United States Court of Appeals For the First Circuit

No. 22-1959

BERKLEY NATIONAL INSURANCE COMPANY,

Plaintiff, Appellee,

v.

ATLANTIC-NEWPORT REALTY LLC,

Defendant, Appellant,

GRANITE TELECOMMUNICATIONS, LLC

Defendant/Third Party Plaintiff, Appellant.

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

[Hon. Richard G. Stearns, U.S. District Judge]

Before

Barron, Chief Judge, Thompson and Gelpí, Circuit Judges.

Timothy H. Madden, with whom Nathaniel R.B. Koslof and Donnelly, Conroy & Gelhaar, LLP were on brief, for appellants Atlantic-Newport Realty LLC and Granite Telecommunications, LLC. Michael F. Aylward, with whom Morrison Mahoney LLP was on brief, for appellee Berkley National Insurance Company. Laura A. Foggan and Crowell & Moring LLP on the brief for amicus curiae Complex Insurance Claims Litigation Association.

February 22, 2024 BARRON, Chief Judge. The genesis of this appeal is a

liability insurer's suit under Massachusetts law against two of

its insureds. The insurer brought the suit in the United States

District Court for the District of Massachusetts after it paid to

settle a personal-injury suit against the insureds. The suit

sought restitution for both the payment that the insurer made to

settle the suit and the costs that it incurred to defend the

insureds against that suit. The suit also sought a declaratory

judgment that the insurer had no duty to defend or indemnify the

insureds with respect to the personal-injury claims that the

insureds were facing.

The District Court denied the insureds' motion for

judgment on the pleadings and, in response to the insurer's

summary-judgment motion, granted the motion in part and then issued

a final judgment that ordered the insureds to pay restitution for

both the insurer's defense costs and its settlement payment. See

Berkley Nat'l Ins. Co. v. Granite Telecomms. LLC (Berkley II),

, 84 (D. Mass. 2022) (granting partial summary

judgment). The insureds now challenge both the denial of their

motion for judgment on the pleadings and the grant of the insurer's

motion for summary judgment. They do so on the ground that these

rulings conflict with Massachusetts law governing when a liability

insurer who has chosen to defend its insureds may seek

reimbursement from its insureds. Because we agree with the

- 2 - insureds that the rulings are at odds with Massachusetts law, we

reverse the District Court's order denying the motion for judgment

on the pleadings. In consequence, we also vacate both the grant

of summary judgment to the insurer on the insurer's claim for

restitution and the judgment ordering the insureds to reimburse

the insurer. Moreover, because of our determination that the

insureds are entitled to judgment on the pleadings as to the

insurer's claim for restitution, we dismiss the remainder of the

appeal as moot.

I.

The plaintiff-insurer is Berkley National Insurance

Company ("Berkley"). The defendants-insureds are Granite

Telecommunications, LLC ("Granite"), which is the primary insured

on its insurance policy with Berkley ("Policy"), and Atlantic-

Newport Realty LLC ("Atlantic"), which the Policy names as an

additional insured. Berkley also named Stephen Papsis as a

defendant in the suit, though he is not a party to this appeal.

Papsis figured in Berkley's suit because he was the

plaintiff in a personal-injury suit that he had brought against

Atlantic and Granite in Massachusetts state court. Papsis's

complaint alleged that Atlantic and Granite were liable to him

under Massachusetts law for a severe foot injury that he had

- 3 - suffered from a sewage backup that had occurred while he was

working in a cafeteria that Granite operated.

In response to the suit, Atlantic and Granite sought

coverage from Berkley for any liability that they might incur from

Papsis's claims against them. Atlantic and Granite also requested

that Berkley assume their defense against Papsis's suit pursuant

to Berkley's duty under the Policy to do so. Berkley responded

that it had no duty to indemnify the insureds for their claim for

coverage under the Policy because of the Policy's pollution

exclusion. Berkley did ultimately agree to assume the defense of

Papsis's claims for Atlantic and Granite, though it also expressly

made a "full" reservation of the right to disclaim coverage of the

insureds' claims under the Policy and "reserv[ed] its rights to

bring an action for declaratory relief to be relieved of any

continuing obligation to provide a defense to this case" (emphasis

added). Berkley stated in making the latter reservation, however,

that, "[p]ending the receipt of such a determination, [it would]

provide a full defense to the Papsis case and [would] pay all

reasonable costs and fees associated with its defense."

Berkley thereafter proceeded to defend Atlantic and

Granite in Papsis's suit. But, while doing so Berkley filed its

initial complaint against Atlantic and Granite in the District of

- 4 - Massachusetts. Berkley thereby initiated the suit that is at issue

in this appeal.

In the initial complaint against Atlantic and Granite,

Berkley sought a declaratory judgment, based on Massachusetts law,

that it had no duty to cover their Papsis-related claim for

coverage under the Policy. Berkley did so not only based on the

Policy's pollution exclusion that we have mentioned above but also

based on an exclusion in the Policy for bodily injury or property

damage resulting "in whole or in part" from "the actual, alleged

or threatened inhalation of, ingestion of, contact with, exposure

to, existence of, or presence of, any 'fungi' or bacteria on or

within a building or structure." Berkley's complaint also included

a claim for restitution under Massachusetts law based on the amount

that Berkley had paid to defend the insureds against Papsis's suit.

Atlantic and Granite answered Berkley's complaint. They

also brought counterclaims for a declaratory judgment that, under

Massachusetts law, Berkley had a duty to defend them against

Papsis's claims and to indemnify them for any liability that they

faced on those claims.1

Following the filings, Papsis settled his suit against

the insureds. The settlement payment was made by Berkley, which

1 The parties also brought third-party claims for indemnification against Papsis's employer, Lessing's Food Service Management Corporation ("Lessing's"), and its insurer, the Hanover

- 5 - then amended its complaint in its pending suit against Atlantic

and Granite by adding a request for restitution for the settlement

payment that it had made to Papsis.

