Insurance Coverage Litigation Issues From The Claimant's Perspective

J. Michael Conley
Kenney & Conley, P.C.
www.kenneyconley.com

It is difficult to extricate insurance coverage litigation issues from the substantive coverage disputes and the limitless variety of liability issues in the underlying claim. Consequently, the following is provided as a sampling of legal principles that frequently appear in claimants' briefs in coverage disputes.

DUTY TO DEFEND

An insurer owes a duty to defend when the Complaint or Amended Complaint discloses even a possibility of coverage, Ruggerio Ambulance Service, Inc. v. National Grange Insurance Company, 430 Mass. 794 (2000). Even if it has legitimate doubts about its ultimate coverage obligations, the insurer should furnish a defense under reservation of rights until the coverage issues were resolved. See Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 95 (2000).

An insurer's obligation to provide for a defense is determined based upon the allegations in the Complaint. E.g., Lusalon, Inc. v. Hartford Accident and Indemnity Co., 400 Mass. 767 (1987); Aetna Casualty & Surety Company v. Cotter, 26 Mass. App. 56 (1988). If the allegations of the Complaint are reasonably susceptible of an interpretation that they state or adumbrate[1] a claim covered by the policy terms, the insurer must undertake the defense.[2] E.g., Trustees of Tufts University v. Commercial Union Ins. Co., 415 Mass. 844 (1993); Continental Casualty Co. v. Gilbane Bldg. Co., 391 Mass. 143 (1984). The duty to defend arises where the underlying complaint shows a possibility of coverage. In determining the duty to defend, the Court's task is to envisage 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 is within the coverage of the policy. Trustees of Tufts Univ. v. Commercial Union Ins. Co., 415 Mass. 844 (1993); Liberty Mut. Ins. Co. v. SCA Services Inc., 412 Mass. 330 (1992); Boston Symphony Orchestra Inc. v. Commercial Union Ins. Co., 406 Mass. 7 (1989).

In contrast, the duty to indemnify would generally be determined by the outcome and facts proven in the trial of the underlying case. Newell_ Blais Post No. 443 v. Shelby Mut. Ins. Co., 396 Mass. 633, 638 (1986); Travelers Ins. Co. v. Waltham Indus. Laboratories Corp. 883 F.2d 1092, 1099 (1st Cir. 1991).

If any of the acts alleged in the complaint might possibly be covered, the insurer has a duty to defend the insured against all of the claims in the case. See Travelers Insurance Company v. Waltham Industrial Laboratories Corp., 722 F.Supp. 814 (D. Mass. 1988); Aetna Casualty & Surety Company v. Continental Casualty Company, 413 Mass. 730, 732 n.1. (1992) ("The weight of authority places the duty to defend all counts on an insurer which has a duty to defend at least one count of a complaint, barring a contrary agreement with the insured.")

In Simplex Technologies, Inc. v. Liberty Mutual Insurance Co., 429 Mass. 196 (1999), the Court confirmed that even where the complaint merely appears to state a claim that might fall under the policy, an insurer must defend.

"[I]t is well settled in this jurisdiction that a liability insurer owes a broad duty to defend its insured against any claims that create a potential for indemnity." That some, or even many, of the underlying claims may fall outside the coverage does not excuse [the insurer] from its duty to defend. . . ."

Id. at 199, quoting Doe v. Liberty Mutual Ins. Co., 423 Mass. 366, 368 (1996).

"[T]he underlying allegations must be "'reasonably susceptible of an interpretation that they . . . adumbrate'" a covered claim. Liberty Mut. Ins. Co. v. SCA Servs., Inc., supra. As one commentator correctly noted, "the insurer's duty to defend its insured arises whenever the allegations in a complaint state a cause of action that gives rise to the possibility of recovery under the policy; there need not be a probability of recovery." 7 C J.A. Appleman, Insurance Law and Practice § 4683.01, at 67 (rev. ed. 1979). We decline to alter this well settled standard."

Simplex Technologies, Inc. v. Liberty Mut. Ins. Co., supra, 429 Mass. at 199.

