Massachusetts’ top court ruled this month that a workers’ compensation insurer that has paid benefits under a policy has a right to pursue “equitable contribution” from a second insurer that also provided coverage to the same policyholder.
The Massachusetts Supreme Judicial Court said the doctrine of equitable contribution is applicable even though the injured worker’s employer did not give notice of injury to the second insurer.
The case involves Progression Inc., a Haverhill, Massachusetts-based industrial instrumentation company serving the chemical industry. In 2010, a Progression employee was severely injured in an auto accident while on a business trip abroad.
The court documents said Progression had purchased two policies from two different insurers — one providing compulsory workers’ comp coverage from the Insurance Company of the State of Pennsylvania (ISOP), a subsidiary of the American International Group (AIG), and a second providing workers’ comp coverage for employees traveling overseas, from Great Northern Insurance, a Chubb subsidiary. Both policies provided primary coverage.
Following the injury, the employee gave timely notice of his injury to his employer who gave notice of the claim only to ISOP and did not notify Great Northern.
ISOP paid the claim but learned a year later that Progression also had coverage under a Great Northern policy.
In 2011, ISOP sent a letter to Great Northern and requested contribution. But Great Northern declined to contribute and told ISOP that it had learned from Progression that Progression intended to tender the claim only to ISOP.
In 2013, ISOP sued Great Northern in the U.S. District Court of Massachusetts, arguing that the doctrine of equitable contribution required Great Northern to cover half of the injured worker’s comp claim.
But the judge ruled in Great Northern’s favor, stating that Great Northern is not obligated to contribute since the policyholder did not tender a claim to Great Northern.
ISOP appealed, and the U.S. Court of Appeals for the First Circuit asked the Massachusetts Supreme Judicial Court to examine the question of whether an insured can choose which of its workers’ comp insurers is to defend and indemnify the claim and prevent that insurer from seeking equitable contribution from the other insurer.
In its March 7 ruling, the Massachusetts Supreme Judicial Court answered “no” to that question, concluding that ISOP has a right to pursue equitable contribution from Great Northern.
“Equitable contribution is designed to prevent the potential unfair result that the company that pays first is left to cover the entire loss,” the court stated. “The underlying principle is that each [insurer] pays its fair share and one does not profit at the expense of the others.”
The court said that apart from ensuring fairness, equitable contribution furthers the risk-spreading purpose of insurance by allowing insurers to distribute the costs of a claim equally among all insurers with coverage obligations.
For these reasons, the majority of jurisdictions recognize the equitable contribution doctrine, the court said. “We are among the majority of states that have recognized the right of an insurer to seek equitable contribution from coinsurers who cover the same risk,” the court stated.
The high court said Great Northern was essentially asking the court to recognize the “selective tender” exception to the doctrine of equitable contribution, which provides that, “where an insured has not tendered a claim to an insurer, that insurer is excused from its duty to contribute to a settlement of the claim.”
The court said this exception has been recognized by only a minority of jurisdictions. Furthermore, this exception does not align with workers’ comp insurance under Massachusetts law.
In Massachusetts, although the employer buys the workers’ comp policy, a workers’ comp insurer is directly liable to an injured employee for the comp benefits provided by law.
And the injured employee only needs to give notice of the injury to the employer as soon as practicable to be entitled to coverage. The employer is then required to give notice to the insurer within seven days, but the failure to do so still does not bar the employee from obtaining benefits.
“In light of these statutory provisions, Great Northern’s obligation to defend and indemnify the claim was triggered by the notice given to Progression by its injured employee, regardless of whether Progression gave notice of the injury to Great Northern,” the court wrote.
Therefore, as applied to workers’ comp benefits, the language in Great Northern’s policy providing that its duty of coverage is contingent on the employer providing notice of the injury is contrary to Massachusetts law and null and void with respect to a Massachusetts employee, the court said.
The case is Insurance Company of the State of Pennsylvania v. Great Northern Insurance Company, SJC-11897.
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