Atlantic and Granite moved for judgment on the pleadings

as to Berkley's restitution claim, which by then sought

reimbursement not only for Berkley's defense costs but also for

the payments that it had made to settle Papsis's suit. The

District Court denied the insureds' motion. See Berkley Nat'l

Ins. Co. v. Granite Telecomms. LLC (Berkley I),

(D. Mass. 2022). Following discovery, Berkley moved for

summary judgment with respect to its then-pending claims against

the insureds for: (1) a declaratory judgment that, based on a

"pollution" exclusion in the Policy, it had no duty to defend or

indemnify them against Papsis's claims in his suit; (2) a

declaratory judgment that, based on a "fungi or bacteria" exclusion

in the Policy, it had no duty to defend or indemnify them against

Papsis's claims in his suit; and (3) restitution for its costs in

defending them against Papsis's claims and for the expenditures

that it made to settle those claims.

In response to Berkley's motion, the District Court

determined that Berkley was entitled to summary judgment on its

Insurance Company ("Hanover"). The District Court granted summary judgment in favor of Lessing's and Hanover, but that ruling is not at issue in this appeal.

- 6 - claim for a declaratory judgment concerning the applicability of

the fungi or bacteria exclusion. Berkley II, 617 F. Supp. 3d at

81-83. The District Court went on to explain, however, that, given

that ruling, there was no need to resolve Berkley's motion for

summary judgment as to the claim for a declaratory judgment

concerning the applicability of the pollution exclusion. Id. at

83 n.2. The District Court then granted final judgment to Berkley,

declaring that Berkley "had no obligation to defend or indemnify

[the insureds] in the personal injury lawsuit brought against them

by Stephen Papsis" and, with respect to the restitution claim,

requiring the insureds to reimburse Berkley for the sums that it

paid to defend and settle Papsis's suit.

Atlantic and Granite timely filed this appeal. Their

appeal challenges the District Court's ruling denying their motion

for judgment on the pleadings, the District Court's ruling granting

summary judgment to Berkley on its claim for restitution of the

defense costs and settlement payment, and the final judgment

ordering them to reimburse Berkley for those sums.

II.

Before we turn to the merits of the challenges that

Atlantic and Granite bring to the District Court's rulings, we

must assure ourselves that we have subject-matter jurisdiction.

See Pramco, LLC ex rel. CFSC Consortium, LLC v. San Juan Bay

Marina, Inc.,

(1st Cir. 2006). Berkley contends

- 7 - that we do based on

, which grants federal courts

subject-matter jurisdiction when the amount in controversy exceeds

$75,000 and the parties are completely diverse. Parties are

completely diverse when "no plaintiff [is] a citizen of the same

state as any defendant." BRT Mgmt. LLC v. Malden Storage LLC,

, 695 (1st Cir. 2023); see also

(a)(1)

("The district courts shall have original jurisdiction of all civil

actions where the matter . . . is between . . . citizens of

different States . . . .").

There is no question that § 1332's amount-in-controversy

requirement is met here. There is a question, though, about

whether § 1332's complete-diversity requirement is also met. The

question arises because, although Berkley, as a corporation

incorporated in Iowa with its principal place of business in that

state, is plainly a citizen of Iowa, see BRT, 68 F.4th at 696, the

citizenship of both Atlantic and Granite is less evident.

Atlantic and Granite, unlike Berkley, are limited-

liability companies. They thus each have the "citizenship of all

of" the members of each company. Pramco,

. In

addition, because the members of each of these limited-liability

companies are trusts, and a trust is itself an "unincorporated

association[]," the "members' citizenships are relevant too."

BRT, 68 F.4th at 696. Moreover, "the process is 'iterative,' and

a party must 'trace the citizenship of any member that is an

- 8 - unincorporated association through however many layers of members

or partners there may be.'" Id. (quoting D.B. Zwirn Special

Opportunities Fund, L.P. v. Mehrotra,

(1st

Cir. 2011)).

Berkley alleged in its complaint that the parties were

completely diverse for purposes of § 1332 because Granite was a

"Florida limited liability company" and Atlantic was a "Delaware

limited liability company." But neither the complaint nor the

record developed during discovery revealed the citizenships of

Granite's or Atlantic's members. We therefore asked the insureds

to submit supplemental affidavits to show the citizenships of

Granite's and Atlantic's members on the date that this action was

filed. See Bearbones, Inc. v. Peerless Indem. Ins. Co.,

, 14 (1st Cir. 2019) (following a similar procedure in an appeal

from a grant of summary judgment after noticing that certain parts

of the record undermined the basis for diversity jurisdiction

alleged in the complaint).

In the first set of affidavits, Atlantic and Granite

contended both that none of the trustees of their member trusts

was a citizen of Iowa and that all their members were "traditional

trusts." Atlantic and Granite asserted on that basis that there

was complete diversity. That assertion would suffice, however,

only if the trusts in question "exist[ed] as . . . fiduciary

relationship[s] and not as . . . distinct legal entit[ies]." BRT,

- 9 - 68 F.4th at 697-98 (quoting Americold Realty Tr. V. ConAgra Foods,

Inc.,

, 383 (2016)). In that event, those trusts

would, as a matter of law, "take the citizenship of [their]

trustee[s]" rather than "the citizenship of all [their] members."

(final alteration in original). We therefore asked Atlantic

and Granite to show cause why there was jurisdiction by providing

us with any additional factual support for their characterization

of the members trusts as being of the kind described in BRT. Cf.

Ashcroft v. Iqbal,

(2009) ("While legal

conclusions can provide the framework of a complaint, they must be

supported by factual allegations.").

