Court Opinion

ID: 6455089
Source: CourtListenerOpinion
Date Created: 2022-06-25 12:39:38.757217+00
Date Added: 2024-06-11T15:53:16.650081
License: Public Domain

Gants, C.J.
(dissenting, with whom Lenk, J., joins). In answer to the certified questions submitted by the United States Court of Appeals for the First Circuit, the court concludes “that where the insurance policy provides that an insurer has the ‘duty to defend any claim’ initiated against the insured, the insurer’s duty to defend does not require it to prosecute affirmative counterclaims on behalf of its insured.” I respectfully disagree. Based on the *355language of the insurance policy, an insurer’s “duty to defend any claim” means the duty to defend the insured in “any proceeding initiated against any Insured . . . seeking to hold such Insured responsible for a Wrongful Act.” Where the insured’s defense is intertwined with a compulsory counterclaim, where any reasonable attorney defending that proceeding would bring such a compulsory counterclaim, and where the insured agrees that any damages awarded to the insured on that counterclaim will offset any award of damages against the insured that the insurer is required to indemnify, I conclude that an insurer’s duty to defend the insured in “any proceeding” includes the duty to prosecute such a compulsory counterclaim.
I agree with the court that, “in interpreting an insurance policy, we begin with the plain language of the policy.” Ante at 348. See Golchin v. Liberty Mut. Ins. Co., 466 Mass. 156, 159-160 (2013) (“We interpret the words of the standard policy in light of their plain meaning, . . . giving full effect to the document as a whole[,] . . . considering] ‘what an objectively reasonably insured, reading the relevant policy language, would expect to be covered’ . . .” [citation omitted]). But where the language of an insurance agreement permits more than one rational interpretation, we apply the interpretation most favorable to the insured. See Boston Symphony Orch., Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12 (1989).
Under Mount Vernon Fire Insurance Company’s policy with VisionAid, Inc. (VisionAid), the insurer’s duty to defend is not limited to defending causes of action arising from a wrongful act as defined in the agreement. It includes the “duty to defend any Claim to which this insurance applies.” A claim is not defined under the policy as a cause of action; rather, it is defined under the policy as “any proceeding initiated against any Insured . . . seeking to hold such Insured responsible for a Wrongful Act.” Therefore, the duty to defend a claim under the policy means the duty to defend the insured in a proceeding where the insured is alleged to be responsible for a wrongful act covered by the policy.
We have held under our so-called “in for one, in for all” rule that, where a proceeding includes one cause of action alleging a wrongful act covered under a general liability policy, an insurer’s duty is not limited to defending that specific cause of action but encompasses the duty to defend the insured against all the causes of action in that proceeding. See GMAC Mtge., LLC v. First Am. Title Ins. Co., 464 Mass 733, 738 (2013), quoting Liberty Mut. *356Ins. Co. v. Metropolitan Life Ins. Co., 260 F.3d 54, 63 (1st Cir. 2001) (“Because ‘[i]t is not uncommon for a lawsuit against an insured to assert some claims that are covered by the insurance policy and others that are not,’ the general rule in Massachusetts in the general liability insurance context is that ‘an insurer must defend the entire lawsuit if it has a duty to defend any of the underlying counts in the complaint’ ”); Symplex Techs., Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 199 (1999) (“that some, or even many, of the underlying claims may fall outside the coverage does not excuse [the insurer] from its duty to defend”).1
The “in for one, in for all” rule is needed in general liability policies because it would be impractical and deleterious to an effective defense to parse the various counts and have one attorney appointed by the insurer defend against some and an attorney retained by the insured defend against others. See GMAC Mtge., LLC, 464 Mass at 739, citing A.D. Windt, Insurance Claims and Disputes: Representation of Insureds & Insurers § 4.13, at 128 (1982) (dividing representation between covered and noncovered claims is impractical); Narragansett Elec. Co. v. American Home Assur. Co., 999 F. Supp. 2d 511, 526 (S.D.N.Y. 2014), rev’d on other grounds 667 Fed. Appx. 8 (2d Cir. 2016) (applying Massachusetts law; “a defense of an action with both covered and uncovered claims may benefit from a unified defense and legal arguments, and it is illogical to separate them based on insurance coverage”). As the California Supreme Court noted in Buss v. Superior Court of Los Angeles County, 16 Cal. 4th 35, 49 (1997):
