Case 1:09-cv-11579-JLT Document 24 Filed 08/09/10 Page 1 of 22

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS
____________________________________
)
LEXINGTON INSURANCE COMPANY, )
)
Plaintiff, )
)
v. )
) Case No.: 09-11579
ACE AMERICAN INSURANCE )
COMPANY, )
)
Defendant. )
____________________________________)

PLAINTIFF, LEXINGTON INSURANCE COMPANY’S

MEMORANDUM IN SUPPORT OF
ITS MOTION FOR SUMMARY JUDGMENT
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TABLE OF CONTENTS

I. INTRODUCTION……………………………………………………………….1

II. STATEMENT OF FACTS ……………………………………………………...1

A. The Hannon Action ……………………………………………………...1

B. The Insurance Policies …………………………………………………..2

III. ARGUMENT…………………………………………………………………….3

A. Summary Judgment Standard ……………………………………………4

B. The Underlying Complaint Constitutes a Covered Loss Under

the ACE Policy …………………………………………………………..5

C. The ACE Coverage Is Not Excess to the Lexington Coverage ………….8

1. The Dispute Between ACE and Lexington Does Not

Involve an “Other Insurance” Issue Because the ACE and
Lexington Policies Insure Different Risks.……………………….8

2. Even If the “Other Insurance” Clauses Apply, ACE Still

Has a Duty to Pay Half of Weiner’s and LaLiberte’s Defense
Costs Once the Self-Insured Retention Amount in the
Lexington Policy Is Exhausted.………………………………….11

IV. CONCLUSION………………………………………………………………….16

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TABLE OF AUTHORITIES
CASES PAGE

AT&T Corp. v. Clarendon American Insurance Co. 8

931 A.2d 409 (Del. 2007)

Bank v. Thermo Elemental Inc. 5, 15

451 Mass. 638, 888 N.E.2d 897 (2008)

Boston Gas Co. v. Century Indemnity Co. 5, 9

454 Mass. 337, 910 N.E.2d 290 (2009)

Boston Gas Co. v. Century Indemnity Co. 10

No. 02-12062, 2006 WL 1738312 (D. Mass. June 21, 2006)

Clarendon National Insurance Co. v. Arbella Mutual Insurance Co. 12

60 Mass. App. Ct. 492, 803 N.E.2d 750 (2004)

Commercial Union Insurance Co. v. Walbrook Insurance Co., Ltd. 14

7 F.3d 1047 (1st Cir. 1993)

Continental Casualty Co. v. Home Insurance Co. 14

980 F.2d 736, 1992 WL 357153 (9th Cir. Dec. 4, 1992)

County of Barnstable v. American Finncial Corp. 5

51 Mass. App. Ct. 213, 744 N.E.2d 1107 (2001)

Eastern Casualty Insurance Co. v. Home Store, Inc. 13

No. 025323, 2005 WL 1477619 (Mass. Super. Ct. May 20, 2005)

Hartford Fire Insurance Co. v. CNA Insurance Co. (Europe) Ltd. 4

678 F. Supp. 2d 1 (D. Mass. 2010).

Herson v. New Boston Garden Corp. 5

40 Mass. App. Ct. 779, 667 N.E.2d 907 (1996).

Home Insurance Co. v. St. Paul Fire & Marine Insurance Co. 14
229 F.3d 56 (1st Cir. 2000)

Insurance Co. of North America v. Protection Mutual Insurance Co. 13

939 F. Supp. 79 (D. Mass. 1996)

KDT Industries, Inc. v. Home Insurance Co. 15

603 F. Supp. 861 (D. Mass. 1985)

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LaFrance v. Travelers Insurance Co. 13

32 Mass. App. Ct. 987, 594 N.E.2d 550 (1992)

Lennar Corp. v. Great American Insurance Co. 8

200 S.W.3d 651 (Tex. Ct. App. 2006)

Lexington Insurance Co. v. Virginia Surety Co., Inc. 11

486 F. Supp. 2d 173 (D. Mass. 2007)

Liquor Liability Joint Underwriting Ass’n of Massachusetts v. Heritage Insurance Co. 8, 9

419 Mass. 316, 644 N.E.2d 964 (1995).

McCormick v. Travelers Indemnity Co. 9

22 Mass. App. Ct. 636, 496 N.E.2d 174 (1986)

Merchants Insurance Co. of New Hampshire, Inc. v. U.S. Fidelity and Guaranty Co. 4
143 F.3d 5 (1st Cir. 1998)

Mission Insurance Co. v. United States Fire Insurance Co. 12, 13

401 Mass. 492, 517 N.E.2d 463 (1988)

Porter v. Clarendon National Insurance Co. 7

76 Mass. App. Ct. 655, 925 N.E.2d 58 (2010)

Reliance Insurance Co. v. Aetna Casualty & Surety Co. 13

393 Mass. 48, 468 N.E.2d 621 (1984)

Rogers v. Fair 4
902 F.2d 140 (1st Cir. 1990).

