Holyoke Mutual Insurance Co. v. Vibram USA, Inc.
Decision Date | 20 March 2017 |
Docket Number | SUCV2015-2321 BLS1 |
Parties | Holyoke Mutual Insurance Company in Salem et al. v. Vibram USA, Inc. No. 136378 |
Court | Superior Court of Massachusetts |
Filed March 21, 2017
This action arises out of a coverage dispute between the plaintiff insurance companies, Holyoke Mutual Insurance Company in Salem (Holyoke)[1] and Maryland Casualty Company (Maryland) (individually an Insurer, and collectively the Insurers), and the defendant, Vibram USA, Inc. (Vibram). Each of the insurers issued commercial general liability policies to Vibram (or its affiliate) (the Policies).[2] An action was filed against Vibram in the United States District Court for the Western District of Washington at Tacoma captioned Tefere Abebe Bikila, and others, v. Vibram, case no 3:15-cv-05082-RBL (the Underlying Action). Vibram asserted coverage under the Policies and tendered defense of the Underlying Action to the Insurers. The Insurers each sent a " reservation of rights" letter to Vibram in which they agreed to provide its defense to the claims asserted in the Underlying Action, but also maintained that coverage did not exist under the Policies and reserved their rights to bring a declaratory judgment action and seek reimbursement for defense costs advanced. The Insurers then filed this declaratory judgment action seeking a declaration that the claims asserted against Vibram in the Underlying Action are not covered under the Policies; Vibram counterclaimed for a declaration that they are. In a Memorandum of Decision and Order on Cross Motions for Summary Judgment and Partial Summary Judgment originally issued on August 17, 2016 (the Decision) [33 Mass.L.Rptr. 564], this court held that the Policies do not provide coverage for the claims asserted against Vibram in the Underlying Action and, accordingly there is no duty to defend.
The case is now before the court on cross motions for summary judgment addressing the issues of recoupment of defense costs advanced or, conversely, recovery of defense costs incurred before the court rendered the Decision but left unpaid--issues of first impression in Massachusetts. The Insurers contend that since the claims asserted in the Underlying Action were not insured under the Policies, they are entitled to recoup the defense costs that they previously paid Vibram. Vibram, in turn, maintains that it is entitled to recover defense costs already incurred, but still unpaid, as of the date the Decision issued. For the reasons that follow, each party's motion is allowed, in part, and denied, in part.
None of the facts necessary to resolve these cross motions are in dispute.
Because the Insurers sent reservation of rights letters to Vibram, Vibram exercised its right to control its defense of the Underlying Action and retained its own counsel.[3] Vibram's counsel kept the Insurers informed concerning the status of the Underlying Action and forwarded copies of pleadings to them. By August 17, 2016, the date the Decision issued, Vibram had sent the Insurers invoices for defense costs totaling $1, 272, 212.57 and the Insurers had collectively reimbursed Vibram $667, 901.71--$472, 216.80 from Holyoke and $195, 684.91 from Maryland. Vibram last received a payment from the Insurers on July 18, 2016. Neither Insurer informed Vibram why it did not pay the full amount of the invoices.[4]
As relevant to the issues raised by the pending motions, the Policies provide that the Insurers The Policies also state that the Insurers " will pay, with respect to any claim we investigate or settle, or any 'suit' against any insured we defend: . . . All expenses we incur . . ."
In Metro. Life Ins. Co. v. Cotter, 464 Mass. 623, 984 N.E.2d 835 (2013) (Cotter ), the Supreme Judicial Court (SJC) was called upon to decide if a disability insurer could recoup from its insured benefit payments made under a reservation of rights after a court determined that the insured's benefits claim was not covered. In considering that claim for recoupment, the SJC noted that, with respect to liability policies:
Id. at 641 n.21. This question is squarely before this court in this case.
While acknowledging that there are divergent views on the right of recoupment in cases such as this, in which a court has entered a declaratory judgment that none of the claims alleged in the complaint are covered under the Policies, the Insurers maintain that the majority of jurisdictions permit recoupment. Perhaps, the most frequently cited case for the proposition that defense costs advanced under a reservation of rights may be recovered is Buss v. Superior Court, 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766 (Cal.App. 1997). In a more recent decision, the California Supreme Court reaffirmed its holding in Buss with the following comments:
Scottsdale Ins. Co. v. MV Transportation, 36 Cal.4th 643, 655, 31 Cal.Rptr.3d 147, 115 P.3d 460 (Cal.App. 2005) (Internal citations and quotations omitted). In this case, the Insurers make the same arguments that the California Supreme Court describes in Scottsdale .
Vibram however, points the court to a recent, unreported decision of the United States District Court in Massachusetts that reaches an opposite conclusion: Welch Foods, Inc. v. Nat'l Union Fire Ins. Co. No. 09-12087-RWZ, 2011 WL 576600 (D.Mass. Feb. 9, 2011). In that case, like this one, the District Court found that claims in an underlying action were not covered by the liability policy and then addressed the insurer's claim for recoupment of defense costs paid under a reservation of rights. The District Court acknowledged the holding and reasoning of Buss, but rejected the California Supreme...
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