The insureds responded by submitting affidavits that

identified the specific state statutes under which each of the

trusts at issue was organized at the relevant time. Having now

reviewed those affidavits, and the statutes that they reference,

we conclude that Atlantic and Granite have shown that their member

trusts are of the kind described in BRT, see 68 F.4th at 697

(noting that in making this determination "courts have looked to

whether [the entity referred to as a 'trust'] can sue and be sued,

and the extent to which it is otherwise treated as a juridical

person under state law" (citing Americold, 577 U.S. at 382)), and

that the trustees of each member trust are citizens of states other

than Iowa. Thus, we are satisfied that there is complete diversity

- 10 - of citizenship among the parties, such that we have subject-matter

jurisdiction under

.

III.

We begin our analysis of the merits with Atlantic's and

Granite's challenge to a portion of the District Court's denial of

their motion for judgment on the pleadings that concerns Berkley's

Massachusetts-law claim for restitution. The portion of the ruling

in question pertains to Berkley's restitution claim for

reimbursement of the payment that it made to settle Papsis's

lawsuit.

Atlantic and Granite premised their motion as to

Berkley's claim for restitution of the settlement payment on the

decision of the Massachusetts Supreme Judicial Court ("SJC") in

Med. Malpractice Joint Underwriting Ass'n of Mass. v. Goldberg,

(Mass. 1997). Atlantic and Granite contend on

appeal that the District Court's ruling must be reversed because

it conflicts with Goldberg. Reviewing de novo, while accepting as

true all well-pleaded facts and drawing all factual inferences in

Berkley's favor, see Shay v. Walters,

(1st. Cir.

2012), we agree.

A.

In Goldberg, as here, a liability insurer sought

restitution from its insured after funding a settlement payment

that it had paid while defending the insured under a reservation

- 11 - of the right to later disclaim coverage. See Goldberg,

. The insured in Goldberg was a psychiatrist who had

been sued by a former patient.

.

The insurer had defended the insured against the lawsuit

"subject to the express reservation of the . . . right to disclaim

coverage of the claims" if they turned out not to be covered by

the liability policy.

. "[F]rom the outset [the

insured] sought to settle [the former patient's] claims and . . .

communicated that desire to [the insurer]."

Against the advice of the insured's lawyer, the insurer

declined to make any serious settlement offer and continued to

reiterate its coverage position when entreated to settle by the

insured. See

. The case proceeded to trial, and

the jury then awarded the former patient damages on her negligence

claim. See

. The trial court dismissed the former

patient's separate Chapter 93A claim, however, holding that the

provision did not apply to the psychiatrist-patient relationship,

and the parties cross-appealed. See

.

Thereafter, the insurer determined that the former

patient's "appeal posed unusual risk" because the appeal could

result in "a broad holding supporting the applicability of

[Chapter] 93A to medical malpractice cases."

, 1126

n.19. The insurer ultimately accepted an offer to settle the case,

before the appeal was decided, for an amount greater than the

- 12 - original jury award. See

. The insurer accepted this

offer without consulting with the insured or his personal attorney.

See

The insurer then sued the insured for restitution of the

settlement payment that the insurer had made, and the case

ultimately reached the SJC, which affirmed the dismissal of the

insurer's restitution claim. See

.

The SJC noted at the outset that "the policies at issue

do not contain a provision for reimbursement to [the insurer] of

any settlement paid by it," and the insurer could not "point to

any other express agreement with [the insured] for reimbursement

for any settlement paid by it."

. The SJC went on to

conclude:

Where an insurer defends under a reservation of rights to later disclaim coverage . . . it may later seek reimbursement for an amount paid to settle the underlying tort action only if the insured has agreed that the insurer may commit the [insurer's] 2 own funds to a reasonable settlement with the right later to seek reimbursement from the insured, or if the insurer secures specific authority to reach a particular settlement which the insured agrees to pay. The insurer may also notify the insured of a reasonable settlement offer and give the insured an opportunity to accept the offer or assume its own defense.3

2 Following the SJC, we replace "insured's" with "[insurer's]" when quoting this key sentence. See Metro. Life Ins. Co. v. Cotter,

, 849 n.20 (Mass. 2013). 3 In two footnotes, the SJC pointed to two California appellate court cases as illustrative of the approach that it was adopting. See Goldberg, 608 N.E.2d at 1129 nn.30 & 32. The first case was Val's Painting & Drywall, Inc. v. Allstate Ins. Co., which

- 13 - Id. at 1129 (emphasis added).

The SJC then concluded that, because "[n]one of those

conditions was met by [the insurer]," the insurer's reimbursement

claim could not proceed. Id. The SJC also noted that there were

"facts specific to th[at] case that len[t] further support to [its]

conclusion" that the reimbursement claim at issue could not

proceed. Id. The facts to which the SJC referred included that

the insurer "settled . . . to cut its own potential exposure should

its coverage position not prevail," that the insured's excess

insurer "was in serious financial trouble," and that there was a

held under California law that "[a]bsent an agreement by the insured -- express or implied in fact -- that the insurer may commit the insured's own fund[s] toward any reasonable settlement, the insurer is not permitted to seek reimbursement for a particular settlement unless it has secured specific authority to make that settlement or has notified the insured of a reasonable offer by the claimant and given the insured an opportunity to assume the defense."

(Cal. Ct. App. 1975). The second case was Md. Cas. Co. v. Imperial Contracting Co., which again allowed under California law a reimbursement claim to proceed where, after an insured refused to authorize an insurer to fund a settlement subject to a reservation of rights, the insurer secured a court order authorizing it to enter into the settlement and declaring it reasonable. See

(Cal. Ct. App. 1989). The SJC characterized Md. Cas. as concluding that an insurer facing an uncooperative insured "has three options: it can turn over the defense to the insured and [seek] declaratory relief concerning coverage; it can relinquish its earlier reservation of rights and acknowledge coverage; or it can seek court approval of the proposed settlement." Goldberg, 608 N.E.2d at 1129 n.32 (noting the insurer "had similar options here, none of which it exercised").