Rolyn Cos., Inc. v. R&J Sales of Texas, Inc. 8

671 F. Supp. 2d 1314 (S.D. Fla. 2009);

Rubinovitz v. Rogato 4
60 F.3d 906 (1st Cir. 1995)

Rubenstein v. Royal Insurance Co. of America 10

44 Mass. App. Ct. 842, 694 N.E.2d 381 (1998), aff’d on other grounds, 429 Mass. 355,
708 N.E.2d 639 (1999)

Sterilite Corp. v. Continental Casualty Co. 7

17 Mass. App. Ct. 316, 458 N.E.2d 338 (1983).

Sullivan v. Southland Life Insurance Co. 5, 15

67 Mass. App. Ct. 439, 854 N.E.2d 138 (2006)

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Travelers Insurance Co. v. Aetna Insurance Co. 10

359 Mass. 743, 269 N.E.2d 222 (1971)

United States Fidelity & Guaranty Co. v. Hanover Insurance Co. 12

417 Mass. 651, 632 N.E.2d 402 (1994).

United States Fire Insurance Co. v. Peerless Insurance Co. 10

No. 00-5595, 2001 WL 1688368 (Mass. Super. Ct. Dec. 20, 2001)

Vermont Mututal Insurance Co. v. Velasco 5

70 Mass. App. Ct. 1107, 874 N.E.2d 1144, 2007 WL 3105070 (Oct. 24, 2007)

Whitaker Corp. v. American Nuclear Insurers 4, 5

671 F. Supp. 2d 242 (D. Mass. 2009)

Wilkinson v. Citation Insurance Co. 7

447 Mass. 663, 856 N.E.2d 829 (2006)

STATUTES

Fed. R. Civ. P. 56(c) 4

Mass. Gen. Laws ch. 108A, § 18(b) 6, 7

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I. INTRODUCTION

Plaintiff Lexington Insurance Company (“Lexington”) submits this Memorandum in

support of its Motion for Summary Judgment under Fed. R. Civ. P. 56(a)(1).

Lexington brings this action against defendant ACE American Insurance Company

(“ACE”) seeking a declaration of the rights and responsibilities between Lexington and ACE

with respect to payment of defense costs incurred in the underlying action brought by Patrick and

Elizabeth Hannon (the “Hannon Action” or the “Underlying Complaint”) against Lexington’s

and ACE’s mutual insureds, Richard L. Weiner (“Weiner”) and Donald H. LaLiberte

(“LaLiberte”). For the reasons that are explained below, once the Lexington $300,000 self-

insured retention amount is exhausted and until the ACE policy limits for defense costs are

exhausted, Lexington and ACE should equally split responsibility for the defense costs that are

incurred by Weiner and LaLiberte. Furthermore, ACE, and not Lexington, has a duty to

indemnify Weiner and LaLiberte in connection with professional services they performed while

employed by Gately & Associates, P.C.

II. STATEMENT OF FACTS

Lexington respectfully refers the Court to Lexington’s Local Rule 56.1 Statement of

Material Facts (“SOF”), which is incorporated herein by reference.

A. The Hannon Action

In the Underlying Complaint, brought in Middlesex County, Massachusetts Superior

Court, Patrick and Elizabeth Hannon (collectively referred to as the “Hannons”) allege that

Patrick Hannon sought accounting services for his two businesses related to the operation of

solid waste disposal properties. SOF ¶¶ 1, 2. According to the Hannons, such businesses are

entitled to special tax treatment under the Internal Revenue Code. SOF ¶ 3. The Hannons

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further allege that Patrick Hannon hired Gately & Associates, P.C. (“Gately”) and its employees

Weiner and LaLiberte to prepare and file with the IRS tax returns for the two businesses and the

Hannons themselves for tax years 1999 and 2000. SOF ¶¶ 4, 5. According to the Underlying

Complaint, in or about 2002, Gately sold substantially all of its assets to Carlin, Charron &

Rosen (“CCR”), and Weiner and LaLiberte began working for CCR as its employees. SOF ¶ 6.

The Hannons allege that CCR, Weiner and LaLiberte prepared and filed with the IRS tax returns

for tax year 2001. SOF ¶ 7. The tax returns prepared by Gately, CCR, Weiner and LaLiberte

allegedly failed to take authorized deductions and overstated the net profits generated by Patrick

Hannon’s businesses, resulting in a tax liability for the Hannons that they have been unable to

pay. SOF ¶¶ 8, 9.

