The Massachusetts Appeals Court reversed the trial court's order that defense costs be paid for a period during which the insured rejected the defense even though no reservation of rights was issued. OneBeacon Am. Ins. Co. v. Celanese Corp., 2017 Mass. App. LEXIS 140 (Mass. App. Ct. Oct. 16, 2017).
Celanese was sued over many years for claims of bodily injury due to asbestos and chemicals allegedly contained in its products and facilities. For many years, Celanese had an agreement with its insurer, OneBeacon, for defense cost-sharing. In April 2009, Celanese terminated this agreement and demanded that OneBeacon defend the cases under the policies previously issued. OneBeacon agreed to defend without a reservation of rights. OneBeacon also agreed to waive any issues of coverage and to indemnify Celanese from any settlements of judgments up to ts full liability limits. However, OneBeacon also sought to assume full control of the defense of claims against Celanese.
Celanese refused to cede control of the defense or replace the counsel it had employed for the prior 14 years with representation selected by OneBeacon. Celanese asserted that a conflict of interest existed, excusing it from yielding control of its defense.
OneBeacon filed an action for declaratory relief. On summary judgment, the court declared that OneBeacon had the right to control the defense due to its offer to defend without a reservation of rights. Further cross motions for summary judgment were filed on whether OneBeacon was liable to Celanese for defense costs Celanese incurred from April 13, 2009 (when Celanese elected to revert to defense under OneBeacon's policies) through May 27, 2011 (when the judge ruled that OneBeacon had to right to control Celanese's defense). The court ruled that OneBeacon was liable for defense costs incurred by Celanese during this period as part of OneBeacon's duty to defend. A master determined that the reasonable fees incurred and owed by OneBeacon were $2,435,921.49.
OneBeacon appealed. First, the court determined that by offering to defend Celanese without a reservation of rights, OneBeacon had the right to control Celanese's defense. This included the right to choose the counsel who would defend the claims. But if a conflict of interest arose, the insured could refuse an insurer's control of the defense even when the insurer agreed to defend without a reservation of rights.
Celanese was concerned that OneBeacon wanted to settle as many of the cases as possible and this would harm Celanese's reputation. The policies, however, allowed OneBeacon to seek settlements instead of defending Celanese's reputation by trying each case and denying Celanese's liability. Therefore, Celanese had not demonstrated that a sufficient conflict of interest existed and it unjustifiably refused OneBeacon's offer to defend without a reservation of rights.
Finally, citing the Hawaii Supreme Court's decision in Finley v. Home Ins. Co., 90 Haw. 25, 35, 975 P.2d 1145 (1998), the court found that without a sufficient conflict of interest, Celanese lost its right to obtain reimbursement for defense costs when it refused to accept OneBeacon's defense, offered without a reservation of rights. Under Finley, the Hawaii Supreme Court ruled that if the insured chose to conduct its own defense, the insured was responsible for all its fees. Therefore, OneBeacon was not responsible for fees that Celanese incurred in conducting its own defense.