lexington insurance company v. ace american insurance company complaint

8/7/2019 LEXINGTON INSURANCE COMPANY v. ACE AMERICAN INSURANCE COMPANY Complaint

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UNITED STATES DISTRICT COURTDISTRICT OF MASSACHUSETTS)LEXINGTON INSURANCE COMPANY, )

Plaintiff,v. Case No.:ACE AMERICAN INSURANCECOMPANY,

))))))))))Defendant.

COMPLAINTLexington Insurance Company ("Lexington") brings this declaratory judgment action to

obtain an adjudication as to the rights and obligations as between Lexington and ACE AmericanInsurance Company ("ACE"), with respect to an underlying action brought by Patrick andElizabeth Hannon (collectively, the "Hannons") in Middlesex County, Massachusetts SuperiorCourt against ACE's and Lexington's mutual insureds, Richard L. Weiner and Donald H.Laliberte.

I. PARTIES1. Lexington is an insurance company organized and existing under the laws ofDelaware

with its principal place of business in Boston, Massachusetts.2. ACE is an insurance company organized and existing under the laws ofthe

Commonwealth ofPennsylvania and having a principal place business in theCommonwealth ofPennsylvania.

II. JURISDICTION AND VENUE


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3. This court has jurisdiction pursuant to 28 U.S.C. 1332(a) because the parties arecitizens of different states and the matter in controversy exceeds the sum of $75,000,exclusive of interest and costs.

4. Venue is proper in this district pursuant to 28 U.S.C. 1391(a)(1) and 1391(c)becauseACE is a corporation and it is an insurer subject to personal jurisdiction in this district.

III. SUMMARY OF THE UNDERLYING ACTION5. On or about May 29,2008, the Hannons filed a lawsuit in the Massachusetts Superior

Court, Middlesex County, against Carlin, Charron & Rosen, LLP ("CCR"); William P.Gately, CPA, P.C., formerly known as Gately & Associates, P.C. ("Gately"); Richard L.Weiner ("Weiner"); and Donald H. LaLiberte ("LaLiberte") seeking damages inconnection with accounting services the defendants had performed for the Hannons. OnJune 25, 2008, the Hannons filed an amended complaint. A copy of the amendedcomplaint (the "Underlying Complaint") is attached hereto as Exhibit 1.

6. In the Underlying Complaint, it is alleged that for tax years 1999 and 2000, Gately,Weiner and LaLiberte prepared IRS Forms 1120-S for corporations owned by PatrickHannon and IRS Forms 1040 for the Hannons. At these times, Weiner and LaLibertewere employed by Gately.

7. The Underlying Complaint also alleges that Gately sold substantially all of its assets toCCR in or about 2002 and, contemporaneous with the sale, Weiner and LaLiberte beganworking for CCR as its employees.

8. The Underlying Complaint continues that for tax year 2001, CCR, Weiner and LaLiberteprepared IRS Form 1120-S for Patrick Hannon's corporations and IRS Form 1040 for theRannons.

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9. The Underlying Complaint further alleges that the Forms II20-S that CCR, Gately,Weiner and LaLiberte prepared and submitted to the IRS failed to claim deductions towhich Patrick Hannon's corporations were entitled, with the result that the Forms 1 120-Sgrossly overstated the net profits generated by the corporations and the Forms 1040grossly overstated the Hannons' income.

10. The overstatement allegedly created a tax liability that the Hannons have been unable topay, resulting in, among other things, the aggressive pursuit by the IRS of collectionagainst the Hannons and the insolvency ofPatrick Hannon's corporations. The Hannonscurrently have outstanding federal tax bills in excess of$6,000,000, allegedly entirelyattributable to the overstated tax liability and interest accrued thereon.IV. THE ACTUAL CONTROVERSY BETWEEN LEXINGTON AND ACE

11. Lexington issued a claims-made and reported LexAssure Accountants ProfessionalLiability Policy to Carlin, Charron & Rosen LLP, as the named insured, for the policyperiod January 1,2008 to January 1,2009, policy number 3448675 (the "LexingtonPolicy"). A copy of the Lexington Policy is attached hereto as Exhibit 2.

12. The Lexington Policy has limits of liability of $ 10,000,000 per claim and in theaggregate, with a $300,000 self-insured retention amount.

