Under Massachusetts law, in order to void or rescind a policy of insurance or deny a claim based upon misrepresentation in an application for insurance, the insurer must demonstrate that the misrepresentations were made with intent to deceive or that they increased the risk of loss to the insurer. See G.L. c. 175, § 186; Northwestern Mut. Life Ins. Co. v. Iannacchino, 950 F.Supp. 28, 30 (1997); Chicago Ins. Co. v. Lappin, 58 Mass.App.Ct. 769, 773 (2003).
An insurer need not demonstrate that it relied on misrepresentations. An insurer may void or rescind its policy or deny a claim if the insured makes an innocent misrepresentation of a material fact and the disclosure of the truth would have influenced the judgment of the underwriter in making the insurance contract, in estimating the degree and character of the risk or in fixing the rate of premium. Northwestern Mut. Life Ins. Co. v. Iannacchino, 950 F.Supp. 28, 30 (1997); Employers' Liability Assurance, Ltd. v. Vella, 366 Mass. 651, 655 (1975).
However, "[w]here a question on an application [for insurance] lends itself to more than one reasonable interpretation, an honest answer to one of those reasonable interpretations cannot be labeled a misrepresentation." Hingham Mut. Fire Ins. Co. v. Mercurio, 71 Mass.App.Ct. 21, 24 (2008).
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The duty to defend is separate from and broader than the duty to indemnify. Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7 (1989). In general, an insurer's duty to defend is determined by comparing the allegations of the complaint against the policy provisions. If the allegations in the complaint or the facts known or knowable to the insurer are reasonably susceptible to an interpretation that they state a claim covered by the policy terms, the insurer must undertake the defense.
Thus, the duty to defend depends not on the actual facts of the event giving rise to the alleged liability but on the full range of possible facts that could fall within the scope of the complaint. Ruggerio Ambulance Serv., Inc. v. National Grange Mut. Ins. Co., 430 Mass. 794, 796 (2000); Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 318 (1983).
The source of the plaintiff's injuries or damages, not the specific theories of liability alleged in the complaint, determines the insurer's duty to defend. Bagley v. Monticello Ins. Co., 430 Mass. 454, 458 (1999).
A duty to defend may arise based on facts that are known or are readily knowable by the insurer even if those facts do not appear on the face of the complaint. Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10-11 (1989).
Conversely, an insurer can refuse to defend only if allegations in the complaint and the facts known to the insurer confirm that there is no potential that the claims fall within any coverage afforded by the policy. See Liberty Mut. Ins. Co. v. SCA Servs., Inc., 412 Mass. 330, 336-37 (1992).
Therefore, information outside the complaint may only serve to bring the complaint within an insurer's duty to defend. It may not provide a basis for reading a claim more narrowly so as to exclude coverage. Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 323 (1983); Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10-11 (1989).
The exception to this rule is where an undisputed extrinsic fact takes the case outside coverage and that fact will not be litigated at trial. Farm Family Mut. Ins. Co. v. Whelpley, 54 Mass.App.Ct. 743, 747 (2002) (insurer did not have duty to defend even though allegations of complaint stated a claim within coverage where it was undisputed that underlying accident occurred off insured premises and policy did not afford coverage for such accidents).
If an insurer has a duty to defend at least one claim within the complaint, then the insurer is obligated to defend all counts of the complaint until the case is narrowed to claims that are clearly outside the policy coverage. See Merrimack Mut. Fire Ins. Co. v. Nonaka, 414 Mass. 187, 191-192 (1993); Aetna Cas. & Sur. Co. v. Continental Cas. Co., 413 Mass. 730, 732 n. 1 (1992); Vappi & Co. v. Aetna Cas. & Sur. Co., 348 Mass. 427, 430 n. 3 (1965).
The insurer must defend even if the allegations are without merit, groundless, false, or fraudulent. Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 13 (1989).
