Aetna Cas. & Sur. Co. v. Continental Cas. Co.

• Decision Date: 10 December 1992
• Citation: 604 N.E.2d 30,413 Mass. 730
• Parties: , 79 Ed. Law Rep. 210 AETNA CASUALTY & SURETY COMPANY v. CONTINENTAL CASUALTY COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 30

604 N.E.2d 30

413 Mass. 730, 79 Ed. Law Rep. 210

AETNA CASUALTY & SURETY COMPANY v.CONTINENTAL CASUALTY COMPANY.

Supreme Judicial Court of Massachusetts Franklin.

Argued Sept. 9, 1992.

Decided Dec. 10, 1992.

T. Andrew Culbert, Philadelphia, Pa., Terrance J. Hamilton, Boston, with him, for defendant.

William W. Adams, Plainfield, for plaintiff.

Before LIACOS, C.J., and WILKINS, ABRAMS, NOLAN and GREANEY, JJ.

WILKINS, Justice.

The plaintiff(Aetna) and the defendant(Continental) disagree over their respective obligations to pay for the costs of defense of an action brought against the Mohawk Trail Regional School District Committee(Mohawk), which both Aetna and Continental insured at the relevant times.The motion judge decided that the costs of defense should be shared equally.We conclude that judgment should be entered placing the entire cost of defense on Aetna.

Mohawk discharged an employee in April, 1983, based on accusations that she had stolen money from the school.The employee sued the school committee and certain school employees, alleging slander, breach of contract, interference with contract, malicious procurement of discharge, malicious infliction of emotional distress, and denial of due process of law.Continental had issued a board of education liability insurance policy covering Mohawk.That policy provided for reimbursement of Mohawk for losses paid, including defense costs, due to certain wrongful acts committed by an insured.Aetna, in turn, had issued Mohawk a special multi-peril policy with a general liability coverage section which included a duty to defend the insured for covered claims.The Aetna liability limit was $300,000.

Aetna agreed to defend all counts alleged in the former employee's action, but, contrary to its usual practice and apparently without objection from Mohawk, did not pay Mohawk's legal expenses as they were incurred.The employee's action was settled.Continental paid $15,000; Aetna paid $5,000.Mohawk had incurred legal fees and expenses amounting to approximately $50,000.Aetna paid Mohawk one-half of its defense costs.Continental made an offer to pay only $4,000 toward those expenses.Mohawk then commenced this action against each insurer, seeking reimbursement of the remaining, unpaid costs of defense.Each insurer alleged a cross-claim in this action against the other.Aetna settled with Mohawk, which assigned to Aetna its claims against Continental.

The issue of the insurers' respective liabilities for the costs of defense was presented on cross-motions for summary judgment on an agreed record that presented only a question of law.The ultimate question presented was whether Aetna alone was liable or whether each insurer was liable in some proportionate amount for the cost of Mohawk's defense.Aetna agreed in the Superior Court that, under its policy, it had a clear duty to defend the slander count alleged against Mohawk.Aetna made no claim that its duty under its policy did not extend to the defense of all counts.¹Continental argued that it was not obliged to pay anything toward Mohawk's defense costs, asserting that its policy required it to reimburse Mohawk only for any loss, including defense costs, that Mohawk "shall become legally obligated to pay," and that there was no such legal obligation because Aetna had a duty to pay all defense costs.

Where there are two policies of insurance, each of which would provide complete coverage of defense costs in the absence of the other policy, the issue of liability for those costs is to be resolved by considering the provisions of the respective policies.SeeMission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492, 495-497, 517 N.E.2d 463(1988).The motion judge concluded that the "other insurance" clauses in the respective policies were mutually repugnant and allocated the burden of Mohawk's defense costs equally.Continental alone appealed, and we transferred the appeal to this court.

The provisions of each policy concerning other insurance can be reconciled readily.The Continental policy had what is known as an "escape" clause.It provided, as an exclusion, that Continental "shall not be liable to make any payment for loss in connection with any claim against the Assureds: (1) which is insured by another valid policy"[with an exception not relevant on the question before us].The Aetna policy was such "another valid policy" because it did not disclaim or limit its coverage if there were other insurance coverage involved.It stated that "[t]he insurance afforded by this policy is primary insurance, except [when otherwise stated]."It continued: "When this insurance is primary and the insured has other insurance which is stated to be applicable to the loss on an excess or contingent basis, the amount of the Company's liability under this policy shall not be reduced by the existence of such other insurance."The Continental coverage of defense costs was contingent on the absence of other coverage of those costs.There was other coverage, and the Aetna policy clearly pronounces that it will stand by its insured to the amount of its liability stated in its policy despite other coverage that is stated to be excess or contingent.We shall give effect to the "escape" clause of Continental's policy.SeeTransamerica Ins. Group v. Turner Constr. Co., 33 Mass.App.Ct. 446, 451, 601 N.E.2d 473(1992);8A J.A.Appleman & J. Appleman, Insurance Law and Practice§ 4910, at 458 (2d ed. 1981 & 1992 cum. supp.).

The Court of Appeals for the First Circuit recently was presented with a similar issue, involving Massachusetts law and policy language that is identical to that involved here.SeeContinental Cas. Co. v. Canadian Universal Ins. Co., 924 F.2d 370, 375-376(1st Cir.1991).²That court correctly anticipated principles that we apply here.

In this appeal, Aetna has totally abandoned the argument that it made successfully below (the same one that we have just rejected).It no longer argues that a repugnancy between the two coinsurance clauses requires that each insurer contribute toward Mohawk's defense costs.³Instead, Aetna now argues a theory that it did not press in the Superior Court, one that repudiates its previous position.Aetna now contends that it had no duty to defendant Mohawk because the complaint against Mohawk alleged no claim falling within the coverage of the Aetna policy.SeeSterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 318(1983).Although Aetna has not appealed, it asks us to order judgment against Continental alone for all of Mohawk's...