Insurance Company of the State v. Great Northern Insurance Co.

United States Court of Appeals
For the First Circuit
No. 14–1991
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA,
Plaintiff, Appellant,
v.
GREAT NORTHERN INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Torruella, Thompson, and Kayatta,
Circuit Judges.
Aaron S. Bayer, with whom Michael P. Thompson, David R. Roth,
and Wiggin and Dana LLP were on brief, for appellant.
Jennifer C. Sheehan, with whom Richard J. Shea and Hamel,
Marcin, Dunn, Reardon & Shea, P.C. were on brief, for appellee.
May 29, 2015
KAYATTA, Circuit Judge. The parties ask us to decide a
question of Massachusetts law on which Massachusetts' highest
court has not spoken. The question arises when, as here, an
insured buys two insurance policies that cover the same loss. In
such a case, may the insured opt to have one insurer cover the
entire loss or, instead, may either insurer insist that both share
equitably in covering the loss? Given the competing considerations
implicated by this question of state law and policy, and the lack
of clear guidance that would allow us confidently to predict how
Massachusetts' highest court would weigh these considerations, we
certify the question to the Massachusetts Supreme Judicial Court
("SJC"), pursuant to SJC Rule 1:03. See, e.g., Boston Gas Co. v.
Century Indem. Co., 529 F.3d 8, 14–15 (1st Cir. 2008).
I. Background
The parties do not dispute any material facts. In
January 2010, an employee of Progression, Inc.1 ("Progression"),
suffered serious injury while on a business trip. The employee
pursued a workers' compensation claim before the Massachusetts
Department of Industrial Accidents ("DIA"). Progression had two
insurance policies that covered this work-related injury: one with
1 Progression is a Delaware corporation headquartered in
Massachusetts.
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Insurance Company of the State of Pennsylvania2 ("ISOP"), and one
with Great Northern Insurance Company3 ("Great Northern").
Progression tendered the claim to ISOP only. Progression did not
notify Great Northern. ISOP immediately made payments pursuant to
the policy and defended the claim before the DIA.4
ISOP later learned of Progression's policy with Great
Northern. In October 2011, ISOP wrote Great Northern, notifying
it of the claim against Progression and requesting contribution.
In March 2012, Great Northern replied, informing ISOP that it had
contacted Progression after receiving notice from ISOP, and
learned that Progression purposefully tendered the claim to ISOP
only.5 Great Northern observed that ISOP was "legally obligated
to handle [Progression's] claim," and that there was "no practical
reason whatsoever for Great Northern to assume" handling the claim.
Invoking diversity jurisdiction, ISOP filed this suit
and promptly moved for summary judgment declaring that the
2
ISOP is domiciled in Pennsylvania, and its principal place
of business is in New York.
3
Great Northern is domiciled in Indiana, and its principal
place of business is in New Jersey.
4
As of January 2014, ISOP had paid over $2.5 million for the
injured employee's claim under its policy with Progression. ISOP
continues to make payments.
5
Great Northern also learned that Progression did not
authorize ISOP to tender the claim to Great Northern on its behalf.
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Massachusetts doctrine of equitable contribution required Great
Northern to pay half of the past and future defense costs and
indemnity payments related to the claim. Cross-moving for summary
judgment, Great Northern argued that it had no coverage obligation
because Progression chose not to comply with its duty under the
policy to notify Great Northern of the claim. ISOP responded that,
under Massachusetts law, Progression's failure to notify Great
Northern would only excuse Great Northern from its coverage
obligation if the lack of notice caused prejudice. Neither party
pointed to any "other insurance" clause in either policy that might
bear on this dispute. See, e.g., Boston Gas Co. v. Century Indem.
Co., 910 N.E.2d 290, 308 n.36, 454 Mass. 337, 362 (2009).
The district court granted summary judgment to Great
Northern, holding that Progression's decision to tender the claim
to only ISOP defeated ISOP's later action for equitable
contribution from Great Northern. Ins Co. of Pa. v. Great N. Ins.
