EL GROUP, LLC, & Others v. UTICA NATIONAL INSURANCE GROUP & Others.

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.

3
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

5
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.

7
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