Insurer’s intention to replace existing asbestos counsel did not create a conflict of interest

A Massachusetts appeals court reversed an order that Celanese Corp. was entitled to reimbursement of approximately $2.4M of asbestos and toxic tort defense costs from OneBeacon because Celanese refused to allow OneBeacon to control its defense. The parties had a long-term “cost-sharing” agreement in which the insurer paid a percentage of the policyholder’s defense costs.  In 2009, Celanese withdrew from the agreement and demanded that OneBeacon fund its defense. Celanese had refused to allow OneBeacon to conduct the defense of its asbestos claims including the retention of new counsel, even after the insurer offered to waive its coverage defenses by withdrawing its reservation of rights and defenses. OneBeacon instituted suit seeking a determination that it had the right under its policies to control the defense of the underlying cases. In 2012, a Massachusetts trial court adopted a special master’s recommendation that OneBeacon must reimburse Celanese for $2.4M of “reasonable and necessary” defense costs in addition to interest.

The appellate court found that Celanese was not entitled to reimbursement despite Celanese’s claims that OneBeacon’s intention to replace its counsel constituted a conflict of interest that required the insurer provide counsel of the policyholder’s choosing. The appellate court found that OneBeacon’s plan to replace counsel did not impose “the type of extra-contractual conditions that courts have recognized as resulting in a conflict of interest.”

The court rejected Celanese’s argument that the insurer’s intention to replace existing defense counsel was an extra-contractual condition that created a conflict of interest as inconsistent with the insurer’s right to control the defense.  It also rejected the policyholder’s argument that the insurer “would put its own interests before Celanese’s in controlling the defense” because in a previous jury trial the insurer’s third-party administrator (“TPA”) was found to have engaged in unfair and deceptive practices by delaying claim payments.  The opinion characterized the previous jury finding as “a very finite issue” and did not lead to “the inescapable conclusion” that the insurer would not fairly provide a defense going-forward. The court found that there was no conflict of interest “simply because the insurer and insured have a different view as to the insured’s liability.”  Nor was there a conflict because Celanese puts a high priority on preserving its reputation. Finally, it found no evidence that the insurer had “a policy of exhausting liability limits rapidly to avoid paying defense costs.”

OneBeacon America Ins. Co. v. Celanese Corp., No. 16-P-203 (Ma. App. Ct. October 16, 2017)