Case Title: Ins. Co. of State of Penn. v. Great N. Ins. Co.

Citation: 

Docket Number: SJC-11897

State: massachusetts

Court: Massachusetts Supreme Court

Date: 2016-03-07T00:00:00Z

Document:
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SJC-11897 
 
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA  vs.  GREAT 
NORTHERN INSURANCE COMPANY. 
 
 
 
Suffolk.     November 2, 2015. - March 7, 2016. 
 
Present:  Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, & 
Hines, JJ. 
 
 
Workers' Compensation Act, Insurer, Coverage, Election of 
remedies.  Insurance, Workers' compensation insurance, 
Contribution among insurers, Insurer's obligation to 
defend.  Contribution.  Tender.  Election of Remedies. 
 
 
 
 
Certification of a question of law to the Supreme Judicial 
Court by the United States District Court for the District of 
Massachusetts. 
 
 
 
Barbara I. Michaelides, of Illinois (Aaron S. Bayer, of 
Connecticut, with her) for the plaintiff. 
 
Jennifer C. Sheehan (Richard J. Shea with her) for the 
defendant. 
 
Laura Meyer Gregory, for Massachusetts Defense Lawyers 
Association, amicus curiae, submitted a brief. 
 
 
 
GANTS, C.J.  The United States Court of Appeals for the 
First Circuit certified the following question to this court, 
2 
 
pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 
(1981): 
 
"Where two workers' compensation insurance policies 
provide coverage for the same loss, may an insured elect 
which of its insurers is to defend and indemnify the 
claim by intentionally tendering its defense to that 
insurer and not the other and thereby foreclose the 
insurer to which tender is made from obtaining 
contribution from the insurer to which no tender is 
made?" 
 
We answer "no" to the question.  Where, as here, two primary 
workers' compensation insurance policies provide coverage for 
the same loss arising from injury to an employee, the insurance 
company that pays the loss has a right of equitable contribution 
to ensure that the coinsurer pays its fair share of the loss.  
The employer of the injured employee may not prevent the 
insurance company that pays the loss from exercising its right 
of equitable contribution by intentionally giving notice of the 
injury only to that insurer.1 
 
Background.  We set forth below the relevant background and 
procedural history of the case contained in the certification 
order from the First Circuit, occasionally supplemented by 
undisputed information in the record.  In January, 2010, an 
employee of Progression, Inc. (Progression), was severely 
injured in an automobile accident while traveling abroad on a 
business trip.  Progression had purchased two workers' 
                                                          
 
 
1 We acknowledge the amicus brief submitted by the 
Massachusetts Defense Lawyers Association. 
3 
 
compensation policies from two different insurers, one providing 
compulsory workers' compensation coverage from the Insurance 
Company of the State of Pennsylvania (ISOP), and a second 
providing workers' compensation coverage for employees traveling 
outside the United States and Canada from Great Northern 
Insurance Company (Great Northern).  Both policies provided 
primary coverage; neither was an excess policy.2  The employee 
gave timely notice of his injury to Progression and pursued a 
workers' compensation claim before the Department of Industrial 
Accidents (department).  Progression gave notice of the claim 
only to ISOP; it did not notify Great Northern.  ISOP 
immediately began making payments pursuant to the policy and 
defended the claim before the department. 
 
ISOP later learned that Progression also had workers' 
compensation coverage under its Great Northern policy and, on 
October 3, 2011, sent a letter to Great Northern that gave 
notice of the claim and requested contribution.  In a letter 
dated March 15, 2012, Great Northern declined "the attempted 
tender" of the claim.  It informed ISOP that it had learned from 
                                                          
 
 
2 An excess insurance policy provides coverage for a risk 
only when the coverage limits from other policies insuring that 
risk have been exhausted.  See R. Segalla, Couch on Insurance 3d 
§ 220:32 (2005).  An excess insurance policy and a primary 
insurance policy "do not (absent a specific provision) act as 
coinsurers of the entirety of the risk.  Rather, each insurer 
contracts with the insured individually to cover a particular 
portion of the risk."  Allmerica Fin. Corp. v. Certain 
Underwriters at Lloyd's, London, 449 Mass. 621, 629-630 (2007). 
4 
 
Progression that Progression had intended to tender the claim 
only to ISOP and had not authorized ISOP to report or tender the 
claim to Great Northern. 
 
