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14-P-798 Appeals Court

MERCHANTS INSURANCE GROUP vs. KEVIN SPICER1 & others.

2

No. 14-P-798.

Suffolk. March 4, 2015. - September 9, 2015.

Present: Cohen, Hanlon, & Sullivan, JJ.

Insurance, Workers' compensation insurance. Workers' 

Compensation Act, Coverage, Jurisdiction of court, 

Jurisdiction of Industrial Accident Board. Jurisdiction, 

Superior Court, Administrative matter. Administrative Law, 

Exhaustion of remedies. Practice, Civil, Declaratory 

proceeding.

Civil action commenced in the Superior Court Department on 

June 19, 2012.

The case was heard by Elizabeth M. Fahey, J., on a motion 

for relief from judgment.

Darrel Mook (Patricia B. Gary with him) for the plaintiff.

Douglas S. Martland for the intervener.

COHEN, J. The central question presented in this appeal is 

whether an insurer may bring an action in Superior Court to 

 

1 Doing business as Uptown Landscaping.

2 Joel Estaban Perez; Workers' Compensation Trust Fund, 

intervener.
2

retroactively void a workers' compensation policy while an 

injured employee's claim under that policy is pending in the 

Department of Industrial Accidents (DIA). The plaintiff, 

Merchants Insurance Group (Merchants), claiming fraud in the 

inducement, initiated such an action, and, there being no 

opposition from the insured employer or the injured employee, 

secured a declaratory judgment in its favor. Subsequently, 

however, a judge of the Superior Court reopened the case at the 

request of the employee and the Workers' Compensation Trust Fund 

(Fund)3 and dismissed Merchants' complaint, without prejudice,

for lack of subject matter jurisdiction. Upon review of 

Merchants' appeal from the judgment of dismissal, we conclude 

that the judge correctly ruled that its claim for rescission of 

the workers' compensation policy was subject to the doctrine of 

exhaustion of administrative remedies, and could not be pursued 

in the Superior Court. For this and other reasons explained 

below, we affirm the judgment of dismissal.

Background. On December 30, 2011, Joel Estaban Perez was 

seriously injured while working for Kevin Spicer, doing business 

 

3 Established by St. 1985, c. 572, § 55, the Fund 

"provide[s], among other things, a source of payment for an 

employee who suffers a work-related injury while working for an 

employer who does not have workers' compensation insurance in 

violation" of G. L. c. 152, § 65(2)(e). Sellers's Case, 452 

Mass. 804, 804 n.2 (2008). All employers in the Commonwealth 

that are subject to the workers' compensation act must 

contribute to the Fund. Id. at 805 & n.5.
3

as Uptown Landscaping (Spicer).

4 Perez sought workers'

compensation benefits under a policy issued by Merchants to 

Spicer, and Merchants contested the claim.5 After an informal 

conference, a DIA administrative judge ordered Merchants to pay 

Perez weekly temporary total incapacity benefits, pursuant to 

G. L. c. 152, § 34, and medical benefits, pursuant to G. L. 

c. 152, §§ 13, 30, pending an evidentiary hearing on the merits. 

Both parties appealed the interim conference order and requested 

a formal hearing pursuant to G. L. c. 152, § 11.

In June, 2012, while Perez's DIA case was awaiting the 

formal hearing, Merchants successfully moved to join the Fund as 

a party to the DIA case. At about the same time, Merchants also 

filed a complaint in Superior Court naming Spicer and Perez as 

defendants. In that complaint, Merchants sought rescission of

two insurance policies (a workers' compensation policy and a 

general liability policy) that it had issued to Spicer, on the 

ground that Spicer had made material misrepresentations in 

applying for the policies. Merchants also sought a judgment

declaring that the policies were void ab initio and that it had 

 

4 Perez's right (major) hand was dismembered by a logsplitting machine. Perez represented in the Superior Court, and 

it is not disputed, that, by November, 2012, his medical bills 

had exceeded $700,000, and his treatment was ongoing.

5 In its "Notification of Denial," Merchants asserted that 

Perez was an independent contractor and not a covered 

"employee."
4

no duty to defend or indemnify Spicer in connection with Perez's 

pending claim for workers' compensation benefits. As against 

Spicer, Merchants also sought damages in the amount of any 

payments it had been required to make to Perez under the 

workers' compensation policy thus far.