In Ruggerio Ambulance Service, Inc. v. National Grange Insurance Company, 430 Mass. 794, the Supreme Judicial Court considered the applicability of an ambulance company's auto insurance policy to a claim by the estate of a decedent who had made a request for emergency medical services, but who had stopped breathing by the time the second ambulance arrived after the first ambulance dispatched was delayed due to being involved in an accident. The Supreme Judicial Court held that the ambulance company's liability to the decedent did not arise out of the use of a motor vehicle and thus that the auto carrier had no duty to provide indemnity coverage. Nonetheless, the Court ruled that the insurer did have a duty to defend the ambulance company. Ruggerio, 430 Mass. at 796. Of significance to this case is the Court's discussion of defense.

In Massachusetts, an insurer has a duty to defend an insured when the allegations in a complaint "are 'reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms." "It is axiomatic that an insurance company's duty to defend is broader than its duty to indemnify . . . [T]he duty to defend is based upon the facts alleged in the complaint and those facts which are known by the insurer." Here the claim in the underlying tort action alleged that the decedent died as a result of a delay in response to his request for emergency services because of a motor vehicle accident involving an insured auto. The policy issued by National Grange provides, in relevant part: "We will pay all sums the insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance, or use of a covered auto." There was a reasonable possibility that the policy might be construed to cover the underlying claim. National Grange had a duty to defend.

Ruggerio [citations omitted] 430 Mass. at 796. The Ruggerio court has therefore established that defense is required whenever a policy interpretation is unsettled so long as there is a reasonable possibility that the policy may be interpreted to cover the underlying claim.[3]

It has long been understood that in ascertaining a duty to defend it is necessary to evaluate the factual allegations in a complaint to see if they are reasonably susceptible of interpretation within coverage, in which case defense is required. The Ruggerio decision establishes that the policy language itself - unless already subject to a definitive ruling - must be evaluated to determine whether there is a "reasonable possibility that the policy might be construed to cover" the claim in question. Id. In light of Ruggerio, a proponent of coverage with a plausible, even if ultimately incorrect, indemnity theory would nonetheless be entitled to defense. Stated otherwise, defense is required unless there is no reasonable possibility that the policy might be construed in a manner urged by the insured.

The timing of an amended complaint is immaterial; the amendment may impose upon an insurer retrospectively an obligation to pay defense costs even where there had been no duty to defend prior to the amendment. Terrio v. McDonough, 16 Mass. App. Ct. 163 (1983). Any evaluation of an insurer's duty to defend cannot be final or conclusive until there is an unalterable determination as to the nature of the underlying claim. Lumbermen's Mutual Casualty Company v. Belleville Industries, Inc., 407 Mass. 675, 686 (1990). Thus, the Appeals Court has specifically recognized that defense obligations imposed by an amendment would extend to payment for defense pre-dating the amendment. Terrio v. McDonough, 16 Mass. App. Ct. 163 (1983). Even after a valid disclaimer, "should a trial subsequently establish that the facts were other than first pleaded . . . and should an amendment of the complaint be allowed, the insurer would be bound to indemnify the insured for the damages recovered against him and for the costs of defense." Id. [emphasis added]; see Utica Mut. Ins. Co. v. Fontneau, 70 Mass.App.Ct. 553, 556 n.3 (2007) (Authority indicates that the insurer may become retroactively liable for the cost of defense by the plaintiff's changes of liability theory in later amendment of the pleadings or even by developments in proof at trial).