- 14 - "possibility that" treble damages would be awarded to the insured's

former patient because of the failure to "engage in good faith

settlement discussions with her." Id. at 1129-30.

Finally, the SJC rejected the insurer's "claim that an

insured can 'whipsaw' an insurer by demanding that it settle the

case (as Goldberg did here) while, at the same time, refusing to

agree to reimburse the insurer should it be determined that there

is no coverage for the claims asserted." Id. at 1130. The SJC

explained that such an insurer could not claim it was whipsawed

into funding the settlement because it had other options "[o]nce

[it] had negotiated the best [settlement] offer from [the

patient]," including "ask[ing] [the insured] for authority to pay"

the negotiated amount to settle or seeking "an agreement from [the

insured] that it would settle the lawsuit, as [the insured] had

instructed, only if [the insured] agreed to reimburse [the insurer]

if its coverage position were sustained." Id. As the insurer

pursued none of those options, Goldberg affirmed the dismissal of

the reimbursement claim. See id. at 1130.

B.

The District Court described "the heart of" the dispute

as concerning "how the [SJC's] decision in [Goldberg] is to be

- 15 - applied." Berkley I, 594 F. Supp. 3d at 235. The District Court

further explained:

[Insureds] contend that Goldberg stands for the proposition that an insurer cannot recoup a settlement payment unless the insured has expressly agreed to such an arrangement, and that an insurer's unilateral reservation of the right to seek reimbursement . . . without such an agreement will always be ineffective. For its part, Berkley argues that [insureds'] unnuanced reading of Goldberg would "render toothless the remedies . . . by which insurers may protect their rights while still carrying out their duty to defend cases that present coverage issues."

Id.

In denying the motion, the District Court determined

that Goldberg did not bar the settlement-payment-based part of

Berkley's restitution claim from going forward. See id. at 236.

The District Court explained that, unlike the insured in Goldberg,

Atlantic and Granite "participated fully in the mediation process,

and . . . mutually agreed on the amount of the settlement award,"

and "[m]ore importantly," that their "actions in coercing Berkley

to pay the full settlement amount essentially left Berkley without

the viable options that were available to [the insurer] in

Goldberg." Id.

The District Court emphasized that the pleadings showed

that the insureds "portentously warned Berkley in an email that

'[s]hould [it] fail to make settlement offers in line with defense

counsel's recommendations, and/or make unreasonable demands on the

- 16 - [insureds] to fund a portion of any settlement themselves,

[Berkley] will be risking significant exposure under [Mass. Gen.

Laws ch.] 176D,'" id., which prohibits various forms of unfair and

deceptive insurance practices, see Mass. Gen. Laws ch. 176D, § 3.

The District Court concluded that the record supportably

established that the insureds "'whipsawed' Berkley into . . .

paying the full settlement amount and maintaining its unilateral

reservation of its right to seek reimbursement." Berkley I, 594

F. Supp. 3d at 236 (quoting Goldberg,

). The

District Court therefore concluded that "[i]t would be

fundamentally unfair to strip an insurer" in Berkley's position

"of any legal recourse" to pursue reimbursement.

Accordingly,

the District Court held that the pleadings failed to show that

Berkley's claim for restitution of the expenditures on the

settlement of the Papsis claim could not go forward under

Massachusetts law.

C.

There is no question that, if Goldberg remains

controlling law in Massachusetts, then it controls the outcome

here -- unless, of course, Goldberg is somehow distinguishable.

See Erie R. Co. v. Tompkins,

(1938); CVS Pharmacy,

Inc. v. Lavin,

, 58 (1st Cir. 2020) ("[W]hen a federal

court is confronted with an unresolved question of state law, our

job is to ascertain the rule the state court would most likely

- 17 - follow under the circumstances[,] . . . not to extend state law

beyond its well-marked boundaries in an area." (quotations and

citations omitted)). But, while the District Court concluded that

Goldberg could be distinguished based on the insured's conduct in

this case, we cannot agree.

1.

Goldberg is clear in setting forth the "only"

circumstances under which a liability "insurer defend[ing] under

a reservation of rights to later disclaim coverage . . . may later

seek reimbursement for an amount paid to settle the underlying

tort action" under Massachusetts law.

(emphasis

added). Those specified circumstances are that: (1) the insured

had "agreed that the insurer may commit the [insurer's] own funds

to a reasonable settlement with the right later to seek

reimbursement from the insured"; (2) the insurer had "secure[d]

specific authority to reach a particular settlement which" the

insured had agreed to pay; or (3) the insurer had notified the

insured "of a reasonable settlement offer" and given the insured

"an opportunity to accept the offer or assume its own defense[.]"

The District Court did not determine that there was a

basis for finding that any of the three expressly enumerated

circumstances that Goldberg identified were present here. Nor do

we see how the District Court could have done so. Nothing in the

- 18 - pleadings indicates that the insureds had "agreed that the insurer

may commit the [insurer's] own funds to a reasonable settlement

with the right later to seek reimbursement from the insured"; given

"specific authority" to the insurer "to reach a particular

settlement which" they had agreed to pay; or been notified by the

insurer "of a reasonable settlement offer" and given by the insurer

"an opportunity to accept the offer or assume its own defense."