B. The Insurance Policies

ACE issued a claims-made and reported Accountants and Consultants Professional

Liability Insurance Policy to Gately, for the policy period May 1, 2002 to May 1, 2003, policy

number CEL 097054 (the “ACE Policy”). ¶ 10. The ACE Policy was cancelled effective May

16, 2002, and an Extended Reporting Period Endorsement was issued. SOF ¶¶ 12, 13. The

Extended Reporting Period Endorsement, in accordance with Clause 6.2, entitled Optional

Extended Reporting Period, extended the ACE Policy for an unlimited period beginning May 16,

2002, with respect to claims arising from professional services performed before May 16, 2002.

SOF ¶ 13. Clause 6.2 contains an “Other Insurance” provision that states: “During the Optional

Extended Reporting Period, coverage under this Policy applies as excess over any valid and

collectible insurance available under policies in force after such Optional Extended Reporting

Period starts.” SOF ¶ 14. The ACE Policy contains Limits of Liability of $1 million per claim

and $2 million in the aggregate, with a separate but equal Limit of Liability applying to Defense

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Expenses. SOF ¶ 11. There is a $25,000 deductible amount, which applies to Damages and

Defense Expenses. Id.

Lexington issued a claims-made and reported LexAssure Accountants Professional

Liability Policy to CCR, for the policy period January 1, 2008 to January 1, 2009, policy number

3448675 (the “Lexington Policy”). SOF ¶ 18. The Lexington Policy has a $300,000 per claim

self-insured retention amount. SOF ¶ 20. The Lexington Policy has limits of liability of

$10,000,000 per claim and in the aggregate. SOF ¶ 19. Defense costs are included within the

limits of liability and self-insured retention amount. SOF ¶ 20. The “Other Insurance” clause in

the Lexington Policy provides: “This insurance shall be excess over other valid insurance,

whether collectible or not, and whether provided on a primary, excess, contingent or any other

basis unless such other insurance is written as specific excess over this policy.” SOF ¶ 21.

Pursuant to Endorsement 8, the Lexington Policy “does not apply to any claim arising out of

professional services rendered for, by or [on] behalf of ” Gately. SOF ¶ 23.

Weiner and LaLiberte are insureds under the ACE policy, but only for professional

services performed before May 16, 2002, and only for professional services performed on behalf

of Gately. SOF ¶¶ 13, 17. Weiner and LaLiberte are also insureds under the Lexington policy,

but only for services they performed on behalf of CCR and not for any services they performed

on behalf of Gately. SOF ¶¶ 22, 23.

III. ARGUMENT

This case raises the question: what is the priority of coverage between the ACE Policy

and the Lexington Policy in connection with the insurers’ duty to defend and indemnify their

mutual insureds, Weiner and LaLiberte, against the Hannon Action? The resolution of this

question depends upon whether the ACE Policy and the Lexington Policy cover the same risk.

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If the Court determines that the policies coverage the same risk, what is the effect of the

respective policies’ “Other Insurance” clauses? For the reasons outlined below, Lexington and

ACE have a duty to equally share defense costs once the Lexington Policy’s $300,000 self-

insured retention amount has been exhausted. Furthermore, only ACE, and not Lexington, has a

duty to indemnify Weiner and LaLiberte in connection with acts and omissions at Gately.

A. Summary Judgment Standard

“Under Massachusetts law the interpretation of an insurance policy and the determination

of the policy-dictated rights and obligations are questions of law, appropriate grist for the

summary judgment mill.” Merchants Ins. Co. of New Hampshire, Inc. v. U.S. Fidelity and Guar.

Co., 143 F.3d 5, 8 (1st Cir. 1998); see also Hartford Fire Ins. Co. v. CNA Ins. Co. (Europe) Ltd.,

678 F. Supp. 2d 1, 8 (D. Mass. 2010). The court should enter summary judgment where there is

no genuine issue as to any material fact and the moving party is entitled to judgment as a matter

of law. Fed. R. Civ. P. 56(c). “To succeed [in a motion for summary judgment], the moving

party must show that there is an absence of evidence to support the non-moving party’s

position.” Rogers v. Fair, 902 F.2d 140, 143 (1st Cir. 1990). All reasonable inferences must be

drawn in favor of the nonmoving party, but “those inferences ‘must flow rationally from the

underlying facts; that is, a suggested inference must ascend to what common sense and human

experience indicates is an acceptable level of probability.’” Rubinovitz v. Rogato, 60 F.3d 906,

911 (1st Cir. 1995) (quoting National Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 743

(1st Cir. 1995)).