Neither Spicer nor Perez put up any resistance. Spicer 

never appeared in the action, and on June 28, 2013, a default 

judgment entered against him along the lines requested by 

Merchants.6 Perez answered Merchants' complaint but did not 

oppose its motion for summary judgment. On August 23, 2013, a 

judgment entered against Perez, declaring that both of the 

policies issued by Merchants to Spicer were void ab initio and 

rescinded, and that Merchants had no obligation to defend, 

indemnify, or pay any sums on account of any claims or actions 

arising out of Perez's injuries, including the pending DIA case. 

Because the Superior Court case was never actively litigated, at 

no time was there any determination that Spicer, in fact, had

made misrepresentations to Merchants, or that any such 

misrepresentations met the criteria necessary to defeat or avoid 

 

6 The judgment rescinded and declared void ab initio both 

the general liability and workers' compensation policies, and 

awarded Merchants $55,549.26 for payments made by it through 

September 28, 2012, for legal fees, medical payments, and 

indemnity payments arising from Perez's workers' compensation 

claim.
5

Merchants' obligations under the policies. See G. L. c. 175, 

§ 186(a).7

With the declaratory judgment in hand, Merchants went 

before the administrative judge assigned to the Perez matter and 

moved that it be dismissed from the DIA case. The 

administrative judge denied the motion8 and scheduled a G. L. 

c. 152, § 11, formal hearing for November 4, 2013. Merchants

then filed a second Superior Court action, requesting that the 

 

7 General Laws c. 175, § 186(a), as appearing in St. 2008, 

c. 376, § 1, provides: "No oral or written misrepresentation or 

warranty made in the negotiation of a policy of insurance by the 

insured or in his behalf shall be deemed material or defeat or 

avoid the policy or prevent its attaching unless such 

misrepresentation or warranty is made with actual intent to 

deceive, or unless the matter misrepresented or made a warranty 

increased the risk of loss." Under this statute, "a 

misrepresentation in an application for insurance is material, 

and, thus, will enable the insurer to avoid the policy, if it is 

made with actual intent or if it increases the risk of loss. A 

material fact, measured by an objective standard, is one which 

would 'naturally influence the judgment of [an] underwriter in 

making the contract at all, or in estimating the degree and 

character of the risk, or in fixing the rate of the premium.' 

The [insurer] has the burden of proof on this issue." A.W. 

Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 

Mass. 502, 513 (2005), quoting from Employers' Liab. Assur. 

Corp. v. Vella, 366 Mass. 651, 655 (1975) (citations omitted).

8 The administrative judge offered four reasons for denying 

Merchants' motion: (1) the DIA and not the Superior Court had 

exclusive jurisdiction to decide the coverage issue; (2) there 

was no privity between the parties in the two actions, because 

Merchants had failed to name the Fund as a party even though it 

might well be liable if there were no coverage; (3) Merchants 

had failed to terminate the policy in the manner required by 

G. L. c. 152; and (4) as a matter of public policy, insurers 

should not be allowed to circumvent DIA proceedings by going to 

the Superior Court.
6

DIA and the administrative judge be enjoined from going forward 

with "any proceedings" against Merchants in Perez's workers' 

compensation case. In response, Perez filed a motion in the 

first Superior Court action, seeking relief from the declaratory 

judgment in favor of Merchants, on the ground that the court had 

been without jurisdiction to entertain Merchants' complaint. 

See Mass.R.Civ.P. 60(b)(4), 365 Mass. 827 (1974).

Informed of this development, the judge in the second 

Superior Court action granted a temporary restraining order 

halting the DIA proceedings until such time as Perez's motion 

for relief from judgment in the first action was determined.

9

Meanwhile, in the first action, the Fund sought and was granted 

leave to intervene pursuant to Mass.R.Civ.P. 24, 365 Mass. 769 

(1974), and proceeded to submit filings in support of Perez's

motion for relief from judgment. Merchants responded with an 

opposition, essentially arguing that the Superior Court did have 

jurisdiction and that relief under rule 60(b) would be 

inappropriate.

At the hearing on the motion for relief from judgment, 

Perez and the Fund requested that the case be dismissed because 

Merchants had failed to exhaust its administrative remedies, 

 

9 We have consulted the current docket in the second 

Superior Court case, see Home Depot v. Kardas, 81 Mass. App. Ct. 

