Philadelphia Indemnity Insurance Company v. National Union Fire Insurance Company of Pittsburgh, PA (Lawyers Weekly No. 12-083-17)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2016-00045 BLS1
PHILADELPHIA INDEMNITY INSURANCE COMPANY
vs.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA
MEMORANDUM OF DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
Plaintiff Philadelphia Indemnity Insurance Company (PIIC) and defendant National Union Fire Insurance Company (National Union) each issued insurance policies to North Suffolk Mental Health Associated, Inc. (North Suffolk). PIIC issued a Commercial General Liability (CGL) policy; and National Union issued a Workers’ Compensation and General Liability (Workers’ Comp.) policy. In a case filed in the Middlesex Superior Court in 2011, captioned Estate of Stephanie Moulton v. Nicholas Puopolo, et al. (the Underlying Action), the plaintiff estate brought suit against eighteen directors of North Suffolk (the Director Defendants) asserting claims arising out of the work related death of Ms. Moulton, a North Suffolk employee. The Director Defendants tendered the claim to both PIIC and National Union. PIIC defended the claim (under a reservation of right) and National Union declined coverage. The Director Defendants’ motion to dismiss the Underlying Action was eventually allowed, after appeal to the Supreme Judicial Court (SJC). See Estate of Moulton v. Puopolo, 467 Mass. 478 (2014) (Moulton). In this action, PIIC has filed suit against National Union asserting claims for
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declaratory judgment and equitable subordination and seeking to recover the cost of its successful defense of the Underlying Action. The case is now before the court on the parties’ cross-motions for summary judgment. For the reasons that follow, National Union’s motion is ALLOWED, and PIIC’s motion is DENIED.
ADDITIONAL FACTS
The following additional facts are undisputed.
Ms. Moulton was an employee of North Suffolk, a charitable corporation that provides mental health and rehabilitation services. She was assaulted and killed by a patient while performing her job. As explained in Moulton, her estate (the Estate) filed the Underlying Action against the directors of North Suffolk and others. It alleged claims for willful, wanton, reckless, malicious and grossly negligent conduct and, also, as to the Director Defendants, breach of fiduciary duty. The complaint alleged that the Director Defendants “effectuated” policies and failed to “effectuate” other policies that caused Ms. Moulton’s death. Id. at 480. They “moved to dismiss the complaint chiefly on the grounds that, with respect to the wrongful death action, they are immune from suit, as Ms. Moulton’s employer, under the exclusive remedy provision, G.L.c. 152, § 24 of the Workers’ Compensation Act (act), and, with respect to the breach of fiduciary duty claim, they owed Moulton no such duty.” Id. The Superior Court denied the motion to dismiss; the director defendants sought interlocutory review under the doctrine of present execution; and the case was transferred to the SJC.
As relevant to this case, the SJC found that: “The complaint, fairly read, alleges that the Director Defendants, acting qua directors rather than in any other capacity, set and enforced misguided and wrongful corporate policies that resulted in Mouton’s death while in the course of
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her employment. There is no allegation that the directors undertook any action without a formal board meeting or vote, . . . to the extent that the complaint alleges that Moulton’s death arose from the adoption of or failure to adopt corporate policies, it alleges conduct by the charitable corporation that could have been occasioned only by the vote of its directors acting collectively as a board.” Id. at 488-489. It then held that, “we conclude that the director defendants were Moulton’s employer for purposes of the exclusivity provision of the act. As Moulton’s employer, the director defendants are therefore immune from suit for workplace injuries due to actions taken by the board.” Id. at 490-491.1
The Worker’s Comp. Policy
The National Union Workers’ Comp. policy was in effect when the Moulton claim was asserted. It is a standard form of Worker’s Comp. policy issued in Massachusetts. It has two coverage parts. Part One provides for payment of any benefits “required of you by the workers compensation law;” and that National Union has “the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this insurance. . . . We have no duty to defend a claim, proceeding or suit that is not covered by this insurance.”
Part Two provides Employers’ Liability Insurance. As explained by the SJC in HDH Corporation v. Atlantic Charter Ins. Co., 425 Mass. 433, (1997) (Atlantic Charter), the seminal decision addressing the coverage provided under a workers’ compensation policy, discussed at greater length infra: “Part Two, the employers’ liability portion of the insurance policy, is intended to provide coverage in the rare circumstance in which an employee who has affirmatively opted out [of the workers’ compensation benefits system at the time of hire] brings a tort action for personal injuries.” Id. at 439 n.11.