RULES OF CONSTRUCTION

"In the interpretive aspects of [an insurance coverage] case the insurer has to contend with the rule that exclusionary policy terms are to be strictly construed against the insurer, and the further rule that doubts created by any terms in a policy that may be considered ambiguous are to be resolved against the insurer." Shamban v. Worcester Ins. Co., 47 Mass. App. Ct. 10, 16 (1999), citing, Liquor Liab. Joint Underwriting Assn. of Mass. v. Hermitage Ins. Co., 419 Mass. 316, 322 (1995); Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 324 (1991). When an insurer drafts the insurance contract, it is strictly construed against the insurer. E.g., Duggan v. Travelers Indem. Co., 383 F.2d. 871 (1st Cir. 1967); Transamerica Ins. Co. v. Norfolk & Dedham Mut. Fire Ins. Co. 361 Mass. 144 (1972). Every doubt as to the meaning of the words and every ambiguity is resolved against the insurer. E.g., Quincy Mutual Fire Insurance Company v. Abernathy, 393 Mass. 81, 84, 469 N.E.2d 958 (1984), Bilodeau v. Lumbermens Mut. Casualty Co., supra, (1984); Preferred Mut. Ins. Co. v. Gamache, 42 Mass. App. Ct. 94 (1997), aff'd 426 Mass. 93; Panesis v. Loyal Protective Life Ins. Co., 5 Mass. App. Ct. 66 (1977); Cardin v. Royal Ins. Co., 394 Mass. 450 (1985); King v. Prudential Ins. Co., 359 Mass. 46 (1971). When an insurance policy is ambiguous -- that is when its language is reasonably susceptible to more than one meaning or when there is more than one rational interpretation of insurance policy language -- the insured is entitled to the benefit of the interpretation most favorable to coverage. Hakim v. Massachusetts Insurer's Insolvency Fund, 424 Mass. 275 (1997); Hazen Paper Co. v. United States Fidelity & Guaranty Co., 407 Mass. 689, 700 (1990); Preferred Mut. Ins. Co. v. Gamache, 42 Mass. App. Ct. 94 (1997), aff'd 426 Mass. 93.

Policy exclusions are likewise strictly construed against the insurer and in favor of coverage. Middlesex Ins. Co. v. American Employers Ins. Co., 9 Mass. App. Ct. 855 (1980); Bates v. John Hancock Mut. Life Ins. Co., 6 Mass. App. Ct. 823 (1978). The rule that when there is more than one rational interpretation of insurance policy language the most favorable interpretation applies with particular force to exclusionary provisions. Hakim v. Massachusetts Insurer's Insolvency Fund, 424 Mass. 275 (1997).

These rules apply not only wherever the policy provisions are ambiguous, but also where two policy provisions are inconsistent with one another. L. Russ and T. Segala, Couch On Insurance, 3D § 21:9 at 21-16 (1995) (if two clauses are inconsistent and both were prepared by the insurer, the one which would defeat the insurance will be rejected or the one which affords the most protection to the insured will control and be given effect). Thus, in the presence of an apparent conflict between the declarations page and the policy forms, the declarations page would prevail if it provides broader or more generous coverage than the conflicting forms. E.g., Lehrhoff v. Aetna Casualty & Surety Co., 271 N.J. Super. 340, 638 A.2d 889 (1994); Sherman v. Underwriter's at Lloyds, London, 1999 W.L. 1223759 (Del. Super. 1999). That typewritten additions normally prevail if there is a conflict with printed provisions is well established. Bluewaters, Inc. v. Boag, 320 F.2d 833, 835 n.4, citing Hagan v. Scottish, etc., Ins. Co., 186 U.S. 423 (1902).

In Kirkpatrick v. Boston Mutual Life Ins. Co., 393 Mass. 640 (1985), the Supreme Judicial Court applied similar principles in the context of a dispute concerning the effective date of the health insurance policy. The Court held that, "Where insurance certificates create ambiguities in the extent of coverage, and particularly where conflicts exist between the terms of the certificate and the group policy, the language of the certificate, where more favorable to the insured, prevails." Id. at 647. The Court noted that its determination was not revolutionary, but was simply applying a well established rule to a new factual circumstance. "While this Court has not occasion to decide what terms shall apply in cases of conflict between the certificate and policy, it has long held that 'ambiguities in insurance policies must be construed in favor of the insured.'" Id. at 648 [citations omitted].

