Equitable contribution is a legal principle designed to prevent the unfairness which would otherwise result where one insurer fulfills its policy obligations to cover a loss but coinsurers do not. The insurer which honors its policy obligations is given the right to seek proportionate contribution from other insurers who cover the same loss on the same basis. The doctrine discourages insurers tempted to delay action on a loss covered by its policy in the hope that another insurer will fully shoulder what should be a shared responsibility.
Massachusetts, along with the majority of jurisdictions, has long recognized the right of an insurer to seek equitable contribution from coinsurers who cover the same risk. See, e.g., Rubenstein v. Royal Ins. Co., 44 Mass. App. Ct. 842 (1998). However, a small handful of states (including Illinois, Washington and Montana) recognize a “selective tender” exception holding that an insurer is excused from its duty to contribute where an insured has not tendered a claim. In Insurance Company of the State of Pennsylvania v. Great Northern Insurance Company (No. SJC-11897, March 7, 2016), the Massachusetts Supreme Judicial Court (SJC) flatly rejected “selective tender” as a defense to a claim of equitable contribution in a case involving two workers’ compensation policies.
The case arose from an injury sustained by an employee of Progression, Inc., while traveling abroad on business. Progression had two insurance policies that covered this work-related injury: one with Insurance Company of the State of Pennsylvania (ISOP) and one with Great Northern Insurance. Progression tendered the claim to ISOP, which immediately recognized coverage. Subsequently, ISOP became aware of the second policy issued by Great Northern, and asked it to contribute. Great Northern declined on the basis that that the claim had not been tendered, nor had Progression authorized ISOP to do so. The United States District Court for the District of Massachusetts ruled that ISOP was not entitled to seek equitable contribution in these circumstances. Its appeal to the Court of Appeals for the First Circuit resulted in certification to the SJC on the question of “selective tender.”
“We have recognized the right of equitable contribution in past cases” wrote Chief Justice Gants, “and now clearly declare that we adopt the doctrine.” The SJC determined that the underlying premise of the selective tender exception is inconsistent with Massachusetts workers’ compensation insurance law, which holds an insurer directly liable to an injured employee as long as the employee properly presents his claim. The court ruled that Great Northern’s obligation to provide coverage was triggered by the notice given to Progression by its insured employee, regardless of whether Progression gave notice. A Great Northern policy provision stating that its duty to provide coverage was contingent its receipt of notice of the injury from Progression was, as applied to workers compensation benefits, declared invalid.
The SJC did not limit its rejection of “selective tender” to workers’ compensation insurance, but also held that the doctrine is not in accord with Massachusetts law governing general liability insurance. Chief Justice Gants wrote: “Under Massachusetts law, an insurer’s coverage obligation is triggered by notice regardless of the timing or source of such notice; late notice or notice from a third party does not preclude coverage unless the insurer is prejudiced.” An insurer which seeks to avoid its coverage obligations has the burden to establish both a breach of its notice provision and prejudice arising from the breach. “Because the premise of the selective tender doctrine is that an insurer is not liable in a claim where the insured fails to give timely notice, . . . [the] exception would be in conflict with our statutory and case law governing liability insurance.” Significantly, the SJC emphasized that “selective tender” is contrary to public policy, which encourages insurers to promptly accept their coverage obligations. It observed that the doctrine “would reward the ‘bad’ insurer, who would be spared paying its fair share of the claim, and punish the ‘good’ insurer, who would be required to pay the entirety of the claim alone.”
In this case, the SJC emphatically rejected “selective tender” and reaffirmed its stance with the majority of jurisdictions which recognize equitable contribution. Equitable contribution protects insurers from paying an unfair proportion of a joint liability. In situations where multiple policies arguably apply, insurers should weigh equitable considerations in determining their coverage position. Massachusetts courts often temper policy interpretation by examining the equities of a particular situation. This decision shows that in matters of insurance coverage, it is important to be viewed as a conscientious insurer.
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