Circumstantial Evidence Enough to Survive Motion to Dismiss

The U.S. Court of Appeals for the First Circuit, applying New Hampshire law, reversed the district court’s dismissal of a school’s suit against its insurer for coverage under a lost policy, finding that the allegations in the complaint created a plausible basis for believing the insurer issued the policy.

Cardigan Mountain School (the “School”) received a demand letter asserting a claim based on events that allegedly occurred during the 1967-68 school year. The School tendered the claim to the New Hampshire Insurance Company (“New Hampshire”), its CGL carrier in 1967-68, for a defense. New Hampshire denied the claim on the basis that it could not locate any policy issued to the School for the relevant time period. The School filed a suit seeking a declaratory judgment as to the existence and terms of the New Hampshire policy. The district court granted New Hampshire’s motion to dismiss, concluding that the School’s complaint “did not plausibly show the existence of the policy” and set forth “nothing more than speculation and conjecture.” The School appealed.

The Court of Appeals first clarified that the sole legal question on appeal concerned the existence of the policy and not whether there was coverage for the underlying claim under the policy. In reversing the district court, the court held that the complaint provided a plausible basis for believing that New Hampshire issued the policy to the School. The court relied on the tenet that with regard to a motion to dismiss, the court must accept as true all of the factual allegations contained in a complaint and draw all reasonable inferences therefrom in favor of the pleader. The court found that the allegations in the complaint were factual, not legal conclusions, including: excerpts from audit reports, statements from the School’s business manager, and a statement that the School’s insurance broker at the time “advised most of its commercial clients like Cardigan to place their commercial lines of insurance with” New Hampshire. Based on this circumstantial evidence, the court found that the allegations “nudge[d] the claim ‘across the line from conceivable to plausible’” that the policy existed. The court did state that that the question was close, however, and that the school will need to elicit additional evidence to meet the more demanding legal standards as the case moves forward.  Cardigan Mountain School v. New Hampshire Ins. Co., No. 14-2182 (1st Cir. May 27, 2015).