Court Opinion

ID: 2804552
Source: CourtListenerOpinion
Date Created: 2015-05-29 21:01:20.40959+00
Date Added: 2024-06-11T11:58:20.673076
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 14–1991

         INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA,

                      Plaintiff, Appellant,

                               v.

                GREAT NORTHERN INSURANCE COMPANY,

                      Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Denise J. Casper, U.S. District Judge]

                             Before

                Torruella, Thompson, and Kayatta,
                         Circuit Judges.

     Aaron S. Bayer, with whom Michael P. Thompson, David R. Roth,
and Wiggin and Dana LLP were on brief, for appellant.
     Jennifer C. Sheehan, with whom Richard J. Shea and Hamel,
Marcin, Dunn, Reardon & Shea, P.C. were on brief, for appellee.

                          May 29, 2015
          KAYATTA, Circuit Judge.     The parties ask us to decide a

question of Massachusetts law on which Massachusetts' highest

court has not spoken.    The question arises when, as here, an

insured buys two insurance policies that cover the same loss.    In

such a case, may the insured opt to have one insurer cover the

entire loss or, instead, may either insurer insist that both share

equitably in covering the loss? Given the competing considerations

implicated by this question of state law and policy, and the lack

of clear guidance that would allow us confidently to predict how

Massachusetts' highest court would weigh these considerations, we

certify the question to the Massachusetts Supreme Judicial Court

("SJC"), pursuant to SJC Rule 1:03.    See, e.g., Boston Gas Co. v.

Century Indem. Co., 529 F.3d 8, 14–15 (1st Cir. 2008).

                         I.   Background

          The parties do not dispute any material facts.         In

January 2010, an employee of Progression, Inc.1 ("Progression"),

suffered serious injury while on a business trip.      The employee

pursued a workers' compensation claim before the Massachusetts

Department of Industrial Accidents ("DIA").     Progression had two

insurance policies that covered this work-related injury: one with

     1 Progression is a Delaware corporation headquartered in
Massachusetts.

                              - 1 -
Insurance Company of the State of Pennsylvania2 ("ISOP"), and one

with       Great   Northern     Insurance     Company3     ("Great    Northern").

Progression tendered the claim to ISOP only.                Progression did not

notify Great Northern.         ISOP immediately made payments pursuant to

the policy and defended the claim before the DIA.4

              ISOP later learned of Progression's policy with Great

Northern.      In October 2011, ISOP wrote Great Northern, notifying

it of the claim against Progression and requesting contribution.

In March 2012, Great Northern replied, informing ISOP that it had

contacted      Progression      after   receiving     notice   from    ISOP,   and

learned that Progression purposefully tendered the claim to ISOP

only.5      Great Northern observed that ISOP was "legally obligated

to handle [Progression's] claim," and that there was "no practical

reason whatsoever for Great Northern to assume" handling the claim.

              Invoking diversity jurisdiction, ISOP filed this suit

and    promptly     moved     for   summary     judgment   declaring    that   the

       2
       ISOP is domiciled in Pennsylvania, and its principal place
of business is in New York.
       3
       Great Northern is domiciled in Indiana, and its principal
place of business is in New Jersey.
       4
       As of January 2014, ISOP had paid over $2.5 million for the
injured employee's claim under its policy with Progression. ISOP
continues to make payments.
       5
       Great Northern also learned that Progression did not
authorize ISOP to tender the claim to Great Northern on its behalf.

                                        - 2 -
Massachusetts doctrine of equitable contribution required Great

Northern to pay half of the past and future defense costs and

indemnity payments related to the claim.            Cross-moving for summary

judgment, Great Northern argued that it had no coverage obligation

because Progression chose not to comply with its duty under the

policy to notify Great Northern of the claim. ISOP responded that,

under Massachusetts law, Progression's failure to notify Great

Northern    would   only   excuse   Great    Northern    from    its   coverage

obligation if the lack of notice caused prejudice.               Neither party

pointed to any "other insurance" clause in either policy that might

bear on this dispute.      See, e.g., Boston Gas Co. v. Century Indem.

Co., 910 N.E.2d 290, 308 n.36, 454 Mass. 337, 362 (2009).

            The district court granted summary judgment to Great

Northern, holding that Progression's decision to tender the claim

to   only   ISOP    defeated   ISOP's       later    action     for    equitable

contribution from Great Northern.       Ins Co. of Pa. v. Great N. Ins.

