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SJC-11897

   INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA       vs.    GREAT
                   NORTHERN INSURANCE COMPANY.



            Suffolk.      November 2, 2015. - March 7, 2016.

 Present:     Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, &
                              Hines, JJ.


Workers' Compensation Act, Insurer, Coverage, Election of
     remedies. Insurance, Workers' compensation insurance,
     Contribution among insurers, Insurer's obligation to
     defend. Contribution. Tender. Election of Remedies.



     Certification of a question of law to the Supreme Judicial
Court by the United States District Court for the District of
Massachusetts.


     Barbara I. Michaelides, of Illinois (Aaron S. Bayer, of
Connecticut, with her) for the plaintiff.
     Jennifer C. Sheehan (Richard J. Shea with her) for the
defendant.
     Laura Meyer Gregory, for Massachusetts Defense Lawyers
Association, amicus curiae, submitted a brief.


    GANTS, C.J.        The United States Court of Appeals for the

First Circuit certified the following question to this court,
                                                                      2


pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700

(1981):

          "Where two workers' compensation insurance policies
     provide coverage for the same loss, 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?"

We answer "no" to the question.     Where, as here, two primary

workers' compensation insurance policies provide coverage for

the same loss arising from injury to an employee, the insurance

company that pays the loss has a right of equitable contribution

to ensure that the coinsurer pays its fair share of the loss.

The employer of the injured employee may not prevent the

insurance company that pays the loss from exercising its right

of equitable contribution by intentionally giving notice of the

injury only to that insurer.1

     Background.     We set forth below the relevant background and

procedural history of the case contained in the certification

order from the First Circuit, occasionally supplemented by

undisputed information in the record.     In January, 2010, an

employee of Progression, Inc. (Progression), was severely

injured in an automobile accident while traveling abroad on a

business trip.     Progression had purchased two workers'

     1
       We acknowledge the amicus brief submitted by the
Massachusetts Defense Lawyers Association.
                                                                    3


compensation policies from two different insurers, one providing

compulsory workers' compensation coverage from the Insurance

Company of the State of Pennsylvania (ISOP), and a second

providing workers' compensation coverage for employees traveling

outside the United States and Canada from Great Northern

Insurance Company (Great Northern).   Both policies provided

primary coverage; neither was an excess policy.2   The employee

gave timely notice of his injury to Progression and pursued a

workers' compensation claim before the Department of Industrial

Accidents (department).   Progression gave notice of the claim

only to ISOP; it did not notify Great Northern.    ISOP

immediately began making payments pursuant to the policy and

defended the claim before the department.

     ISOP later learned that Progression also had workers'

compensation coverage under its Great Northern policy and, on

October 3, 2011, sent a letter to Great Northern that gave

notice of the claim and requested contribution.    In a letter

dated March 15, 2012, Great Northern declined "the attempted

tender" of the claim.   It informed ISOP that it had learned from

     2
       An excess insurance policy provides coverage for a risk
only when the coverage limits from other policies insuring that
risk have been exhausted. See R. Segalla, Couch on Insurance 3d
§ 220:32 (2005). An excess insurance policy and a primary
insurance policy "do not (absent a specific provision) act as
coinsurers of the entirety of the risk. Rather, each insurer
contracts with the insured individually to cover a particular
portion of the risk." Allmerica Fin. Corp. v. Certain
Underwriters at Lloyd's, London, 449 Mass. 621, 629-630 (2007).
                                                                   4


Progression that Progression had intended to tender the claim

only to ISOP and had not authorized ISOP to report or tender the

claim to Great Northern.

    On November 7, 2013, ISOP filed a complaint against Great

Northern in the United States District Court for the District of

Massachusetts, seeking a judgment declaring that the doctrine of

equitable contribution required Great Northern to pay one-half

of the past and future defense costs and indemnity payments

related to Progression's claim.   On August 25, 2014, a judge of

the District Court allowed Great Northern's motion for summary

judgment.   Insurance Co. of Pa. v. Great N. Ins. Co., 43 F.

Supp. 3d 76, 82-83 (D. Mass. 2014).    The judge concluded, "in

the absence of binding precedent on this point," that Great

Northern was correct "that any obligation of a co-insurer for

equitable contribution to the other insurer does not arise until

a claim for defense or indemnity is tendered by the insured or

one authorized to act on behalf of the insured."     ISOP timely

appealed and, on May 29, 2015, the First Circuit certified the

question before us.