The analysis of Massachusetts auto insurance policies is different from that of other liability policies. The rule that ambiguities are resolved against the insurance company does not apply to auto policies because the wording of a Massachusetts automobile policy is nominally drafted by the Commissioner of Insurance rather than the contracting insurer. See Goodman v. American Cas. Co., 419 Mass. 138, 140 (1994). In such instances, the court must construe the words of the policy according to "the fair meaning of the language used, as applied to the subject matter," Bilodeau v. Lumbermens Mut. Casualty Co., 392 Mass. 537, 541 (1984). This is true whether the language of a standard Massachusetts automobile insurance policy is considered ambiguous or explicit. Bilodeau v. Lumbermens Mut. Casualty Co., supra; Cardin v. Royal Ins. Co., 394 Mass. 450 (1985)

Moreover, in interpreting all insurance policies, Massachusetts courts consider what an objectively reasonable insured reading the relevant policy language would expect to be covered. See Ruggerio Ambulance Service, Inc. v. National Grange Ins. Co., 430 Mass. 794 (2000); Maclean v. Hingham Mutual Fire Ins. Co., 51 Mass. App. Ct. 870 (2001).

Massachusetts courts have declined to interpret exclusions in policies so as to render illusory the insurance coverage provided by the policy. "A provision in an insurance policy that negates the very coverage that the policy purports to provide in circumstances where the person is liable is void as against public policy." Liberty Mutual Insurance Company v. Tabor, 407 Mass. 354, 358 (1990); see also Preferred Mut. Ins. Co. v. Gamache, 42 Mass. App. Ct. 194, 200 (1997), aff'd 426 Mass. 93. Even where the terms of a policy are clear, it nevertheless may be invalid if a provision leads to an unconscionable result or violates public policy. Santos v. Lumbermen's Mut. Casualty Co., 408 Mass. 70 (1990).

The most up to date source, and thus a useful citation for many of these boilerplate principles is Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009), as follows:

The interpretation of an insurance contract is a question of law. Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, 449 Mass. 621, 628 (2007), and cases cited. It "is no different from the interpretation of any other contract, and we must construe the words of the policy in their usual and ordinary sense." Hakim v. Massachusetts Insurers' Insolvency Fund, 424 Mass. 275, 280 (1997). "We read the policy as written and 'are not free to revise it or change the order of the words.' " Id. at 281, quoting Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 147 (1984). "Every word in an insurance contract 'must be presumed to have been employed with a purpose and must be given meaning and effect whenever practicable,' " Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, supra, quoting Jacobs v. United States Fid. & Guar. Co., 417 Mass. 75, 77, (1994), "without according undue emphasis to any particular part over another." Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492, 497 (1988), quoting Woogmaster v. Liverpool & London & Globe Ins. Co., 312 Mass. 479, 481 (1942). "If in doubt, we 'consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.' " A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 518 (2005), quoting Trustees of Tufts Univ. v. Commercial Union Ins. Co., 415 Mass. 844, 849 (1993). See McGregor v. Allamerica Ins. Co.449 Mass. 400, 402 (2007). Finally, "[a]ny ambiguities in the language of an insurance contract are interpreted against the insurer who used them and in favor of the insured." Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, supra.

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An ambiguity arises when there is more than one rational interpretation of the relevant policy language. Trustees of Tufts Univ. v. Commercial Union Ins. Co., 415 Mass. 844, 849 (1993). "However, an ambiguity is not created simply because a controversy exists between parties, each favoring an interpretation contrary to the other." Lumbermens Mut. Cas. Co. v. Offices Unlimited, Inc., 419 Mass. 462, 466 (1995).

Id. at, 355-56 and n. 32.

"INTENTIONAL ACTS" EXCLUSIONS

The Supreme Judicial Court has consistently interpreted so-called "intentional acts" exclusions in liability policies to be inapplicable "if the insured does not specifically intend to cause the resulting harm or is not substantially certain that such harm will occur." Quincy Mutual Fire Ins. Co. v. Abernathy, 393 Mass. 81, 469 N.E.2d 797 (1984) (interpreting the exclusion for bodily injury or property damage "which is expected or intended"). "The focus in these cases is whether the insured 'intended' the injury, not whether the insured intended the act." Hanover Insurance Co. v. Talhouni, 413 Mass. 781, 784, 604 N.E.2d 689 (1992). Preferred Mutual Ins. Co. v. Gamache, 425 Mass. 93, 686 N.E.2d 989 (1997).

