Massachusetts Insurers Insolvency Fund v. Berkshire Bank

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SJC-12019

MASSACHUSETTS INSURERS INSOLVENCY FUND vs. BERKSHIRE BANK.

Suffolk. September 8, 2016. - November 3, 2016.

Present: Gants, C.J., Botsford, Lenk, Hines, Gaziano, Lowy, &
Budd, JJ.

Massachusetts Insurers Insolvency Fund. Insurance, Workers'
compensation insurance, Insolvency of insurer. Workers'
Compensation Act, Insurer, Reimbursement of insurer.
Statute, Construction. Words, "On behalf of."

Civil action commenced in the Superior Court Department on
July 14, 2014.

The case was heard by Mitchell H. Kaplan, J., on motions
for summary judgment.

The Supreme Judicial Court granted applications for direct
appellate review.

Gregory P. Deschenes (Kurt Mullen with him) for the
plaintiff.
Owen Gallagher (Gordon Prescott with him) for the
defendant.

BOTSFORD, J. General Laws c. 175D, § 17 (§ 17), authorizes

the Massachusetts Insurers Insolvency Fund (Fund) to recover
 2

from "high net worth insureds" certain amounts paid by the Fund

"on behalf of" such insureds. G. L. c. 175D, § 17 (3). The

Fund brought this action in the Superior Court pursuant to § 17,

seeking to recover from the defendant Berkshire Bank (Berkshire)

an entity that meets the definition of "high net worth insured,"

workers' compensation benefits it has paid to a Berkshire

employee. Ruling on cross motions for summary judgment, a judge

of that court interpreted § 17 (3) to preclude the Fund's

recovery. We conclude that the Fund is authorized to recoup the

amounts in question because they were paid by the Fund "on

behalf of" Berkshire within the meaning of § 17 (3).

Accordingly, we reverse the judgment of the Superior Court.

Background. Both parties agree that there are no material

facts in dispute. The memorandum of decision of the Superior

Court judge sets out the background facts succinctly, which we

quote here:

"In May 2003, [Donna] Poli, an assistant branch
manager for Woronoco Savings Bank (Woronoco), injured her
back while lifting coin-filled bags. Woronoco was then the
named insured under a workers' compensation/employer's
liability policy issued by Centennial [Insurance Company].
Woronoco notified Centennial of the injury and Centennial
began paying Poli weekly workers' compensation benefits
pursuant to G. L. c. 152, § 34 [providing temporary total
incapacity benefits for up to three years]. On June 16,
2005, Woronoco merged with and into Berkshire.

"In August 2006, Poli exhausted her entitlement to
benefits under G. L. c. 152, § 34, and Centennial
voluntarily commenced payments under G. L. c. 152, § 35
[providing for partial incapacity benefits]. Four years
 3

later, in August 2010, Poli exhausted her entitlement to
benefits under G. L. c. 152, § 35, and Centennial ceased
making any payments. In response, Poli sought permanent
and total disability compensation under G. L. c. 152,
§ 34A. [I]n February 2011, the Department of Industrial
Accidents (DIA) denied her claim after a conference. Poli
appealed.

"In April 2011, the New York Supreme Court placed
Centennial, which is domiciled in New York, into
liquidation. Pursuant to the provisions of G. L. c. 175D,
the Fund assumed administration of Poli's claim. On
September 7, 2011, the Fund entered into a lump sum
agreement with Poli, under G. L. c. 152, § 48, pursuant to
which it agreed to pay her $85,000 and to pay all future
medical expenses arising from the injury. The DIA approved
the agreement a week later. Berkshire was not consulted by
the Fund with respect to its agreement with Poli.