In interpreting an insurance policy, the court must construe the words of the policy in

their usual and ordinary sense. Whitaker Corp. v. American Nuclear Insurers, 671 F. Supp. 2d

242, 247 (D. Mass. 2009) (citing Specialty Nat’l Ins. Co. v. One Beacon Ins. Co., 486 F.3d 727,

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732 (1st Cir. 2007)). “[A] policy of insurance whose provisions are plainly and definitely

expressed in appropriate language must be enforced in accordance with its terms.” Whitaker, 671

F. Supp. 2d at 247 (quoting High Voltage Eng'g Corp. v. Fed. Ins. Co., 981 F.2d 596, 600 (1st

Cir.1992)). Under Massachusetts law, “an ambiguity is not created simply because a controversy

exists between parties, each favoring an interpretation contrary to the other.” Boston Gas Co. v.

Century Indem. Co., 454 Mass. 337, 356 n.32, 910 N.E.2d 290, 305 (2009) (quoting

Lumbermens Mut. Cas. Co. v. Offices Unlimited, Inc., 419 Mass. 462, 466, 645 N.E.2d 1165

(1995)). “A term is ambiguous only if it is susceptible of more than one meaning and reasonably

intelligent persons would differ as to which meaning is the proper one.” County of Barnstable v.

American Fin. Corp., 51 Mass. App. Ct. 213, 215, 744 N.E.2d 1107, 1109 (2001). If a policy

provision is unambiguous, the court will not look to extrinsic evidence to determine the

provision’s application. See Bank v. Thermo Elemental Inc., 451 Mass. 638, 649, 888 N.E.2d

897, 908 (2008) (extrinsic evidence may be used as an interpretive guide only after court

determines contract is ambiguous on its face or as applied); Sullivan v. Southland Life Ins. Co.,

67 Mass. App. Ct. 439, 444 n.4, 854 N.E.2d 138, 143 (2006) (where written terms of a contract

are not ambiguous on their face, extrinsic evidence is not admissible to contradict them);

Vermont Mut. Ins. Co. v. Velasco, 70 Mass. App. Ct. 1107, at *2, 874 N.E.2d 1144, 2007 WL

3105070 (Oct. 24, 2007); Herson v. New Boston Garden Corp., 40 Mass. App. Ct. 779, 791-92,

667 N.E.2d 907, 917 (1996).

B. The Underlying Complaint Constitutes a Covered Loss Under the

ACE Policy.

Although ACE has been defending Weiner and LaLiberte, ACE initially took the position

that it did not have any duty to share defense costs with Lexington after the Lexington self-

insured retention amount is exhausted for two reasons: (1) Weiner and LaLiberte purportedly are

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not legally obligated to pay for their defense of the Hannon Action and, therefore, the Hannon

Action allegedly does not give rise to a loss covered under the ACE Policy; and (2) ACE’s

coverage is excess to Lexington’s coverage. It is unclear, however, whether ACE still maintains

that the Hannon Action does not give rise to a covered loss under the ACE Policy because

Weiner and LaLiberte purportedly are not legally required to pay for their defense. Nevertheless,

even if ACE is still maintaining its “legally obligated to pay” argument, ACE’s position is not

supportable under Massachusetts law.

The Insuring Agreement in the ACE Policy provides, in relevant part:

We will pay on your behalf all sums in excess of the applicable Deductible
amount stated in the Declarations that you become legally obligated to pay as
Damages and associated Defense Expenses resulting from Claims first made
against you during the Policy Period, or Extended Reporting Period, if applicable,
as a result of a Covered Act by you.

SOF ¶ 16.

ACE has contended that because Massachusetts partnership law provides, pursuant to Mass.

Gen. Laws ch. 108A, § 18(b) (2008), that a “partnership must indemnify every partner in respect

of payments made and personal liabilities reasonably incurred by him in the ordinary and proper

conduct of its business, or for the preservation of its business or property,” and Weiner and

LaLiberte have submitted their defense expenses to CCR, which is not an insured under the ACE

Policy, Weiner and LaLiberte are not “legally obligated” to pay for their defense and CCR’s

obligation to indemnify Weiner and LaLiberte does not give rise to a covered loss. ACE’s

contention is meritless for a number of reasons. First, as used in the Insuring Agreement in the

ACE Policy, “legally obligated to pay,” pertains only to “Damages” and not “associated Defense

Expenses.” Therefore, the meaning of this provision is that ACE must pay both: (1) damages

that Weiner and LaLiberte become legally obligated to pay; and (2) all associated defense

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expenses. At the very least, this language is ambiguous and such an ambiguity would be

interpreted against ACE. Porter v. Clarendon Nat’l Ins. Co., 76 Mass. App. Ct. 655, 658, 925

N.E.2d 58, 61 (2010) (construing any ambiguity in the policy language against the insurer);

Wilkinson v. Citation Ins. Co., 447 Mass. 663, 667, 856 N.E.2d 829, 833 (2006) (“[D]oubts as to

the meaning of the words must be resolved against the insurance company that employed them

and in favor of the insured.”)