It is the insurer's burden to show the applicability of a clause excluding coverage for injury or damage intended or expected by the insured. To this end, the insurer must show that the insured intended the injuries that flowed from his conduct. Hanover Ins. Co. v. Talhouni, 413 Mass. at 785. If an insurer succeeds in showing an act was intended to cause the harm, it is not necessary to prove that the insured expected to cause the extent of harm that ultimately occurred. City of Newton v. Krasignor, 404 Mass. 682 (1989).

The intent element of the exclusion must be construed to conform with the definition of accident and occurrence and in accordance with the established rule that "generally an injury 'which ensues from the volitional act of an insured is still an 'accident' within the meaning of the insurance policy if the insured does not specifically intend to cause the resulting harm or is not substantially certain that such harm will occur.'" Worcester Insurance Co. v. Fells Acres Day School, 408 Mass. 393, 399, 558 N.E.2d 958 (1990), quoting Quincy Mutual Fire Ins. Co. v. Abernathy, 393 Mass. 81, 84, 469 N.E.2d 958 (1984).

In Sheehan v. Gorianski, the court concluded that "a harm which is only constructively intentional does not, for that reason alone, fall outside the category of an injury caused by accident," and conduct which was reckless and wanton, and therefore, only constructively intentional but not specifically intended or expected to cause harm, would not be excluded from coverage under an insurance policy. 321 Mass. 200, 72 N.E.2d 538, 542 (1947). The Court went on to state that "[r]eckless misconduct differs from intentional wrongdoing in a very important particular. While an act to be reckless must be intended by the actor, the actor does not intend to cause the harm which results from it." Id. The Sheehan case, which was decided in 1947, continues to represent the state of the law to date. "Our cases have concluded that an injury is nonaccidental only where the result was actually, not constructively, intended, i.e., more than reckless." Preferred Mutual Ins. Co. v. Gamache, 425 Mass. 93 (1997); Quincy Mutual Fire Insurance Co. v. Abernathy, 393 Mass. 81, 469 N.E.2d 958 (1984).

Moreover, in evaluating the state of mind of the insured, the Defendant's intoxication by drugs or alcohol is fairly considered in determining the capacity to form the requisite expectation or intention of causing harm. Hanover Insurance Company v. Talhouni, 413 Mass. 781 (1992). Massachusetts courts have repeatedly referred to "the need to consider evidence on the capacity issue in determining whether an insured acted with the requisite intent for purposes of the exclusion." Hanover Ins. Co. v. Talhouni, 413 Mass. 791, 604 N.E.2d at 692; see Worcester Ins. Co. v. Fells Acres Day Sch., Inc., 408 Mass. at 401, 558 N.E.2d 958, 965 (1990). Evidence of either insanity or voluntary intoxication of an insured at the time of the occurrence has called into question the capacity of the insured to form the intent to cause damage or injury. See, e.g., Baker v. Commercial Union Ins. Co., 382 Mass. 347, 415 N.E.2d 187 (1981) (insanity); Hanover Ins. Co. v. Talhouni, 413 Mass. 781, 604 N.E.2d 689 (1992) (voluntary intoxication); Preferred Mutual Ins. Co. v. Gamache, 42 Mass. App. Ct. 194, 200, 675 N.E.2d 438 (1996) (voluntary intoxication). In cases where the capacity of an insured is called into question, the Court has placed the burden on the insurer to show the requisite intent. Id.