In fact, Berkley at no point disputes the insureds' contention

that they had never agreed to Berkley seeking reimbursement for

paying the settlement or to their paying it themselves. 4 In

addition, Berkley conceded at oral argument that it did not, upon

reaching a settlement with Papsis, give the insureds the option of

accepting the settlement or proceeding with their own defense.5

4 Using a "compare" citation, Goldberg cites to a case in which a district court, applying Pennsylvania law, assumed without deciding that a reservation of the right to seek restitution of a settlement agreement was effective where the insured agreed to the insurer paying a specific settlement amount and "agreed that the tender of the [settlement] check by the insurer did not constitute an admission of coverage under the insurance policy." See Goldberg,

n.35 (citing Great Am. Ins. Co. v. Raque,

(E.D. Pa. 1978), aff'd,

(3d Cir. 1979)). But insofar as the SJC in citing that case intended to suggest that the circumstances there sufficed to permit the claim for reimbursement to proceed, nothing in the pleadings here supportably shows this case involves such circumstances. And insofar as the SJC intended to suggest that those circumstances were not enough to permit such a claim to proceed, that suggestion obviously provides no support to Berkley here. 5 In that regard, the pleadings and attached exhibits show the following. A week before the settlement conference with Papsis, the insureds insisted in a letter to Berkley that "[a]t

- 19 - Thus, we see no basis on which we could affirm the District Court's

attempt to distinguish Goldberg on its facts.6

2.

Berkley does argue that we may affirm the District

Court's ruling on either of two alternative grounds: (1) that even

if the District Court's specific grounds for distinguishing

Goldberg on its facts are unavailing, Goldberg may be distinguished

on a different fact-based ground; and (2) that even if Goldberg

may not be distinguished on such a basis, the SJC's subsequent

decision in Metro. Life Ins. Co. v. Cotter,

(Mass.

2013), shows that Goldberg is no longer controlling in cases like

this one, see United States v. George,

(1st Cir.

the upcoming mediation, [Berkley] must make reasonable settlement offers to Mr. Papsis . . . without any contribution from the Defendants." Counsel for Berkley then responded by letter the next day, "confirm[ing]" that the insureds were "demanding that [Berkley] pay to settle the Papsis claims but [were] refusing to contribute any sums towards such a settlement." The insureds at no point responded to this letter, however. Nor is there any indication that Berkley, upon reaching a settlement with Papsis, "g[a]ve the insured[s] an opportunity to accept the offer or assume [their] own defense." Goldberg,

. 6There is no indication that the insurer in Goldberg disputed its duty to provide the insured with a defense in that suit, while the insurer here does separately seek a declaratory judgment that it had no duty to defend the insureds against the Papsis suit. But nothing in the District Court's rationale for denying Atlantic's and Granite's motion for judgment on the pleadings as to the settlement-payments-based part of Berkley's restitution claim purports to distinguish Goldberg on the ground that the insurer here, unlike the insurer there, either had no duty to defend at all or disputed whether it did.

- 20 - 2018) (noting that we may affirm on grounds not reached by the

district court). We are not persuaded by either contention.

a.

With respect to the first alternative ground, Berkley

appears to be arguing that, even accepting that the insureds'

conduct was not coercive in the way that the District Court

appeared to deem it to be, Goldberg is still no bar. In pressing

this contention, Berkley stresses that the record suffices to show

that, at the least, the insureds actively monitored the defense of

Papsis's claims, encouraged Berkley to settle when it did, and

attended the successful settlement conference. The notion thus

appears to be that these features of this case show that -- at

least given the third circumstance that Goldberg recognizes as one

in which a claim for reimbursement of settlement costs may

proceed -- Goldberg does not stand in the way of Berkley's

settlement-payment-based restitution claim.

It remains the case, however, that Goldberg states that

a liability insurer defending insureds "under a reservation of

rights to later disclaim coverage" "only" may pursue restitution

for a settlement it paid to a third party to settle a tort claim

brought against its insured in one of three expressly enumerated

circumstances. See Goldberg,

(emphasis added).

And, as we have explained, there is no basis in the pleadings for

finding that any of them are present here. Thus, while Berkley is

- 21 - right that the pleadings show that the insureds here were far more

involved in discussions about the settlement than the insured in

Goldberg was in the settlement process there, we do not see how

this attempt by Berkley to distinguish Goldberg on its facts fares

any better than the District Court's. See Rared Manchester NH,

LLC v. Rite Aid of N.H., Inc.,

(1st Cir. 2012)

("Where, as here, a party asserting a state-law claim eschews an

available state forum in favor of a federal forum, it scarcely can

be heard to complain when the federal court follows existing state

precedent and refrains from blazing a new and more adventurous

jurisprudential trail.").

Berkley does try to counter this conclusion by invoking

the California Supreme Court's decision in Blue Ridge Ins. Co. v.

Jacobsen,

(Cal. 2001). Berkley argues that Blue Ridge

shows that the SJC would permit Berkley to seek reimbursement here,

notwithstanding what the SJC said in Goldberg and Berkley's failure

to meet the preconditions to seeking reimbursement that Goldberg

laid out. That is so, Berkley contends, because of what the record

shows about the nature of the insureds' involvement in the

settlement process.

Berkley is right that, in Blue Ridge, the California

Supreme Court permitted the insurer to seek reimbursement from its

insureds based on a unilateral reservation of rights despite the

insurer not having secured the insured's agreement to the

- 22 - reservation of rights or agreement to pay for the settlement.

. There, however, the insurer had informed its insureds

that it considered a settlement offer reasonable and had given the

insureds the choice between accepting it or continuing to litigate

on their own. See

. Here, by contrast, as we have

explained, the pleadings show -- and Berkley concedes -- that the

insureds were not presented with a settlement offer by the insurer

in a similar manner and given the option at that time by the

insurer of either accepting the offer or assuming their own

defense. So, the pleadings make clear, Berkley did not do even

what the insurer in Blue Ridge did.

b.

With respect to the second ground, Berkley contends that

Cotter shows that Goldberg is no longer good law, at least in a

case in which the insured was involved in the settlement

negotiations and encouraged the insurer to settle. But, "[a]bsent

conspicuous evidence that a state's highest court has abandoned a

previously-announced rule, it is not for the federal courts to

presume as much," Quint v. A.E. Staley Mfg. Co.,

(1st Cir. 1999), and we see no "conspicuous evidence" in Cotter

that the SJC abandoned Goldberg in that case in the relevant

respect.

