MA Supreme Court

Duty to Defend Does Not Extend to Counterclaims

On certification of questions from the United States Court of Appeals for the First Circuit, the Massachusetts Supreme Court held that, where an insurer has a contractual duty to defend, that duty does not extend to asserting affirmative counterclaims on behalf of the insured.  The court also held that the duty to pay defense costs has the same scope as the duty to defend and, thus, does not require an insurer to pay the costs of prosecuting a counterclaim on behalf of the insured.

Under the policy at issue, the insurer had two duties: “the right and duty to defend any Claim to which this insurance applies,” and to “‘pay one hundred percent (100%) of the Defense Costs for the [covered] Claim’ up to the policy limit.”  Under the terms of the policy, “Claim” was defined, in relevant part, as “any proceeding initiated against [the insured] … seeking to hold [the insured] responsible for a Wrongful Act.”  “Defense Costs” was defined as “reasonable and necessary legal fees and expenses incurred by [the insurer], or by any attorney designated by [the insurer] to defend [the insured], resulting from the investigation, adjustment, defense and appeal of a Claim.” The majority opinion found the meaning of “defend” was unambiguous and held that “the essence of what it means to defend is to work to defeat a claim that could create liability against the individual being defended.”  The insured argued that the “in for one, in for all” rule (which requires an insurer to defend an insured against all counts, if even only one count is covered) should be interpreted to include an obligation to assert counterclaims.  The court disagreed.  Based on the meaning of “defend”, there was no reason to expand the rule to require an insurer to assert affirmative claims.

According to the dissent, however,  “[w]here 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,  … an insurer’s duty to defend the insured in ‘any proceeding’ includes the duty to prosecute such a compulsory counterclaim.”  Mount Vernon Fire Ins. Co. v. Visionaid, Inc., No. SJC-12142 (Mass.  June 22, 2017).