The Massachusetts Superior Court ruled that an insurer who agrees to defend without a reservation of rights[1] may select defense counsel and control the defense of covered lawsuits. This ruling is consistent with Massachusetts precedent and reinforces limiting circumstances in which an insured entity has the right to control its defense at an insurer’s expense.  

In Crosby Valves, LLC v. OneBeacon America Insurance Company, et. al¸ the court considered coverage issues arising from OneBeacon and National Union policies issued to Crosby Valve & Gage (“Crosby”) and associated entities from 1974 to 1976 and from 1983 to 1990, collectively. Over Crosby’s 144 history, it underwent numerous corporate transitions that had the ultimate effect of moving all asbestos related liabilities and insurance assets to an entity known as Pentair Valves and Controls US LP (“Pentair”).   

Pentair is a defendant in thousands of asbestos lawsuits based on liabilities arising from asbestos-containing products manufactured and/or sold by Crosby and associated entities. These claims were tendered to OneBeacon and National Union who agreed to defend Pentair without reservation. OneBeacon and National Union agreement to defend came with the stipulation that, based on prior mergers, acquisitions, and reorganizations, it had no duty to defend cases wherein Crosby was the named defendant. This was significant because Crosby faced tens-of-thousands of additional lawsuits wherein it was named as a defendant based on the same products for which Pentair was liable.    

Consistent with its agreement to defend without reservation, OneBeacon and National Union advised Pentair that it had selected defense counsel and that any claims settled without insurer approval must be paid by Pentair. In response, Pentair objected to the insurers’ choice of defense counsel and, after the insurers agreed to consider alternate defense counsel, refused to relinquish control of the defense of Pentair suits. Crosby, on behalf of Pentair, filed suit after OneBeacon and National Union refused to pay for defense costs of Pentair selected counsel. 

 In the coverage action, Pentair argued that OneBeacon and National Union could not control the defense of its claims because a conflict existed. OneBeacon and National Union countered that no conflict existed and that they were entitled to control based on the unambiguous policy language.

In Massachusetts, insurers’ right to control when defending without reservation was first addressed in OneBeacon America Ins. Co. v. Celanese Corp., 92 Mass. App. Ct. 382 (2017), rev. den., 470 Mass. 1107 (2018). In that ruling, the court determined that agreeing to defend without reservation entitled an insurer to control the defense absent a conflict. The court laid out four specific circumstances wherein a conflict may exist: “(1) when the defense tendered is not a complete defense under circumstances in which it should have been, (2) when the attorney hired by the carrier acts unethically and, at the insured’s direction, advances the insurer’s interests at the expense of the insured’s, (3) when the defense would not, under the governing law, satisfy the insurer’s duty to defend, and (4) when, though the defense is otherwise proper, the insurer attempts to obtain some type of concession from the insured before it will defend.” Id. at 388-89.

Citing Celanese, Pentair argued that a conflict existed because OneBeacon and National Union had agreed to defend only the subset of asbestos lawsuits that named Pentair as the defendant. Pentair argued that this created a conflict because the insurers were incentivized by the terms of the policy to exhaust the policies as quickly as possible to end its obligation to pay defense costs. By agreeing to settlements based on varying standards that may, presumably, inflate settlement costs, OneBeacon and National Union would adversely affect Crosby’s uniform defense strategy. To avoid this conflict, OneBeacon and National Union would need to agree to defend all cases involving alleged exposure to Crosby products regardless of whether the plaintiff named Pentair as the defendant.    

The court refused to find that a conflict existed based on this argument for several reasons. First, OneBeacon and National Union agreement to defend some but not all cases did not automatically create a conflict. Second, OneBeacon and National Union invited Pentair to identify any claims that it believed OneBeacon and National Union had improperly denied.  Pentair failed to find a single claim that the insurers had improperly refused to defend. Third, defense counsel selected by OneBeacon and National Union has a duty of unqualified loyalty to the insured. Accordingly, defense counsel selected by the insurers has a legal obligation to make settlement decisions based on Pentair’s best interests.  If Pentair found that counsel selected by insurers violated this duty, then it would have a remedy resulting from that specific infraction.

Pentair, again relying on Celanese, also argued that a conflict existed because OneBeacon and National Union forced Pentair to accept an improper concession. The concession being that OneBeacon and National Union would not concede the right to seek contribution for settlements based on a pro rata coverage allocation. Referencing Boston Gas Co. v. Century Indemnity, 454 Mass. 337 (2009), the court also rejected this argument because 1) a pro rata allocation methodology must be followed for long tail claims and; 2) there is no precedent stating that the insurers cannot control the defense and maintain the right to seek contribution.  

Having found that Pentair could not prove that a conflict existed, the court ordered that OneBeacon and Nation Union had the right to select defense counsel, control the defense, and were not required to pay costs associated with cases where Pentair refused its offer to defend.   

For Massachusetts companies like Pentair, the Crosby ruling supports the application of explicit policy terms over extra-contractual considerations such as keeping historic defense counsel and managing claims to consider public reputation. When facing an insurer who is willing to defend without reservation it is extremely difficult, if not impossible, for a Massachusetts’s insured to prove a broad conflict that outweighs an insurer’s contractual right and duty to defend.

In these circumstances, it behooves an insured to work with its insurers to retain acceptable defense counsel and to evaluate claims based on an agreed upon framework. Although an insured may lose the ability to make unilateral decisions, an insurer’s obligation to act in the insured’s best interest remains absolute. Focusing on that obligation may help prevent litigation and enable a palatable, if not perfect, defense agreement.

CMBG3 Law’s attorneys have worked with national and international insurance companies and insureds on a wide variety of coverage issues in state and federal courts over the years. If you have any questions or would like more information, please contact Ross Elwyn (email him or 617-279-8221). 

[1] Defending under a reservation of rights generally protects an insurer from waiving the ability to later deny coverage based on facts developed during litigation. For example, if an insurer agrees to defend based on broadly pled facts that do not provide a specific date range of alleged exposure, the insured may later deny coverage if the plaintiff testifies that his first exposure postdates the effective date of the insurer’s policy.