Cotter held that a disability insurer could bring a

restitution claim against its insured for disability payments that

- 23 - the insurer made under a unilateral reservation of rights to seek

recoupment. See

. In doing so, the SJC relied

on the Third Restatement of Restitution and Unjust Enrichment,

which Cotter read to provide that, as a general matter:

[W]here one party to a contract demands performance from the other that is not due under the terms of the contract, the other party may "render such performance under protest or with reservation of rights, preserving a claim in restitution to recover the value of the benefit conferred in excess of the recipient's contractual entitlement."

at 849 (quoting Restatement (Third) of Restitution and Unjust

Enrichment § 35(1) (Am. L. Inst. 2011)).

We see nothing in Cotter that purports to overturn

Goldberg's holding as to the liability insurance context. In fact,

Cotter noted that its holding was consistent with Goldberg because

of the differences between the liability insurance context and

"the disability insurance context, where an insured who is the

recipient of disability benefits ordinarily cannot claim to be

removed from the payment process." Id. at 850.

In drawing this distinction, the SJC did note that

"[m]uch of [its] concern in Goldberg . . . centered on the

insured's lack of involvement with or consent to the settlement."

Id. And, for that reason, Berkley asks us to read Cotter as

cutting back on Goldberg in a case, like this one, in which the

- 24 - insureds were "involved with" a settlement even if they did not

"consent to" it.

But, when read in context, that statement in Cotter does

not indicate to us that Cotter meant to be cutting back on

Goldberg's plain holding in the liability insurance context.

Cotter emphasized that in "the liability insurance context" there

is a "duty to defend [that] is independent from, and broader than,

[the] duty to indemnify," id. (quoting Metro. Prop. & Cas. Ins.

Co. v. Morrison,

(Mass. 2011)), while in the

disability insurance context there is no such duty. And, we note

that, under Massachusetts law, the duty to defend includes the

obligation "to make reasonable, prudent efforts to settle," Boyle

v. Zurich Am. Ins. Co.,

(Mass. 2015), and

"[o]rdinarily, a claim of unjust enrichment will not lie 'where

there is a valid contract that defines the obligations of the

parties,'" Cotter,

(quoting Bos. Med. Ctr. Corp.

v. Sec'y of the Exec. Off. of Health & Hum. Servs.,

, 1132 (Mass. 2012)). Thus, because of Cotter's emphasis on

the distinction between the respective insurance contexts involved

in that case and Goldberg, and the ways in which the legal

framework governing those two contexts differs from one another

under Massachusetts law, we conclude that we lack the sort of

"conspicuous evidence" of an intent on the part of the SJC to

overturn one of its prior decisions that would permit us to

- 25 - conclude that Cotter had overruled Goldberg's relevant holding.

See Quint,

.

Berkley does also point out that the commentary to the

section of the Restatement that Cotter cites provides that if a

liability insurer, "having given adequate notice that it is

proceeding under reservation of rights . . . eventually prevails

in the underlying coverage dispute, it may recover that part of

its outlay that exceeds its policy obligation by a claim in

restitution." Restatement (Third) of Restitution and Unjust

Enrichment § 35 cmt. c. But Cotter does not itself rest its

holding on the portion of the commentary to the Third Restatement

that Berkley highlights. So, we do not see how Cotter's reliance

on the Third Restatement suffices to permit us to conclude that

Goldberg has been superseded in the relevant way.

We do note, as we have mentioned above, that Berkley

separately is seeking a declaratory judgment that it had no duty

to defend the insureds here. Berkley develops no argument,

however, that even if Cotter has not generally undermined Goldberg

in a case in which a liability insurer defends its insureds under

a reservation of the right to later disclaim coverage, Cotter has

cut back on Goldberg in a case where such a liability insurer can

later show that it had no duty to defend at all or has reserved

its right to seek a declaratory judgment that it had no such duty.

Nor did the District Court rely on any such ground in denying the

- 26 - insureds' motion for judgment on the pleadings as to this portion

of Berkley's claim for restitution. We thus do not see how we may

conclude that Goldberg is not binding here because the insurer

there did not appear to have disputed its duty to defend.

3.

For all these reasons, we conclude that Goldberg

requires the reversal of the District Court's ruling on the

insureds' motion for judgment on the pleadings regarding the part

of Berkley's restitution claim that seeks reimbursement of the

settlement payment. We thus must also vacate the District Court's

grant of Berkley's summary-judgment motion on that same claim.

See Waterfront Comm'n of N.Y. Harbor v. Governor of New Jersey,

, 242 (3d Cir. 2020) (reversing an order denying the

motion to dismiss and therefore vacating the subsequent order

granting summary judgment on the claim that should have been

dismissed).

IV.

We now turn to the insureds' challenges to the District

Court's rulings regarding the part of Berkley's claim for

restitution that seeks reimbursement for the costs of defending

Atlantic and Granite against Papsis's suit. The insureds take

aim, once again, at both the District Court's denial of their

motion for judgment on the pleadings as to this part of the

restitution claim and the District Court's grant of summary

- 27 - judgment to Berkley as to this part of the claim. In doing so,

moreover, the insureds appear to be pressing the contention that

the District Court erred in both those rulings in part because

there is simply no basis in the record for finding that Berkley

made a reservation of rights to seek reimbursement for those costs

and thus no basis for permitting the restitution claim with respect

to these costs to go forward under Massachusetts law.

As we will next explain, we conclude, reviewing de novo,

see Shay,

, that there is merit to this contention.

Accordingly, we conclude on this basis that the District Court's

denial of the insured's motion for judgment on the pleadings as to

this part of Berkley's claim for restitution must be reversed.

And, given that ruling, we conclude that the ruling granting

summary judgment to Berkley on this part of its restitution claim

must be vacated as well.7

A.

