District Court Finds Reasonableness Determination Includes Allocation of Defense Costs Between Insured and Non-Insured Party

In Lionbridge Technologies, LLC v. Valley Forge Insurance Company, No. CV 20-10014-WGY, 2023 WL 5985288 (D. Mass. Sept. 14, 2023), the Massachusetts District Court found where an insurance company has refused to pay for the defense of a policyholder’s corporate owner, a reasonable allocation of costs between the insured and non-insured parties is proper.

The matter involved an insurance coverage dispute between Lionbridge Technologies, LLC and its insurer. Lionbridge sought full costs for the defense of an underlying litigation, while the insurer claimed it was not required to pay for the defense of Lionbridge’s co-defendant, H.I.G. Middle Market LLC, the corporate owner of Lionbridge.

While the court agreed with Lionbridge in that the insurer’s duty to defend Lionbridge included all costs reasonably related to the defense of Lionbridge, the court ordered a reasonable allocation of costs between the insured and non-insured parties. The court aligned its decision with the Watts Water Techs., Inc. v. Fireman’s Fund Ins. Co., No. 05-2604-BLS2, 2007 WL 2083769, at *11 (Mass. Super. Ct. July 11, 2007).

The court concluded that, as decided by the Superior Court in Watts Water, it was only fair to consider “the allocation that reasonably would have been negotiated had each party in the joint defense paid its own legal fees,” and that the Massachusetts Supreme Judicial Court would follow this rule. The court noted that in the underlying matter, there were two corporations involved in the litigation, and the one that was not insured should not be free of paying for its defense costs. Although the court acknowledged that the insurer could seek contributions from the uninsured party and its insurers, such did not undermine the possibility of reasonably allocating costs.

The court ordered the insurer to pay reasonable costs incurred by its insured, Lionbridge but found the question of reasonableness included allocating the cost among the parties to the joint defense for work that benefited them both.

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