Co., 43 F. Supp. 3d 76, 82–83 (D. Mass. 2014).           The district court

noted that there was no Massachusetts law directly on point.                Id.

at 82. Citing law from Illinois and Washington, the district court

applied a rule known as "selective tender."6            Id. at 81–82.     Under

     6 Selective tender is sometimes referred to as "targeted
tender." See Workers' Compensation Fund v. Utah Bus. Ins. Co.,
296 P.3d 734, 737 (Utah 2013).

                                    - 3 -
that rule, when Progression opted not to give Great Northern any

notice of the claim, even belatedly, it avoided obliging Great

Northern to provide any coverage.         Id.   Therefore, no claim for

equitable contribution was available.       Id.

                     II.    Standard of Review

          We consider de novo a district court's grant or denial

of a motion for summary judgment.     Nunes v. Mass. Dep't of Corr.,

766 F.3d 136, 142 (1st Cir. 2014).         Under Federal Rule of Civil

Procedure 56(a), "[t]he court shall grant summary judgment if the

movant shows that there is no genuine dispute as to any material

fact and the movant is entitled to judgment as a matter of law."

Cross-motions for summary judgment require us to evaluate each

motion independently and determine whether either party deserves

judgment as a matter of law on undisputed facts.          Matusevich v.

Middlesex Mut. Assurance Co., 782 F.3d 56, 59 (1st Cir. 2015).       We

sit in diversity jurisdiction over this dispute, see 28 U.S.C.

§ 1332, so the substantive law of Massachusetts governs.          First

Am. Title Ins. Co. v. Lane Powell PC, 764 F.3d 114, 118 (1st Cir.

2014).

                           III.   Discussion

          Equitable contribution is the right of a party to seek

contribution from a co-obligor who shares the same liability as

the party seeking contribution.      See 18 C.J.S. Contribution § 2

                                  - 4 -
(2015).    In the insurance context, equitable contribution allows

an insurer that has paid for all or even some of a loss to seek

contribution from other insurers that have insured the same risk

but have not paid, or have paid less than the first insurer thinks

fair.   See 16 Couch on Insurance § 222:98 (3d ed. 2014); see also

Truck Ins. Exch. v. Unigard Ins. Co., 79 Cal App. 4th 966, 974

(Cal. Ct. App. 2000); Ohio Cas. Ins. Co. v. State Farm Fire & Cas.

Co., 546 S.E.2d 421, 423 (Va. 2001).          While the SJC has not yet

addressed whether equitable contribution is available to support

a claim for contribution by one insurer against another, other

Massachusetts courts have recognized its availability in actions

between insurers.        See U.S. Fire Ins. Co. v. Peerless Ins. Co.,

No. 00–5595, 2001 WL 1688368, at *5 (Mass. Super. Ct. Dec. 20,

2001) (Gants, J.); Rubenstein v. Royal Ins. Co. of America, 44

Mass. App. Ct. 842, 852 (1998); see also Lexington Ins. Co. v. Gen

Accident Ins. Co. of America, 338 F.3d 42, 49–50 & n.4 (1st Cir.

2003)     (recognizing     a   "willingness   to   entertain"   equitable

contribution actions in the Massachusetts appeals court).

            The Peerless superior court decision provides the most

detailed elucidation of equitable contribution to date as accepted

in Massachusetts lower courts.         In Peerless, the insured party

tendered a claim to two obliged insurance companies, Peerless and

U.S. Fire.    Peerless Ins. Co., 2001 WL 1688368, at *1.        Peerless

                                    - 5 -
did not respond to the claim at all, while U.S. Fire ultimately

paid the claim at the point of a judgment in a reach-and-apply

action.       Id. at *1.          In turn, U.S. Fire sued Peerless for

contribution.        Id. at *5–6.

              With     one        insurer        "accept[ing]        its      coverage

responsibilities" and "the second insurance company evad[ing] its

obligations and pay[ing] nothing," id. at *6, Peerless reasoned

that "equity demands that the responsible insurance company have

legal recourse to ensure that the irresponsible company pays its

fair share and reimburses the responsible company for having borne

the    full   brunt    of    coverage."          Id.    Without      this    equitable

principle, "the law provides an incentive for a co-insurer to run

away from a claim in the hope that the other co-insurer will not."

