EL GROUP, LLC, & Others v. UTICA NATIONAL INSURANCE GROUP & Others. ( 2024 )

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule
23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28,
as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties
and, therefore, may not fully address the facts of the case or the panel's
decisional rationale. Moreover, such decisions are not circulated to the entire
court and, therefore, represent only the views of the panel that decided the case.
A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25,
2008, may be cited for its persuasive value but, because of the limitations noted
above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260
n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
23-P-1176
EL GROUP, LLC, & others 1
vs.
UTICA NATIONAL INSURANCE GROUP & others. 2
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The defendants insured the plaintiffs -- EL Group, LLC (EL
Group), and its managers and members, Joseph P. Lotuff, III,
Frederick A. Lotuff, 3 and E. Alden Edmonds -- against "personal
and advertising injury." When the defendants declined to defend
or indemnify the plaintiffs against allegations that the
plaintiffs had "impugn[ed] the professional reputation" of a
1Joseph P. Lotuff, Third; Frederick A. Lotuff; and E. Alden
Edmonds.
2Utica Mutual Insurance Company and Graphic Arts Mutual
Insurance Company.
3We refer to Joseph P. Lotuff, III, and Frederick A.
Lotuff, individually, by their first names. We refer to them,
together, as the Lotuffs.
former business partner, the plaintiffs brought this action to
determine the defendants' obligations. On cross motions for
summary judgment, a Superior Court judge concluded that the
former business partner had not alleged personal and advertising
injury. A judgment entered for the defendants, and the
plaintiffs appealed. In prior proceedings a different panel of
this court concluded that the former business partner did allege
personal and advertising injury but remanded for consideration
of whether any exclusions relieved the defendants of the duty to
defend or indemnify. See EL Group, LLC v. Utica Nat'l Ins.
Group, 100 Mass. App. Ct. 1119 (2022). On remand, a judgment
again entered for the defendants. The plaintiffs appealed, and
we now affirm.
Background. The underlying dispute was between the
plaintiffs in this action and a former business partner, Frank
Clegg. After the partnership broke down, two of the plaintiffs,
EL Group and Joseph, brought a lawsuit against Clegg, Clegg's
company, and Clegg's sons. Clegg and his company responded with
a multicount counterclaim against all the plaintiffs -- EL
Group, the Lotuffs, and Edmonds. Thereafter, Clegg and his
company amended their counterclaim to remove Edmonds as a
counter defendant.
The amended counterclaim alleged the following facts.
Clegg had designed, marketed, and sold designer leather handbags
2
for more than thirty-five years and was well known and respected
in the industry. In or around 2009, the Lotuffs reached out to
Clegg about a business plan to sell Clegg's products on the
internet. The Lotuffs proposed that Clegg continue designing
and manufacturing his goods and that the Lotuffs would design
and build a website where those goods could be sold. The
Lotuffs represented that they wanted to partner with Clegg
because they did not have the ability to design leather goods
themselves. Clegg accepted the Lotuffs' offer with the
understanding that his goods would be sold under his name.
While Clegg did not know it at the time, the Lotuffs were
working on behalf of and conspiring with EL Group to steal
Clegg's designs.
As Clegg was putting the finishing touches on the
collection of products that were to be sold through the website,
the Lotuffs began to take credit for Clegg's designs. First,
the Lotuffs informed Clegg that the products would be sold under
the name "Lotuff & Clegg." 4 Later, at a trade show, Clegg
overheard Joseph falsely tell someone "that a 'design team' was
4 Clegg acquiesced to selling his goods under that name "in
the spirit of comity." However, he did not consent to the name
being trademarked. Nonetheless, Clegg later learned that the
defendants did register the name. The defendants also
registered the domain name frankclegg.com without Clegg's
consent.
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responsible for the collection, rather than crediting . . .
Clegg for his work on the designs." The Lotuffs also undertook
efforts to reverse engineer Clegg's products. When Clegg
confronted the Lotuffs, Frederick said, "I guess we're both
going to be making the same bags and selling them to the same
customers." Joseph informed Clegg that EL Group would "make it
look like . . . Clegg never existed." While Clegg immediately
terminated his partnership with the plaintiffs, the plaintiffs
produced knockoffs of Clegg's goods and falsely marketed the
designs as their own. In addition, Joseph falsely told people
that Clegg was responsible for a backlog of Lotuff & Clegg
orders.
As noted, EL Group and Joseph brought the underlying
action; Clegg and his company originally counterclaimed against
all the plaintiffs; and the plaintiffs sought a defense and
indemnification from the defendant insurance companies in this
action. The defendants took the position that the amended
counterclaim did not allege personal and advertising injury and
that, regardless, several exclusions relieved the defendants of
the duty to defend or indemnify. As pertinent to this appeal,
the defendants relied on the following exclusions: the knowing
violation of the rights of another; material published with
knowledge of its falsity; material published prior to the policy
period; the infringement of copyright, patent, trademark or
4
trade secret; and the unauthorized use of another's name or
product. After the defendants refused to defend or indemnify
the plaintiffs, the plaintiffs brought this action to determine
the defendants' obligations.