Intent to injure cannot ordinarily be transferred from the intended victim to that of a non-intended victim, including a loss-of-consortium claimant. See Worcester Insurance Co. v. Fells Acres Day School, 408 Mass. 393, 399, 558 N.E.2d 958, 972 (1990) (perpetrators' intent to injure children not transferred to represent intent to injure the parents of the child/victims). Consequently, under most policies, the insurer would be unable to escape indemnity responsibility for a loss of consortium claim, including a claim on behalf of prospective recipients of the loss-of consortium damages compensable under the Wrongful Death Act, M.G.L. c. 229, § 2, unless it could prove an intent to harm the consortium claimant. Loss of consortium claims, including consortium-like claims brought through the Administrator as a conduit under G.L. c. 229, stand on their own and are not derivative in nature. Worcester Ins. v. Fells Acres Day School, Inc., 408 Mass. 393, 558 N.E.2d 958, 971_72 (1990); Santos v. Lumbermen's Mut. Cas. Co., 408 Mass. 70, 77-78 (1990).

Regardless of whether the exclusion for expected or intended conduct necessitates the exclusion from coverage of the injuries inflicted upon a primary victim, the injuries in the form of loss of consortium, are still covered by an insurance policy unless specifically and unambiguously excluded. Worcester Ins. Co. v. Fells Acres Day School, Inc., 408 Mass. 393, 558 N.E.2d 958, 971_72, (1990).

In Worcester Ins. Co. v. Fells Acres Day School, Inc., supra, the Supreme Judicial Court considered the applicability of the "expected or intended" exclusion in a homeowners policy to loss of consortium claims arising from intentionally inflicted bodily injuries to family members.

The injuries . . . in the form of "care and loss of services," however, remain within the scope of coverage, unless trial of the issues demonstrates that the insured intended to injure the [loss of consortium] plaintiffs.

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We have rejected the argument that consortium claims are essentially derivative on a number of previous occasions. See Pinheiro v. Medical Malpractice Joint Underwriting Assn of Mass., 406 Mass 8, 29 , 547 N.E.2d 49 (1989); Bilodeau v. Lumberman's Mut. Casualty Co., 392 Mass 537, 539, 467 N.E.2d 137 (1984); Feltch v. General Rental Co., 383 Mass 603, 607, 421 N.E.2d 67 (1981). Although it is clear that a consortium claim bears a "symbiotic" relation to the initial claim of injury to a spouse or other family member, Corrigan v. General Elec. Co., 406 Mass 478, 480, 548 N.E.2d 1238 (1990), it is an independent injury . . . .

408 Mass. 413-15. Therefore, in order to exclude such claims from indemnity coverage under the policies, the burden is on an insurer to prove that the insured specifically intended to cause injury to the loss of consortium claimants. Worcester Ins. v. Fells Acre Day School, 558 N.E.2d at 972; Hanover Insurance Co. v. Talhouni, 413 Mass. 781, 784, 604 N.E.2d 689 (1992).

SEVERABILITY OF INTERESTS CLAUSE

It is often important to identify whether a policy has a severability of interests clause. The effect of such a provision is to require "that each insured be treated as having a separate insurance policy." Worcester Mutual Ins. Co. v. Marnell, 398 Mass. 240 (1986).

In policies which contain severability of interests clauses, an exclusion effective against one insured, does not necessarily preclude coverage fr another insured for the same event. See Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 (1986) (in presence of severability clause, parent's coverage for alleged negligent supervision not excluded as arising from use of vehicle, even though injuries arose from motor vehicle accident in which minor child was owner/operator of vehicle); see also Merrimack Mut. Fire Ins. Co. v. Sampson, 28 Mass. App. Ct. 353 (1990) (negligent supervision claim brought against insured but unlike in Marnel exclusion found applicable because named insured was owner of vehicle); cf. Roe v. Lawn, 34 Mass. App. Ct.726, 727 n 5 (1993) (with severability clause, operator of taxi company not excluded from coverage under automobile policy for intentional sexual assault by driver) aff'd on other grounds 418 Mass. 66 (1994).