27, 28 (2011), and it appears that the temporary restraining 

order is still in place.
7

and, hence, the court lacked subject matter jurisdiction to 

adjudicate its claims.

10 The motion judge agreed; she vacated 

prior orders and judgments in the case and ordered the entry of 

a new, final judgment dismissing Merchants' complaint without 

prejudice.

Discussion. We review the question of jurisdiction de 

novo. See Buccaneer Dev., Inc. v. Zoning Bd. of Appeals of 

Lenox, 83 Mass. App. Ct. 40, 41 (2012). In the present 

circumstances, the question can be further narrowed to whether 

Merchants was required to exhaust its administrative remedies at 

the DIA.

 

10 Perez's counsel candidly told the judge that he had not 

understood that there was a jurisdictional problem prior to the 

entry of the judgment against his client, and that he was under 

the impression that rescission would not harm Perez, because he 

would receive his benefits from the Fund. However, as the 

Fund's attorney explained, the Fund, which had not been a party 

to the court case, intended to contest its liability in the DIA 

proceedings, as "it [was] supposed to do." Thus, if the 

administrative judge were to determine that the Fund was not 

liable because Merchants' policy was valid and in effect at the 

time of the injury, Perez would be left without recourse, unless 

the Superior Court judgment were vacated. The general counsel 

of the DIA also was present at the hearing and answered 

questions from the judge. His position was that the DIA is

vested with the exclusive authority to decide whether a claim is 

covered under a workers' compensation policy, including whether 

the employer obtained the policy by means of misrepresentations, 

as alleged by Merchants in this case. In the DIA's view, that 

question is a "subissue" of the overarching issue of "liability" 

of the insurer "to pay the compensation due," and would be for 

the administrative judge and then the reviewing board to decide.
8

The exhaustion rule (or doctrine) has long been a part of 

our system of jurisprudence. See Saint Luke's Hosp. v. Labor 

Relations Commn., 320 Mass. 467, 469 (1946); East Chop Tennis 

Club v. Massachusetts Commn. Against Discrimination, 364 Mass. 

444, 448-452 (1973). Like its closely-related counterpart, the 

primary jurisdiction doctrine, the exhaustion rule promotes 

"proper relationships and sensible coordination of work between 

courts and administrative agencies that are charged with 

regulatory responsibilities." Massachusetts Correction Officers 

Federated Union v. County of Bristol, 64 Mass. App. Ct. 461, 467 

n.9 (2005). See Lumbermans Mut. Cas. Co. v. Workers' 

Compensation Trust Fund, 88 Mass. App. Ct. ____, ____ (2015);

Stavely v. Lowell, 71 Mass. App. Ct. 400, 403 n.7 (2008).

Application of the exhaustion rule to any particular case

requires not only an understanding of its purposes, but also "of 

the particular administrative scheme involved." McKart v. 

United States, 395 U.S. 185, 193 (1969). We must therefore take 

into consideration the objectives of G. L. c. 152, the workers' 

compensation act (act), and the manner in which it is 

administered.

1. General Laws c. 152. The act was passed into law in 

1911, as a humanitarian measure designed to provide prompt and 

adequate compensation and medical benefits to an employee (and 

the employee's dependents) in the event of injury or death 
9

occasioned by a work-related accident. See Young v. Duncan, 218 

Mass. 346, 349 (1914); Neff v. Commissioner of the Dept. of 

Indus. Accs., 421 Mass. 70, 73 (1995); Spaniol's Case, 466 Mass. 

102, 106-107 (2013). Motivated by public dissatisfaction with 

"inadequate" common-law remedies, the Legislature attached "new 

incidents" to the relationship of employer and employee, 

enforced by a sui generis process analogous to that of equity 

procedure, to promote the goal of assuring prompt and adequate 

assistance to injured workers (and their dependents). Opinion 

of the Justices, 309 Mass. 562, 568 (1941). It also established 

a scheme of interlinked rights, obligations, and remedies "all 

its own, not previously known to the common or statutory law." 

Ahmed's Case, 278 Mass. 180, 184 (1932). As a remedial statute, 

the act is to be afforded a broad interpretation, viewed in 

light of its purposes and in aid of its "beneficent design." 

