On July 12, 2007, the Massachusetts Supreme Judicial Court held that, where a vehicle causing an accident is owned by a governmental entity and is insured by an insolvent insurer, the Massachusetts Insurers Insolvency Fund is not obligated to compensate the injured individual unless and until the injured individual's own uninsured motor vehicle coverage has been exhausted. Massachusetts Insurers Insolvency Fund v. Premier Ins. Co., 07-SJC-09793 (July 12, 2007).
The Massachusetts Insurers Insolvency Fund (the "Fund"), created by Mass. Gen. L. c. 175D, is a nonprofit unincorporated association of all insurers writing liability and property insurance in the Commonwealth. It is available to settle up to $300,000 per claim that arises from an insurance policy issued by an insolvent insurer. The Fund's obligations and expenses are met by mandatory contributions by all liability and property insurers who write insurance in the Commonwealth.
In the case, three injured individuals and the estate of a fourth sought uninsured motorist coverage from their respective automobile insurers. Their claims were each denied, however, based upon the "government vehicle exclusion" contained in the standard automobile policy, which states that motor vehicles owned by a governmental entity are not considered "uninsured" even upon insolvency of the insurer. The individuals then sought compensation from the Fund, but their claims were denied on the ground that they were required to first exhaust their uninsured motorist coverage. The Fund then brought a declaratory judgment action against the individuals' uninsured motorist carriers. The lower court entered summary judgment in favor of the Fund, and the insurance carriers appealed.
After a lengthy discussion of the rules of policy interpretation and the auto insurance framework in Massachusetts, the SJC affirmed the lower court's decision. In its decision, the SJC held that (1) "Because the Fund is a source of last resort, the claimants here must first exhaust their [uninsured motorist coverage] under their own insurance policies; and (2) to the extent the "government vehicle exclusion" contained in the standard automobile policy purports to exclude government vehicles from uninsured motorist coverage even in the event of the insurer's insolvency, it "must be deemed invalid and unenforceable."
A copy of the SJC's full opinion is attached here.