On November 7, 2013, ISOP filed a complaint against Great 
Northern in the United States District Court for the District of 
Massachusetts, seeking a judgment declaring that the doctrine of 
equitable contribution required Great Northern to pay one-half 
of the past and future defense costs and indemnity payments 
related to Progression's claim.  On August 25, 2014, a judge of 
the District Court allowed Great Northern's motion for summary 
judgment.  Insurance Co. of Pa. v. Great N. Ins. Co., 43 F. 
Supp. 3d 76, 82-83 (D. Mass. 2014).  The judge concluded, "in 
the absence of binding precedent on this point," that Great 
Northern was correct "that any obligation of a co-insurer for 
equitable contribution to the other insurer does not arise until 
a claim for defense or indemnity is tendered by the insured or 
one authorized to act on behalf of the insured."  ISOP timely 
appealed and, on May 29, 2015, the First Circuit certified the 
question before us. 
 
Discussion.  1.  Equitable contribution.  Under the 
doctrine of equitable contribution, where multiple insurers 
provide coverage for a loss of an insured, an insurer who pays 
more than its share of the costs of defense and indemnity may 
require a proportionate contribution from the other coinsurers.  
5 
 
See Truck Ins. Exch. v. Unigard Ins. Co., 79 Cal. App. 4th 966, 
974 (2000) ("Equitable contribution permits reimbursement to the 
insurer that paid on the loss for the excess it paid over its 
proportionate share of the obligation . . .").  See generally 
S.M. Seaman & J.R. Schulze, Allocation of Losses in Complex 
Insurance Coverage Claims § 5:2 (3d ed. 2014) (Seaman & Schulze) 
("Equitable contribution applies to insurers that share the same 
type of obligation on the same risk with respect to the same 
insured").  "The right of equitable contribution does not depend 
on an express agreement between the parties to indemnify each 
other, but, rather, rests upon equitable principles that imply 
an obligation to contribute ratably toward the payment of a 
common obligation."  Lexington Ins. Co. v. General Acc. Ins. Co. 
of Am., 338 F.3d 42, 49-50 (1st Cir. 2003).  See Seaman & 
Schulze, supra ("The doctrine is based on principles of equity, 
not contract").  Because it does not derive from contract, 
equitable contribution, unlike subrogation, is a right of the 
insurer and exists independently of the rights of the insured.  
Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 
1279, 1294- 1295 (1998). 
 
Equitable contribution is designed to prevent the potential 
unfair result that the company that pays first is left to cover 
the entire loss.  See id. at 1295.  "[W]here multiple insurers 
or indemnitors share equal contractual liability for the primary 
6 
 
indemnification of a loss or the discharge of an obligation, the 
selection of which indemnitor is to bear the loss should not be 
left to the often arbitrary choice of the loss claimant."  Id.  
The underlying principle is that "each [insurer] pays its fair 
share and one does not profit at the expense of the others."  
Id. at 1296.  The doctrine recognizes that an insured who 
expects to be paid in full by one insurance company may have no 
incentive to ask the other insurance company covering the same 
risk to pay its share.  See Truck Ins. Exch., 79 Cal. App. 4th 
at 974.  And the doctrine aims to deprive an insurer of "any 
incentive to avoid paying a just claim in the hope the claimant 
will obtain full payment from another coindemnitor."  Fireman's 
Fund Ins. Co., supra at 1295.  Apart from ensuring fairness, 
equitable contribution furthers the basic risk-spreading purpose 
of insurance by allowing insurers to distribute the costs of a 
claim equally among all insurers with coverage obligations.  See 
S. Plitt, D. Maldonado, & J.D. Rogers, Couch on Insurance 3d 
§ 1:9 (Supp. 2015). 
 