Neff v. Commissioner of the Dept. of Indus. Accs., supra

(quotation omitted).

a. Adjudicatory process. There are four procedural steps

in the adjudicatory process of a contested workers' compensation 

claim. The first step is an informal conciliation proceeding, 

see G. L. c. 152, § 10; if the parties cannot reach a voluntary 

accord, the second step is an informal conference before an 

administrative judge, id. at §§ 10, 10A. The third step is a 

formal hearing before an administrative judge, see id. at § 11;
10

and the fourth is an appeal to the reviewing board, see id. at

§ 11C. See generally Murphy v. Commissioner of the Dept. of 

Indus. Accs., 415 Mass. 218, 223-225 (1993); Neff v.

Commissioner of the Dept. of Indus. Accs., supra at 74; Murphy's 

Case, 53 Mass. App. Ct. 708, 712 (2002).

Judicial review of a final decision of the reviewing board 

is had in this court, not the Superior Court. G. L. c. 152, 

§ 12. The Superior Court is a proper forum only if a party 

seeks to enforce an order of the reviewing board -- a situation 

not presented here. Ibid. In this case, Perez and Merchants

reached only the conference stage at the DIA, which resulted in 

an order for temporary benefits. Thus, the administrative 

proceedings were far from exhausted when Merchants elected to 

file its complaint in court.

b. DIA's jurisdiction over coverage disputes. If a 

dispute over a claim is based on issues of insurance coverage, 

"the DIA has full power to decide such questions of coverage" 

and the "'parties have no right to try out the issue in a 

separate proceeding in court.'" Lee v. International Data 

Group, 55 Mass. App. Ct. 110, 115-116 (2002), quoting from 

Locke, Workmen's Compensation § 131, at 136 (2d ed. 1981). See 

Nason, Koziol, & Wall, Workers' Compensation § 7:13, at 154 (3d 

ed. 2003). Among the coverage issues commonly addressed in the 

DIA are those relating to the requirements of G. L. c. 152, § 63 
11

(for voluntarily issued policies), and G. L. c. 152, § 65B (for 

assigned risk policies), which regulate how an insurer may 

"cancel or otherwise terminate" its policy. See Frost v. David 

C. Wells Ins. Agency, Inc., 14 Mass. App. Ct. 305, 306-309 

(1982); Armstrong's Case, 47 Mass. App. Ct. 693, 696 (1999); 

Cummings's Case, 52 Mass. App. Ct. 444, 447-450 (2001);

Pillman's Case, 69 Mass. App. Ct. 178, 181-185 (2007). As 

implicitly recognized by this court in Cummings's Case, supra at 

448-450, and explicitly recognized by the reviewing board in 

Sullivan's Case, 20 Mass. Workers' Comp. Rep. 207, 211 (2006), 

rescission is embraced by the phrase "otherwise terminate," and, 

therefore, the propriety and availability of rescission is a 

matter for the DIA to adjudicate.11

Merchants nevertheless contends, based on Century Indem. 

Co. v. Jameson, 333 Mass. 503 (1956), that the Superior Court 

had jurisdiction over its request for rescission. In Century, a 

workers' compensation insurer sought and obtained a declaration 

 

11 Both Cummings's Case and Sullivan's Case concerned 

assigned risk policies, as to which G. L. c. 152, § 65B,

regulates cancellation and rescission. Because the present case 

concerns a voluntary policy, the relevant section is § 63; 

however, the operative language ("cancel[] or . . . otherwise 

terminate[]") is identical. "Where the Legislature uses the 

same words in several sections which concern the same subject 

matter, the words 'must be presumed to have been used with the 

same meaning in each section.'" Commonwealth v. Wynton W., 459 

Mass. 745, 747 (2011), quoting from Insurance Rating Bd. v.

Commissioner of Ins., 356 Mass. 184, 188-189 (1969).
12

that a workers' compensation policy was voidable at its option 

where the insured had applied for the policy without disclosing 

material facts within his knowledge. Id. at 504-505. 

Significantly, however, Century predated the amendment of both 

§§ 63 and 65B, to include within the act specific provisions 

governing the termination of workers' compensation policies.12 

For that reason, Century is not controlling.