1 The SJC also held that, “as Moulton’s employer, the director defendants, acting as a board, had no fiduciary duty to her.” Id. at 493.
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The declarations page of the Workers’ Comp. policy identifies North Suffolk as the named insured. There are no policy provisions or endorsements that broaden the definition of named insured to include directors, officers, or employees.
DISCUSSION
PIIC first argues that since, in Moulton, the SJC held that “the director defendants were Moulton’s employer for purposes of the exclusivity provision of the act,” they might also be insureds under the Workers’ Comp. policy, even though the policy terms do not extend coverage to them; or, at least, there is a “possibility” that they would be held to be insureds in a declaratory judgment action addressing coverage issues under the Workers’ Comp. policy. PIIC next argues that there then also exists a “possibility” that the claims asserted by the Estate in the Underlying Action were covered under either Part One or Part Two of the Workers’ Comp. policy coverage provisions. PIIC then goes on to cite Billings v. Commerce Ins. Co., 458 Mass. 194, 200-201 (2010) for the long established principle that: “In order for the duty of defense to arise, the underlying complaint need only show through general allegations, a possibility that the liability claim falls within the insurance coverage.” (Emphasis supplied.) According to PIIC, given this possibility of coverage, National Union had a duty to defend the Director Defendants in the Underlying Action.
The court finds it doubtful that the SJC’s holding that, under the “so-called exclusivity provision of the act,” the directors of a corporation cannot be sued for work place injuries in the Superior Court, when they were alleged to have done nothing more than vote on corporate policies, could be interpreted to mean that the directors were additional insureds under a workers’ compensation policy. However, the court declines to address that argument. This is
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because the SJC’s decision in Atlantic Charter clearly establishes that National Union’s Workers’ Comp. policy did not provide coverage for the claims asserted by the Estate in the Underlying Action.
Claims Asserted under Part One of the Workers’ Comp. Policy
In Atlantic Charter, an employee sued its former employer HDH Corporation (HDH) for personal injuries arising from her allegedly wrongful termination; her husband also asserted claims for loss of consortium. HDH tendered the claim to its workers’ compensation carrier, Atlantic Charter, which declined coverage. The case went to arbitration and the plaintiff employee recovered. HDH then sued Atlantic Charter, claiming coverage under Part One of the policy. The SJC explained the extent of coverage provided under Part One of a workers’ compensation policy as follows:
The terms of Part One of the policy clearly limit defense and indemnity of the employer to claims for benefits required by the workers’ compensation statute. However, the employee brought a civil action seeking monetary damages, and made no claim for workers’ compensation benefits. Indeed, no matter what the allegations of the complaint, as a matter of law, workers’ compensation benefits cannot be recovered by instituting a civil action. A claim for benefits must be brought before the department and adjudicated through the statutorily prescribed workers’ compensation system. See Neff v. Commissioner of the Dep’t of Indus. Accs., 421 Mass. 70, 74 (1995) (describing procedural course for the adjudication of workers’ compensation dispute through the Department of Industrial Accidents). See also Alecks’ Case, 301 Mass. 403, 404 (1938) (under the workers’ compensation statute, an employee “acquires a right to compensation for personal injury as provided in that act, to be enforced by claim against the insurer filed with the Industrial Accident Board…. [T]he policy of the act is to deprive [the employee] of all right of action in tort against his employer for damages for an injury within the scope of the [workers’] compensation act”).
The record demonstrates that a claim for benefits was never initiated by the employee, as mandated by G.L. c. 152, § 10. Accordingly, Atlantic is correct that it had no duty to defend the civil action because the complaint did not state a claim that could result in liability which Atlantic would be obligated to pay under any reasonable interpretation of Part One of the policy. See, e.g., Jimmy’s Diner, Inc. v. Liquor Liab. Joint Underwriting Ass’n of Mass., 410 Mass. 61, 65 (1991).