For these reasons, the majority of jurisdictions recognize 
the equitable contribution doctrine.  See Seaman & Schulze, 
supra at § 5:2 (citing cases from jurisdictions recognizing 
equitable contribution and noting that only a "minority of 
states" do not allow it).  We are among the majority of States 
that have recognized the right of an insurer to seek equitable 
7 
 
contribution from coinsurers who cover the same risk.  See 
Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492, 
498-500 (1988) (where two policies create "umbrella-type excess 
insurance," both insurers must "contribute equally until the 
policy with the lower limit is exhausted"); Travelers Ins. Co. 
v. Aetna Ins. Co., 359 Mass. 743 (1971) (affirming order 
requiring coinsurer to provide contribution to insurer that paid 
settlement amount for jointly covered claim).  See also 
Rubenstein v. Royal Ins. Co. of Am., 44 Mass. App. Ct. 842, 852 
(1998), S.C., 429 Mass. 355 (1999) ("Of course, there is no bar 
against an insurer obtaining a share of indemnification or 
defense costs from other insurers under the doctrine of 
equitable contribution").   Cf. Boston Gas Co. v. Century Indem. 
Co., 454 Mass. 337, 347-348, 365-366 (2009) (where various 
insurers provided coverage for environmental damage over many 
years, pro rata allocation produces most equitable result for 
"long-tail claims" because it avoids saddling one insurer with 
full loss and "promotes judicial efficiency, engenders stability 
and predictability in the insurance market, provides incentive 
for responsible commercial behavior, and produces an equitable 
result").  We have recognized the right of equitable 
contribution in past cases, and now clearly declare that we 
adopt the doctrine. 
8 
 
 
2.  Selective tender.  Great Northern does not challenge 
the wisdom of the equitable contribution doctrine but contends 
that it does not apply in this case because Progression 
purposely tendered the workers' compensation claim only to ISOP.  
It argues that "there is no support in the case law of any 
jurisdiction for the proposition that, in the absence of 
exceptional circumstances, the doctrine of equitable 
contribution can override explicit, unambiguous policy 
language."  Lexington Ins. Co., 338 F.3d at 50.  And it notes 
that, under its workers' compensation insurance policy with 
Progression, it had no duty to provide coverage unless 
Progression "fully complied with all of the terms and conditions 
of the policy."  One of those terms required Progression to give 
notice to Great Northern "at once if injury occurs that may be 
covered" by the policy.  Because Progression purposely gave no 
such notice, Great Northern claims that it had no duty to 
provide coverage for the losses suffered by Progression's 
injured employee.  It also claims that, because it had no duty 
to provide coverage, there can be no equitable contribution, 
which is predicated on multiple insurers providing coverage for 
the same risk. 
 
Although it does not use the term, Great Northern 
essentially asks us to recognize the "selective tender" 
exception to the doctrine of equitable contribution, which 
9 
 
provides that, "where an insured has not tendered a claim to an 
insurer, that insurer is excused from its duty to contribute to 
a settlement of the claim."  Mutual of Enumclaw Ins. Co. v. USF 
Ins. Co., 164 Wash. 2d 411, 421 (2008).  The exception has been 
recognized by only "a minority of jurisdictions."  R. Segalla, 
Couch on Insurance 3d § 200:37 (2005).  See, e.g., John Burns 
Constr. Co. v. Indiana Ins. Co., 189 Ill. 2d 570, 574 (2000); 
Mutual of Enumclaw Ins. Co., supra at 421-422.  The Supreme 
Court of Washington adopted the "selective tender" exception, 
reasoning: 
 
"Equity provides no right for an insurer to seek 
contribution from another insurer who has no obligation to 
the insured. . . .  The duties to defend and indemnify do 
not become legal obligations until a claim for defense or 
indemnity is tendered.  Further, the insurer who seeks 
contribution does not sit in the place of the insured and 
cannot tender a claim to the other insurer.  Thus, if the 
insured has not tendered a claim to an insurer prior to 
settlement or the end of trial, other insurers cannot 
recover in equitable contribution against that insurer" 
(emphasis in original; footnote omitted). 
 