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Generally, an insurer's duty to defend is triggered only when suit is filed so that the insurer is not liable for costs incurred by the insured in anticipation of suit. However, in some circumstances, an insurer may be liable for pre-suit costs where (1) the third party made its initial claim against the insured before the third party actually filed suit, (2) the insured immediately notified the insurer of the third party's claim, (3) the nature of the claim created a near certainty that a suit would be filed, (4) the pre-suit services would have been performed after suit was filed had they not been performed before, and (5) after the insurer's refusal to defend, the insured had little choice but to retain counsel and prepare to defend itself when it did. See Liberty Mut. Ins. Co. v. Continental Casualty Co., 771 F.2d 579, 586 (1st Cir. 1985).
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An insurer's duty to indemnify is independent of and narrower in scope than the duty to defend. An obligation to indemnify does not automatically follow from the existence of a duty to defend. See Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 14-15 (1989); Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 762 n. 19 (1993).
However, if an insurer has no duty to defend, then it necessarily follows that the insurer does not have a duty to indemnify. Bagley v. Monticello Ins. Co., 430 Mass. 454, 459 (1999).
An insurer's duty to indemnify is based on the facts actually proven or determined rather than on mere allegations in the pleadings. See Newell-Blais Post No. 433 v. Shelby Mut. Ins. Co., 396 Mass. 633, 638 (1986).
An insurer must indemnify its insured when a judgment within the policy coverage is rendered against that insured. See Aetna Cas. & Sur. Co. v. Home Ins. Co., 44 Mass.App.Ct. 218, 224 (1998).
In the event of judgment involving covered and non-covered claims under the policy, an insurer is liable to pay the entire judgment unless it can prove that the judgment should be allocated between the covered and non-covered claims. See Liquor Liab. Joint Underwriting Ass'n v. Hermitage Ins. Co., 419 Mass. 316, 323-24 (1995).
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Policyholders are under a duty to provide prompt notice of claims to their insurers. Where an insurer raises late notice as a defense to coverage, the insurer bears the burden of establishing a breach of the notice provisions and that the breach resulted in material prejudice to the insurer. See G.L. c. 175, Sec. 112; Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 282 (1980). Moreover, the insurer is obligated to show actual prejudice not just the possibility of prejudice. See Darcy v. Hartford Ins. Co., 407 Mass. 481, 486-487 (1990).
What constitutes timely notice is a matter of contract interpretation and therefore a matter of law for the court. See Royal-Globe Ins. Co. v. Craven, 411 Mass. 629, 632 (1992). The length of delay in notice will always be a relevant factor to be considered in determining whether actual prejudice has been shown by an insurer, and the longer the delay, the more likely that prejudice exists. Before a denial of coverage by an insurer is justified, the delay in notice must be accompanied by a showing of some other facts or circumstances (such as loss of critical evidence or testimony from material witnesses despite diligent good faith efforts by the insurer to locate them) which demonstrates that the insurer's interests have been actually harmed. See Darcy v. Hartford Ins. Co., 407 Mass. 481, 486-487 (1990).
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A breach of an insured's duty to cooperate must be "substantial and material" before it permits an insurer to disclaim coverage. An insurer must demonstrate actual prejudice due to an insured's lack of cooperation before a denial of coverage will be permitted on this basis. See Darcy v. Hartford Ins. Co., 407 Mass. 481, 488 (1990).
The burden is on the insurer to show that the prejudice is actual, material and specific by describing the exact manner in which its interests have been prejudiced. Employers' Liability Assurance Corp., Ltd. v. Hoechst Celanese Corp., 43 Mass.App.Ct. 465, 476 (1997).
Before disclaiming coverage for lack of cooperation, an insurer must exercise "diligence and good faith" in obtaining the cooperation of the insured. See Darcy v. Hartford Ins. Co., 407 Mass. 481, 491 (1990).
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The interpretation of an insurance policy is a question of law for the court. Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146 (1982). A policy of insurance should be viewed as a whole and the words therein should be given their usual and ordinary meaning. When the insurance policy language is clear and free from ambiguity, the words will be given their plain and ordinary meaning. See Nissenbaum v. Liberty Mut. Ins. Co., 16 Mass.App.Ct. 996, 997 (1983); Kolligian v. Prudential Ins. Co. of America, 353 Mass. 322, 324 (1967).
