91 F. Supp. 3d 66
D. Mass.2015Background
- Mount Vernon provides employment practices liability insurance to VisionAid under a policy effective May 2011–May 2012.
- Policy covers defense costs and losses for claims first made against VisionAid, but does not obligate Mount Vernon to assert or fund affirmative counterclaims.
- Sullivan, VisionAid’s former employee, sued VisionAid for age discrimination in MCAD; VisionAid’s defense was funded by Mount Vernon.
- VisionAid’s defense asserted nondiscriminatory reasons, including Sullivan’s alleged misappropriations of corporate funds.
- Sullivan later sued in state court; VisionAid sought Mount Vernon to prosecute a misappropriation counterclaim against Sullivan.
- Mount Vernon withdrew its reservation of rights and refused to fund the counterclaim, citing policy limits and lack of obligation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer must prosecute insured’s counterclaim | VisionAid argues duty to defend includes counterclaims. | Mount Vernon contends policy covers only defense of claims against VisionAid, not prosecuting insured’s counterclaims. | Insurer not obligated to prosecute insured’s counterclaims. |
| Whether 'in for one, in for all' applies to counterclaims | VisionAid relies on broad defense rule to require funding of counterclaims. | GMAC-like context limits the rule; counterclaims are not covered here. | GMAC context not controlling; rule does not require funding counterclaims. |
| Whether VisionAid is entitled to independent counsel at Mount Vernon’s expense | Conflict of interest justifies independent counsel paid by Mount Vernon. | No conflict; Mount Vernon withdrew reservation of rights and no obligation to fund independent counsel. | No entitlement to independent counsel; no reservation of rights remaining. |
Key Cases Cited
- Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387 (Mass. 2003) (determines initial duty to defend under Massachusetts law)
- GMAC Mortg., LLC v. First Am. Title Ins. Co., 464 Mass. 733 (Mass. 2013) (in for one, in for all; title insurer exception)
- Bennett v. St. Paul Fire & Marine Ins. Co., 2006 WL 1313059 (D. Me. 2006) (insurer not required to pursue insured’s counterclaims)
- Reynolds v. Hartford Acc. & Indem. Co., 278 F. Supp. 331 (S.D.N.Y. 1967) (unfair to require insurer to pursue affirmative counterclaims)
- James 3 Corp. v. Truck Ins. Exchange, 91 Cal. App. 4th 1093 (Cal. Ct. App. 2001) (insurer not required to fund affirmative relief counterclaims)
- Shoshone First Bank v. Pac. Employers Ins. Co., 2 P.3d 510 (Wyo. 2000) (policy language controls interpretation of coverage)
- Great West Cas. Co. v. Marathon Oil Co., 315 F. Supp. 2d 879 (N.D. Ill. 2003) (duty to defend not to offset liability via counterclaims absent coverage)
- Colonial Gas Co. v. Aetna Cas. & Sur. Co., 823 F. Supp. 975 (D. Mass. 1993) (ambiguities resolved in insured’s favor)