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The Massachusetts Appeals Court holds Insured Not Entitled to Reimbursement of Defense Costs After Declining to use Insurer’s Appointed Counsel

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OneBeacon America Ins. Co. v. Celanese Corp., 16-P-203 (Mass. App. Ct. 2017). The Massachusetts Appeals Court vacated a lower court decision ordering OneBeacon to repay Celanese Corp., $2.4 million it incurred in defense costs, finding that Celanese lost its right to reimbursement when it refused to let OneBeacon take control of its defense in underlying asbestos and chemical product injury claims.

In April 2009, Celanese sent a letter to OneBeacon terminating the parties’ defense cost-sharing agreements and demanded that OneBeacon instead defend Celanese under the terms if its general liability policy issued to Celanese. OneBeacon agreed to defend Celanese against the underlying claims without a reservation of rights. However, OneBeacon also sought to assume full control of Celanese’s defense of underlying claims.

In response, Celanese refused to cede its control of its defense or replace defense counsel it had employed for the past fourteen years with the representation selected by OneBeacon. In March, 2010, OneBeacon filed an action for declaratory relief. The lower court entered an order in May 2011, ruling that OneBeacon had the right to control Celanese’s defense. The parties then filed further cross-motions for summary judgment as to whether OneBeacon was liable to Celanese for the defense costs Celanese incurred during the period of April 13, 2009, when Celanese elected to revert to defense under OneBeacon’s general policies, through May 27, 2011, when the judge ruled that OneBeacon had the right to control Celanese’s defense. The lower court held that OneBeacon was liable for reasonable and necessary defense costs incurred by Celanese during this period of time. OneBeacon appealed. The Appeals Court ruled that OneBeacon had the right to control Celanese’s defense when it offered to defend without a reservation of rights. As part of its right to control, OneBeacon had the right to appoint counsel of its choosing. The court held that OneBeacon satisfied its duty to defend by offering to defend Celanese without a reservation of rights. As a result of Celanese’s unjustified refusal of OneBeacon’s control of that defense, OneBeacon was not liable for the attorney’s fees that Celanese incurred in conducting its own defense.