Massachusetts Insurance Coverage Law in a Nutshell

I wanted to pass on to you a case out of the United States District Court for the Northern District of Ohio that was issued about the time I was trying a patent infringement case last month, and which I wasn’t able to comment on then as a result. With a little more time now, however, I wanted to go back to it and mention it here, because, despite being out of Ohio, it applies Massachusetts law on the duty to defend under insurance policies and on the rules for interpreting insurance policies. The court provides a terrific, and easily quoted, summation of the rules in this state on those issues: 

Under Massachusetts law, as in most jurisdictions, "the question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by matching the third-party complaint with the policy provisions . . ." Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316, 318, 458 N.E.2d 338 (1984). The duty to defend arises if, in comparing the policy terms with the third-party complaint, "the allegations of the complaint are 'reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms . . . Otherwise stated, the process is one of envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy." Id. (quoting Vappi & Co., Inc. v. Aetna Cas. & Sur. Co., 348 Mass. 427, 431, 204 N.E.2d 273 (1965)) (citations omitted); see also Simplex Techs., Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 197-98, 706 N.E.2d 1135 (1999) (quoting same). The insured bears the initial burden of proving that a claim falls within the grant of coverage. See Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 321, 568 N.E.2d 631 (1991).

"It is well settled in [Massachusetts] that a liability insurer owes a broad duty to defend its insured against any claims that create a potential for liability." Simplex, 429 Mass. at 199 (quoting Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 368, 667 N.E.2d 1149 (1996)) (emphasis supplied by Simplex court). The cause of action stated in the complaint need only give rise to a possibility of recovery, "there need not be a probability of recovery." Id. (citation omitted) (emphasis added). Indeed, a duty to defend may arise "even if the claim is baseless." Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) (applying Massachusetts law); see also Sterilite, 17 Mass. App. Ct. at 324 ("the insurer stands in breach of its duty even if the third party fails in the end to support any such claim of liability by adequate proof."). In addition, "[t]hat some, or even many, of the underlying claims may fall outside the coverage does not excuse [the insurer] from its duty to defend the actions." Simplex, 429 Mass. at 199 (quoting Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 322, 568 N.E.2d 631 (1991)).

Massachusetts courts have explained that, "when construing the language of an insurance policy, it is appropriate 'to consider [whether] an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Nashua Corp. v. First State Ins. Co., 420 Mass. 196, 200, 648 N.E.2d 1272 (1995) (quoting Hazen Paper Co. v. U.S. Fidelity & Guar. Co., 407 Mass. 689, 700, 555 N.E.2d 576 (1990). Further, "an insured is entitled to the most favorable interpretation of the policy language when there is more than one rational interpretation of the policy language, or where the policy language is ambiguous." Id.; see also Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12, 545 N.E.2d 1156 (1989) ("Where the language permits more than one rational interpretation, that most favorable to the insured is to be taken.").

The case is Royal Insurance Company v. Boston Beer Company, 2007 U.S. Dist. LEXIS 25513 (D. Ohio 2007). The decision comes out of a court that, unfortunately, does not make all of its opinions available for free on line, something that all courts frankly should do, and so I cannot provide a link to the opinion.