53 F.4th 711
1st Cir.2022Background:
- TransPerfect (TPG) sued Lionbridge and its private-equity owner H.I.G. in SDNY alleging a scheme to obtain TPG trade secrets and that Lionbridge sales reps falsely told customers Lionbridge was buying TPG and misrepresented TPG's stability to poach business.
- Lionbridge had a Valley Forge commercial general liability policy covering "personal and advertising injury," including publication that slanders or libels an organization; Valley Forge agreed to defend under a reservation of rights but limited rates, refused some firms' fees, and apportioned joint-defense costs.
- Lionbridge sued Valley Forge in D. Mass. seeking full defense-cost coverage (including Kirkland & Ellis and Akerman bills); Valley Forge counterclaimed for a declaration that its limited payments were reasonable and sought contribution from others.
- A magistrate judge initially protected certain privileged communications; the district court ordered production of some attorney-client materials, stayed discovery pending cross-motions, and granted summary judgment to Valley Forge, ruling no duty to defend.
- The First Circuit reversed: it held the TPG complaint was reasonably susceptible to a defamation theory triggering the insurer's duty to defend, ruled the insurer failed to prove applicable exclusions as a matter of law, affirmed the common-interest discovery ruling but directed the district court to tailor production and remanded for factbound reasonableness issues.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the TPG complaint triggers the Policy's duty to defend | Misrepresentation allegations roughly sketch a defamation claim (reputational harm), so coverage is triggered | Complaint does not plead defamation/disparagement as covered offenses; no duty to defend | Held for Lionbridge — complaint reasonably susceptible to defamation, so duty to defend exists |
| Whether the "Knowing" exclusions bar coverage | Allegations can support negligent/reckless conduct; not conclusively intentional, so exclusion shouldn't apply | Allegations of bad faith and an intentional scheme mean exclusion applies | Held for Lionbridge — insurer failed to prove exclusions apply as a matter of law; ambiguities resolved for insured |
| Whether the Trade-Secrets/IP exclusions bar coverage | The alleged reputational injury does not "arise out of" trade-secret misappropriation and can be covered independently | Entire suit centers on trade-secret misappropriation, so IP/trade-secret exclusion applies | Held for Lionbridge — insurer did not show the injury conclusively arises from excluded conduct |
| Whether the common-interest doctrine/attorney-client privilege protects Lionbridge–Kirkland communications from disclosure | Lionbridge: coverage dispute meant no true alignment; communications protected | Valley Forge: defended under reservation of rights, interests were aligned and common-interest exception applies | Held for Valley Forge on appeal (affirming district court's grant to compel), but court directed the district court to tailor production and consider relevance objections on remand |
Key Cases Cited
- Billings v. Commerce Ins. Co., 936 N.E.2d 408 (Mass. 2010) (complaint need only be reasonably susceptible to a covered claim to trigger duty to defend)
- Bagley v. Monticello Ins. Co., 720 N.E.2d 813 (Mass. 1999) (focus on source of injury rather than pleaded theories when assessing coverage)
- Deutsche Bank Nat'l Ass'n v. First Am. Title Ins. Co., 991 N.E.2d 638 (Mass. 2013) (compare underlying allegations to policy provisions; resolve doubts for insured)
- Norfolk & Dedham Mut. Fire Ins. Co. v. Cleary Consultants, Inc., 958 N.E.2d 853 (Mass. App. Ct. 2011) (insurer bears burden to show exclusion applies to all potential liability)
- Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1 (1st Cir. 2012) (common-interest doctrine in insurer/insured defense; reservation of rights does not automatically defeat joint-client protection)
- Doe v. Liberty Mut. Ins. Co., 667 N.E.2d 1149 (Mass. 1996) (limitations on isolating negligent acts from intentional misconduct for exclusion analysis)
- Holyoke Mut. Ins. Co. in Salem v. Vibram USA, Inc., 106 N.E.3d 572 (Mass. 2018) (consideration of insureds' reasonable expectations and what losses may be proved within complaint)
- Zurich Am. Ins. Co. v. Elec. Me., LLC, 927 F.3d 33 (1st Cir. 2019) (standard of appellate review for summary judgment and coverage questions)