Id.     The    "purpose      of   this    rule    of   equity   is    to    accomplish

substantial justice by equalizing the common burden shared by co-

insurers, and to prevent one insurer from profiting at the expense

of others."        Id. at *5 (internal quotation marks omitted).                  The

court explained that the rule applies when the insurance companies

issued policies affording coverage for the same insured and the

same risk.     Id. at *6; see also Lexington Ins. Co., 338 F.3d at 50

n.5.

              As   described      in     Peerless,     the   right    to     equitable

contribution does not depend on an "express contract or agreement

                                          - 6 -
between the [insurers] to indemnify each other.              Rather, it is

based upon equitable principles that imply a contract between the

parties to contribute ratably toward the discharge of a common

obligation."     Peerless Ins. Co., 2001 WL 1688368, at *5.                  This

equitable    principle     is   not   without   limits,   though.      "Absent

compelling     equitable    reasons,     courts   should    not     impose     an

obligation on an insurer that contravenes a provision in its

insurance policy."    Id. (internal quotation marks omitted).            As an

example of an impermissible exercise of the court's equitable power

in contravention of a policy provision, Peerless posited the

following hypothetical:

            [W]hen the insured is barred from pursuing an
            insurance claim against Insurance Company A
            because, contrary to the terms of the policy,
            the insured voluntarily made a non-emergency
            payment without the prior consent of the
            insurance company, then Insurance Company B,
            even though it made full payment on its claim,
            should not be able to obtain equitable
            contribution against Insurance Company A.

Id. at *5.     A successful equitable contribution action therefore

requires, at least, a defendant that has an unsatisfied obligation

to pay under its policy.

            Neither party here disputes that the SJC would likely

adopt equitable contribution in a case in which an insured looks

to multiple, similarly-obligated insurers for payment.               The issue

here, though, is a bit trickier, because the insured apparently

                                      - 7 -
does not want one insurer to pay anything, and has intentionally

avoided giving that insurer notice of any claim (or so we can

assume given the case's present posture).     So that insurer, Great

Northern, argues that it has never become obligated to pay, and

hence equitable contribution does not apply.

            ISOP's rejoinder points to the Commonwealth's notice-

prejudice rule.     Massachusetts insurance law generally bars an

insurer from disclaiming coverage based on an insured's failure to

provide prompt notice of the claim absent some proof of prejudice

to the insurer.     By statute, notice of a claim by an insured,

notwithstanding policy terms to the contrary, is not a condition

precedent to coverage.    See M.G.L.A. 175 § 112.7   The SJC expanded

the statutory notice-prejudice rule to all liability policies and

to defenses based on an insured's failure to cooperate with the

     7   Section 112 provides that:

                 The liability . . . under any . . . policy
            insuring against liability for loss or damage
            on account of bodily injury or death . . .
            shall become absolute whenever the loss or
            damage for which the insured is responsible
            occurs . . . . An 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,
            incident, claim or of a suit founded upon an
            occurrence, incident or claim, which may give
            rise to liability insured against unless the
            insurance company has been prejudiced thereby.

                                - 8 -
insurer.    See Johnson Controls, Inc. v. Bowes, 381 Mass. 278

(1980); Darcy v. Hartford Ins. Co., 407 Mass. 481 (1990).             Great

Northern does not argue that it was prejudiced by not learning

sooner of the claim.          So if Progression (rather than ISOP) had

tendered the claim belatedly to Great Northern, Great Northern

would most certainly have been obligated to provide coverage to

the insured under Massachusetts law.

            Johnson Controls and Darcy tighten the noose further on

Great Northern because, in each case, someone other than the

insured    gave   the    belated   notice   that    triggered   a   coverage

obligation in the absence of any prejudice to the insurer. Johnson

Controls, 381 Mass. at 282–83; Darcy, 407 Mass. at 489–90.              And

because Peerless appears to hinge the availability of equitable

contribution      on    the   triggering    of   the   insurer's    coverage

obligation, 2001 WL 1688368, at *5, at first glance equitable

contribution would thus appear to be available in this case.            But

none of those cases involved the precise situation presented here:

a single, sophisticated insured intentionally opts to give notice

to only one of two potential insurers.           This distinction may mean

that the policy objectives driving the decisions in those cases

fit less well here.

            The holding in Peerless, for example, was predicated in

part on a desire to protect the insured from having two insurers

                                    - 9 -
each drag their feet in hopes that the other pays first.   See id.

at *6.   Granting the insured a right to make a selective tender--

if the insured so wishes, and only for as long as it so wishes--

creates no such risk that the insured itself cannot remedy by

opting for payment by both.   Similarly, the notice-prejudice rule

is also predicated on a desire to protect insureds.    See Pilgrim

Ins. Co. v. Mollard, 73 Mass. App. Ct. 326, 336 (2008); see also

Unum Life Ins. Co. of America v. Ward, 526 U.S. 371, 372–73 (1999).

