Mass. Appeals Court Determines No “Occurrence” for Intentional Business Act

Attorneys Michael Melville and Scott Ober successfully persuaded the Massachusetts Court of Appeals to reverse the Trial Court’s entry of summary judgment against our client insurer in an insurance coverage and bad faith lawsuit involving the duty to defend.

The action arose from a lawsuit filed in the United States District Court for the District of Connecticut brought by a former employee of a government contractor on behalf of the United States government (a qui tam action) which alleged violations of federal Civil False Claims Act in connection with the request for payment from the United States and a change in the way a product was manufactured.  The complaint alleged conspiracy to make false claims in violation of the Civil False Claims Act and sought treble damages and civil penalties. The insured contractor sought defense and indemnity coverage from its insurer for the claims asserted in the Civil False Claims Act lawsuit.  The insurer declined coverage.

Trial Court Finds a Duty to Defend

After settling the False Claims Act lawsuit, the insured filed a Complaint in Worcester Superior Court against our client insurance company seeking to recover damages allegedly incurred as a result of the insurance company’s coverage declination.  The Superior Court denied the insurer’s Motion for Summary Judgment and granted the plaintiff-insured’s cross-motion holding that there was a duty to defend under the relevant insurance policy.  Because the defendant lost its summary judgment motion, the plaintiff sought its attorney’s fees in connection to establishing the duty to defend.

Bad Faith Trial

Following the adverse Summary Judgment ruling, a bench trial proceeded on the narrow issues of whether the insurer committed bad faith when it declined coverage and the amount of attorney’s fees the plaintiff was entitled to recover. On the attorney’s fees issue, Attorneys Melville and Ober persuaded the court that the plaintiff could only recover fees through the date of the summary judgment decision and that the plaintiff’s attorney’s fee claim was substantially inflated which resulted in an approximately 80% reduction in the fees awarded.  Attorneys Melville and Ober further successfully argued that the insured could not recover any fees for the underlying matter due to a settlement the insured reached with a different insurer.  The Superior Court further held that the insurer did not violate c. 93A despite the prior Summary Judgment ruling.

Despite their success during the bench trial, Attorneys Melville and Ober continued on behalf of their client insurer and appealed the initial Summary Judgment ruling that the insurer had a duty to defend the plaintiff-insured in the Civil False Claims Act lawsuit. The plaintiff-insured also appealed the Superior Court’s massive fee reduction of its attorney’s fees and the ruling that the insurer did not violate c. 93A and c. 176D.

Appeals Court Finds No “Occurrence” and No Duty to Defend

Attorneys Melville and Ober argued in their appeal that the defendant contractor’s alleged decision to change the way in which the product was manufactured, and the alleged submission of false claims constituted a business decision or an intentional business act and was not an “occurrence” that would trigger insurance coverage under the policy.

The Massachusetts Appeals Court agreed and reversed the judgment of the trial court concerning the duty to defend.  The Appeals Court ruled that the allegations in the False Claims Act lawsuit did not constitute an accident or “occurrence” within the meaning of the applicable policy.  Accordingly, the Appeals Court held that the insurer had no duty to defend or indemnify.  Since the insurer had no duty to defend or indemnify, the Appeals Court held that the insurer did not violate c. 93A and c. 176D.

The Massachusetts Supreme Judicial Court denied Further Appellate Review, favoring our client insurance company.

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