“To defend meaningfully, the insurer must defend immediately. ... To defend immediately, it must defend entirely. It cannot parse the claims, dividing those that are at least potentially covered from those that are not. To do so would be time consuming. It might also be futile: The ‘plasticity of modern pleading’ . . . allows the transformation of claims that are at least potentially covered into claims that are not, and vice versa.” (Citations omitted.)
Without the “in for one, in for all” rule, the insured would be represented by two attorneys who would prepare and respond to discovery and other pretrial motions, prepare and depose wit*357nesses, and try the case. The attorneys would need to coordinate settlement discussions and pretrial strategy, and at trial might provide separate opening statements and closing arguments, examine witnesses separately, raise separate objections to questions and answers, and proffer separate jury instructions and objections to the judge’s instructions. For these and other reasons, one prominent insurance defense counsel has concluded that ‘“[i]n almost all situations it is totally impracticable to have two lawyers defending the same client.” See Neumeier, Serving Two Masters: Problems Facing Insurance Defense Counsel and Some Proposed Solutions, 77 Mass. L. Rev. 66, 80 (1992). Such duplication, of course, also would lead to longer, more expensive litigation and adjudication, and would place greater strain on judicial resources.2
The same reasoning that yielded the ‘“in for one, in for all” rule compels the conclusion that the insurer’s duty to defend a proceeding includes an obligation to prosecute compulsory counterclaims that are intertwined with the insured’s defense, where any reasonable attorney defending that proceeding would bring such a compulsory counterclaim, and where the insured agrees that any damages awarded to the insured on that counterclaim will offset any award of damages against the insured that the insurer is required to indemnify. In such circumstances, the insurer cannot reasonably fulfil its duty to defend the insured in the proceeding without also prosecuting such counterclaims because it would be impractical and deleterious to an effective defense to fail to do so.
The facts of this case amply demonstrate why this is true. As the court notes, VisionAid, through the insurer’s appointed attorney, filed an answer identifying the suspected misappropriation of company funds by one of its employees, Gary Sullivan, as a defense to Sullivan’s claim of a wrongful termination based on age discrimination. There is no dispute that VisionAid’s affirmative claim for misappropriation of company funds is a compulsory counterclaim that VisionAid must either timely bring or *358waive. See Mass. R. Civ. P. 12 (a) (1), 365 Mass. 754 (1974); Mass. R. Civ. P. 13 (a), as amended, 423 Mass. 1405 (1996). VisionAid’s defense is intertwined with the compulsory counterclaim because, if VisionAid can prove that it terminated Sullivan because it learned that he was stealing company funds, it will defeat Sullivan’s claim that his termination was motivated by age discrimination. Even if Sullivan were to prevail on his age discrimination claim because VisionAid did not know of Sullivan’s theft until after his termination, VisionAid might still be able to limit the scope of damages that Sullivan can recover because an employee who suffered a discriminatory termination might not be entitled to front pay beyond the date that he or she would have been terminated for another, legitimate reason, such as stealing company funds. See McKennon v. Nashville Banner Pub. Co., 513 U.S. 352, 361-362 (1995); Springfield v. Civil Serv. Comm'n, 469 Mass. 370, 378 n.14 (2014). No reasonable attorney representing a defendant in this proceeding under these circumstances would fail to file this compulsory counterclaim. Prosecuting such a counterclaim would be entirely consistent with the defense, and would substantially strengthen the insured’s negotiating position, as reflected in this case by the plaintiff’s willingness to dismiss his complaint in return for a release from VisionAid.3 Where the insured agrees that any award of damages arising from the compulsory counterclaim would offset any such award arising from the complaint that the insurer would be obligated to indemnify, a successful compulsory counterclaim would benefit both the insured and the insurer.
The court takes a narrower view of the duty to defend by focusing on the meaning of the word “defend” in isolation and declaring that, “in the language of VisionAid’s contract, the essence of what it means to defend is to work to defeat a claim that could create liability against the individual being defended.” Ante at 348-349. I take a broader view of the duty to defend because I focus on what it means to defend a proceeding, which is the duty the insurer agreed to assume in the insurance contract. Because the duty to defend a “claim” under the contract means to defend the *359insured in any proceeding where a wrongful act is alleged, not simply to defend the insured against the causes of action alleging wrongful acts, the broader view of the duty to defend includes the duty to prosecute compulsory counterclaims that are intertwined with the insured’s defense. This broader view is consonant with what any reasonable attorney representing the insured would do to defend a proceeding; the narrower view is not.