"In January 2012, the Fund sent a demand to Berkshire
seeking to recoup the amounts paid to Poli on the grounds
that Berkshire was a high net worth insured and was thus
obligated to reimburse the Fund under G. L. c. 175D, § 17
(3). Berkshire refused to pay the Fund, prompting the Fund
to bring the present lawsuit in July 2014. The Fund's
amended complaint brings a claim for breach of statutory
duty to reimburse and seeks a declaratory judgment that
Berkshire is liable to reimburse the Fund for future
payments and incurred expenses associated with Poli's
workers' compensation claim. Both parties now move for
summary judgment. There is no dispute that Berkshire
qualifies as a high net worth insured."

The motion judge allowed Berkshire's motion for summary

judgment and denied the Fund's motion. Concluding that § 17

entitled the Fund to recover from high net worth insureds

amounts the Fund had paid only when the amounts in question had

been paid "on behalf of the insured," § 17 (3), the judge ruled

that the statutory scheme for workers' compensation in

Massachusetts effectively precluded such recoupment. He
 4

reasoned that once an employer purchases a qualifying workers'

compensation insurance policy, the employer has no obligation to

pay workers' compensation benefits to any employee because the

responsibility to make such payments lies exclusively with the

insurer. As a result, any amounts paid by the Fund would not be

"on behalf of" the insured employer, and recoupment pursuant to

§ 17 would not be available. Final judgment entered for

Berkshire, and we granted both parties' applications for direct

appellate review.

Discussion. "Because this case was decided on cross

motions for summary judgment with no dispute as to material

facts, one of 'the moving part[ies] is entitled to judgment as a

matter of law.'" Massachusetts Care Self-Ins. Group, Inc. v.

Massachusetts Insurers Insolvency Fund, 458 Mass. 268, 270

(2010), quoting Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass.

117, 120 (1991). The single issue raised is one of statutory

interpretation, and we review the motion judge's decision de

novo. Massachusetts Care Self-Ins. Group, Inc., supra.

To provide context, we briefly discuss the Fund and its

enabling statute. The Fund is a nonprofit, unincorporated legal

entity established in 1970 to provide a limited form of

protection from insurer insolvencies. G. L. c. 175D, inserted

by St. 1970, c. 261. See Clark Equip. Co. v. Massachusetts

Insurers Insolvency Fund, 423 Mass. 165, 166-167 (1996). The
 5

Fund stands in place of an insolvent insurer and is obligated to

pay all "covered" claims against that insurer, in most instances

up to a cap of $299,999 per claim. G. L. c. 175D, § 5 (1) (a).

Massachusetts Insurers Insolvency Fund v. Smith, 458 Mass. 561,

562 (2010) (Fund v. Smith). Patterned on the Post-Assessment

Insurance Guaranty Association Model Bill drafted by the

National Association of Insurance Commissioners, see Clark

Equip. Co., supra at 167 n.2, G. L. c. 175D aims to "minimiz[e]

financial loss to claimants or policyholders" resulting from an

insurer's insolvency (citation omitted). Fund v. Smith, supra.

Because member insurers may recover amounts paid into the Fund

by increasing their rates and premiums, G. L. c. 175D, § 13, the

"cost of paying claims against insolvent insurers is . . .

ultimately passed on to the insurance-buying public."

Massachusetts Motor Vehicle Reinsurance Facility v. Commissioner

of Ins., 379 Mass. 527, 530 (1980).

There are certain types of insurance that are expressly

excluded from coverage by the Fund. G. L. c. 175D, § 2.1

Although it was not always the case, since 1988, workers'

compensation insurance claims have qualified for Fund coverage,

1
General Laws c. 175D, § 2, currently provides: "This
chapter shall apply to all kinds of direct insurance, except
life, accident and health, title, surety, disability credit,
mortgage guaranty, financial guaranty or other forms of
insurance offering protection against investment risks,
insurance of warranties of any type of service contracts and
ocean marine insurance."
 6

and since 1993, there has been no cap on the Fund's financial

responsibility for such claims. See G. L. c. 175D, § 2, as

amended by St. 1988, c. 302, § 1 (removing workers' compensation

from chapter's listed exceptions); G. L. c. 175D, § 5 (1) (a),

as amended by St. 1992, c. 318, § 1 (removing $300,000 cap for

workers' compensation claims).

