SJC rejects selective tender doctrine in worker's comp cases and generally

As I posted here,, last June the First Circuit certified to the SJC the question of whether, when an insured has two primary worker's compensation insurance policies that cover the same loss, the insured can opt to have one insurer cover the entire loss or if either insurer can insist that both share equitably in covering the loss. 

In Ins. Co. of Penn. v. Great Northern Ins. Co., __ Mass. __, 2015 WL 10428274 (March 7, 2016), the SJC has answered no.  Rather, "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." 

 Progression had two worker's comp policies.  ISOP provided compulsory worker's comp coverage.  Great Northern provided worker's comp coverage for employees traveling outside the United States and Canada.  Both policies provided primary coverage. The dispute between the insurers arose after an employee of Progression was injured while traveling abroad for work. 

Progression gave notice of the worker's comp claim only to ISOP and did not notify Great Northern.  ISOP later learned of the Great Northern policy and requested contribution.  Great Northern declined, stating that it had learned from Progression that Progression had intended to tender the claim only to ISOP and had not authorized ISOP to report or tender the claim to Great Northern.

Under the doctrine of equitable contribution, where multiple insurers provide coverage for a loss to an insured, an insurer who pays more than its fair share of costs of defense and indemnity may require a proportionate contribution from the coinsurers. 

Great Northern did not challenge the equitable contribution doctrine generally; it argued that it does not apply because Progression purposely tendered the claim only to ISOP.  Without using the term, Great Northern asked that the court adopt the selective tender exception to the doctrine of equitable contribution, allowing an insured to choose whether or not to excuse an insurer from its duty to contribute to a claim. 

The court rejected that argument with respect to worker's compensation insurance.  The worker's compensation statute requires that an employee injured in the course of employment "shall be paid compensation by the insurer."  Therefore, although the employer purchases insurance, the insurer is directly liable to the employee.  Under the statutory scheme, Great Northern's obligation to defend and indemnify the claim was triggered by the notice given to  Progression of its injured employee, regardless of whether or not Progression gave notice of the injury to Great Northern.  Therefore, the language in the insurance policy providing that its duty of coverage is contingent on the employer providing notice of the injury to it is contrary to Massachusetts law and null and void with respect to a Massachusetts employee. 

The court also held that the selective tender exception to the doctrine of equitable contribution does not accord with Massachusetts law governing general liability insurance.  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. 

As I have previously noted, the selective tender doctrine typically pertains more to the issue of pro rata versus joint and several allocation in a long tail loss.  In a joint and several allocation scheme, an insured may choose (or selectively tender to) one insurer, who will be on the risk up to its policy limit.  The insurer will then have the right of equitable contribution against other insurers on the risk, but cannot recover for periods when the insured had no insurer on the risk or when the insurer on the risk is no longer in business.  The SJC has firmly rejected joint and several liability in favor of pro rata contribution. 

First Circuit certifies question of selective tender and equitable contribution

In Ins. Co. of Penn. v. Great N. Ins. Co., __ F.3d __, 2015 WL 3440342 (1st Cir.), the First Circuit has certified to the Supreme Judicial Court of Massachusetts the question of whether, when an insured has two insurance policies that cover the same loss, the insured can opt to have one insurer cover the entire loss or if either insurer can insist that both share equitably in covering the loss. 


In the underlying case, an employee of Progression, Inc. was injured while on a business trip.  The employee pursued a worker's compensation claim.  Progression had two insurance policies that covered work-related injuries, one with ISOP and one with Great Northern.  It tendered its claim to ISOP only and did not notify Great Northern of the loss.  ISOP defended and indemnified.


ISOP later learned of the Great Northern policy, notified it of the claim, and requested contribution.  Great Northern informed ISOP that it had contacted Progression after receiving notice from ISOP and that Progression had purposefully tendered the claim only to ISOP.  Great Northern asserted that ISOP was legally obligated to handle the claim and that there was no practical reason for Great Northern to assume its handling. 


The First Circuit discussed the doctrine of equitable contribution, which allows a party to seek contribution from a co-obligor who shares the same liability as the party seeking contribution.  The SJC has never addressed whether equitable contribution is available to seek a claim for contribution by one insurer against another. 


The First Circuit noted that neither party disputes that the SJC would likely adopt equitable contribution in a case in which an insured looks to multiple, similarly-obligated insurers for payment.  But the issue before the court was whether it should apply where the insured does not want one insurer to pay anything and has intentionally avoided giving the insurer notice of the claim. 


It's important to note that the issue of selective tender comes up most frequently not, as in this case, with concurrent policies, but with consecutive policies in long tail losses.  The doctrine of selective tender in long tail losses favors policy-holders, because it allows them to force a single insurer to pay the entire loss up to its limits regardless of whether there are periods during the loss when the insured had no coverage or insurers for those periods are no longer in business.  In that context, selective tender would contradict the decision the SJC made five years ago in Boston Gas v. Century Indem. Co.


Thanks to Mike Tracy of The Law Office of Michael G. Tracy for bringing this case to my attention.