Nevertheless, Mr. Doe and Ms. Andersen began an on-again/off-again intimate relationship. Despite his personal involvement, Mr. Doe did not withdraw as her counsel.

The circuit court said that the relationship “did not go smoothly.” Mr. Doe's ardor cooled and he became progressively distant. Correspondingly, Ms. Andersen's anxiety increased.

One day, Mr. Doe promised to join Ms. Andersen at her apartment. He did not do so. Distraught, she wrote a suicide note lamenting Mr. Doe's inconstancy and proceeded to drink herself to death.

Mr. Doe tried unsuccessfully to contact Ms. Andersen by telephone the next day.

When he could not reach her, he went to her apartment and discovered her body.

Mr. Sanders was appointed as executor of Ms. Andersen's estate and he sent Mr. Doe a demand letter.

Cognizant that some activities had occurred at his home, Mr. Doe notified his homeowner's insurance carrier, The Phoenix Insurance Company.

After looking into the matter, Phoenix denied coverage.

Mr. Sanders notified Phoenix that he and Mr. Doe planned to mediate their dispute and invited Phoenix to participate. Phoenix declined.

About three weeks later, Mr. Doe sought to have Phoenix reconsider its denial of coverage, informing it that Mr. Sanders was advancing a claim for negligent infliction of emotional distress.

Phoenix reiterated its denial of coverage.

Eventually, Mr. Doe, Mr. Doe's law firm, and Mr. Sanders reached an accord: the law firm's insurers agreed to pay Mr. Sanders $500,000 in exchange for a release of all claims against the firm. Ancillary to the settlement, Mr. Doe agreed that his personal liability to Mr. Sanders amounted to an additional $500,000 and assigned to Mr. Sanders all of Mr. Doe's rights and interests under the Phoenix policy vis-à -vis Ms. Andersen's death and any claims that he might have against Phoenix as a result of its failure to defend and/or indemnify him.

Mr. Sanders sent a demand letter to Phoenix, accusing it of unfair settlement practices and demanding $500,000 (the limit of liability under the policy). Phoenix refused the demand.

Mr. Sanders then sued Phoenix, which moved to dismiss.

The district court dismissed the action, and Mr. Sanders appealed to the First Circuit.

The Phoenix Policy

The Phoenix policy provided:

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, even if the claim or suit is false, we will:

….

b. provide a defense at our expense of counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate.

It also provided:

Defense:

a. … OUR OBLIGATION TO DEFEND ANY CLAIM OR SUIT ENDS WHEN THE AMOUNT WE PAY FOR THE LOSS EQUALS OUR LIMIT OF LIABILITY.

b. If a claim is made or a suit is brought against any insured for liability under the Credit Card or Fund Transfer Card coverage, we will provide a defense at our expense by counsel of our choice. 

Additionally, the policy provided that Phoenix would cover:

reasonable expenses incurred by any insured at [its] request … for assisting [it] in the investigation or defense of any claim or suit.

(Original emphasis omitted.)

The First Circuit's Decision

The circuit court affirmed.

In its decision, the circuit court explained that Phoenix had no duty to defend in the absence of a lawsuit, which had not been filed against Mr. Doe or his firm.

It also found that Mr. Sanders' demand letters were not the “functional equivalent of a suit.”

Moreover, the circuit court decided, the mediation in which Mr. Sanders and Mr. Doe participated was not the functional equivalent of a suit and, therefore, it also had not triggered the duty to defend. It decided that Mr. Sanders' suggestion that mediation, in the circumstances of this case, should be regarded as the functional equivalent of a suit was “patently unreasonable,” given that it was “a less formal, more ad hoc proceeding, and [Mr.] Doe's involvement in it was completely voluntary.” So viewed, the First Circuit added, the mediation “was markedly different from a lawsuit, which operates under established procedural rules and in which a defendant must participate to protect his interests. In the face of a lawsuit, mounting a defense is a necessity; in the face of a proposal to mediate, opting to participate is a strategic choice.”

The circuit court concluded that Phoenix's duty to defend had never been triggered and, therefore, had never been breached.

The case is Sanders v. Phoenix Ins. Co., No. 15-2539 (1st Cir. Dec. 7, 2016). Attorneys involved include: Robert D. Cohan, with whom Jonathan D. Plaut and Cohan Rasnick Myerson Plaut LLP were on brief, for appellant. Wystan M. Ackerman, with whom Jonathan E. Small and Robinson & Cole LLP were on brief, for appellees.