    Discussion.    1.   Equitable contribution.   Under the

doctrine of equitable contribution, where multiple insurers

provide coverage for a loss of an insured, an insurer who pays

more than its share of the costs of defense and indemnity may

require a proportionate contribution from the other coinsurers.
                                                                     5


See Truck Ins. Exch. v. Unigard Ins. Co., 79 Cal. App. 4th 966,

974 (2000) ("Equitable contribution permits reimbursement to the

insurer that paid on the loss for the excess it paid over its

proportionate share of the obligation . . .").     See generally

S.M. Seaman & J.R. Schulze, Allocation of Losses in Complex

Insurance Coverage Claims § 5:2 (3d ed. 2014) (Seaman & Schulze)

("Equitable contribution applies to insurers that share the same

type of obligation on the same risk with respect to the same

insured").   "The right of equitable contribution does not depend

on an express agreement between the parties to indemnify each

other, but, rather, rests upon equitable principles that imply

an obligation to contribute ratably toward the payment of a

common obligation."    Lexington Ins. Co. v. General Acc. Ins. Co.

of Am., 338 F.3d 42, 49-50 (1st Cir. 2003).    See Seaman &

Schulze, supra ("The doctrine is based on principles of equity,

not contract").    Because it does not derive from contract,

equitable contribution, unlike subrogation, is a right of the

insurer and exists independently of the rights of the insured.

Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th

1279, 1294- 1295 (1998).

    Equitable contribution is designed to prevent the potential

unfair result that the company that pays first is left to cover

the entire loss.    See id. at 1295.   "[W]here multiple insurers

or indemnitors share equal contractual liability for the primary
                                                                    6


indemnification of a loss or the discharge of an obligation, the

selection of which indemnitor is to bear the loss should not be

left to the often arbitrary choice of the loss claimant."     Id.

The underlying principle is that "each [insurer] pays its fair

share and one does not profit at the expense of the others."

Id. at 1296.   The doctrine recognizes that an insured who

expects to be paid in full by one insurance company may have no

incentive to ask the other insurance company covering the same

risk to pay its share.   See Truck Ins. Exch., 79 Cal. App. 4th

at 974.   And the doctrine aims to deprive an insurer of "any

incentive to avoid paying a just claim in the hope the claimant

will obtain full payment from another coindemnitor."   Fireman's

Fund Ins. Co., supra at 1295.   Apart from ensuring fairness,

equitable contribution furthers the basic risk-spreading purpose

of insurance by allowing insurers to distribute the costs of a

claim equally among all insurers with coverage obligations.     See

S. Plitt, D. Maldonado, & J.D. Rogers, Couch on Insurance 3d

§ 1:9 (Supp. 2015).

    For these reasons, the majority of jurisdictions recognize

the equitable contribution doctrine.   See Seaman & Schulze,

supra at § 5:2 (citing cases from jurisdictions recognizing

equitable contribution and noting that only a "minority of

states" do not allow it).   We are among the majority of States

that have recognized the right of an insurer to seek equitable
                                                                    7


contribution from coinsurers who cover the same risk.      See

Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492,

498-500 (1988) (where two policies create "umbrella-type excess

insurance," both insurers must "contribute equally until the

policy with the lower limit is exhausted"); Travelers Ins. Co.

v. Aetna Ins. Co., 359 Mass. 743 (1971) (affirming order

requiring coinsurer to provide contribution to insurer that paid

settlement amount for jointly covered claim).   See also

Rubenstein v. Royal Ins. Co. of Am., 44 Mass. App. Ct. 842, 852

(1998), S.C., 429 Mass. 355 (1999) ("Of course, there is no bar

against an insurer obtaining a share of indemnification or

defense costs from other insurers under the doctrine of

equitable contribution").    Cf. Boston Gas Co. v. Century Indem.

Co., 454 Mass. 337, 347-348, 365-366 (2009) (where various

insurers provided coverage for environmental damage over many

years, pro rata allocation produces most equitable result for

"long-tail claims" because it avoids saddling one insurer with

full loss and "promotes judicial efficiency, engenders stability

and predictability in the insurance market, provides incentive

for responsible commercial behavior, and produces an equitable

result").   We have recognized the right of equitable

contribution in past cases, and now clearly declare that we

adopt the doctrine.
                                                                    8


    2.   Selective tender.   Great Northern does not challenge

the wisdom of the equitable contribution doctrine but contends

that it does not apply in this case because Progression

purposely tendered the workers' compensation claim only to ISOP.

