Massachusetts Supreme Judicial Court Strikes Down Selective Tender Rule

Blogs, Insurance Coverage

Insurance Company of the State of Pennsylvania v. Great Northern Insurance Co.,473 Mass. 745 (Mass. 2016). The Massachusetts Supreme Judicial Court recently held that where 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.

Progression, Inc. (“Progression”) purchased workers’ compensation policies from the Insurance Company of the State of Pennsylvania (ISOP) and Great Northern Insurance Company (Great Northern) but only notified ISOP when an employee was severely injured on a business trip abroad. ISOP began making payments on the claim and requested contribution from Great Northern upon learning that Progression had dual coverage. Great Northern denied the request and ISOP filed a complaint in the United States District Court of Massachusetts seeking a judgment declaring that the doctrine of equitable contribution required Great Northern to pay one-half of the past and future defense costs and indemnity payments related to Progression’s claim. The District Court granted Great Northern’s motion for summary judgment, ISOP appealed, and the U.S. Court of Appeals for the First Circuit certified the following question to the Massachusetts Supreme Judicial Court: “Where two workers’ compensation insurance policies provide coverage for the same loss, may an insured elect which of its insurers is to defend and indemnify the claim by intentionally tendering its defense to that insurer and not the other and thereby foreclose the insurer to which tender is made from obtaining contribution from the insurer to which no tender is made?” The First Circuit answered “no,” holding that the selective tender rule may not be invoked to preclude coverage as it is contrary to Massachusetts state law and public policy. In so holding the Court explained that Massachusetts law dictates that an insurer’s coverage obligation is triggered by an injured employee notifying his employer rather than the employer notifying the insurer. Furthermore, the selective tender rule runs afoul to the state’s notice-prejudice rule and is contrary to public policy in that it rewards the less conscientious insurer, as employers with dual coverage are more likely to notify the insurer that will honor the claim quickest.