Contribution No More: New Case Calls Equitable Contribution Among Insurers Into Doubt
In a federal district court decision that could have far-reaching implications, Judge Denise Casper found the “selective tender” rule trumped the doctrine of “equitable subrogation” – a surprising holding. In Massachusetts, an insurer that undertook the complete defense or indemnification of an insured generally felt safe in the knowledge that it was entitled to seek contribution from co-insurers. See, e.g., Rubensten v. Royal Ins. Co., 44 Mass. App. 842, 852 (1998). Perhaps not any more.
The decision will significantly change the landscape for cooperation among co-insurers. And, it may also add a significant weapon to an insured’s arsenal.
The Insurance Company of the State of Pennsylvania (“ISOP”) provided workers compensation insurance to the insured corporation. For some reason not explained in the decision, the insured also had workers compensation insurance from Great Northern Ins. Co. (“Great Northern”). The insured gave notice to ISOP of a claim against it in the Division of Industrial Accidents (“DIA”), but did not give notice of the DIA proceeding to Great Northern. ISOP undertook the defense and eventually notified Great Northern, which responded by arguing that the insured had not given notice to it nor authorized ISOP to do so, so it was not going to contribute.
ISOP filed a declaratory judgment action seeking equitable contribution. Judge Casper ruled that where the insured tenders the claim to only one insurer, the rule of “selective tender” applies, meaning that when the insured does not seek defense or indemnity from a co-insurer, the “selected” insurer may not seek equitable contribution from the insurers not selected. The doctrine of “selective tender” is the rule in only a few jurisdictions, most notably Illinois. This distinct minority view has never before been adopted in Massachusetts (to this blogger’s knowledge).
The case, Insurance Company of Pennsylvania v. Great Northern Insurance Company, was handed down on August 25.
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Posted In: Duty to Defend