425 Mass. at 433.
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In Atlantic Charter, the SJC also explained the important public policy considerations underlying the legislation that it was interpreting:
Public policy also supports our decision. The fundamental purpose of the workers’ compensation system is to make funds more readily available to injured employees. Accordingly, the Commonwealth requires all employers to provide workers’ compensation benefits to their employees. See G.L. c. 152, § 25A. As amici point out, the cost of mandatory workers’ compensation insurance is a significant aspect of the business climate of the Commonwealth. Recent legislative reforms have sought to lower the insurance rates employers must pay to provide the security of workers’ compensation benefits to their employees. See St.1991, c. 398. Requiring workers’ compensation insurers to defend civil actions outside the workers’ compensation system would represent an unwarranted expansion of coverage historically understood as provided under this mandatory form of insurance, a result which would increase insurance costs for employers, and could gut the legislative scheme for workers’ compensation. See, e.g., La Jolla Beach & Tennis Club, Inc., supra at 44, 36 Cal.Rptr.2d 100, 884 P.2d 1048.
Id. at 440.
In the present case, Moulton’s estate made no claim to recover workers’ compensation benefits2; indeed, it did not sue North Suffolk, but rather its directors, in an obvious and unsuccessful attempt to recover damages and not the benefits provided under the act.3 PIIC’s argument that the SJC’s decision in Moulton overruled the express holding in Atlantic Charter that Part One of a workers’ compensation policy only provides coverage for workers’
2 The workers’ compensation act has long been held to provide the exclusive remedy by which the estate of deceased employee can recover from his employer. See McDonnell v. Berkshire St. Ry. Co., 243 Mass. 94, 95
(1922) (“The employer who is insured under the workmen’s compensation act is relieved of all
statutory liability, including that for death of an employee under the employers’ liability act”);
Cozzo v. Atlantic Refining Co., 299 Mass. 260, 262 (1938) (“Nor can an action at law be
maintained against such employer [i.e., one who is insured under the workers’ compensation law] to recover for the death of an employee resulting from such injury [i.e., one arising out of and in
the course of his employment],” citing G. L. c. 152, 68); Ferriter v. Daniel O’Connell’s Sons,
Inc., 381 Mass. at 528 (“We acknowledge that G. L. c. 152, 1[4] and 68, bar a deceased
employee’s dependents from recovering under G. L. c. 229, 2 and 2B, for loss of consortium,
as against an employer covered by G. L. c. 152”).
3 In Peerless Ins. Co. v. Hartford Ins. Co., 48 Mass. App. Ct. 561 (2000), decided shortly after Atlantic Charter, the Appeals Court addressed a coverage dispute between an employer’s general liability insurer and its workers’ compensation insurer very much like the dispute presented by this case. There the estate of a deceased employee sued the employer. The workers compensation carrier denied coverage and the general liability carrier defended the claim. The Appeals Court held that because the estate could not bring a claim against the employer for workers compensation benefits or for wrongful death, the workers’ compensation carrier had no duty to defend and no obligations to the general liability carrier.
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compensation benefits, and those benefits can only be claimed in the Department of Industrial Accidents, simply does not parse. In holding that the Estate could not bring an action against the Director Defendants based on allegations that they had voted to adopt corporate policies that allegedly contributed to Ms. Moulton’s death, the SJC was clearly not expanding the coverage provided by workers’ compensation policies. It was also not seeking to “gut” the public policy considerations underlying the statutory scheme, which were intended to reduce the costs of this mandatory insurance coverage, by saddling workers compensation insurers with potential additional costs unrelated to the employee benefits mandated by the act. Indeed, in Moulton, the SJC was not addressing insurance at all. It was only concerned with whether the Director Defendants were subject to suit at common law by an injured employee.