Where there is an ambiguous provision in an insurance policy, the court will strictly construe it against the insurer. Hakim v. Massachusetts Insurers' Insolvency Fund, 424 Mass. 275, 280-81 (1997). The exception to this rule of strict construction against the insurer is when the policy language is controlled by the Commissioner of Insurance and not the insurer. See Ruggerio Ambulance Serv., Inc. v. National Grange Mut. Ins. Co., 430 Mass. 794, 798 (2000); Royal-Globe Ins. Co. v. Craven, 411 Mass. 629, 633 n. 6 (1992).
An insurance policy "term is ambiguous only if it is susceptible of more than one meaning, and reasonably intelligent people would differ as to which meaning is the proper one." Citation Ins. Co. v. Gomez, 426 Mass. 379, 381 (1998).
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An insurer is obliged to provide coverage to an insured if the insurer waived its right to assert the basis for denying liability. Waiver consists of the voluntary or intentional relinquishment of a known right, and an insurer's intention to waive a ground for not providing coverage may be inferred from the circumstances. Merrimack Mut. Fire Ins. Co. v. Nonaka, 414 Mass. 187, 189 (1993) (discussing waiver cases involving breach of insured's duty to cooperate and to promptly notify insurer of claim).
"Whatever may be the scope of waiver in the law of insurance, it does not extend to the broadening of the coverage, so as to make the policy cover a risk not within its terms. That would require a new contract and cannot be accomplished by waiver." Palumbo v. Metropolitan Life Ins. Co., 293 Mass. 35, 37-38 (1935).
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In the insurance context, estoppel necessarily implies some reasonable, good-faith reliance by the insured upon some act, conduct, or inaction of the insurer, to the detriment of the insured. As a general matter, estoppel does not extend, broaden or enlarge coverage so as to include risks not covered within the terms of the policy. See Alan Corp. v. International Surplus Lines Ins. Co., 22 F.3d 339, 343 (1st Cir. 1994).
An insurer may be estopped from denying coverage where the insurer's treatment of a similar prior claim induces the insured reasonably to assume the claim is covered under a policy that the insured renews prior to the subsequent loss. See Jet Line Servs., Inc. v. American Employers Ins. Co., 404 Mass. 706, 713-715 (1989).
Estoppel is not appropriate where the insured's reliance on the insurer's action or conduct is not reasonable or is not the cause of the insured's violation of the policy terms. Alan Corp. v. International Surplus Lines Ins. Co., 22 F.3d 339, 343 (1st Cir. 1994).
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Upon receipt of a claim involving its insured, an insurer has the following options: (1) accept the defense and indemnification of the claim; (2) disclaim the duty to defend or indemnify the insured on the grounds that claims do not fall within the coverage afforded by the policy; or (3) assume the defense subject to a reservation of rights to disclaim coverage.
If an insurer accepts the defense without reserving its rights, the insurer may still deny coverage unless the insurer has waived a basis for providing coverage or the insurer is estopped from denying coverage. See "Waiver" and "Estoppel" (above).
If an insurer disclaims any duty to defend or indemnify the insured and the insurer's refusal to defend is later determined to be wrong, the insurer is prevented from holding the insured to strict performance of the policy requirements, and the insured may later recover from the insurer not only defense costs associated with the claim but also, in some cases, the cost of any settlement entered into by the insured in good faith. See Sarnafil, Inc. v. Peerless Ins. Co., 34 Mass.App.Ct. 248, 255 (1993).
An insurer can also defend subject to a reservation of rights to later disclaim coverage. "A 'reservation of rights' letter is a device which allows the insurer to give notice to its insured of some policy concerns while at the same time continuing to act in accordance with its legal duties. This is an acceptable method for an insurer to preserve its rights to later disclaim coverage, should information subsequently obtained warrant such disclaimer, while at the same time giving the insured notice of a potential problem so the insured is not lulled into failing to act to protect himself." Thach v. Safety Ins. Co., 1999 WL 791958 (Mass.Super. 1999), citing Sarnafil, Inc. v. Peerless Ins. Co., 418 Mass. 295 (1994).
If an insurer defends subject to a reservation of rights, it does not have the right to control the defense if the insured determines that its needs to protect itself by selecting its own counsel. The insurer is still obligated to pay for defense counsel selected by the insured. See Three Sons, Inc. v. Phoenix Ins. Co., 357 Mass. 271, 276-277 (1970); Magoun v. Liberty Mut. Ins. Co., 346 Mass. 677, 684-85 (1964).