Mutual of Enumclaw Inc. Co., supra at 420-421.  As this excerpt 
makes clear, the underlying premise of the selective tender 
exception is that, if the insured chose not to tender a claim to 
an insurer, the insurer has no obligation to defend or indemnify 
that claim and therefore has no obligation to contribute towards 
the defense or indemnification.  That premise is incorrect with 
respect to workers' compensation insurance under Massachusetts 
law. 
10 
 
 
Workers' compensation insurance is a creature of statute, 
and all workers' compensation insurance policies must be 
interpreted to comply with applicable statutes and regulations 
governing workers' compensation.  See generally G. L. c. 152, 
§§ 26, 44; Darcy v. Hartford Ins. Co., 407 Mass. 481, 485 (1990) 
(notice provision in workers' compensation insurance policy 
interpreted in accordance with applicable statute).  General 
Laws c. 152, § 26, provides that when an employee is injured in 
the course of his or her employment, that employee "shall be 
paid compensation by the insurer or self-insurer."  Therefore, 
under Massachusetts law, although the employer purchases the 
workers' compensation policy, a workers' compensation insurer is 
directly liable to an injured employee for the workers' 
compensation benefits provided by law; the insurer does not 
reimburse the employer for its payment of these benefits. 
 
Under Massachusetts workers' compensation insurance law, an 
injured employee presents a claim for compensation by providing 
notice of the injury in writing "to the insurer or insured 
[i.e., the employer] as soon as practicable" after the incident 
causing the injury, stating the time, place, and cause of the 
injury (emphasis added).  G. L. c. 152, §§ 41, 42.  The employer 
is required to give notice of the injury to the department and 
its workers' compensation insurer within seven days, but the 
11 
 
failure to do so results only in a nominal fine to the employer;3 
it does not bar the employee from obtaining compensation from 
the workers' compensation insurer.  The employee is barred from 
receiving workers' compensation benefits under G. L. c. 152, 
§ 44, only if the insurer, the insured (i.e., the employer), and 
their agent had no knowledge of the injury and the insurer was 
prejudiced by the absence of notice.  See G. L. c. 152, § 44.  
By giving notice of the injury to the employer alone, an 
employee preserves his or her entitlement to workers' 
compensation benefits. 
 
In light of these statutory provisions, Great Northern's 
obligation to defend and indemnify the claim was triggered by 
the notice given to Progression by its injured employee, 
regardless of whether Progression gave notice of the injury to 
Great Northern.  Therefore, as applied to workers' compensation 
benefits, the language in Great Northern's policy providing that 
its duty of coverage is contingent on the employer providing 
notice of the injury is contrary to Massachusetts law, and null 
and void with respect to a Massachusetts employee. 
                                                          
 
 
3 Under G. L. c. 152, § 6, the failure of an employer to 
notify the Department of Industrial Accidents or the workers' 
compensation insurers of the injury "shall be punished by a fine 
of one hundred dollars for each such violation" but is 
punishable only if the employer violates this provision three or 
more times in any year. 
12 
 
 
The Supreme Court of Utah considered whether to adopt the 
selective tender exception where multiple insurers provided 
overlapping workers' compensation coverage and rejected it for 
the same reasons we do.  Workers Compensation Fund v. Utah 
Business Ins. Co., 296 P.3d 734, 739 (Utah 2013).  The court 
explained that Utah's workers' compensation statute (like ours) 
provides that insurers are liable for injuries reported by 
employees regardless of whether employers notify or formally 
tender claims to insurers.  Id.  Because "[a]ll insurers . . . 
are automatically liable for claims reported to employers," the 
court held that "[t]he statutory scheme . . . precludes [it] 
from adopting the [selective] tender doctrine in the context of 
workers compensation."  Id. 
 
