Massachusetts Supreme Judicial Court Rules in Favor of Equitable Contribution
Wiggin and Dana successfully represented the Insurance Company of the State of Pennsylvania (ISOP) in a recent case before the Massachusetts Supreme Judicial Court affirming insurers' rights to equitable contribution from co-insurers and rejecting the so-called selective tender doctrine in Massachusetts.
ISOP issued a workers' compensation insurance policy to a Massachusetts company, Progression. One of Progression's employees was seriously injured while traveling abroad on business, and Progression notified ISOP of the incident. ISOP promptly began paying workers' compensation benefits to the employee. Shortly afterward, it learned that Progression had also purchased a workers' compensation policy from Great Northern that insured against the employee's accident. But when ISOP asked Great Northern to contribute its share of the workers' compensation benefits, it refused, citing Progression's failure to notify it of the injury.
ISOP sought a declaratory judgment in federal court that the doctrine of equitable contribution applied, under which Great Northern was required to split the costs of the claim with ISOP. But the district court agreed with Great Northern that Progression's failure to notify Great Northern of the claim, which it assumed was intentional, relieved Great Northern of any coverage obligation.
On appeal, the First Circuit certified to the Massachusetts Supreme Judicial Court the question of whether an insurer could obtain equitable contribution from another insurer when an employer had deliberately tendered the workers' compensation claim only to the first insurer.
The Massachusetts Supreme Judicial Court concluded that under Massachusetts law, Great Northern was obligated to contribute to the claim.
First, as a matter of Massachusetts's workers' compensation law, the Court noted that workers' compensation insurers directly insure injured workers; they do not insure an employer who is then liable to its workers for their injury. Given this structure, the Court concluded that an employer like Progression had no right to decide which insurer should cover the claim, so it did not matter whether Progression's failure to notify Great Northern of the injury was intentional or accidental (an issue the parties disputed).
Second, under general principles of insurance law, the Court rejected the so-called selective tender doctrine implicitly advocated by Great Northern. This doctrine, accepted in only a handful of states, permits an insured to "selectively tender" a claim to just one of its insurers in cases where the claim is covered by multiple policies, which then forecloses the tendered insurer from obtaining equitable contribution from the non-tendered co-insurers.
The Court found this doctrine inconsistent with Massachusetts's notice-prejudice rule, under which an insured's failure to provide prompt notice of a claim to an insurer only relieves the insurer of its coverage obligation if the insurer is prejudiced by the late notice. The selective tender doctrine would run contrary to this rule, because it would relieve the non-tendered insurer of its coverage obligation (and defeat the tendered insurer's equitable contribution claim) even when the insured suffered no prejudice from the lack of notice. The Court thus instructed the First Circuit that under Massachusetts law Progression's failure to tender the claim to Great Northern did not relieve Great Northern of its coverage obligation or defeat ISOP's equitable contribution claim.