Second, Mass. Gen. Laws ch. 108A § 18(b) provides:

The partnership must indemnify every partner in respect of payments made and
personal liabilities reasonably incurred by him in the ordinary and proper conduct
of its business, or for the preservation of its business or property. (emphasis
added)

Pursuant to the statute, therefore, CCR only has a duty to indemnify Weiner and LaLiberte for

liabilities incurred by them in the conduct of CCR’s business. CCR does not have any duty to

indemnify Weiner and LaLiberte for defense expenses incurred in defending against allegations

that they incorrectly prepared tax returns while they were employed by Gately.

Third, even if CCR has a duty to indemnify Weiner and LaLiberte for all of their

expenses in defending against the Hannon Action, there is nothing in the ACE policy that

precludes coverage of losses incurred by an insured who is or may be indemnified by a third

party. Furthermore, under Massachusetts law, an insurer is required to defend when the

allegations of the complaint are reasonably susceptible of an interpretation that they state or

adumbrate a claim covered by the policy terms. Sterilite Corp. v. Continental Cas. Co., 17 Mass.

App. Ct. 316, 318, 458 N.E.2d 338, 340 (1983). ACE has not offered, nor can it, any cases that

require that in order for an insurer to be obligated to defend, the insured must actually suffer the

entry of a judgment or otherwise contractually promise to pay any judgment and/or costs of

defense. Although it does not appear that any Massachusetts court has construed the term

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“legally obligated to pay Defense Expenses” as part of the Insuring Agreement in an insurance

policy, one court from another jurisdiction stated that an insured becomes legally obligated to

pay legal expenses as soon as the legal services are rendered. AT&T Corp. v. Clarendon

American Ins. Co., 931 A.2d 409, 417 (Del. 2007). Courts from other jurisdictions have

interpreted an insurer’s promise to “pay those sums that the insured becomes legally obligated to

pay” to require only that the insured must have an obligation to pay. See Rolyn Cos., Inc. v.

R&J Sales of Tex., Inc., 671 F. Supp. 2d 1314, 1325 n.5 (S.D. Fla. 2009); Lennar Corp. v. Great

Am. Ins. Co., 200 S.W.3d 651, 680 (Tex. Ct. App. 2006) (interpreting “legally obligated to pay”

to mean an obligation to pay pursuant to a judgment, settlement, contract or statute). Even if

CCR agreed or was obligated to pay Weiner’s and LaLiberte’s defense costs, Weiner and

LaLiberte would remain liable for the defense costs should CCR (or its insurer) fail to pay their

expenses. The question is not who pays in the end, it is who is legally obligated to pay the

damages being sought and the defense expenses associated with them.

C. The ACE Coverage Is Not Excess to the Lexington Coverage

1. The Dispute Between ACE and Lexington Does Not Involve an

“Other Insurance” Issue Because the ACE and Lexington Policies
Insure Different Risks.

ACE contends that based upon the language of the “Other Insurance” Clause in the ACE

Optional Extended Reporting Period, any duty ACE has to defend Weiner and LaLiberte is

excess to Lexington’s duty to defend. ACE, however, is mistaken that the priority of coverage as

between ACE and Lexington presents an “Other Insurance” issue. “Other insurance” clauses

only come into play when the same insured is insured for the same risk by multiple policies. As

the Massachusetts Supreme Judicial Court instructed in Liquor Liability Joint Underwriting

Association of Massachusetts v. Heritage Insurance Co.:

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The “other insurance” clauses in the JUA and Hermitage policies provide
for proration of damages when multiple policies apply. The clauses do not
come into effect unless the policies cover the same risk. Here the JUA and
Hermitage policies do not have an identity of risk. Each policy covers a
different risk. There is no overlapping insurance and, accordingly, no basis
to prorate the damages.

419 Mass. 316, 324 n.6, 644 N.E.2d 964, 969 (1995).

The Appeals Court of Massachusetts similarly explained:

“To constitute other insurance which will permit proration of a loss, the
policies must cover the same risk.” 6 Appleman, Insurance Law and
Practice § 3907 (1972). See also Couch on Insurance 2d § 62:93 (1983) (“It
is generally held that in order for a proportionate recovery clause to operate
in the insurer’s favor, there must, under the policies, be both an identity of
the insured interest and an identity of risk; and the requirement with respect
to identity of risk is not obviated by the fact that the apportionment clause
refers to other insurance ‘whether concurrent or not’”).