NONCOOPERATION

Under Massachusetts law, a breach of the duty to cooperate on the part of an insured must be substantial and material before it permits an insurer to disclaim liability. See Morrison v. Lewis, 351 Mass. 386, 390, 221 N.E.2d 401 (1966). Further, the insurer must demonstrate actual prejudice due to such a lack of cooperation. Darcy v. Hartford Insurance Co., 407 Mass. 481, 554 N.E.2d 28, 33 (1990). Cooperation clauses are designed primarily to protect the insurer's interest in avoiding payment on claims which it cannot adequately defend. When that interest has not been jeopardized by an insured's breach, in the sense that the insured's infraction does not seriously impair the insurer's investigation or defense of the action, there is no sensible reason to permit the insurer to deny coverage under the policy. Id..

An insured may forfeit coverage for breach of a cooperation clause by asserting privilege against self-incrimination. Metlife Auto & Home v. Cunningham, 59 Mass.App.Ct. 583 (2003).

ACTUAL PREJUDICE

Massachusetts courts will not deprive insureds of the benefits of insurance contracts in the absence of proof that the insured violated his obligations under the contract, and thereby caused actual prejudice to the legitimate interests of the insurer. This is in furtherance of a declared policy to afford insureds and third-party beneficiaries to insurance contracts "the maximum protection possible consonant with fairness to the insurer." Darcy v. Hartford Insurance Company, 407 Mass. 481, 490 (1990). In insurance law, Massachusetts courts have departed from common law contractual analysis and refused to allow technical contractual violations to lead to forfeiture of insurance coverage in absence of actual prejudice to the insurer. The Supreme Judicial Court initially modified the common law in this area by adding prejudice requirements in the context of notice provisions, see Johnson Controls, Inc. v. Bowes, 381 Mass. 278 (1980); Glidman v. American Casualty Company, 419 Mass. 138 (1994); and consent to settlement provisions, see McInnis v. Aetna Life and Casualty Company, 403 Mass. 220 (1988); see also Lighter v. Lumbermen's Mutual Insurance Company, 43 Mass. App. Ct. 415 (1997). The Court's rationale in these cases stemmed from a rejection of the contractual view of insurance policy interpretation under which the failure of any policy provision characterized as a condition precedent automatically relieved an insurer of any obligation to pay on the policy. Darcy v. Hartford Insurance Company, 407 Mass. 481, 489 (1990). The better approach, the Court decided, was to determine whether an insured's breach of a policy requirement frustrated the underlying purpose of that requirement. Only in cases in which that question was answered affirmatively would an insurer be permitted to disclaim coverage. Notice and consent to settlement provisions exist to enable the insurer to protect its interests. Id. at 491; see Johnson Controls, Inc. v. Bowes, supra; McInnis v. Aetna Life and Casualty Company, supra. Accordingly, the Court held in these decisions that an insurer would be able to disclaim coverage because of an insured's breach of a notice or consent-to-settlement provision in a policy only if the insurer could prove that any such breach actually prejudiced its position. Johnson Controls, Inc. v. Bowes, supra at 282; McInnis v. Aetna Life and Casualty Company, supra at 223. See generally Darcy v. Hartford Insurance Company, 407 Mass. 481 (1990).

Subsequently, in Darcy v. Hartford Insurance Company, the court applied the same rationale to cooperation provisions, which, like notice and consent-to-settlement clauses, are designed primarily to protect the insurer's interest in avoiding paying on claims which it cannot adequately defend. The court reasoned that, "when that interest has not been jeopardized by the insured's breach, in the sense that the insured's infraction does not seriously impair the insurer's investigation or defense of the action, there is no persuasive reason to permit the insurer to deny coverage under the policy." Darcy v. Hartford Insurance Company, 407 Mass. at 490.

MISREPRESENTATION

Statements made in an application for insurance are in the nature of continuing representations and speak from the time the application is accepted or the policy is issued. A misrepresentation in an application for insurance will enable the insurer to avoid the policy if the misrepresentation was made with actual intent to deceive, or it is material. A "material fact" is one which would naturally influence the judgment of [an] underwriter in making the contract at all, or in estimating the degree and character of the risk, or in fixing the rate of the premium. Whether a misstatement in an application for insurance increased the risk of loss and was, therefore, "material" is ordinarily a question of fact on which the insurer bears the burden of proof. Hanover Ins. Co. v. Leeds, 42 Mass.App.Ct. 54, 56-58 (1997).

