Under Massachusetts law, an insurer’s duty to defend its insured is broad. An insurer has a duty to defend its insured if the allegations against the insured are “reasonably susceptible of an interpretation that states or roughly sketches a claim” that falls within the defense obligation’s scope. Billings v. Commerce Ins. Co., 458 Mass. 194, 200 (2010).
Even where some claims against an insured are not covered by insurance, if some of the claims are covered, an insurer has a duty to defend the insured against all claims. This is commonly referred to as the “in for one, in for all” doctrine.
Until recently, the law was unsettled in Massachusetts as to whether an insurer had a duty to pay the legal costs associated with a counterclaim filed by an insured in response to a covered claim against the insured. In the case of Mount Vernon Fire Insurance Company v. Visionaid, Inc., the Supreme Judicial Court, in a 5-2 opinion, held that an insurer is not required to pay for its insured’s counterclaim. Massachusetts has joined the majority of jurisdictions that don’t obligate an insurer to cover the costs of an insured’s counterclaim, even where the counterclaim is related to and assists in the defense of the underlying case.
The defendant/insured, Visionaid, Inc., argued that the duty to defend included all reasonably necessary steps to reduce the liability of the insured, including the costs of a counterclaim. The SJC relied on the plain meaning of the insurance policy and held that the policy did not impose an obligation on the insurer to fund a counterclaim.
Chief Justice Gants dissented and noted that an insurer can’t fulfill its duty to defend without prosecuting related counterclaims that reduce its insured’s liability. The majority disagreed and held that an affirmative counterclaim did not fall within the definition of “defend” under the policy.
Practically speaking, an insured who believes that it has valid counterclaims may still assert the claims, but will have to do so at its own expense. When this scenario occurs, insurance defense counsel will have to work closely with the insured’s personal counsel to both defend the case and prosecute the counterclaim.
Pierce and Mandell’s insurance and litigation attorneys are well-versed in these areas and can assist both insurers and policyholders in assessing what claims are covered under an insurance policy.