Co., 43 F. Supp. 3d 76, 82–83 (D. Mass. 2014). The district court
noted that there was no Massachusetts law directly on point. Id.
at 82. Citing law from Illinois and Washington, the district court
applied a rule known as "selective tender."6 Id. at 81–82. Under
6 Selective tender is sometimes referred to as "targeted
tender." See Workers' Compensation Fund v. Utah Bus. Ins. Co.,
296 P.3d 734, 737 (Utah 2013).
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that rule, when Progression opted not to give Great Northern any
notice of the claim, even belatedly, it avoided obliging Great
Northern to provide any coverage. Id. Therefore, no claim for
equitable contribution was available. Id.II. Standard of Review
We consider de novo a district court's grant or denial
of a motion for summary judgment. Nunes v. Mass. Dep't of Corr.,
766 F.3d 136, 142 (1st Cir. 2014). Under Federal Rule of Civil
Procedure 56(a), "[t]he court shall grant summary judgment if the
movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law."
Cross-motions for summary judgment require us to evaluate each
motion independently and determine whether either party deserves
judgment as a matter of law on undisputed facts. Matusevich v.
Middlesex Mut. Assurance Co., 782 F.3d 56, 59 (1st Cir. 2015). We
sit in diversity jurisdiction over this dispute, see 28 U.S.C.
§ 1332, so the substantive law of Massachusetts governs. First
Am. Title Ins. Co. v. Lane Powell PC, 764 F.3d 114, 118 (1st Cir.
2014).
III. Discussion
Equitable contribution is the right of a party to seek
contribution from a co-obligor who shares the same liability as
the party seeking contribution. See 18 C.J.S. Contribution § 2
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(2015). In the insurance context, equitable contribution allows
an insurer that has paid for all or even some of a loss to seek
contribution from other insurers that have insured the same risk
but have not paid, or have paid less than the first insurer thinks
fair. See 16 Couch on Insurance § 222:98 (3d ed. 2014); see also
Truck Ins. Exch. v. Unigard Ins. Co., 79 Cal App. 4th 966, 974
(Cal. Ct. App. 2000); Ohio Cas. Ins. Co. v. State Farm Fire & Cas.
Co., 546 S.E.2d 421, 423 (Va. 2001). While the SJC has not yet
addressed whether equitable contribution is available to support
a claim for contribution by one insurer against another, other
Massachusetts courts have recognized its availability in actions
between insurers. See U.S. Fire Ins. Co. v. Peerless Ins. Co.,
No. 00–5595, 2001 WL 1688368, at *5 (Mass. Super. Ct. Dec. 20,
2001) (Gants, J.); Rubenstein v. Royal Ins. Co. of America, 44
Mass. App. Ct. 842, 852 (1998); see also Lexington Ins. Co. v. Gen
Accident Ins. Co. of America, 338 F.3d 42, 49–50 & n.4 (1st Cir.
2003) (recognizing a "willingness to entertain" equitable
contribution actions in the Massachusetts appeals court).
The Peerless superior court decision provides the most
detailed elucidation of equitable contribution to date as accepted
in Massachusetts lower courts. In Peerless, the insured party
tendered a claim to two obliged insurance companies, Peerless and
U.S. Fire. Peerless Ins. Co., 2001 WL 1688368, at *1. Peerless
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did not respond to the claim at all, while U.S. Fire ultimately
paid the claim at the point of a judgment in a reach-and-apply
action. Id. at *1. In turn, U.S. Fire sued Peerless for
contribution. Id. at *5–6.
With one insurer "accept[ing] its coverage
responsibilities" and "the second insurance company evad[ing] its
obligations and pay[ing] nothing," id. at *6, Peerless reasoned
that "equity demands that the responsible insurance company have
legal recourse to ensure that the irresponsible company pays its
fair share and reimburses the responsible company for having borne
the full brunt of coverage." Id. Without this equitable
principle, "the law provides an incentive for a co-insurer to run
away from a claim in the hope that the other co-insurer will not."
Id. The "purpose of this rule of equity is to accomplish
substantial justice by equalizing the common burden shared by co-
insurers, and to prevent one insurer from profiting at the expense
of others." Id. at *5 (internal quotation marks omitted). The
court explained that the rule applies when the insurance companies
issued policies affording coverage for the same insured and the
same risk. Id. at *6; see also Lexington Ins. Co., 338 F.3d at 50
n.5.