McCormick v. Travelers Indem. Co., 22 Mass. App. Ct. 636, 639-40, 496 N.E.2d 174, 176

(1986) (italics supplied); see also Boston Gas Co. v. Century Indem. Co., 454 Mass. 337, 361,

362 n.36, 910 N.E.2d 290, 308, 309 (2009) (“other insurance” clauses reflect recognition of

many situations in which concurrent coverage would exist for the same loss; “’other insurance’

refers only to two or more concurrent policies, which insure the same risk and the same interest,

for the benefit of the same person, during the same period”).

ACE and Lexington do not cover Weiner and LaLiberte against the same risk: Lexington

only insures them for their acts and omissions while at CCR, and ACE only insures them for

their acts and omissions while at Gately. Different tax returns were prepared and filed by

Weiner and LaLiberte at Gately and at CCR. To the extent that Weiner and LaLiberte are found

liable for the services they performed on behalf of Gately, including the tax returns they prepared

for the tax years 1999 and 2000, Lexington will not have any duty to indemnify them.

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Conversely, to the extent that Weiner and LaLiberte are found liable for the services they

performed on behalf of CCR, ACE will not have any duty to indemnify them.

The only argument put forth by ACE thus far as to why the Lexington and ACE policies

insure the same risk is that both ACE and Lexington have duties to defend the entire Hannon

Action. That argument is meritless. Although Lexington and ACE have a broad duty to defend

against all the allegations in the Hannon Action as long as some of the allegations are covered,

“risks” that ACE and Lexington must defend against because of the broad duty to defend are not

converted into “risks” that are covered by the policies. That is, the fact that Lexington and ACE

both have a duty to Weiner and LaLiberte to defend the entire litigation against them does not

mean that Lexington and ACE cover the same risks. Because ACE and Lexington do not insure

Weiner and LaLiberte for the same risk, the “Other Insurance” clauses in the respective policies

do not apply.

When, as here, “Other Insurance” clauses do not apply, courts resort to “equitable”

principles in allocating defense costs among multiple insurers. Massachusetts courts recognize

the right of an insurer to pursue an action for equitable contribution against a co-insurer. See

Boston Gas Co. v. Century Indem. Co., No. 02-12062, 2006 WL 1738312, at *2 (D. Mass. June

21, 2006) (recognizing right of insurer to seek equitable contribution); Rubenstein v. Royal Ins.

Co. of America, 44 Mass. App. Ct. 842, 852, 694 N.E.2d 381, 388 (1998), aff’d on other

grounds, 429 Mass. 355, 708 N.E.2d 639 (1999) (“Of course, there is no bar against an insurer

obtaining a share of indemnification or defense costs from other insurers under the doctrine of

equitable contribution.”); Travelers Ins. Co. v. Aetna Ins Co., 359 Mass. 743, 269 N.E.2d 222

(1971) (recognizing contribution among insurers); U.S. Fire Ins. Co. v. Peerless Ins. Co., No. 00-

5595, 2001 WL 1688368, at *5 (Mass. Super. Ct. Dec. 20, 2001) (acknowledging that

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Massachusetts appellate courts have recognized right of insurer to pursue action for equitable

contribution). Defense costs, therefore, should be allocated between Lexington and ACE based

upon equitable considerations once the Lexington policy’s $300,000 self-insured retention is

exhausted. Lexington has no obligation to pay any defense costs or indemnity amounts until the

self-insured retention amount has been exhausted. See generally Lexington Ins. Co. v. Virginia

Sur. Co., Inc., 486 F. Supp. 2d 173 (D. Mass. 2007) (discussing effect of self-insured retention

amount). Accordingly, the Court should order that, based upon equitable principles, Lexington

and ACE should equally share defense costs once Lexington’s $300,000 self-insured retention

amount is exhausted.1

With regard to the duty to indemnify Weiner and LaLiberte, however, Lexington only has

an obligation to indemnify Weiner and LaLiberte to the extent they are found liable for services

they performed while working for CCR. The Lexington policy specifically states that it does not

cover acts or omissions relating to work performed at Gately. By contrast, ACE only has an

obligation to indemnify Weiner and LaLiberte to the extent they are found liable for services

they performed while working for Gately.

2. Even If the “Other Insurance” Clauses Apply, ACE Still Has a Duty
to Pay Half of Weiner’s and LaLiberte’s Defense Costs Once the
Lexington Policy’s Self-Insured Retention Amount Is Exhausted.

