Lyman Morse Boatbuilding, Inc. v. Northern Assurance Co. of America
2014 U.S. App. LEXIS 22649
1st Cir.2014Background
- Lyman Morse Boatbuilding, Inc. (LMB) built a custom yacht for Russ Irwin; Irwin later filed an arbitration demand alleging defects, overbilling, and seeking rescission, repayment, damages, punitive damages, and attorneys’ fees.
- Irwin named both LMB and its controlling owner/officer, Cabot Lyman, alleging alter-ego liability and personal representations about the yacht’s quality.
- Northern Assurance issued a package policy with CGL coverage naming LMB and Cabot & Heidi Lyman; the policy included a "your product" exclusion for property damage to the insured’s product and expressly included warranties/representations about the product.
- LMB and Cabot Lyman tendered defense; Northern Assurance refused, so they sued for defense costs and attorneys’ fees and alleged unfair claim practices.
- The district court held Northern Assurance owed no duty to defend LMB (because of the "your product" exclusion) but did owe a duty to defend Cabot Lyman and awarded him 50% of the jointly incurred arbitration fees.
- On appeal, the First Circuit considered Maine law and the policy text and reversed the district court’s ruling that the insurer owed a defense to Cabot Lyman, holding the exclusion applied to him as well; judgment for Northern Assurance was ordered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Northern Assurance owed a duty to defend LMB in the arbitration | Arbitration could potentially include covered "property damage" beyond the yacht (e.g., damage to other personal property), so duty arises | Arbitration alleges only damage to the yacht (LMB’s product); the "your product" exclusion bars coverage | No duty to defend LMB; exclusion applies because claims seek repair/replacement of the product (business risk) |
| Whether Northern Assurance owed a duty to defend Cabot Lyman individually | "Your product" exclusion should not apply to the individual; the yacht was the corporation’s product, so individual should have coverage potential | Policy defines "you/your" to include named insureds (including Cabot); exclusion covers warranties/representations about the product and thus applies to suits naming the officer | No duty to defend Cabot Lyman; the exclusion unambiguously covers representations/warranties by the named individual about the product |
| Whether plaintiffs were entitled to recover 50% of joint arbitration attorneys’ fees | Both corporation and individual needed defense and defenses overlapped, so equal division appropriate | Insurer had no duty to defend either; no entitlement to fees from insurer | District court award reversed for lack of duty; judgment entered for Northern Assurance |
Key Cases Cited
- Mitchell v. Allstate Ins. Co., 36 A.3d 876 (Me. 2011) (describes Maine’s comparison test and breadth of duty to defend)
- Howe v. MMG Ins. Co., 95 A.3d 79 (Me. 2014) (duty to defend when complaint plausibly alleges covered bodily injury)
- Baywood Corp. v. Maine Bonding & Casualty Co., 628 A.2d 1029 (Me. 1993) (no duty to defend where complaint sought cost to replace defective work — a business risk)
- Peerless Ins. Co. v. Brennon, 564 A.2d 383 (Me. 1989) (distinction between occurrence-of-harm risks and excluded business risks in CGL policies)
- Auto Europe, LLC v. Connecticut Indemnity Co., 321 F.3d 60 (1st Cir. 2003) (duty to defend where pleaded theory could possibly be covered despite an exclusion for intentional conduct)
- Metro. Prop. & Cas. Ins. Co. v. McCarthy, 754 F.3d 47 (1st Cir. 2014) (standard of review for duty-to-defend determinations)
- Bucci v. Essex Ins. Co., 393 F.3d 285 (1st Cir. 2005) (principles governing insurer’s duty to defend)