Recently, a Massachusetts federal court issued an opinion limiting the ability of one insurer to seek reimbursement from another insurer under the doctrine of equitable contribution. In the insurance context, equitable contribution allows an insurer to seek contribution from a co-insurer after the insurer pays more than its proportionate share of a loss on a claim that both insurers are obligated to indemnify or defend. The decision is notable because it addresses whether an insurer may seek equitable contribution from a co-insurer where the insured never tendered the claim to the co-insurer. A copy of the decision in Ins. Co. of State of Pa. v. Great N. Ins. Co., Civil Action No. 13-cv-12821 (D. Mass. Aug. 25, 2014) is available here.
In Ins. Co. of State of Pa., both Great Northern Insurance Company and Insurance Company of the State of Pennsylvania (“ICSOP”) issued worker’s compensation policies to the insured. After the insured’s employee suffered a work-related injury, the insured tendered the employee’s claim to ICSOP, which agreed to pay worker’s compensation benefits to the employee. The insured did not tender the employee’s claim to Great Northern. ICSOP thereafter sent a letter to Great Northern tendering the employee’s claim to great Northern and seeking contribution from it, but Great Northern denied any obligation to contribute on the grounds that the insured had not tendered the claim.
Thereafter, ICSOP filed a lawsuit against Great Northern seeking reimbursement under the doctrine of equitable contribution. The court found that in situations where an insured has tendered a claim to only one of two insurers with concurrent policies, there is a split of authority as to whether notice by the paying insurer to the non-paying co-insurer is sufficient to permit equitable contribution. The court noted that courts in California, New York and Ohio have determined that notice from another insurer is sufficient so long as it is timely. It also noted, however, that courts in Illinois, Montana and Washington adhere to the “selective tender” rule, pursuant to which the selective tender of a claim by the insured to one insurer, but not to a co-insurer, can defeat a claim for equitable contribution by the insurer who received the tender.
The court found that the “selective tender” rule comports more closely with Massachusetts law, which holds that the doctrine of equitable contribution cannot override explicit, unambiguous policy language. The court found that because the language in Great Northern’s policy expressly required the insured to provide Great Northern with notice for coverage to attach, and because it was undisputed that the insured had neither provided such notice nor authorized ICSOP to do so on its behalf, Great Northern’s coverage obligations were never triggered. Accordingly, the court held that ICSOP was not entitled to equitable contribution from Great Northern.
The holding in Ins. Co. of State of Pa., which was a case of first impression, places the selection of which insurer will bear a loss entirely in the hands of the insured. Whether Massachusetts state courts will find the court’s holding persuasive remains to be seen.