It argues that "there is no support in the case law of any

jurisdiction for the proposition that, in the absence of

exceptional circumstances, the doctrine of equitable

contribution can override explicit, unambiguous policy

language."   Lexington Ins. Co., 338 F.3d at 50.   And it notes

that, under its workers' compensation insurance policy with

Progression, it had no duty to provide coverage unless

Progression "fully complied with all of the terms and conditions

of the policy."   One of those terms required Progression to give

notice to Great Northern "at once if injury occurs that may be

covered" by the policy.   Because Progression purposely gave no

such notice, Great Northern claims that it had no duty to

provide coverage for the losses suffered by Progression's

injured employee.   It also claims that, because it had no duty

to provide coverage, there can be no equitable contribution,

which is predicated on multiple insurers providing coverage for

the same risk.

    Although it does not use the term, Great Northern

essentially asks us to recognize the "selective tender"

exception to the doctrine of equitable contribution, which
                                                                    9


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."    Mutual of Enumclaw Ins. Co. v. USF

Ins. Co., 164 Wash. 2d 411, 421 (2008).    The exception has been

recognized by only "a minority of jurisdictions."    R. Segalla,

Couch on Insurance 3d § 200:37 (2005).    See, e.g., John Burns

Constr. Co. v. Indiana Ins. Co., 189 Ill. 2d 570, 574 (2000);

Mutual of Enumclaw Ins. Co., supra at 421-422.    The Supreme

Court of Washington adopted the "selective tender" exception,

reasoning:

            "Equity provides no right for an insurer to seek
       contribution from another insurer who has no obligation to
       the insured. . . . The duties to defend and indemnify do
       not become legal obligations until a claim for defense or
       indemnity is tendered. Further, the insurer who seeks
       contribution does not sit in the place of the insured and
       cannot tender a claim to the other insurer. Thus, if the
       insured has not tendered a claim to an insurer prior to
       settlement or the end of trial, other insurers cannot
       recover in equitable contribution against that insurer"
       (emphasis in original; footnote omitted).

Mutual of Enumclaw Inc. Co., supra at 420-421.    As this excerpt

makes clear, the underlying premise of the selective tender

exception is that, if the insured chose not to tender a claim to

an insurer, the insurer has no obligation to defend or indemnify

that claim and therefore has no obligation to contribute towards

the defense or indemnification.    That premise is incorrect with

respect to workers' compensation insurance under Massachusetts

law.
                                                                   10


    Workers' compensation insurance is a creature of statute,

and all workers' compensation insurance policies must be

interpreted to comply with applicable statutes and regulations

governing workers' compensation.   See generally G. L. c. 152,

§§ 26, 44; Darcy v. Hartford Ins. Co., 407 Mass. 481, 485 (1990)

(notice provision in workers' compensation insurance policy

interpreted in accordance with applicable statute).    General

Laws c. 152, § 26, provides that when an employee is injured in

the course of his or her employment, that employee "shall be

paid compensation by the insurer or self-insurer."    Therefore,

under Massachusetts law, although the employer purchases the

workers' compensation policy, a workers' compensation insurer is

directly liable to an injured employee for the workers'

compensation benefits provided by law; the insurer does not

reimburse the employer for its payment of these benefits.

    Under Massachusetts workers' compensation insurance law, an

injured employee presents a claim for compensation by providing

notice of the injury in writing "to the insurer or insured

[i.e., the employer] as soon as practicable" after the incident

causing the injury, stating the time, place, and cause of the

injury (emphasis added).   G. L. c. 152, §§ 41, 42.   The employer

is required to give notice of the injury to the department and

its workers' compensation insurer within seven days, but the
                                                                     11


failure to do so results only in a nominal fine to the employer;3

it does not bar the employee from obtaining compensation from

the workers' compensation insurer.     The employee is barred from

receiving workers' compensation benefits under G. L. c. 152,

§ 44, only if the insurer, the insured (i.e., the employer), and

their agent had no knowledge of the injury and the insurer was

prejudiced by the absence of notice.     See G. L. c. 152, § 44.

By giving notice of the injury to the employer alone, an

employee preserves his or her entitlement to workers'

compensation 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.   Therefore, as applied to workers' compensation

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.