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Actions to determine the rights and responsibilities of an insurer and insured under an insurance policy are actions for declaratory relief pursuant to G.L. c. 231A. Declaratory judgment actions may be commenced by the insurer or the insured. An action brought by the insured is often accompanied by counts for breach of contract and alleged violations of G.L. c. 93A/176D. Declaratory judgment actions are the course of action recommended by the courts for insurers who believe they have no duty to defend an insured because "the existence of the duty to defend can be established quickly and efficiently in such an action when there is a question as to the applicability of an insurance policy." Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 15-16 (1989).
However, an insurer is not required to defend a claim to bring a declaratory judgment action seeking a determination as to its duty to defend. Dorchester Mut. Fire Ins. Co. v. First Kostas Corp., Inc., 49 Mass.App.Ct. 651 (2000).
In the event that a declaratory judgment action concerning an insurer's duty to defend is resolved in favor of the insured, then the insured is entitled to recover reasonable attorney's fees and costs associated with the declaratory judgment action. The entitlement to attorney's fees and costs depends exclusively on whether coverage is determined to exist. "It does not depend on whether the denial of coverage by the insurer was reasonable or unreasonable, justified or unjustified, a close question of fact or a matter not even subject to legitimate dispute." Hanover Ins. Co. v. Golden, 436 Mass. 584, 587 (2002).
Although interpretations of insurance policy language are questions of law for the court, jury trials are available to resolve triable issues of fact in declaratory judgment actions. G.L. c. 231A, § 1.
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A reach and apply action against an insurer under G.L. c. 214, § 3(9) may not be brought until the plaintiff obtains a judgment against the tortfeasor/insured. Szafarowicz v. Gotterup, 68 F.Supp. 2d 38, 43 (1999).
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In coverage disputes, the party claiming coverage bears the initial burden of proving that the claim falls within the policy description of covered risks. Markline Co. v. Travelers Ins. Co., 384 Mass. 139, 140 (1981).
Once basic risk coverage is established, the burden shifts to the insurer to prove the applicability of any exclusion to coverage set forth outside the insuring clause. Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass.App.Ct. 318, 321 (1991).
The party claiming coverage bears the burden of proving that any exception to an exclusion applies and exempts from application of the exclusion. Whether the insurer or the insured commences the declaratory judgment action, the burdens of proof of the respective parties are unaffected. Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass.App.Ct. 318, 321 (1991).
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Other insurance provisions are designed to establish the relative priority relationship between multiple policies covering a loss. The three types of "other insurance" provisions include (1) pro rata, (2) escape, and (3) excess.
Pro rata provisions provide that if other insurance is available to an insured, then the policy containing the pro rata clause will contribute to the loss in the proportion that its policy limit bears to the total limit of all available policies.
Escape provisions provide that if there is other insurance available to the insured, then the policy containing the escape provision will pay no benefits. Excess provisions provide that if there is other insurance available to the insured, then the policy containing the excess provision will pay no benefits until such other insurance is exhausted. Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492, 495-496 n.3 (1988).
Generally, excess provisions are given preference over escape and pro rata provisions. Where either excess or escape provisions appear in both policies, the court will declare them mutually repugnant and both insurers will be required to share the loss. Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492, 496 (1988).
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Equitable contribution is the right to recover from a co-obligor who shares liability with the party seeking contribution. In the insurance context, the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim and one insurer has paid more than its share of the loss or defended the action without participation by the other insurers. Equitable contribution provides reimbursement to the insurer that paid in excess of its proportionate share of the obligation. See United States Fire Ins. Co. v. Peerless Ins. Co., 2001 WL 1688368 (Mass.Super. 2001); Rubenstein v. Royal Ins. Co. of America, 44 Mass.App.Ct. 842, 852 (1998).
An insurer seeking equitable contribution from another insurer must establish the policies in question afford coverage for the same insured and the same risk. See United States Fire Ins. Co. v. Peerless Ins. Co., 2001 WL 1688368 (Mass.Super. 2001) (citations omitted).
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