2. Exhaustion. Massachusetts courts have long adhered to 

the rule that "[i]n the absence of a statutory directive to the 

contrary, the administrative remedies should be exhausted before 

resort to the courts." East Chop Tennis Club v. Massachusetts 

Commn. Against Discrimination, 364 Mass. at 448, quoting from 

Gordon v. Hardware Mut. Cas. Co., 361 Mass. 582, 587 (1972). 

Neither of the statutes cited by Merchants as a basis for 

Superior Court jurisdiction, G. L. c. 231A and G. L. c. 175, 

 

12 At the time Century was decided, § 63 had no language 

pertaining to cancellation or termination. See G. L. c. 152, 

§ 63, as amended by St. 1953, c. 314, § 6. It was not until 

1973 that the Legislature added, inter alia, the sentence that 

reads: "Such insurance shall not be cancelled or shall not be 

otherwise terminated" until notification to the proper body (at 

one time the DIA, and, later, the rating organization) is given. 

St. 1973, c. 403. While a version of § 65B existed before 

Century was decided, it referred only to cancellation; it was 

not until 1991 that this section was amended to include the 

broader, "cancel or otherwise terminate" language analogous to 

the language in § 63. See St. 1991, c. 398, § 90A.
13

§ 186(a), contains any such directive,

13 and it is undisputed 

that Merchants did not exhaust its administrative remedies 

before resorting to the courts.

The policies underlying the exhaustion doctrine are

"particularly applicable in the case of the administration of 

the Work[ers'] Compensation Act." Assuncao's Case, 372 Mass. 6, 

9 (1977). "By permitting an agency to apply its expertise to 

the statutory scheme which it is charged to enforce, courts 

preserve the integrity of the administrative process while 

sparing the judiciary the burden of reviewing administrative 

proceedings in a piecemeal fashion." Murphy v. Administrator of 

Div. of Personnel Admin., 377 Mass. 217, 220 (1979), citing 

Assuncao's Case, supra at 8-9. Those policies, as well as the 

policies generally underlying the workers' compensation scheme,

would be undermined if an insurer were able to circumvent the 

DIA process by litigating a claim for rescission in court while 

a claim under the policy is pending in the DIA. As this case 

well illustrates, bypassing the administrative process has the 

 

13 Merchants takes the position that by enacting G. L. 

c. 175, § 186, the Legislature "expressly authorized the 

Superior Court to rescind insurance policies for fraud in the 

inducement." However, the statute does not confer jurisdiction

in any particular forum; it establishes the legal standards that 

must be met for an insurer to defeat or avoid liability under 

its policy because of a misrepresentation or warranty made by 

the insured. See note 7, supra.
14

potential to impair the rights of both the injured employee and 

the Fund.

Merchants' contention that the administrative remedies 

available under the act are not the same as those available in a 

declaratory judgment action is unavailing. "A proceeding for 

declaratory relief in itself does not operate to suspend the 

ordinary requirement that a plaintiff exhaust [its] 

administrative remedies before seeking judicial relief." East 

Chop Tennis Club v. Massachusetts Commn. Against Discrimination, 

supra at 450. Furthermore, "[t]he question 'is not whether the 

alternative [administrative] remedy is in all respects as prompt 

and as broad' but whether it is 'inadequate.'" Gordon v. 

Hardware Mut. Cas. Co., 361 Mass. at 586, quoting from Jordan 

Marsh Co. v. Labor Relations Commn., 312 Mass. 597, 601-602 

(1942).

Here, the remedies available to Merchants at the DIA were 

not inadequate. It was entitled to argue in the workers' 

compensation case that it had no obligation to pay benefits to 

Perez because the policy had been obtained by Spicer's fraud. 

If the administrative judge ruled otherwise, Merchants would 

have a right of appeal to the reviewing board, and then, if need 

be, to this court. It also was entitled to terminate the policy 

in accordance with the statutory procedures applicable to 

policies written on a voluntary basis, i.e., G. L. c. 152, § 63,
15

and G. L. c. 175, § 187C. See Pillman's Case, 69 Mass. App. Ct. 

at 181 n.6. What it could not do was to file a Superior Court 

case as a means to avoid the administrative process.

3. Other issues. We comment briefly on the parties' 

remaining arguments.

a. Because we rest our decision on the exhaustion rule, we 

need not decide whether the Superior Court lacked jurisdiction 

on the alternative ground that the Fund was a necessary party to 

any action seeking a declaration that Merchants' workers' 

compensation policy was void. See Service Employees Intl. 