     3
       Under G. L. c. 152, § 6, the failure of an employer to
notify the Department of Industrial Accidents or the workers'
compensation insurers of the injury "shall be punished by a fine
of one hundred dollars for each such violation" but is
punishable only if the employer violates this provision three or
more times in any year.
                                                                      12


    The Supreme Court of Utah considered whether to adopt the

selective tender exception where multiple insurers provided

overlapping workers' compensation coverage and rejected it for

the same reasons we do.    Workers Compensation Fund v. Utah

Business Ins. Co., 296 P.3d 734, 739 (Utah 2013).      The court

explained that Utah's workers' compensation statute (like ours)

provides that insurers are liable for injuries reported by

employees regardless of whether employers notify or formally

tender claims to insurers.      Id.   Because "[a]ll insurers . . .

are automatically liable for claims reported to employers," the

court held that "[t]he statutory scheme . . . precludes [it]

from adopting the [selective] tender doctrine in the context of

workers compensation."    Id.

    The selective tender exception also does not accord with

Massachusetts law governing general liability insurance.       Under

Massachusetts law, an insurer's coverage obligation is triggered

by notice regardless of the timing or the source of such notice;

late notice or notice from a third party does not preclude

coverage unless the insurer is prejudiced.       See G. L. c. 175,

§ 112; Boyle v. Zurich Am. Ins. Co., 472 Mass. 649, 655-659

(2015).   Specifically, pursuant to G. L. c. 175, § 112, "[a]n

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 . . . which may give rise to
                                                                  13


liability insured against unless the insurance company has been

prejudiced thereby."   See Johnson Controls, Inc. v. Bowes, 381

Mass. 278, 282 (1980) (insurance company seeking relief from

coverage obligations under liability insurance policy because of

untimely notice must show both breach of notice provision and

prejudice arising from breach).   In Boyle, supra at 658, where a

third party notified the insurer of the complaint, we held that

the insured's failure to give notice did not excuse the insurer

from its duty to defend unless it could demonstrate that the

insured's breach of its notice obligation caused prejudice by

depriving the insurer of the opportunity to mount an effective

defense.   Therefore, in Massachusetts, an insured's failure to

tender a claim by giving timely notice does not protect the

insurance company from liability on the claim, even if the

failure were intentional, unless the insurance company was

prejudiced by the untimeliness of the notice.   Because the

premise of the selective tender doctrine is that an insurer is

not liable on a claim where the insured fails to give timely

notice, adoption of the selective tender exception would be in

conflict with our statutory and case law governing liability

insurance.

    Its adoption would also be contrary to sound public policy

because it would reward insurers that try to ignore their

coverage obligations at the expense of those that
                                                                  14


conscientiously honor them.   Under the selective tender

exception, an insured that has two insurers of the same risk

might choose to tender the claim to the insurance company that

will promptly honor and pay the claim with minimum inconvenience

and paperwork, and avoid tendering the claim to the insurance

company that would delay payment of the claim and maximize the

inconvenience and paperwork involved in obtaining payment.

Selective tender would prevent the conscientious insurer from

seeking equitable contribution from its less conscientious

coinsurer.   It would reward the "bad" insurer, who would be

spared paying its fair share of the claim, and punish the "good"

insurer, who would be required to pay the entirety of the claim

alone.   Insurers should be encouraged to promptly accept their

coverage obligations and begin defending claims; they should not

be rewarded for failing to do.   See Fireman's Fund Ins. Co., 65

Cal. App. 4th at 1295.

    Selective tender would also burden the Massachusetts

Insurers Insolvency Fund, which, among other things, covers

claims of insureds where the insurer has become insolvent.     See

G. L. c. 175D, § 5.   If an employer with two workers'

compensation insurers could negate an insurance company's

workers' compensation coverage by electing not to notify that

insurer of the injury, then the full burden of coverage would
                                                                   15


fall on the notified insurer and, if that insurer were to become

insolvent, on the Fund.   See id.   See also G. L. c. 175D, § 2.

    Conclusion.   We answer "no" to the certified question.

Under Massachusetts law, where two workers' compensation

insurance policies issued by different companies provide

coverage for the same loss, an employer, by electing to provide

notice of the claim only to one insurer, does not foreclose that

insurer from obtaining equitable contribution from the other

insurer.

    The Reporter of Decisions is to furnish attested copies of

this opinion to the clerk of this court.    The clerk in turn will

transmit one copy, under the seal of the court, to the clerk of

the United States Court of Appeals for the First Circuit, as the

answer to the question certified, and will also transmit a copy

to each party.