The concerns raised by the court if we were to recognize a duty to prosecute a counterclaim within the scope of the duty to defend do not apply where that duty is limited to the prosecution of compulsory counterclaims that are intertwined with the insured’s defense, where any reasonable attorney defending that proceeding would bring such a compulsory counterclaim, and where the insured agrees that any damages awarded to the insured on that counterclaim will offset any award of damages against the insured that the insurer is obliged to indemnify. This limited duty would not expand the total number of counterclaims brought by insureds, because it is limited to compulsory counterclaims that must be brought or waived. See ante at 352. Nor would it result in any significant increase in litigation between insured parties and insurers over who must prosecute the counterclaim because it will be clear in most cases whether a compulsory counterclaim that any reasonable attorney defending that proceeding would bring is intertwined with the insured’s defense. See id. Nor would it “misalign[ ] the interests of the party who stands to benefit from the counterclaim (the insured) and the party who bears the cost of prosecuting the counterclaim (the insurer),” see id., because the insurer would be obligated to prosecute the compulsory counterclaim only where the insured agrees that any award of damages arising from the compulsory counterclaim would offset any such award arising from the complaint that the insurer would be obligated to indemnify.
The court also notes that ‘“courts in a number of other jurisdictions have considered similarly worded insurance policies, and have reached a similar determination that the meaning of ‘defend’ is not ambiguous” and excludes the prosecution of any counterclaim. See ante at 349. But, as the court also notes, other courts in other jurisdictions have determined that the meaning of the word ‘“defend” in the insurance contract was ambiguous, and have held that an insurer’s duty to defend may include the prosecution of certain counterclaims that are defensive in nature. See ante at 350. See also Hartford Fire Ins. Co. v. Vita Craft *360Corp., 911 F. Supp. 2d 1164, 1183 (D. Kan. 2012); Ultra Coachbuilders, Inc. v. General Sec. Ins. Co., 229 F. Supp. 2d 284, 289 (S.D.N.Y. 2002); Oscar W. Larson Co. v. United Capitol Ins. Co., 845 F. Supp. 458, 461 (W.D. Mich. 1993), aff'd, 64 F.3d 1010 (6th Cir. 1995). In fact, at least one insurance law treatise describes such decisions as embodying the majority rule. See 1 D.L. Leitner, R.W. Simpson, & J.M. Bjorkman, Law and Practice of Insurance Coverage Litigation § 4.22 (2016 Supp.) (“While some courts rule otherwise, the general test to determine whether the insurer must bear such ’’offense costs“ is whether the claims are [1] defensive in nature, as well as [2] reasonable and necessary to limit liability” [footnote omitted]). If the meaning of “defend” were truly without ambiguity, it is doubtful that so many courts would define the term so differently.
Because I would interpret the insurer’s duty under the insurance policy to defend the insured in “any proceeding initiated against any Insured” to include a duty to prosecute VisionAid’s compulsory counterclaim for misappropriation of funds, I respectfully dissent.

Tlie “in for one, in for all” rule of general liability insurance defense does not apply to title insurance because “title insurance is fundamentally different from general liability insurance.” GMAC Mtge., LLC v. First Am. Title Ins. Co., 464 Mass 733, 740 (2013).

Witliout the “in for one, in for all” rule, the presence of two attorneys separately representing the defendant might also cause a jury to infer that at least some portion of liability is covered by an insurer. We generally do not allow plaintiffs to introduce evidence demonstrating that the defendant is covered by insurance because such evidence may “lead to undeserved verdicts for plaintiffs and exaggerated awards which jurors will readily load on faceless insurance companies supposedly paid for taking the risk.” Goldstein v. Gontarz, 364 Mass. 800, 808 (1974), citing 2 J. Wigmore, Evidence § 282(a) (3d ed. 1940). See Mass. G. Evid. § 411 (2017).

Under the insurance policy, the insurer “has the right to . . . negotiate the settlement of any Claim whether within or above Retention.” Where the terms of any settlement for the insured would be significantly and favorably affected by the existence of a compulsory counterclaim that is intertwined with the defense, the insurer’s obligation to act in good faith towards its insured in settlement negotiations suggests an obligation to bring such a counterclaim.