13. Pursuant to Endorsement 8, the Lexington Policy "does not apply to any claim arising outof professional services rendered for, by or [on] behalfof" Gately & Associates P.C.Accordingly, any alleged errors or omissions by Weiner or LaLiberte while they wereworking for Gately are not covered by the Lexington Policy.

14. ACE issued a claims-made and reported Accountants and Consultants ProfessionalLiability Insurance Policy to Gately & Associates, P.C., for the policy period May 1,2002 to May 1,2003, policy number CEL 097054 (the "ACE Policy"). The ACE Policy

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was cancelled May 16,2002 and an Unlimited Extended Reporting Period Endorsementwas issued. The ACE Policy covers Weiner and LaLiberte for any alleged errors oromissions in the rendering ofprofessional services while they were working for Gately.A copy of the ACE policy is attached hereto as Exhibit 3.

15. The ACE policy has limits of liability of$I,OOO,OOO per claim, $2,000,000 in theaggregate and a $25,000 per claim deductible amount.

16. The ACE and Lexington policies insure Weiner and LaLiberte for different risks. TheLexington Policy only insures Weiner and LaLiberte for alleged errors and omissions inthe rendering ofprofessional services while they were employed by CCR, while the ACEPolicy only insures Weiner and LaLiberte for alleged errors and omissions in therendering ofprofessional services while they were employed by Gately.

17. ACE contends that, pursuant to the "other insurance" clause in the Extended ReportingPeriod provision of the ACE Policy, the coverage afforded to Weiner and LaLiberteunder the ACE Policy is excess over the coverage available to Weiner and LaLiberteunder the Lexington Policy.

18. Because the Lexington Policy and the ACE Policy insure Weiner and LaLiberte fordifferent risks, however, the "other insurance" clauses in the respective policies areinapplicable.

19. Even if resolution of the dispute over the priority ofcoverage turns upon construction ofthe ACE and Lexington "other insurance" provisions, which Lexington denies, since theLexington Policy and the ACE Policy contain the same type ofother insurance clause(i.e., "super excess" clauses), under Massachusetts law the "other insurance" clauseswould be deemed mutually repugnant.

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20. Accordingly, both the Lexington policy and the ACE policy provide co-insurance toWeiner and LaLiberte against the Underlying Complaint once Lexington's $300,000 selfinsured retention amount is exhausted.

21. Lexington has an obligation to indemnify Weiner and LaLiberte to the extent they arefound liable for services they performed while working for CCR. ACE has an obligationto indemnify Weiner and LaLiberte to the extent they are found liable for services theyperformed while working for Gately.

22. Lexington only will have an obligation to contribute to Weiner's and LaLiberte'sindemnity or defense costs after Lexington's $300,000 self-insured retention amount isexhausted. Once the Lexington self-insured retention amount is exhausted, Lexingtonand ACE will have an obligation to equally pay Weiner's and LaLiberte's defense costs.

COUNT I-DECLARATORY JUDGMENT23. Lexington re-alleges and incorporates as set forth herein all of the allegations contained

in paragraphs 1-21 above.24. .A justiciable controversy exists between Lexington and ACE relative to their respective

obligations to pay indemnity and defense costs incurred by Weiner and Laliberte inconnection with the Underlying Complaint under the terms of the insurance policies thatthey issued.

25. Wherefore, Lexington requests a declaration that once the Lexington self-insuredretention amount is.exhausted, Lexington and ACE have an obligation to equally payWeiner and Laliberte's defense costs.

26. Lexington also seeks a declaration that ACE and not Lexington has a duty to indemnifyWeiner or Laliberte in connection with acts or omissions that they performed whileemployed by Gately.

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LEXINGTON DEMANDS TRIAL BY JURY ON ALL ISSUES SO TRIABLE.

September 22, 2009

Respectfully submitted,LEXINGTON INSURANCE COMPANY,By its attorneys,

Mark E. Cohen, BBO No. 089800Zelle, McDonough & Cohen, LLP101 Summer Street - 14th FloorBoston, MA 02110Tel: (617) 742-6520Fax: (617) 742-1393

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lexington insurance company v. ace american insurance company complaint

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