Opinion
21-P-298
01-06-2022
EL GROUP, LLC, & others v. UTICA NATIONAL INSURANCE GROUP & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The plaintiffs in this insurance coverage dispute, EL Group, LLC (EL Group), Joseph P. Lotuff, III, Frederick A. Lotuff, and E. Alden Edmonds, sought a declaratory judgment that the defendant insurance companies, Utica National Insurance Group, Utica Mutual Insurance Company, and Graphic Arts Mutual Insurance Company, had a duty to defend the plaintiffs against claims brought against them by a former business partner. After the parties filed cross motions for summary judgment, a Superior Court judge ruled in favor of the defendants, reasoning that the defendants had no duty to defend the plaintiffs where the underlying counterclaim did not allege a "personal and advertising injury" within the meaning of the insurance policies. A judgment entered in favor of the defendants. On appeal, the plaintiffs argue that the defendants had a duty to defend under the policies because the allegations in the underlying counterclaim were "reasonably susceptible of an interpretation that they state or adumbrate a covered claim." For the reasons that follow, we agree with the plaintiffs, vacate the judgment, and remand the case to the Superior Court.
The plaintiffs’ motion to reconsider was also denied.
Background. We summarize the relevant facts as set forth in the pleadings and the judge's written decision. The underlying dispute was between EL Group, a self-described investment company, and Frank Clegg, a designer and manufacturer of custom leather products. The business agreement between them called for Clegg to design and manufacture leather products and for EL Group to market those products online. Clegg terminated the business agreement in 2011, which prompted EL Group to file a multi-count complaint against Clegg and his LLC alleging, among other things, unjust enrichment, conversion, misappropriation of confidential and proprietary information, and defamation. Clegg responded with a detailed, thirteen-count counterclaim, which he later amended, alleging that the plaintiffs (1) falsely stated to customers that they had contributed to the design and production of Clegg's products; (2) stole Clegg's designs and manufacturing techniques; (3) charged personal expenses to the business; and (4) infringed on Clegg's trademark.
The parties have not included in the record on appeal a statement of undisputed material facts under Superior Court Rule 9A.
The amendment added a fourteenth cause of action.
The plaintiffs sought coverage under insurance policies issued by the defendants for the cost of defending against Clegg's counterclaim. After the defendants denied coverage, the plaintiffs brought this action alleging, among other things, that they incurred over $750,000 in attorney's fees and costs in defending against the counterclaim, which the defendants were required to pay under the terms of the policies.
The plaintiffs alleged that the defendants’ breach of its duty to defend was a breach of contract, breach of the duty of good faith and fair dealing, and an unfair claim settlement practice.
Discussion. We review a grant of summary judgment de novo to determine "whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law." Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991).
An insurance company's duty to defend an insured is much broader that its duty to indemnify. See Boston Symphony Orchestra, Inc., v. Commercial Union Ins. Co., 406 Mass. 7, 10 (1989). "An insurer's duty to defend the insured is triggered where the allegations in the complaint ‘are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms,’ notwithstanding the possibility that the underlying claim may ultimately fail, or that the merits of the claim are weak or frivolous." Holyoke Mut. Ins. Co. in Salem v. Vibram USA, Inc., 480 Mass. 480, 484 (2018), quoting Billings v. Commerce Ins. Co., 458 Mass. 194, 200 (2010). To assess whether the allegations in Clegg's amended counterclaim are reasonably susceptible of such an interpretation, we compare those allegations with the policy language. The complaint "need only show, through general allegations, a possibility that the liability claim falls within the insurance coverage. There is no requirement that the facts alleged in the complaint specifically and unequivocally make out a claim within the coverage." Billings, supra at 200-201, quoting Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316, 319 (1983). "Any uncertainty as to whether the pleadings include or are reasonably susceptible to an interpretation that they include a claim covered by the policy terms is resolved in favor of the insured." Deutsche Bank Nat'l Ass'n v. First Am. Title Ins. Co., 465 Mass. 741, 745 (2013).
With these principles in mind, we turn to the language of the insurance policies. The policies provided coverage for "personal and advertising injury." The policies defined "personal and advertising injury," in pertinent part, as an "[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services." "[D]isparagement concerns the reputation of a business, while defamation concerns and individual's personal reputation in the community." Rass Corp. v. Travelers Cos., 90 Mass. App. Ct. 643, 653 (2016).
Here, Clegg's detailed amended counterclaim consisted of 155 paragraphs and fourteen separate causes of action. It referred to Clegg's reputation as a "renowned designer and manufacturer of bespoke leather briefcases, bags and other products." The amended counterclaim alleged that the plaintiffs falsely told third parties that Clegg's products were the result of a "design team," rather than having been designed by Clegg alone. More specifically, Clegg alleged that one of the plaintiffs, Joseph P. Lotuff, III, falsely told potential consumers that he designed or contributed to the design of Clegg's products, and that the backlog of orders for their products was due to "improper actions of the Clegg parties." We agree with the plaintiffs that these allegations, while not explicitly stating a claim for slander or libel, "are reasonably susceptible of an interpretation that states or roughly sketches a claim" for defamation (citation omitted). Holyoke Mut. Ins. Co. in Salem, 480 Mass. at 484. That is to say, Clegg alleged that the plaintiffs made false statements to potential customers that tended to lower Clegg's reputation as a craftsman in the community interested in his products. See Rass Corp., 90 Mass. App. Ct. at 653. More specifically, the amended counterclaim alleged that the plaintiffs’ false statements "impugn[ed] the professional reputation of Frank Clegg as a designer and manufacturer." We are satisfied that these allegations, whether they have merit or not, were enough to raise the possibility that the complaint alleged a "personal and advertising injury," as defined by the policies. See Billings, 458 Mass. at 200-201.
Accordingly, the judgment is vacated. We remand the case to the Superior Court for further proceedings consistent with this memorandum and order. Because the judge did not reach the defendants’ alternative arguments that they had no duty to defend because the alleged conduct predated the policy period and was subject to various exclusions, those arguments, about which we express no opinion, should be addressed on remand.
So ordered.
vacated and remanded