HDH Corp. v. Atlantic Charter Ins. Co.

• Citation: 425 Mass. 433,681 N.E.2d 847
• Parties: HDH CORPORATION v. ATLANTIC CHARTER INSURANCE COMPANY.
• Decision Date: 14 July 1997
• Court: United States State Supreme Judicial Court of Massachusetts

Page 847

681 N.E.2d 847

425 Mass. 433

HDH CORPORATION v. ATLANTIC CHARTER INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts,

Suffolk.

Submitted March 5, 1997.

Decided July 14, 1997.

Harold Hestnes, Boston (Mary Jo Johnson, with him), for the insurer.

Henry F. Furman, Boston (J. Albert Johnson, with him), for the employer.

James J. Moran, Paul W. Goodrich & Joyce E. Davis, Boston, for Independent Property-Casualty Insurers of Massachusetts, Inc., & others.

John P. Ryan & Myles W. McDonough, Boston, for Hartford Insurance Company.

Paul E.B. Glad & Rhonda V. Magee, San Francisco, CA, & Craig A. Berrington, Bruce C. Wood & Suzanne M. Bump, Washington, DC, for American Insurance Association & others.

Cynthia L. Amara & Stephen S. Ostrach, Boston, for New England Legal Foundation.

Before WILKINS, C.J., and ABRAMS, LYNCH, FRIED and MARSHALL, JJ.

ABRAMS, Justice.

The primary question presented is whether a workers' compensation insurer has a duty to defend an insured employer in a civil action brought by an employee who has not preserved her right of action at common law. See G.L. c. 152, § 24. ¹ A former employee of the plaintiff, HDH Corporation (HDH), brought an action against HDH in the Superior Court, seeking damages for emotional distress, lost wages, and lost benefits caused by gender discrimination and wrongful termination. The employee's husband claimed loss of consortium and loss of support in the same action.

HDH notified its workers' compensation and employers' liability insurer, the defendant, Atlantic Charter Insurance Company (Atlantic), and requested that Atlantic defend the civil action. Atlantic refused to defend and denied coverage. ² HDH assumed the defense of the action and eventually agreed to submit to binding arbitration. The arbitrator found that the former employee was wrongfully terminated and awarded $120,000 to her and $25,000 to her husband. HDH paid the award and brought this action against Atlantic, seeking to recover the amounts paid on the award, its legal fees, and G.L. c. 93A damages.

Atlantic moved for summary judgment, claiming that there was no coverage for liability arising from the employee's civil action under either Part One, the workers' compensation portion of the insurance policy, or Part Two, the employers' liability portion. Atlantic argued that Part One only covered claims for benefits payable under the Workers' Compensation Act, G.L. c. 152, and not civil actions for common law damages. Atlantic further claimed that, because the employee had not given statutory notice of her intent to claim her right of action at common law, HDH had acted at its own peril by choosing to defend the civil suit on its merits rather than asserting the absolute defense of exclusivity of the workers' compensation statute. See note 1, supra. Atlantic argued that, by failing to assert the exclusivity defense and to file a notice of claim for workers' compensation benefits with the Department of Industrial Accidents (department), see G.L. c. 152, § 6, HDH had waived any right to coverage under Part One of the insurance policy. Regarding Part Two, the employers' liability portion, the insurance policy expressly excluded coverage of "damages arising out of the discharge of, coercion of, or discrimination against any employee in violation of law." A Superior Court judge allowed Atlantic's motion for summary judgment. The judge ruled that HDH was not entitled to recover from Atlantic because HDH should have invoked the absolute defense of exclusivity to bar the former employee's civil action. ³ HDH appealed to the Appeals Court, which correctly concluded that there was no coverage under Part Two, the employers' liability portion, because of the policy's express exclusion of damages arising out of the discharge or discrimination of an employee. HDH Corp. v. Atlantic Charter Ins. Co., 41 Mass.App.Ct. 131, 668 N.E.2d 872 (1996). See, e.g., Lusalon, Inc. v. Hartford Accident & Indem. Co., 400 Mass. 767, 773, 511 N.E.2d 595 (1987) (no duty to defend where coverage precluded by specific policy exclusion).