As described in Peerless, the right to equitable
contribution does not depend on an "express contract or agreement
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between the [insurers] to indemnify each other. Rather, it is
based upon equitable principles that imply a contract between the
parties to contribute ratably toward the discharge of a common
obligation." Peerless Ins. Co., 2001 WL 1688368, at *5. This
equitable principle is not without limits, though. "Absent
compelling equitable reasons, courts should not impose an
obligation on an insurer that contravenes a provision in its
insurance policy." Id. (internal quotation marks omitted). As an
example of an impermissible exercise of the court's equitable power
in contravention of a policy provision, Peerless posited the
following hypothetical:
[W]hen the insured is barred from pursuing an
insurance claim against Insurance Company A
because, contrary to the terms of the policy,
the insured voluntarily made a non-emergency
payment without the prior consent of the
insurance company, then Insurance Company B,
even though it made full payment on its claim,
should not be able to obtain equitable
contribution against Insurance Company A.
Id. at *5. A successful equitable contribution action therefore
requires, at least, a defendant that has an unsatisfied obligation
to pay under its policy.
Neither party here disputes that the SJC would likely
adopt equitable contribution in a case in which an insured looks
to multiple, similarly-obligated insurers for payment. The issue
here, though, is a bit trickier, because the insured apparently
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does not want one insurer to pay anything, and has intentionally
avoided giving that insurer notice of any claim (or so we can
assume given the case's present posture). So that insurer, Great
Northern, argues that it has never become obligated to pay, and
hence equitable contribution does not apply.
ISOP's rejoinder points to the Commonwealth's notice-
prejudice rule. Massachusetts insurance law generally bars an
insurer from disclaiming coverage based on an insured's failure to
provide prompt notice of the claim absent some proof of prejudice
to the insurer. By statute, notice of a claim by an insured,
notwithstanding policy terms to the contrary, is not a condition
precedent to coverage. See M.G.L.A. 175 § 112.7 The SJC expanded
the statutory notice-prejudice rule to all liability policies and
to defenses based on an insured's failure to cooperate with the
7 Section 112 provides that:
The liability . . . under any . . . policy
insuring against liability for loss or damage
on account of bodily injury or death . . .
shall become absolute whenever the loss or
damage for which the insured is responsible
occurs . . . . An insurance company shall not
deny insurance coverage to an insured because
of failure of an insured to seasonably notify
an insurance company of an occurrence,
incident, claim or of a suit founded upon an
occurrence, incident or claim, which may give
rise to liability insured against unless the
insurance company has been prejudiced thereby.
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insurer. See Johnson Controls, Inc. v. Bowes, 381 Mass. 278(1980); Darcy v. Hartford Ins. Co., 407 Mass. 481 (1990). Great
Northern does not argue that it was prejudiced by not learning
sooner of the claim. So if Progression (rather than ISOP) had
tendered the claim belatedly to Great Northern, Great Northern
would most certainly have been obligated to provide coverage to
the insured under Massachusetts law.
Johnson Controls and Darcy tighten the noose further on
Great Northern because, in each case, someone other than the
insured gave the belated notice that triggered a coverage
obligation in the absence of any prejudice to the insurer. Johnson
Controls, 381 Mass. at 282–83; Darcy, 407 Mass. at 489–90. And
because Peerless appears to hinge the availability of equitable
contribution on the triggering of the insurer's coverage
obligation, 2001 WL 1688368, at *5, at first glance equitable
contribution would thus appear to be available in this case. But
none of those cases involved the precise situation presented here:
a single, sophisticated insured intentionally opts to give notice
to only one of two potential insurers. This distinction may mean
that the policy objectives driving the decisions in those cases
fit less well here.
The holding in Peerless, for example, was predicated in
part on a desire to protect the insured from having two insurers
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each drag their feet in hopes that the other pays first. See id.
at *6. Granting the insured a right to make a selective tender--
if the insured so wishes, and only for as long as it so wishes--
creates no such risk that the insured itself cannot remedy by
opting for payment by both. Similarly, the notice-prejudice rule
is also predicated on a desire to protect insureds. See Pilgrim
Ins. Co. v. Mollard, 73 Mass. App. Ct. 326, 336 (2008); see also
Unum Life Ins. Co. of America v. Ward, 526 U.S. 371, 372–73 (1999).