Union, Local 509 v. Department of Mental Health, 469 Mass. 323, 

338 (2014).

b. The judge did not abuse her broad discretion in 

allowing the Fund's motion to intervene. See Cruz Mgmt. Co. v. 

Thomas, 417 Mass. 782, 785 (1994). "Although motions to 

intervene after judgment are seldom 'timely,' they may be 

allowed if the proposed intervener demonstrates a strong 

justification for intervention after judgment." McDonnell v. 

Quirk, 22 Mass. App. Ct. 126, 132 (1986) (citation omitted). 

Here, the confluence of the jurisdictional defect, Merchants' 

efforts to extract itself from the DIA proceedings (going so far 

as to enjoin the DIA from continuing with the case), and the 

potential prejudice to Perez and the Fund if the Fund were 
16

precluded from being heard constituted ample justification for 

allowing the Fund to intervene.

c. The judge did not err in concluding that relief 

pursuant to rule 60(b)(4) was appropriate, as there was no 

arguable basis on which the Superior Court had jurisdiction in 

the circumstances. Merchants filed its Superior Court case 

while Perez's DIA claim was pending. Because the DIA had 

exclusive jurisdiction to determine Merchants' liability under 

its policy in conjunction with Perez's pending compensation 

claim, the Superior Court was without authority to decide 

whether that policy should be rescinded ab initio as a result of 

the Spicer's alleged misrepresentations. In this instance, the 

Superior Court lacked jurisdiction from the very inception of 

the case. Accordingly, O'Dea v. J.A.L., Inc., 30 Mass. App. Ct. 

449 (1991), relied upon by Merchants, is distinguishable.

d. Merchants contends that the judge erred in failing to 

preserve the judgments insofar as they related to the general 

liability insurance policy. So far as the record reveals, 

however, Merchants did not make this argument in the trial court 

until it moved for reconsideration of the judge's order allowing 

Perez's motion for relief from judgment, vacating all 

substantive orders, and dismissing the complaint. Merchants was 

silent as to what, if any, rulings might be salvaged from the 

case even when the judge requested at the January 31, 2014, 
17

hearing on Perez's motion for relief from judgment that all 

parties submit their views as to which orders should be 

vacated.14

A motion for reconsideration is not the "appropriate place 

to raise new arguments inspired by a loss before the motion 

judge in the first instance." Commonwealth v. Gilday, 409 Mass. 

45, 46 n.3 (1991). Accordingly, we review the judge's denial of 

a motion for reconsideration only for abuse of discretion. See 

Commissioner of Rev. v. Comcast Corp., 453 Mass. 293, 312-313 

(2009), and cases cited. We discern no abuse of discretion

here.

Even assuming for the sake of argument that there was no 

jurisdictional impediment to the Superior Court judge's 

rescission of the general liability policy while the 

compensation case was pending, the judge did not abuse her 

discretion in declining to change the scope of the dismissal 

order. It would not have been a simple ministerial task for the 

 

14 The judge ordered all parties to file these submissions 

by February 14, 2014. She also stated that, if Merchants wished 

to file something further in response, it could do so by 

February 21. Perhaps misunderstanding her order, Merchants did 

not file anything by February 14, but later filed proposed 

findings and rulings on the motion for relief from judgment on 

February 21. Even then, Merchants did not address the judge's 

concern. Instead, it reargued its position that the Superior 

Court had jurisdiction and the judge should not grant any relief 

to Perez. In the meantime, without benefit of any input from 

Merchants as to which orders should be vacated, the judge 

allowed Perez's motion on February 19.
18

judge to grant Merchants' belated request. The two policies 

were not addressed in separate counts of the complaint, and all 

subsequent pleadings, orders, and forms of judgment submitted by 

Merchants consistently linked them together without 

differentiation. Furthermore, the judge could decide in her 

discretion that she had adequately protected Merchants' 

interests by ordering dismissal without prejudice -- leaving 

Merchants free to file another action in Superior Court seeking 

relief solely as to the general liability policy.

Conclusion. For the foregoing reasons, the judgment 

dismissing the case for lack of jurisdiction is affirmed.

So ordered.