In a somewhat round about argument, PIIC suggests that the Appeals Court’s decision in Norfolk & Dedham Mutual Fire Ins. Co. v. Cleary Consultants, Inc., 81 Mass. App. Ct. 40 (2011) (Norfolk & Dedham) supports its position. In furtherance of its arguments that the claims asserted in the Underlying Action were not covered, National Union quoted the following sentence from Atlantic Charter: “Indeed, no matter what the allegations of the complaint, as a matter of law, workers’ compensation benefits cannot be recovered by instituting a civil action.” 425 Mass. at 439. PIIC argues that in Norfolk & Dedham, the Appeals Court noted that an insurer that provided coverage for slander, libel, and invasion of privacy could not disclaim coverage just because these common law claims were asserted together with claims for sexual harassment before the Massachusetts Commission Against Discrimination (MCAD). In fact, in that case, the Appeals Court held that those claims could be asserted as part of a claim for sexual harassment, because they are compensable under an award for emotional distress. The Court did go on to comment that even if the claims were “viewed as a misguided effort to adjudicate
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claims of slander and invasion of privacy in an improper forum, that would not affect Norfolk’s duty to defend. An insurer’s obligation to defend is not limited to valid claims; it extends even to claims potentially dismissible for lack of subject matter jurisdiction.” 81 Mass. App. Ct. at 48-49. This comment, of course, has no bearing on the statutory scheme for workers’ compensation benefits, in which a workers compensation policy insures only those benefits provided by the act, benefits that can only be awarded by the Department of Industrial Accidents. Obviously, a covered claim filed in the wrong court still gives rise to a duty to defend. An insurer could not disclaim a duty to defend because a plaintiff mistakenly filed an action in federal court, when there was no federal jurisdiction, but the policy covered the injury alleged in the complaint. A worker’s compensation insurer does not have a duty to defend a claim filed in Superior Court for damages that are expressly not covered under the workers’ compensation system.
Claims Asserted under Part Two of the Workers’ Comp. Policy
At oral argument, PIIC acknowledged that its principle argument that the “possibility” of coverage existed and this triggered National Union’s duty to defend was based on Part One of the coverage provisions. It nonetheless also asserted that a duty to defend arose under Part Two. Here, PIIC does not argue that Moulton overturned that part of Atlantic Charter in which the SJC stated that: “Part Two, the employers’ liability portion of the insurance policy, is intended to provide coverage in the rare circumstance in which an employee who has affirmatively opted out brings a tort action for personal injuries.” Rather, PIIC argues that the Estate’s amended complaint “included claims for funeral expenses, as well as for wrongful death and pain and suffering without reference to the Wrongful Death Act, and did not indicate whether Moulton’s parents were dependent upon her for financial support. Those claims arguably fell within the
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scope of claims subject to G.L. c. 152, §§ 33, 31 and/or 32, respectively, but were presumably intended to circumnavigate the Workers’ Compensation statute entirely and therefore [because there was no allegation that Moulton had waived her rights to workers’ compensation benefits] left open the question whether Moulton had preserved her common law rights in lieu of accepting Worker’s Compensation benefits.” In consequence, until it could be established that Ms. Moulton had not affirmatively opted out of workers’ compensation coverage when she began work at North Suffolk, the possibility that claims asserted in the amended complaint were covered by the Workers’ Comp. policy existed.
However, in Moulton, the SJC summarily dismissed the suggestion that an employer/defendant had to assert non-waiver of workers’ compensation benefits as an affirmative defense. It explained that the statute (G.L. c. 152, § 24) expressly provides that the employee “shall be held to have waived his right of action at common law,” if he does not provide a written notice that he is claiming his right to opt out at the beginning of his employment. Therefore, non-waiver is not an affirmative defense, but rather it is the plaintiff that must allege in the complaint that the “right to payment under the act” was waived. 467 Mass. at 484 n. 12. This was not pled in the Estate’s amended complaint (nor could it be,) and therefore the complaint alleged no facts even suggesting a claim covered by workers’ compensation insurance. “When the allegations in the underlying complaint lie expressly outside the policy coverage and its purpose, the insurer is relieved of the duty to investigate and defend the claimant.” Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass 387, 394-395 (2003) (Internal citations and quotations omitted.)
Moreover, the issue now before the court is not whether the Estate stated a cause of action against the Director Defendants that could possibly survive a motion to dismiss. This is a
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coverage case between two insurers. PIIC issued a comprehensive general liability policy to its insured, North Suffolk. It is claiming a right to equitable subrogation or contribution from National Union in its capacity as North Suffolk’s workers’ compensation carrier. Its rights to recover against National Union are no greater than North Suffolk’s rights to demand that National Union defend the Underlying Action. Clearly, North Suffolk could not demand coverage based on the absence of an allegation that Ms. Moulton had affirmatively opted out of her rights for workers’ compensation benefits, knowing full well that she had not.
ORDER
For the foregoing reasons, National Union’s motion for summary judgment is ALLOWED and PIIC’s moiton for summary judgment is DENIED. Final judgment shall enter dismissing the complaint.
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Mitchell H. Kaplan Justice of the Superior Court
Dated: June, 13 2017