Allowing the insured to make a selective tender poses no threat of
any such harm. To the contrary, selective tender gives the insured
for each policy bought by the insured the full range of options
that the insured would otherwise have had but for the decision to
buy two policies. As the district court observed, the "insured
may choose not to tender a claim for a number of reasons, including
a desire not to avoid a premium increase or to maintain its policy
limits for other claims." Ins Co. of Pa. v. Great N. Ins. Co., 43
F. Supp. 3d 76, 82 (D. Mass. 2014).
Citing Boston Gas Co. v. Century Indem. Co., 454 Mass.
337 (2009), ISOP contends that the SJC has already signaled that
it assigns little weight to the insured's choice of which among
several obligated insurers should pay. Actually, Boston Gas
addressed the extent to which each successive insurer was obligated
to the insured for a continuing loss, and did not say anything
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about the insured's ability to select between two insurers
obligated for the same loss.
This is not to say that selective tender makes obvious
sense as a rule. The parties point us to only a few jurisdictions
that have expressly adopted the rule. See Inst. of London
Underwriters v. Hartford Ins. Co., 234 Ill.App.3d 70, 73 (1992);
accord Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wash.2d 411,
421 (2008); Cas. Indem. Exch. Ins. Co. v. Liberty Nat'l Fire Ins.
Co., 902 F. Supp. 1235, 1239 (D. Mont. 1995). See generally 16
Couch on Ins. § 200:37 (3d ed. 2014). The rule has been employed
sparingly even within Illinois, where the doctrine originated.
See AMCO Ins. Co. v. Cincinnati Ins. Co., 10 N.E.3d 374, 379 (Ill.
App. Ct. 2014). See generally Inst. of London Underwriters, 234
Ill.App.3d at 73. Indeed, in its briefs and at oral argument,
Great Northern did not affirmatively argue in favor of adopting
selective tender by name. Great Northern instead couched its
appeal in terms of having no coverage obligation because the
insured chose not to give notice. But this is functionally
equivalent to the selective tender rule, which is precisely how
the district court interpreted it.
This is to say, instead, that there is presented here a
question of law and policy dispositive of this case upon which the
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SJC has not spoken. See S.J.C. Rule 1:03.8 We must therefore
decide between making an "informed prophecy," or certifying the
question to the SJC. See Showtime Entertainment, LLC v. Town of
Mendon, 769 F.3d 61, 79 (1st Cir. 2014) (internal quotation marks
omitted). "The first path offers the benefit of expedition but
with the risk of error; the second path, the reverse." Boston Gas
Co. v. Century Indem. Co., 529 F.3d 8, 13 (1st Cir. 2008). In
considering these two paths, we note that actions brought in
Massachusetts between two insurers very likely present the
potential for invoking diversity jurisdiction. Therefore, if we
answer the question posed here, every company that the answer
favors is likely to file or remove a case to federal court from
Massachusetts state court, reducing the odds that the SJC will get
to decide this issue. Nor do we doubt that the SJC is more familiar
than are we with the nuances of insurance coverage and related
regulation under Massachusetts law.
For these reasons, we certify the following question of
Massachusetts law to the Massachusetts Supreme Judicial Court:
Where two workers' compensation insurance
policies provide coverage for the same loss,
8 The SJC "may answer questions of law certified to it by
. . . a Court of Appeals of the United States . . . if there are
involved in any proceeding before it questions of [Massachusetts]
law . . . which may be determinative of the cause . . . and as to
which it appears to the certifying court there is no controlling
precedent in the decisions" of the SJC. S.J.C. Rule 1:03.
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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?
IV. Conclusion
The clerk of this court is instructed to transmit to the
SJC under the official seal of this court, a copy of the certified
question and our opinion in this case, along with copies of the
parties' briefs, appendix, and any supplemental filings under
Rule 28(j) of the Federal Rules of Appellate Procedure. We retain
jurisdiction over this appeal.
So ordered.
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