Appeals Court Reverses Ruling In Plausibility Dispute

A Boston appeals court has found there was a plausible basis for believing that a New Hampshire private school had been issued a commercial general liability insurance policy even though no copy of the policy could be found.

The district court had previously sided with the insurance carrier in Cardigan Mountain School v. New Hampshire Insurance Co. The insurer had asked to have the lawsuit dismissed.

Writing for the three-judge panel on the 1st U.S. Circuit Court of Appeals, Judge David J. Barron said that the school’s allegation of the existence of the policy for the 1970-1971 school year is “directly supported” by an audit report from that year.

“And the school’s factual allegations tending to show no change in coverage in the preceding three years are enough to plausibly support the existence of coverage in the 1967-1968 school year,” the judge also wrote.

In 2013, officials at Cardigan Mountain School in Canaan, N.H., received a letter referring to events that allegedly occurred during the 1967-1968 academic year, and school administrators turned to the underwriter of the general liability policy officials believed was in force at the time.

The policy was issued by the New Hampshire Insurance Co. and school officials asked that the insurance company defend the school.

Former school administrators testified that they believed the school was covered by the New Hampshire Insurance policy during the 1967-1968 academic year.

The insurance carrier, however, argued it was not obliged to cover the claim. Nor could the carrier confirm the existence of the policy, so it argued that it had no duty to defend the school.

When the lower court ruled in favor of the insurance carrier, the school appealed.

In its reasoning, the appeals court relied on two U.S. Supreme Court cases for siding with the school: Bell Atlantic v. Twombly in 2007 and Ashcroft v. Iqbal in 2009.

“New Hampshire Insurance Co. contents that, under Iqbal and Twombly, we are obliged to disregard the school’s allegation outlined above (save for the one concerning the audit report). But New Hampshire Insurance Co.’s argument is mistaken,” Barron wrote.

“In each decision, the Supreme Court held that ‘the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.’”

In Bell Atlantic v. Twombly, the U.S. Supreme Court found that sufficient factual allegations were enough to “nudge the claim” from conceivable to plausible, Barron wrote.

Barron also wrote that the school’s complaint provides “a plausible basis, beyond a mere possibility,” for believing that the insurance company issued the policy, but the school will have to make a stronger case for itself as the dispute moves forward in another court.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].