Lionbridge eventually filed suit in the U.S. District Court for the District of Massachusetts for its defense costs. Valley Forge counterclaimed for a declaration that it was not obligated to pay more than certain reduced rates of one defense firm and a portion of joint defense costs shared with Lionbridge’s corporate owner. The parties filed cross motions for summary judgment on the issue of whether Valley Forge owed Lionbridge a duty of defense. The district court ruled in favor of Valley Forge and held that the duty did not apply. Lionbridge appealed.
The First Circuit’s opinion set forth the general principles found in Massachusetts law that an insurer must defend its insured where the underlying complaint’s allegations could be reasonably construed as “roughly sketching” a covered claim, provided that no policy exclusion applies. Rather than focusing on the specific causes of action, the court would focus on the types of losses that might be proved within the range of the complaint’s allegations, and determine whether such losses fit the reasonable expectations of coverage of the policy.