Even if the Court determines that the “Other Insurance” Clauses in the ACE and

Lexington Policies determine the priority of the duty to defend, ACE still would be required to

pay half of Weiner and LaLiberte’s defense costs once the Lexington self-insured retention

amount is exhausted.

The “Other Insurance” Clause in the ACE policy provides: “During the Optional

1
Because CCR is also an insured under the Lexington policy, CCR’s defense costs, as well as Weiner’s
and LaLiberte’s defense costs, reduce the Lexington policy’s self-insured retention amount.

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Extended Reporting Period, coverage under this Policy applies as excess over any valid and

collectible insurance available under policies in force after such Optional Extended Reporting

Period starts.” The “Other Insurance” clause in the Lexington Policy provides: “This insurance

shall be excess over other valid insurance, whether collectible or not, and whether provided on a

primary, excess, contingent or any other basis unless such other insurance is written as specific

excess over this policy.”

The “Other Insurance” Clause in the ACE Policy and the “Other Insurance” Clause in the

Lexington policy are both “excess” other insurance clauses. See Mission Ins. Co. v. U.S. Fire

Ins. Co., 401 Mass. 492, 496 n.3, 517 N.E.2d 463, 465 (1988) (recognizing three types of “Other

Insurance” clauses – pro-rata, escape and excess; pro-rata clauses provide that if other insurance

is available, a policy containing a pro-rata clause will contribute to the loss in the proportion that

its policy limit bears to the total limit of all available policies; escape clauses provide that if there

is other insurance, the policy containing the escape clause will pay no benefits; and excess

clauses provide that if other insurance is available the policy containing the excess clause will

pay no benefits until such other insurance is exhausted).2

Both the ACE and Lexington “Other Insurance” clauses provide that when there is any

other insurance available to the insureds, their respective coverages apply as excess over the

other insurance. Since both the ACE and Lexington policies purport to be excess over other
2
Counsel for ACE has suggested that the “Other Insurance” clause in the Lexington policy is an escape
clause rather than an excess “Other Insurance” clause. As the Mission court explained, however, escape
clauses provide for no coverage when other insurance is available to the insured. The “Other Insurance”
clause in the Lexington policy provides coverage when other insurance is available to the insured, albeit
on an excess basis. Even if the “Other Insurance” clause in the Lexington policy is deemed to be an
escape clause, it would constitute a super-escape clause which denies coverage when other valid
insurance, either primary or excess, is available to the insured. See U.S.F.& G. v. Hanover Ins. Co., 417
Mass. 651, 655, 632 N.E.2d 402, 404 (1994). Under such an interpretation, ACE would be solely
responsible for the loss. See id. (holding that super-escape clause in one policy available to the insured
brought into effect the excess coverage provided by a second policy, making the second policy solely
responsible for the loss); Clarendon Nat’l Ins. Co. v. Arbella Mut. Ins. Co., 60 Mass. App. Ct. 492, 500,
803 N.E.2d 750, 755 (2004) (upholding super-excess clause).

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insurance available to Weiner and LaLiberte, a Massachusetts court would deem the “Other

Insurance” clauses to be “mutually repugnant,” and would equally apportion defense costs

between the two insurers, so as best to effectuate the policy terms. Id. at 499, 517 N.E.2d at 467

(adopting majority approach that where excess “Other Insurance” clauses conflict, they are

deemed to be mutually repugnant and finding that both insurers must contribute to the loss by

equal shares); Insurance Co. of North Am. v. Protection Mut. Ins. Co., 939 F. Supp. 79, 86-87

(D. Mass. 1996) (holding that excess “Other Insurance” clauses are mutually repugnant and the

insurers should contribute equally to the loss).

The fact that the “Other Insurance” Clause in the ACE Policy pertains to claims made

during the optional extended reporting period does not change that conclusion. ACE’s position

that the Optional Extended Reporting Period provision in its policy renders the ACE coverage

excess to the Lexington coverage is not supported by the language of the policy. With respect to

“Other Insurance” clauses, the approach of Massachusetts courts has been to attempt to

effectuate the language of the policies at issue. This is an outgrowth of the general rule that

language in insurance policies should be given its ordinary meaning. Mission, 401 Mass. at 496-

97, 517 N.E.2d at 466; see also Reliance Ins. Co. v. Aetna Cas. & Sur. Co., 393 Mass. 48, 52,

468 N.E.2d 621, 624 (1984) (“[T]he court cannot properly disregard the plain language of the

policy in order to give effect to what it considers the intentions of the parties probably to have

been.”); LaFrance v. Travelers Ins. Co., 32 Mass. App. Ct. 987, 988, 594 N.E.2d 550, 551 (1992)

(refusing to disregard plain language of policy to interpret term “personal injury” in its ordinary

fashion); Eastern Cas. Ins. Co. v. Home Store, Inc., No. 025323, 2005 WL 1477619, at *2 (Mass.

