Employers sometimes have more than one workers’ compensation policy that provides coverage for the same loss. When more than one policy covers a loss, the employer may have an incentive to intentionally tender the claim to one insurer and not the other. This is called selective tender. When the insured makes a selective tender, can the “chosen” insurer seek contribution from the non-chosen insurer? Yes, in Massachusetts.
The Supreme Judicial Court, on a question certified to it by the First Circuit Court of Appeals, recently held in Insurance Co. of the State of Pennsylvania v. Great Northern Insurance Co., 473 Mass. 745 (2016), that an employer’s selective tender of a claim to one of its insurers did not foreclose the insurer from obtaining an equitable contribution from the other insurer to whom the claim was not tendered. The ruling rejects the minority of jurisdictions that have recognized a selective tender exception to equitable contribution doctrine.
Equitable contribution is an equitable doctrine that, where applicable, entitles an insurer who pays a loss to contribution from all other insurers who cover the same risk. It is designed to prevent the unfairness and potential disincentive to insurers that would result if being the first to pay meant being the only to pay. Unlike subrogation, which is a right derived from the insurance contract, equitable contribution is a right of the insurer that exists independently of the rights of the insured.
Insurance Co. of the State of Pennsylvania v. Great Northern Insurance Co. involved a claim submitted by an employee for injuries sustained in an auto accident that occurred while travelling abroad for business. The employer, Progression, Inc., had two workers’ compensation policies – a compulsory workers’ compensation policy issued by the Insurance Company of the State of Pennsylvania (ISOP) and a policy covering employees while travelling outside the United States and Canada issued by Great Northern Insurance Company (Great Northern). Progression intentionally tendered the claim to ISOP and not Great Northern, although both policies covered the claim. ISOP later learned of the additional coverage and requested contribution from Great Northern. After Great Northern refused, ISOP filed a complaint in federal court seeking a declaration that Great Northern was obligated to pay one-half of the past and future defense costs and indemnity payments on the claim.
Great Northern advocated for the adoption of the so-called selective tender exception to the doctrine of equitable contribution. This exception, which has been adopted in a minority of jurisdictions, provides that an insurer’s duty to contribute to a settlement of a claim does not arise until the insured has tendered a claim to it, and an insured’s intentional decision not to tender a claim forecloses the possibility of contribution from that insurer.
In rejecting Great Northern’s argument, the SJC explained that the central premise underlying the selective tender exception is incorrect as applied to the Massachusetts statutes governing workers’ compensation insurance. Under G. L. c. 152, §§ 41, 42, and 44, an injured employee must provide notice of an injury in writing “to the insurer or insured [i.e., the employer],” and by giving notice to the employer, an employee preserves his or her entitlement to workers’ compensation benefits. Thus, under Massachusetts law, Great Northern’s obligation to defend and indemnify the claim was triggered by the notice the employee gave Progression, and Progression’s refusal to tender the claim to Great Northern made no difference.
The SJC went on to state, in dicta, that the selective tender rule may also conflict with the Massachusetts rule that an insured’s late notice to an insurer under a general liability policy does not preclude coverage unless it prejudices the insurer. The SJC further commented that, from an equitable and public policy standpoint, the selective tender rule is undesirable because it arguably rewards insurers who ignore their coverage obligations at the expense of those that honor them.
In sum, Insurance Co. of the State of Pennsylvania v. Great Northern Insurance Co. solidifies the rights of workers’ compensation insurers to directly seek equitable contribution from other insurers who cover the same risk, even when the insured intentionally refuses to tender the claim to those other insurers. The decision also raises questions about whether, or under what circumstances, the selective tender rule would apply to disputes raised under general liability policies and other types of insurance policies, where the workers’ compensation statutes would not apply.