MA Supreme Court Rejects Policyholder’s “Selective Tender”shoke2013
Equitable Contribution available when two workers’ compensation policies cover same loss.
The Massachusetts Supreme Court, on a certified question from the Federal United States Court of Appeals for the First Circuit, found that when one workers’ compensation policy is target tendered, it may seek contribution from another insurer that provided coverage for the same loss. Although the opinion is rather broadly written, it remains unclear to what extent it applies outside the workers’ compensation context when the non-tendered insurer is prejudiced by the late notice and tender of the claim.
The case involved an employee of Progression, Inc. (“Progression”) injured while traveling abroad. Progression had purchased two primary workers’ compensation policies that covered the loss from two insurers: Insurance Co. of the State of Pennsylvania and Great Northern Insurance Co. (hereinafter “Pennsylvania Insurance” and “Great Northern’). The latter covered losses outside the U.S. Progression only noticed and tendered the claim to Pennsylvania Insurance. After Great Northern refused to contribute to the loss on the basis that the claim had not been “tendered” to it by the policyholder, Pennsylvania Insurance sued Great Northern for equitable contribution in in federal court in Massachusetts.
Great Northern succeeded in obtaining summary judgment on the grounds that contribution was not available because Progression had never tendered it to Great Northern. An appeal was taken, and because Massachusetts law applied to the dispute, the First District certified the question to the Massachusetts Supreme Court.
The Supreme Court began by stressing that because contribution is equitable, “unlike subrogation, (it) is a right of the insurer and exists independently of the rights of the insured.” Thus, “the selection of which indemnitor is to bear the loss should not be left to the often arbitrary choice of the loss claimant.” The court stated that “We have recognized the right of equitable contribution in past cases, and now clearly declare that we adopt the doctrine.”
Great Northern had argued that equitable contribution was inapplicable because Progression had “selectively tendered” the claim to Pennsylvania Insurance. And, because Progression did not tender the claim in a timely fashion, it had not met the terms and conditions of the Great Northern policy. Noting that while a few cases in Washington and Illinois had approved the use of the “selective tender exception,” it found that the Massachusetts workers compensation statutory scheme precluded this argument. In particular, the court noted that the statute made the insurer directly liable to the injured employee rather than by way of indemnifying the policyholder. Further, the law permits the employee to give direct notice to either the employer or the policyholder. Only if the insurer and the employer had not been given notice and the insurer was prejudiced by the late notice, would the employee be barred from receiving insurance benefits. The court found that the legal and regulatory scheme, “as applied to workers’ compensation benefits,” precluded Great Northern from refusing to contribute due to late notice.
The Court also stated that the “selective tender exception” was not consistent with “Massachusetts law governing general liability insurance.” It reasoned that to the extent the “exception” was based on untimely notice and there was no prejudice to the insurer, it was “contrary to sound public policy.” The opinion asserted that the selective tender exception would reward “bad” insurers by incentivizing policyholders to tender claims to “good” insurers to minimize conflict, inconvenience and paperwork.
The fundamental answer to the certified question is as follows: “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.”
It remains unclear to what extent this rule applies to cases not involving workers’ compensation policies in which, due to the late notice, there was actual prejudice to the insurer that was not selectively tendered.
Ins. Co. of the State of Pennsylvania v. Great Northern Ins. Co., No. SJC-11897 (Mass. Mar. 7, 2016).