To support the District Court's ruling denying the

insured's motion for judgment on the pleadings as to the defense-

7 The insureds did not press the contention they make on appeal regarding the absence of such a reservation of the right to seek reimbursement of defense costs in their motion for judgment on the pleadings, although they did press that contention in their opposition to Berkley's motion for summary judgment on that same claim. The "failure to raise th[is] issue . . . below . . . would ordinarily trigger plain error review," Hoolahan v. IBC Advanced Alloys Corp.,

, 115-16 (1st Cir. 2020), but the error is clear from the pleadings and Berkley has neither asserted the

- 28 - cost-based restitution claim, Berkley contends that, under

Massachusetts law, "[w]hen an insurer conditions payment of

defense costs on the condition of reimbursement if the insurer had

no duty to defend, the condition becomes part of an implied in

fact contract when the insured accepts payment." Berkley goes on

to contend that the record suffices to show that it "never had a

duty to defend and it conferred a benefit upon its insured[s] to

which [they] had no contractual entitlement."

In ruling against the insureds' motion for judgment on

the pleadings, the District Court essentially agreed with

Berkley's position, as the District Court stated in a footnote

that the insureds:

contend that Berkley's unilateral reservation of rights additionally precludes Berkley from seeking reimbursement for costs incurred in defending them in the Papsis lawsuit, although [the insureds] concede that the SJC has yet to settle this issue. Because [the insureds'] argument largely hinges on an extension of their self-serving reading of Goldberg, the court concludes that Berkley is not prohibited at this stage from seeking reimbursement for the cost of defending defendants in the Papsis suit as well.

insureds' waiver as a basis for rejecting this argument nor suggested that this aspect of the District Court's decision should be reviewed for plain error, see United States v. Tapia-Escalera,

(1st Cir. 2004) (reviewing de novo and reversing where the appellant did not raise the issues below and the appellee did not argue for the application of plain error).

- 29 - Berkley I, 594 F. Supp. 3d at 237 n.2.

It is not entirely clear which "unilateral reservation"

by Berkley the District Court had in mind in attributing to the

insureds' the contention that Berkley could not pursue the

defense-costs-based restitution claim on the strength of such a

"reservation." Id. The uncertainty on this score arises because,

as we have explained, the record shows that Berkley not only made

a "full" reservation of the right to disclaim coverage as to each

Policy exclusion it invoked but also stated that it reserved the

right to seek a declaratory judgment that it had no duty to defend

the insureds against Papsis's claims. So, it is possible, based

on the text of the District Court's opinion alone, that the

District Court had either or both reservations in mind.

In granting Berkley's motion for summary judgment,

however, the District Court did elaborate on the basis for its

ruling denying the motion for judgment on the pleadings. And, in

doing so, the District Court gave further insight into the

reservation to which it was referring.

The District Court stated in that ruling that, as it had

"discussed in greater detail in its memorandum and order denying

[the insureds'] motion for judgment on the pleadings, the parties

should reasonably have expected that Berkley would seek

reimbursement from defendants pursuant to its explicit reservation

of rights." Berkley II, 617 F. Supp. 3d at 83 (emphasis added)

- 30 - (internal citation omitted). Moreover, in the same summary-

judgment ruling, the District Court necessarily rejected the

insureds' contention that, because Berkley had not made a

reservation of the right to reimbursement of defense costs,

Berkley's restitution claim for the defense costs could not go

forward. And the District Court did so in part on the ground that

the SJC "has not yet squarely addressed 'whether an insurer may

seek reimbursement for the costs of a defense undertaken pursuant

to a unilateral reservation of rights.'" Id. at 83 n.3 (quoting

Cotter,

n.21).

That last statement by the District Court is notable for

present purposes because the footnote in Cotter to which the

District Court cited acknowledged that "other jurisdictions are

split as to the validity of such claims[,]" while citing as an

example of a case that had permitted such a restitution claim to

go forward one in which the insurer had expressly reserved the

right to seek recoupment of those costs. Cotter,

n.21 (citing Perdue Farms, Inc. v. Travelers Cas. & Sur. Co.

of Am.,

, 255 (4th Cir. 2006) (noting that the insurer

expressly reserved the right "to seek reimbursement for defense

costs expended on non-covered claims")). The District Court thus

appears to have premised its denial of the motion for judgment on

the pleadings as to Berkley's defense-costs-based claim for

restitution on two interdependent determinations. The first was

- 31 - that, contrary to the insureds' position, the SJC had left open

whether, notwithstanding Goldberg, a claim for restitution of

defense costs could go forward in a circumstance in which there

was a unilateral reservation of rights of the type referred to in

the case referenced by Cotter. The second was that the record

sufficed in this case to show that the insurer here had made a

reservation of an equivalent kind.

The insureds now contend to us on appeal, however, that

the record provides no support for the District Court's latter

determination, even assuming its first determination is correct.

And, they contend, for that reason the District Court's ruling

must be reversed. We agree.

Although the pleadings show that Berkley made a "full"

reservation of the right to disclaim coverage, that reservation

plainly is not itself a reservation of the right to seek

reimbursement of defense costs. See Goldberg,

n.31 (emphasizing that "[t]here is a difference between an

insurer's reservation of its right to disclaim coverage" -- which

"is the notification to the insured that the insurer will defend

the insured, but that the insurer is not waiving any defenses it

may have under the policy" -- and a reservation of rights or "an

agreement by the insured that he will reimburse the insurer" for

a settlement or defense costs); see also Emps.' Liab. Assurance

Corp. v. Vella,

(Mass. 1975) ("Where an insurer

- 32 - gives the insured notice of disclaimer of liability as soon as

possible after it learns of the ground therefor, it may continue

to defend the action against the insured, at least if the insured

acquiesces. . . . But if the insurer knows of its right to

disclaim and exercises dominion over the case at an important point

without disclaiming liability or reserving rights, subsequent

disclaimer is barred."); Salonen v. Paanenen,

(Mass.

