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Massachusetts Supreme Judicial Court Sets Limits on an Insurer’s Duty to Defend

In Massachusetts, insurance companies owe a broad duty to their insureds to defend against claims within the scope of policy coverage.  Many times, an insured will face several different claims in litigation.  Some may be covered by insurance, while others may not.  But so long as one of the claims arguably falls within the scope of the policy, the insurer bears a duty to defend all of the claims.

So for those who believe that “the best defense is a good offense,” the question arises: does the duty to defend require the insurer to pay for the insured’s affirmative counterclaims?  According to a recent decision of a divided Massachusetts Supreme Judicial Court, the answer is “no” (unless of course the policy provides otherwise).

Relying on dictionary definitions, the court majority determined that the meaning of the word “defend” clearly referred to the opposition or denial of the truth of the plaintiff’s claims and “no more.”  However correct this may be as a matter of definition, the practical results of this decision can be problematic.  An effective defense of claims can – and sometimes must – include offensive counterclaims. A defendant can often reduce and even neutralize a plaintiff’s claims by countering with strong claims of its own.  As the Chief Justice noted in his disagreement with the decision, “the insurer cannot reasonably fulfill its duty to defend the insured . . . without also prosecuting such counterclaims because it would be impractical and deleterious to an effective defense to fail to do so.”  Nevertheless, the court majority has spoken: absent contrary language in the policy, in Massachusetts the insurer’s duty to defend does not extend to the prosecution of counterclaims.   While insureds will, without doubt, continue to assert appropriate counterclaims (as they are often required to do) the insureds will have to fund the prosecution of such counterclaims on their own.  On the other hand, while not explicitly addressed by the Court, it is likely that settlements in the future could involve simultaneous settlement payments by insurers and affirmative counterclaim recoveries by insureds.

For any questions please contact the Hinckley Allen attorney with whom you regularly work, or one of our Insurance Coverage attorneys.