Super. Ct. May 20, 2005) (“Massachusetts courts will not add meaning to clear and unambiguous

language within the provisions of an insurance policy that an insurer and insured agreed upon.”);

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Commercial Union Ins. Co. v. Walbrook Ins. Co., Ltd., 7 F.3d 1047, 1050 (1st Cir. 1993) (citing

Reliance for proposition that courts cannot disregard plain language of policy to give effect to

what court considers probable intention of parties).

Furthermore, it does not make any difference that the relevant “Other Insurance” clause

in the ACE policy is located in the Optional Extended Reporting Period section of the ACE

policy.3 See Home Ins. Co. v. St. Paul Fire & Marine Ins. Co., 229 F.3d 56, 62-63 (1st Cir. 2000)

(declining to have policy location of “Other Insurance” clauses control in determining priority of

coverage between two policies). According to the plain language of the policies, both the ACE

and Lexington policies provide excess coverage when other insurance is also available to the

insureds.

Continental Casualty Co. v. Home Insurance Co., 980 F.2d 736, 1992 WL 357153 (9th

Cir. Dec. 4, 1992), involved a priority of coverage dispute between two insurers, one of which,

CNA, was providing coverage under an Extended Reporting Period. Both policies had excess

other insurance clauses. Id. at *1. The court stated that the dispute between CNA and Home as

to which insurer provided coverage was a typical “other insurance” dispute. Id. at *2. Although

CNA contended that the court should not apply the “mutual repugnancy” theory to the excess

“other insurance” clauses, but, instead, should consider the overall insuring intent of the parties

(the decision did not indicate what that intent involved), the court concluded that it was unlikely

that extrinsic evidence of insuring intent would apply, and, where neither policy was purchased

as a “true excess” policy, the better approach was for both policies to contribute. Id. at *3.

3
The ACE Policy contains two “Other Insurance” clauses. In addition to the “Other Insurance” clause in
the Optional Extended Reporting Period section of the policy, there is another provision entitled “Other
Insurance” in the Conditions section of the policy. That clause provides that: “This Policy shall be excess
over, and shall not contribute with, any other existing insurance, unless such other insurance is
specifically written to be excess of this Policy.” Under both “Other Insurance” clauses, the ACE
coverage is excess when other insurance is available to the insured.

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Under Massachusetts law, extrinsic evidence may be used only after it is determined that

a policy provision is ambiguous. See Bank, 451 Mass. at649, 888 N.E.2d at 908 (extrinsic

evidence may be used as an interpretive guide only after court determines contract is ambiguous

on its face or as applied); Sullivan, 67 Mass. App. Ct. at 444 n.4, 854 N.E.2d at 143 (where

written terms of a contract are not ambiguous on their face, extrinsic evidence is not admissible

to contradict them); KDT Indus., Inc. v. Home Ins. Co., 603 F. Supp. 861, 866 (D. Mass. 1985)

(court may consider extrinsic evidence of parties’ intent where policy terms are ambiguous).

The “Other Insurance” clause in the ACE policy is not ambiguous. It clearly states that

for claims made during the Optional Extended Reporting Period, the ACE coverage applies as

excess over any other insurance available under policies in force after the Optional Extended

Reporting Period begins.

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IV. CONCLUSION

For the foregoing reasons, Lexington respectfully requests that the Court declare that (1)

ACE has an obligation to indemnify Weiner and LaLiberte to the extent they are found liable for

services they performed while working for Gately; while Lexington only has an obligation to

indemnify Weiner and LaLiberte to the extent they are found liable for services they performed

while working for CCR; and (2) Lexington and ACE have a duty to equally share defense costs

for Weiner and LaLiberte once the Lexington policy’s $300,000 self-insured retention has been

exhausted.

Respectfully submitted,
LEXINGTON INSURANCE COMPANY,
By its attorneys,

/s/ Mark E. Cohen______________

Mark E. Cohen, BBO No. 089800
Zelle, McDonough & Cohen, LLP
101 Federal Street – 14th Floor
Boston, MA 02110
mcohen@zelmcd.com
Tel: (617) 742-6520
Fax: (617) 742-1393

Dated: August 9, 2010

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Certificate of Service

I, Mark E. Cohen, hereby certify that on August 9, 2010, I served the foregoing document

upon all parties, by electronically filing a copy through the ECF system.

_/s/ Mark E. Cohen___________________

Mark E. Cohen

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