The selective tender exception also does not accord with 
Massachusetts law governing general liability insurance.  Under 
Massachusetts law, an insurer's coverage obligation is triggered 
by notice regardless of the timing or the source of such notice; 
late notice or notice from a third party does not preclude 
coverage unless the insurer is prejudiced.  See G. L. c. 175, 
§ 112; Boyle v. Zurich Am. Ins. Co., 472 Mass. 649, 655-659 
(2015).  Specifically, pursuant to G. L. c. 175, § 112, "[a]n 
insurance company shall not deny insurance coverage to an 
insured because of failure of an insured to seasonably notify an 
insurance company of an occurrence . . . which may give rise to 
13 
 
liability insured against unless the insurance company has been 
prejudiced thereby."  See Johnson Controls, Inc. v. Bowes, 381 
Mass. 278, 282 (1980) (insurance company seeking relief from 
coverage obligations under liability insurance policy because of 
untimely notice must show both breach of notice provision and 
prejudice arising from breach).  In Boyle, supra at 658, where a 
third party notified the insurer of the complaint, we held that 
the insured's failure to give notice did not excuse the insurer 
from its duty to defend unless it could demonstrate that the 
insured's breach of its notice obligation caused prejudice by 
depriving the insurer of the opportunity to mount an effective 
defense.  Therefore, in Massachusetts, an insured's failure to 
tender a claim by giving timely notice does not protect the 
insurance company from liability on the claim, even if the 
failure were intentional, unless the insurance company was 
prejudiced by the untimeliness of the notice.  Because the 
premise of the selective tender doctrine is that an insurer is 
not liable on a claim where the insured fails to give timely 
notice, adoption of the selective tender exception would be in 
conflict with our statutory and case law governing liability 
insurance. 
 
Its adoption would also be contrary to sound public policy 
because it would reward insurers that try to ignore their 
coverage obligations at the expense of those that 
14 
 
conscientiously honor them.  Under the selective tender 
exception, an insured that has two insurers of the same risk 
might choose to tender the claim to the insurance company that 
will promptly honor and pay the claim with minimum inconvenience 
and paperwork, and avoid tendering the claim to the insurance 
company that would delay payment of the claim and maximize the 
inconvenience and paperwork involved in obtaining payment.  
Selective tender would prevent the conscientious insurer from 
seeking equitable contribution from its less conscientious 
coinsurer.  It would reward the "bad" insurer, who would be 
spared paying its fair share of the claim, and punish the "good" 
insurer, who would be required to pay the entirety of the claim 
alone.  Insurers should be encouraged to promptly accept their 
coverage obligations and begin defending claims; they should not 
be rewarded for failing to do.  See Fireman's Fund Ins. Co., 65 
Cal. App. 4th at 1295. 
 
Selective tender would also burden the Massachusetts 
Insurers Insolvency Fund, which, among other things, covers 
claims of insureds where the insurer has become insolvent.  See 
G. L. c. 175D, § 5.  If an employer with two workers' 
compensation insurers could negate an insurance company's 
workers' compensation coverage by electing not to notify that 
insurer of the injury, then the full burden of coverage would 
15 
 
fall on the notified insurer and, if that insurer were to become 
insolvent, on the Fund.  See id.  See also G. L. c. 175D, § 2. 
 
Conclusion.  We answer "no" to the certified question.  
Under Massachusetts law, where two workers' compensation 
insurance policies issued by different companies provide 
coverage for the same loss, an employer, by electing to provide 
notice of the claim only to one insurer, does not foreclose that 
insurer from obtaining equitable contribution from the other 
insurer. 
 
The Reporter of Decisions is to furnish attested copies of 
this opinion to the clerk of this court.  The clerk in turn will 
transmit one copy, under the seal of the court, to the clerk of 
the United States Court of Appeals for the First Circuit, as the 
answer to the question certified, and will also transmit a copy 
to each party.