In Mt. Vernon Fire Ins. Co. v. Vision Aid, Inc., 875 F.3d 716 (1st Cir. 2017) (interpreting Massachusetts law), the First Circuit Court of Appeals found that the mere filing of a counterclaim did not create a conflict of interest for defense counsel.
In this case, the insured, Vision Aid, fired Gary Sullivan, who was the company’s vice president. In turn, Sullivan alleged that he was fired as the product of age discrimination. Thereafter, Sullivan sued Vision Aid for age discrimination. In its defense Vision Aid claimed that it fired Sullivan because he embezzled money from the company, not because of his age. The Sullivan age discrimination suit was tendered to Vision Aid’s insurer, Mt. Vernon Fire Insurance Co. Mt. Vernon hired defense counsel to defend Vision Aid. Then, Vision Aid counterclaimed against Sullivan. After filing the counterclaim, Vision Aid demanded that Mt. Vernon fund the counterclaim, as well as allow Vision Aid to select its own defense counsel because of an alleged conflict of interest on the part of defense counsel created by the counterclaim.
In prior holdings in the case, the Massachusetts Supreme Judicial Court reported its opinion that Mt. Vernon had no obligated to fund Vision Aid’s affirmative counterclaim against Sullivan. Unfortunately, the Court was silent on whether defense counsel had an alleged conflict of interest. The focus of Vision Aid’s argument regarding the counterclaim was that defense counsel was serving two masters – Vision Aid and Mt. Vernon – that had potentially conflicting interests because the insurer might be inclined to devalue Vision Aid’s counterclaim to achieve a global settlement. This argument was rejected soundly by the Court.
First, the Mt. Vernon employment practices liability policy required Vision Aid’s consent before any settlement could be made. Second, the defense counsel’s role, which was to defeat Sullivan’s claims, was the same regarding the defense, as well as the pursuit of the counterclaim. Third, the Court noted that in practice clients will oftentimes have two attorneys involved in a case and, in that situation, the insured’s personal counsel could pursue the counterclaim while defense counsel defended against the primary complaint. Any difference of opinion regarding litigation strategy would not create a viable conflict of interest that disqualified defense counsel.