However, the Appeals Court determined that the insurer may have had a duty to defend HDH in the civil action because the allegations of the employee's complaint, reasonably read, stated a claim covered under the terms of Part One, the workers' compensation portion of the policy. ⁴ The court rejected Atlantic's argument that Part One of the policy provided a duty to defend only against claims for benefits brought before the department. The court reasoned that, because G.L. c. 152, § 25, in certain circumstances, requires workers' compensation insurers to reimburse employers for damages awarded to employees "by a judgment of a court," Atlantic's duty to defend under Part One of the policy was not limited to claims for workers' compensation benefits. ⁵ Accordingly, the Appeals Court reversed and remanded for further proceedings against Atlantic. We granted Atlantic's application for further appellate review. We affirm the granting of summary judgment in favor of Atlantic. ⁶

The well-settled rule is that an insurer has a duty to defend if the allegations of the complaint are reasonably susceptible of an interpretation that they state a claim covered by the terms of the insurance policy. Liberty Mut. Ins. Co. v. SCA Servs., Inc., 412 Mass. 330, 331-332, 588 N.E.2d 1346 (1992), and cases cited.

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. ⁷ 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. ⁸ 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, 653 N.E.2d 556 (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, 17 N.E.2d 173 (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, 571 N.E.2d 4 (1991).

The distinction is not merely a procedural matter of bringing an action in the wrong forum. As amici point out, there are fundamental differences between a claim for workers' compensation benefits and a lawsuit seeking civil damages. The Legislature intended that the workers' compensation system supplant the common law tort system as a means for compensating injured employees. See Alecks' Case, 301 Mass. 403, 404, 17 N.E.2d 173 (1938). Accordingly, the purposes, remedies available, evidentiary burdens, and standards of proof employed in adjudicating within the two distinct systems are different by legislative design. See Opinion of the Justices, 209 Mass. 607, 609, 96 N.E. 308 (1911) (proposed Workers' Compensation Act represented "a radical departure in the manner of dealing with actions or claims for damages for personal injuries received by employees in the course of their employment from that which has heretofore prevailed in this Commonwealth").

Our conclusion also is bolstered by courts in other jurisdictions which have, in similar circumstances, interpreted virtually identical language in workers' compensation and employers' liability insurance policies as providing no duty to defend in civil litigation. See La Jolla Beach & Tennis Club, Inc. v. Industrial Indem. Co., 9 Cal.4th 27, 46, 36 Cal.Rptr.2d 100, 884 P.2d 1048 (1994) ⁹ ("the civil and workers' compensation systems are distinct, and therefore a workers' compensation insurer which promises to pay claims for benefits does not have a duty to defend civil actions seeking damages"); Bond Bldrs., Inc. v. Commercial Union Ins. Co., 670 A.2d 1388, 1390 (Me.1996) (insurance policy "[o]n its face" imposes no duty to defend against an employee's tort claim action which is barred by the exclusivity and immunity provisions of the workers' compensation act); Hames Contr., Inc. v. Georgia Ins. Co., 211 Ga.App. 852, 854, 440 S.E.2d 738 (1994) (insurance policy provides coverage only for claims for benefits due under the workers' compensation act and imposes no duty to defend against a civil suit for damages).

The Appeals Court also relied on G.L. c. 152, § 25, as buttressing its conclusion that Atlantic may have had a duty to defend the civil action. 41 Mass.App.Ct. 131, 134, 668 N.E.2d 872 (1996). See note 5, supra. However, when properly read in its statutory context and in accordance with the legislative intent of the workers' compensation statute, § 25 places no such duty on Atlantic in these circumstances. See Neff, supra at 73, 653 N.E.2d 556, quoting Vining Disposal Serv., Inc. v. Board of Selectmen of Westford, 416 Mass. 35, 38, 616 N.E.2d 1065 (1993).

The language of G.L. c. 152, § 25, directing an insurer to reimburse an employer that has been "required by a...