from conceivable to plausible, thus raising a reasonable expectation that discovery will reveal evidence of the lost policy.” Accordingly, the court reversed and remanded the case for further proceedings.