1947) (establishing this rule); Lexington Ins. Co. v. CareCore

Nat'l, LLC,

, at *2, *5 (Mass. Super. July 18, 2014)

(distinguishing a reservation of the right to disclaim coverage

from a reservation of the right to seek restitution of defense

costs). In addition, while the pleadings show that Berkley also

expressly reserved the right to seek a declaratory judgment

disclaiming its duty to defend, that reservation, by its plain

terms, similarly is not a reservation of the right to seek the

reimbursement of those costs. Indeed, in the letter to Granite in

which Berkley set forth that reservation, Berkley expressly stated

that "[p]ending the receipt of such a" declaratory judgment, the

insurer would "provide a full defense to the Papsis case and . . .

pay all reasonable costs and fees associated with [that] defense."

We also see no basis for upholding the District Court's

ruling -- insofar as Berkley means to be asking us to do so -- on

the ground that Massachusetts law would permit a liability

insurer's claim for restitution of defense costs to go forward

- 33 - even absent the insurer having made an express reservation of the

right to seek reimbursement of those costs. A leading out-of-state

case allowing recovery of defense costs explicitly predicates

recovery on such an express reservation having been made, see Buss

v. Superior Ct.,

, 784 n.27 (Cal. 1997), and a relevant

Massachusetts state court decision notes that "[a]lthough some

jurisdictions outside of Massachusetts have concluded that an

insurer may recoup [defense] costs, they have so held only where

the insurer . . . made it clear to the insured, either in the

policy itself or in its reservation of rights, that it retains the

right to seek reimbursement of those costs if a court later

determines there was no duty to defend." Lexington Ins. Co.,

, at *5; see also Matagorda Cnty. v. Tex. Ass'n of Cntys.

Cnty. Gov't Risk Mgmt. Pool,

(Tex. App. 1998)

("Reimbursement of defense costs is not allowed when the

reservation of rights letter is silent about reimbursement and the

record does not reflect an agreement or understanding that the

insured would reimburse if later it was determined there was no

duty to defend."), aff'd,

(Tex. 2000).

Notably, the District Court did not itself identify any

authority that would support the conclusion that the restitution

claim at issue could go forward if there were no express

reservation of the kind made in Perdue Farms, Inc. And Berkley,

for its part, similarly has identified no authority, from

- 34 - Massachusetts or elsewhere, that endorses the notion that a

restitution claim for defense costs may proceed based on the kinds

of reservations that Berkley made here.

Nor is Berkley's failure to have done so attributable to

its having lacked the opportunity to argue that such a restitution

claim can succeed even in the absence of such a reservation. The

insureds opposed summary judgment below on the ground that Berkley

had not reserved the right to seek reimbursement of the defense

costs, and on appeal the insureds make that same argument in

seeking not only to overturn the grant of summary judgment to

Berkley as to this claim but also the denial of the motion for

judgment on the pleadings as to it. Yet, in attempting to fend

off the insureds' challenge to the summary-judgment ruling below,

Berkley developed no argument that a reservation of rights to seek

reimbursement of defense costs had been made or that a reservation

of that specific kind need not have been made under Massachusetts

law because Berkley had made other reservations that were the

functional equivalent. Berkley similarly has developed no such

argument in responding to that very same contention on appeal in

the insureds' challenges to the District Court's grant of summary

judgment and denial of the motion for judgment on the pleadings.

Insofar as Berkley may be understood to be attempting to

premise such an argument on the Third Restatement of Unjust

Enrichment, we see no basis for crediting the contention. In

- 35 - addition to the fact that Goldberg rejects the Third Restatement's

position as to claims for reimbursement of settlement payments by

liability insurers, the Third Restatement's sole discussion of the

circumstances in which claims for reimbursement for defense costs

by liability insurers may proceed consists of an example in which

the claim is brought by an insurer that expressly "reserve[s] the

right to seek reimbursement of defense costs that are held to be

outside its contractual obligation." Restatement (Third) of

Restitution and Unjust Enrichment § 35 cmt. c, illus. 12.

Thus, given the absence of any support in the record for

finding that Berkley reserved the right to seek reimbursement for

defense costs and the absence of any basis for concluding that

such a failure is of no consequence under Massachusetts law, we

see no basis for the denial of the insureds' motion for judgment

on the pleadings as to this claim. Accordingly, we reverse the

District Court's ruling denying Atlantic's and Granite's motion

for judgment on the pleading as to Berkley's defense-costs-based

claim for restitution. And, having done so, we thus must also

vacate the District Court's grant of summary judgment to Berkley

as to this part of its claim for restitution. See Waterfront

Comm'n of N.Y. Harbor, 961 F.3d at 242.

V.

There remains to address, then, only Atlantic's and

Granite's challenges on appeal to the District Court's grant of

- 36 - summary judgment to Berkley on its claim for a declaratory judgment

that Papsis's suit is not covered under the Policy due to the

Policy's "fungi or bacteria" exclusion. But, given that the Papsis

suit has settled, and that we have held that the insureds are

entitled to judgment on the pleadings as to Berkley's claim for

restitution for both the settlement payment and the defense costs,

those portions of the appeal are moot. See ACLU of Mass. v. U.S.

Conf. of Cath. Bishops,

(1st Cir. 2013) ("For

declaratory relief to withstand a mootness challenge, the facts

alleged must show that there is a substantial controversy of

sufficient immediacy and reality to warrant the issuance of a

declaratory judgment." (cleaned up)).

VI.

For the reasons set forth above, we reverse the judgment

of the District Court in part, vacate its judgment in part, and

dismiss the remainder of the appeal as moot. Costs are awarded to

appellants.

- 37 -