Discussion. We review a grant of summary judgment de novo
to determine "whether, viewing the evidence in the light most
favorable to the nonmoving party, all material facts have been
established and the moving party is entitled to judgment as a
matter of law" (quotation omitted). Dorchester Mut. Ins. Co. v.
Miville, 491 Mass. 489, 492 (2023).
We focus on the duty to defend, as the duty to defend is
broader than the duty to indemnify. See Boston Symphony Orch.,
Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10 (1989). See
also Marculetiu v. Safety Ins. Co., 98 Mass. App. Ct. 553, 560
(2020). "The duty to defend is determined based on the facts
alleged in the [underlying] complaint, and on facts known or
readily knowable by the insurer that may aid in its
interpretation of the allegations in the complaint" (quotation
omitted). Marculetiu, supra. "An insurer has a duty to defend
an insured when the allegations in [the underlying] complaint
are reasonably susceptible of an interpretation that states or
roughly sketches a claim covered by the policy terms" (quotation
omitted). Masonic Temple Ass'n of Quincy, Inc. v. Patel, 489
Mass. 549, 560 (2022). "[W]hen the allegations in the
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underlying complaint lie expressly outside the policy coverage
and its purpose, the insurer is relieved of the duty to
investigate or defend the claimant" (quotation omitted). Id.If an insurer relies on an exclusion to disclaim coverage, "[i]t
is the insurer who bears the burden of proving the applicability
of an exclusion." Norfolk & Dedham Mut. Fire Ins. Co. v. Cleary
Consultants, Inc., 81 Mass. App. Ct. 40, 52 (2011). "In order
for an exclusion to negate an insurer's duty to defend ab
initio, the facts alleged in the [underlying] complaint must
establish that the exclusion applies to all potential liability
as matter of law." Id.As discussed in the prior appeal, the allegations that the
plaintiffs took credit for Clegg's designs and that Clegg was
responsible for a backlog of orders amounted to allegations of
personal and advertising injury because the plaintiffs'
statements "tended to lower Clegg's reputation as a craftsman in
the community interested in his products." 5 EL Group, LLC, 100
5 The decision in the prior appeal did not address whether
any infringement of Clegg's intellectual property or any
unauthorized use of his name, see note 4, supra, constituted
personal and advertising injury. We need not reach that
question, either. The policy removed from coverage personal or
advertising injury (1) "arising out of the infringement of . . .
intellectual property rights" and (2) "arising out of the
unauthorized use of another's name or product in your e-mail
address, domain name or metatag, or any other similar tactics to
mislead another's potential customers." The plaintiffs assert
that the amended counterclaim did not "trigger" these exclusions
but do not explain why the exclusions would not apply to all
6
Mass. App. Ct. at 1119, slip op. at 6. The question we must
decide in this appeal is whether an exclusion "applie[d] to all
potential liability as matter of law." Norfolk & Dedham Mut.
Fire Ins. Co., 81 Mass. App. Ct. at 52. We need only address
the exclusion for the knowing violation of the rights of
another, which we conclude relieved the defendants of the duty
to defend.
The exclusion for the knowing violation of the rights of
another removed from coverage any personal and advertising
injury "caused by or at the direction of the insured with the
knowledge that the act would violate the rights of another and
would inflict 'personal and advertising injury.'" While "this
exclusion must be understood as applying only to the intentional
and knowing infliction of injury, and not to injury resulting
from reckless or negligent behavior," Norfolk & Dedham Mut. Fire
Ins. Co., 81 Mass. App. Ct. at 53, Clegg and his company's
counterclaims allege the intentional and knowing infliction of
injury. In substance, Clegg and his company alleged that the
plaintiffs sought to damage his reputation as part of a plan to
(1) steal his designs and (2) drive business away from him and
toward themselves. To the extent the plaintiffs succeeded in
potential liability arising out of the infringement of Clegg's
intellectual property or the unauthorized use of his name.
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damaging Clegg's reputation, the injury was the intended and
knowing effect of the plaintiffs' actions. See, e.g., Grange
Ins. Ass'n v. Roberts, 179 Wash. App. 739, 767-770 (2013) (same
exclusion applied where allegations showed that insured "made
false statements for a specific tortious purpose"). Clegg and
his company did not allege in the alternative that the
plaintiffs acted recklessly or negligently. Given the nature of
the allegations in the amended complaint, the defendants did not
have a duty to defend the plaintiffs.
We are unpersuaded by the plaintiffs' arguments to the
contrary. The plaintiffs argue that they denied any intentional
misconduct, but "[a]n insured's denial of the underlying
allegations has no bearing on whether a duty to defend exists,
because coverage turns on the nature of those allegations, not
on whether they are true." Marculetiu, 98 Mass. App. Ct. at
560. The plaintiffs alternatively argue that, at most, the
allegations of an intentional injury named only Joseph and that
the defendants still had a duty to defend the other plaintiffs.
We are unpersuaded because, as we have explained, Clegg and his
8
company alleged that the plaintiffs all conspired together to
commit intentional wrongdoing.
Judgment affirmed.
By the Court (Henry,
Hershfang & Smyth, JJ. 6),
Clerk
Entered: August 7, 2024.
6 The panelists are listed in order of seniority.
9