As a responsible Massachusetts driver or homeowner, one obtains an insurance policy in the event of an accident or emergency. If someone else is injured in a policy holder’s home or vehicle, the insured relies on the insurance company to help defend against personal injury claims. This also applies to corporate policies. In a recent case, the Massachusetts Supreme Court examined whether an insurer’s duty to defend extends to a counterclaim brought by the insured. Counterclaims are actions filed by the defendant against the plaintiff, alleging the plaintiff was negligent and liable for damages. As an example, one could look at someone injured in a car accident. The defendant party could choose to claim the plaintiff was independently liable for her or his negligence. If the duty to indemnify extended to counterclaims, an injured party may be subject to additional litigation backed by the pockets and experience of attorneys working for the defendant’s insurance company.
In this lawsuit, the Commonwealth’s Supreme Court declined to expand the duty to include counterclaims. The insurance policy in this action provided liability coverage for employment practices. The Eye Safety and Cleaning Product Company sought indemnification from its insurer for the wrongful termination claims brought against it during a period of time from 2011 to 2012. The policy stated the insurer was required to defend the claim and pay 100% of the defense costs for the claim up to the policy limit. The company discovered what appeared to be a large misappropriation of company funds. The company terminated an employee, who then began an action for wrongful termination, alleging age discrimination. The insurer provided an attorney who addressed three nondiscriminatory reasons for the employee’s termination: poor job performance, insubordination, and suspected misappropriation of funds.
The attorney attempted to reach a settlement. The ex-employee agreed to dismiss his complaint if the company signed a release agreement that it would not pursue him for the misappropriated funds. The employer declined this request, wanting to move forward with the claim against him for the funds. The employee then filed a complaint in the Superior Court, alleging unlawful termination, age discrimination, breach of contract, and promissory estoppel. The employee’s case was dismissed. The insurer agreed to defend the company but under a “reservation of rights,” disputing they had to defend against the wrongful termination claim. The same attorney was hired again to dispute the allegations of discrimination and raised the same defenses against wrongful termination. However, the attorney did not file a counterclaim for misappropriation.
The company advised the insurer it would seek independent counsel and bill them for the representation. The insurer withdrew its reservation of rights but insisted they were not obligated to prosecute an affirmative counterclaim. The insurer then sought a declaratory judgment from the Federal District Court to assert that the duty as an insurer to indemnify did not extend to prosecuting claims or paying for the prosecution of misappropriation of funds counterclaims. The company filed its own counterclaim on this matter, seeking a judgment declaring they were entitled to this defense and would now need an independent attorney to prosecute the claim, since the insurer had created a conflict of interest by litigating this issue. The case went up to to the First Circuit Court of Appeals, which ultimately concluded the legal issue must first be decided by the Commonwealth’s Supreme Court.
The Massachusetts Supreme Court looked at case precedent, which has consistently held the language in contracts must be read to give full effect to its plain meaning. The indemnification clause in this case obligated the insurer to defend the company against any accusations of a wrongful act. This particular policy was silent on the definition of the word “defend,” so the court looked at the “usual and accepted meaning” of the word. The court noted “defend” in this context is defined as a denial, answer, or plea to the plaintiff’s claim of liability for the sustained injuries. While the dissent and the company asked the majority to adopt policy arguments in favor of including an affirmative counterclaim in the duty to indemnify, the Supreme Court ultimately decided to stick to the plain language of the document and keep the duty limited to defense. The answers to the federal court’s questions were certified and provided to all of the parties.
The attorneys at the Law Office of James K. Meehan can assist you with your personal injury claim. As experienced Massachusetts personal injury attorneys, we know insurers will try to minimize damages paid to an injured party. To learn which types of legal damages are available for your injury, contact our office today at 508.822.6600.
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