Home Indem. Ins. Co. v. Merchants Distributors, Inc.

• Decision Date: 15 October 1985
• Citation: 483 N.E.2d 1099,396 Mass. 103
• Parties: HOME INDEMNITY INSURANCE COMPANY v. MERCHANTS DISTRIBUTORS, INC.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1099

483 N.E.2d 1099

396 Mass. 103

HOME INDEMNITY INSURANCE COMPANY v. MERCHANTS DISTRIBUTORS, INC.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Sept. 12, 1985.

Decided Oct. 15, 1985.

David P. Dwork, Boston, for plaintiff.

Bernard T. Loughran, Watertown (Mary E. Corbett, Watertown, with him), for defendant.

Before WILKINS, LIACOS, ABRAMS and O'CONNOR, JJ.

WILKINS, Justice.

The plaintiff insurer (Home Indemnity) seeks to collect a retrospective workers' compensation premium charge from the defendant insured (Merchants Distributors).

For three years commencing on January 1, 1970, Home Indemnity provided workers' compensation insurance to Merchants Distributors under a policy subject to a retrospective premium endorsement. ¹ Commencing on January 1, 1973, Merchants Distributors abandoned the retrospective rating aspect of its coverage and thereafter took from Home Indemnity a standard form of policy under which annually an insured's premium obligations are fixed in advance.

In 1976, Home Indemnity entered into a lump sum agreement in final settlement of a workers' compensation claim of a former Merchants Distributors employee. The agreement, to which Merchants Distributors was not a party, specified March 27, 1972, as the date of the compensable injury. The employee had submitted two independent claims, one based on a March, 1972, injury (a date within the period of the first policy) and the other based on an August, 1975, incident (a date within the period of the second policy), alleged to have aggravated the 1972 injury. The master who heard this case found that the August, 1975, injury contributed to and was causally connected with the employee's disability. Although the materiality of the principle is in dispute, if, in these circumstances, there had been different insurers for the two policy periods involved, the second insurer would have been responsible for all workers' compensation obligations arising from the 1975 injury. See Zerofski's Case, 385 Mass. 590, 592, 433 N.E.2d 869 (1982); Carrier v. Shelby Mut. Ins. Co., 370 Mass. 674, 675-676 (1976).

Home Indemnity sought to collect a retrospective premium from Merchants Distributors, relying on the fact that the lump sum settlement agreement designated the injury as a March, 1972, injury and further relying on a policy provision stating that "[a]s respects the insurance afforded by the other terms of this policy" the insurer "may make such investigation, negotiation and settlement of any claim or suit as it deems expedient." ² The master found that the injured employee was not "especially concerned" about the date of the injury referred to in the settlement documents. He further found that, when Home Indemnity's supervisor for Merchants Distributors' workers' compensation claims prepared the settlement agreement, she was unaware of the differences between the policies in effect in 1972 and 1975. The master stated that he did "not find that the Insurer acted in bad faith in connection with the lump sum settlement agreement."

On cross-motions for summary judgment, based on the report of the master whose findings of fact were final, a judge of the Superior Court ordered entry of judgment for the defendant Merchants Distributors. We affirm that judgment.

On appeal, a panel of the Appeals Court, divided on the question, reversed. Home Indem. Ins. Co. v. Merchants Distribs., Inc., 19 Mass.App. 20, 471 N.E.2d 748 (1984); id. at 26, 471 N.E.2d 748 (Dreben, J., dissenting). The majority concluded that the policy's settlement clause gave Home Indemnity, in the course of settling the claim, discretion to select the date of injury conclusively, unless Home Indemnity exercised that discretion in bad faith, negligently, or fraudulently. Id. at 24, 471 N.E.2d 748. We have upheld a settlement by an insurance company where the amount paid was fully recoverable from the insured, even though the insured had no notice of the settlement. Service Mut. Liab. Ins. Co. v. Aronofsky, 308 Mass. 249, 252, 31 N.E.2d 837 (1941). We said in that context that the insurer's judgment was final unless the insured showed fraud, negligence, or an absence of good faith in the making of the settlement. Id. See Murach v. Massachusetts Bonding & Ins. Co., 339 Mass. 184, 187, 158 N.E.2d 338 (1959) for a discussion of what good faith requires of an insurer.

The dissenting Justice concluded that the settlement clause did not purport to give Home Indemnity the authority to decide the coverage question conclusively. Home Indem. Ins. Co. v. Merchants Distribs., Inc., supra 19 Mass.App. at 26-27, 471 N.E.2d 748. She also noted that elementary fairness required that Merchants Distributors be granted a hearing before liability could be imposed on it. Id. at 27, 471 N.E.2d 748.

We are concerned with the interpretation of an insurance policy or policies. Neither policy is in the record. The master refers to the settlement clause and quotes it. See note 2 above. Home Indemnity, relying exclusively on that clause, argues in effect that our cases conceding the discretion of an insurer to settle a claim and thereby to bind an insured apply here. The Appeals Court majority agree, concluding that the result is indicated by "the well-settled judicial construction of the language of the settlement clause." 19 Mass.App. at 25, 471 N.E.2d 748. None of those cases, however, involved a coverage dispute between an insurer and an insured (i.e.,...