The issue is one of misrepresentation and accordingly must focus temporally upon the state of affairs that existed at the time the subject representation was made. This focus is unaffected by the renewal of a policy where there has been no further representation or request for further information in a renewal application. "Unless a provision in the insurance policy or a renewal application requires the insured to notify the insurer of particular changes, the insured is under no duty to identify changes that are material and notify the insurer of such changes. Absent such a duty, the insured's silence, even if it increases a risk of loss to the insurer, is not a misrepresentation within the meaning of G.L. c. 175, § 186." Quincy Mut. Fire Ins. Co. v. Quisset Properties, Inc., 69 Mass.App.Ct. 147, 154-56 (2007). The court cited Zurich Gen. Acc. & Liab. Ins. Co. v. Flickinger, 33 F.2d 853, 856 (4th Cir. 1929), "it is well settled that statements in an application for a policy which is renewed relate to the time when the original policy was issued; and, if they were true at that time, it is no defense that they may not have been true later at the time of renewal."

In order to determine whether an answer on an insurance application is a misrepresentation, one must identify the information sought by the question. Where there is more than one rational interpretation of policy language, the insured is entitled to the benefit of the one that is more favorable to it. This same rationale extends to insurance questionnaires and applications. Where a question on an application lends itself to more than one reasonable interpretation, an honest answer to any one of those reasonable interpretations cannot be labeled a misrepresentation. Hingham Mutual Fire Insurance Co. v. Mercurio, 71 Mass.App.Ct.21 (2008); see Vella v. Equitable Life Assur. Soc. of U.S., 887 F.2d 388, 392 (2d Cir. 1989).

DAMAGES FOR BREACH OF DUTY TO DEFEND

The Supreme Judicial Court has established that "an insurer who has committed a breach of its contractual duty to defend its insured is liable 'for the natural consequences of (the) breach of contract that places its insured in a worse position,' and that 'an obligation to pay settlement costs could result from the breach of the duty to defend.'" Polaroid Corporation v. Travelers Indemnity Company, 414 Mass. 747, 764 (1993), and also that "an insurer that wrongfully declines to defend a claim will have the burden of proving the claim was not within its policy's coverage." Id.; Liquor Liability Joint Underwriting Association v. Hermitage Insurance Company, 419 Mass. 316, 323 (1995).

It is well established in Massachusetts "'that an indemnitor, after notice and an opportunity to defend, is bound by material facts established in an action against the indemnitee . . . in the absence of fraud or collusion the insurer would be bound by a judgment entered by default. A judgment by consent stands no worse.'" Blais v. Quincy Mutual Fire Ins. Co., 361 Mass. 68 (1972) (citations omitted) quoting Miller v. United States Fid. & Guar. Co., 291 Mass. 445 (1935).

As noted by the Supreme Judicial Court, "many insureds obtain liability insurance to avoid the prospect of being burdened by significant legal expenses." Rubenstein v. Royal Ins. Co. of America, 429 Mass. 355, 358 (1999). Faced with an insurer's repudiation of its responsibilities, the insured is entitled to use reasonable means to avoid personal liability. See Metcalf v. Harford Acc. & Ind. Co., 126 N.W. 2d 471 (1964); Griggs v. Bertram, 443 A.2d 163 (1982); American Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805 (Ind. App. 1980); Miller v. Shughart, 316 N.W.2d 729 (Minn. 1982); First Nat'l Indem. Co. v. Mercado, 511 S.W.2d 354 (Tex. Civ. App. 1974).

The Supreme Judicial Court has not foreclosed settlement in a case involving an assignment of rights and covenant not to execute even though neither the "existence of claims against the tortfeasor, nor their value had been established or tested in a full adversary proceeding." Campione v. Wilson, 422 Mass. 185, 192 (1996). Any risk of collusion is diminished by requiring the claimants to prove their damages. Campione v. Wilson, 422 Mass. 185, 193. (1996).