Allowing the insured to make a selective tender poses no threat of

any such harm. To the contrary, selective tender gives the insured

for each policy bought by the insured the full range of options

that the insured would otherwise have had but for the decision to

buy two policies.   As the district court observed, the "insured

may choose not to tender a claim for a number of reasons, including

a desire not to avoid a premium increase or to maintain its policy

limits for other claims."   Ins Co. of Pa. v. Great N. Ins. Co., 43

F. Supp. 3d 76, 82 (D. Mass. 2014).

           Citing Boston Gas Co. v. Century Indem. Co., 454 Mass.

337 (2009), ISOP contends that the SJC has already signaled that

it assigns little weight to the insured's choice of which among

several obligated insurers should pay.       Actually, Boston Gas

addressed the extent to which each successive insurer was obligated

to the insured for a continuing loss, and did not say anything

                              - 10 -
about    the    insured's   ability     to   select   between   two    insurers

obligated for the same loss.

               This is not to say that selective tender makes obvious

sense as a rule.      The parties point us to only a few jurisdictions

that    have    expressly   adopted    the   rule.    See   Inst.     of   London

Underwriters v. Hartford Ins. Co., 234 Ill.App.3d 70, 73 (1992);

accord Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wash.2d 411,

421 (2008); Cas. Indem. Exch. Ins. Co. v. Liberty Nat'l Fire Ins.

Co., 902 F. Supp. 1235, 1239 (D. Mont. 1995).               See generally 16

Couch on Ins. § 200:37 (3d ed. 2014).           The rule has been employed

sparingly even within Illinois, where the doctrine originated.

See AMCO Ins. Co. v. Cincinnati Ins. Co., 10 N.E.3d 374, 379 (Ill.

App. Ct. 2014).       See generally Inst. of London Underwriters, 234

Ill.App.3d at 73.        Indeed, in its briefs and at oral argument,

Great Northern did not affirmatively argue in favor of adopting

selective tender by name.             Great Northern instead couched its

appeal in terms of having no coverage obligation because the

insured chose not to give notice.               But this is functionally

equivalent to the selective tender rule, which is precisely how

the district court interpreted it.

               This is to say, instead, that there is presented here a

question of law and policy dispositive of this case upon which the

                                      - 11 -
SJC has not spoken.       See S.J.C. Rule 1:03.8     We must therefore

decide between making an "informed prophecy," or certifying the

question to the SJC.      See Showtime Entertainment, LLC v. Town of

Mendon, 769 F.3d 61, 79 (1st Cir. 2014) (internal quotation marks

omitted).    "The first path offers the benefit of expedition but

with the risk of error; the second path, the reverse."        Boston Gas

Co. v. Century Indem. Co., 529 F.3d 8, 13 (1st Cir. 2008).             In

considering these two paths, we note that actions brought in

Massachusetts   between    two   insurers   very   likely   present   the

potential for invoking diversity jurisdiction.        Therefore, if we

answer the question posed here, every company that the answer

favors is likely to file or remove a case to federal court from

Massachusetts state court, reducing the odds that the SJC will get

to decide this issue. Nor do we doubt that the SJC is more familiar

than are we with the nuances of insurance coverage and related

regulation under Massachusetts law.

            For these reasons, we certify the following question of

Massachusetts law to the Massachusetts Supreme Judicial Court:

            Where two workers' compensation insurance
            policies provide coverage for the same loss,

     8  The SJC "may answer questions of law certified to it by
. . . a Court of Appeals of the United States . . . if there are
involved in any proceeding before it questions of [Massachusetts]
law . . . which may be determinative of the cause . . . and as to
which it appears to the certifying court there is no controlling
precedent in the decisions" of the SJC. S.J.C. Rule 1:03.

                                 - 12 -
          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?

                         IV.     Conclusion

          The clerk of this court is instructed to transmit to the

SJC under the official seal of this court, a copy of the certified

question and our opinion in this case, along with copies of the

parties' briefs, appendix, and any supplemental filings under

Rule 28(j) of the Federal Rules of Appellate Procedure.   We retain

jurisdiction over this appeal.

          So ordered.

                               - 13 -