Section 17, the high net worth insured provision at issue

here, was added to G. L. c. 175D in 2006. See St. 2006, c. 342,

§ 2. Section 17 provides in pertinent part:

"(1) For purposes of this section 'high net worth
insured' shall mean any insured whose net worth exceeds $25
million on December 31 of the year before the year in which
the insurer becomes an insolvent insurer; but, an insured's
net worth on that date shall be considered to include the
aggregate net worth of the insured and all of its
subsidiaries and affiliates as calculated on a consolidated
basis. 'High net worth insured' shall not include a
[F]ederal, [S]tate[,] or local government entity.

"(2) The [F]und shall not be obligated to pay a first
party claim by a high net worth insured.

"(3) The [F]und shall have the right to recover from a
high net worth insured amounts paid by the [F]und to or on
behalf of the insured, whether for indemnity, defense[,] or
otherwise.

"(4) The [F]und shall not be obligated to pay a claim
that would otherwise be a covered claim that is an
obligation to or on behalf of a person who has a net worth
greater than that allowed by the insurance guaranty
association law of the [S]tate of residence of the claimant
at the time specified by that [S]tate's applicable law, and
which fund has denied coverage to that claimant on that
basis.

"(5) The [F]und shall establish reasonable procedures
subject to the approval of the commissioner [of insurance]
 7

for requesting financial information from insureds on a
confidential basis for purposes of applying this section .
. . ." (Emphasis added.)

Section 17 contains no language carving out any exceptions

for any particular types of insurance otherwise covered by the

Fund, and Berkshire indisputably qualifies as a high net worth

insured under the definition of the term in § 17 (1).

Accordingly, as the motion judge concluded, the question whether

the Fund may recover for the payments made to Poli depends on

the meaning of § 17 (3), and more specifically, on the meaning

of the phrase, "on behalf of the insured, whether for indemnity,

defense[,] or otherwise." In answering this question, we follow

the rule that a statute is to be interpreted "according to the

intent of the Legislature ascertained from all its words

construed by the ordinary and approved usage of the language,

considered in connection with the cause of its enactment, the

mischief or imperfection to be remedied and the main object to

be accomplished." Fund v. Smith, 458 Mass. at 565, quoting

Lowery v. Klemm, 446 Mass. 572, 576-577 (2006).

Berkshire argues, in agreement with the reasoning of the

motion judge, that the Fund's payments were not made on its

behalf because under the Commonwealth's workers' compensation

regime, once the employer purchases workers' compensation

insurance, the liability to pay compensation benefits is wholly

the insurer's, and the employer retains no further
 8

responsibility. See G. L. c. 152, § 26 (requiring that injured

workers "be paid compensation by the insurer or self-insurer").2

Berkshire is correct that the insurer is directly liable

for paying workers' compensation benefits. See, e.g., Insurance

Co. of Penn. v. Great Northern Ins. Co., 473 Mass. 745, 750

(2016). But for purposes of interpreting "on behalf of the

insured" in § 17 (3), that fact is not dispositive. Berkshire

concedes, as it must, that employers are required to provide

their employees with workers' compensation benefits, see G. L.

c. 152, § 25A, or face severe penalties and common-law tort

liability. See G. L. c. 152, §§ 25C, 66, 67. See also, e.g.,

LaClair v. Silberline Mfg. Co., 379 Mass. 21, 26 (1979); O'Dea

v. J.A.L., Inc., 30 Mass. App. Ct. 449, 450 (1991). The

employer's obligation to provide coverage is a statutory one

that exists independently of the insurer. Thus, G. L. c. 152,

§ 25A, provides that an employer may satisfy the obligation by

purchasing an appropriate workers' compensation insurance policy

from a qualified insurer, see G. L. c. 152, § 25A (1), but there

are other options available that include becoming a member of a

2
Berkshire further asserts that G. L. 175D, § 17 (§ 17),
covers only third-party liability insurance, and that workers'
compensation insurance is not liability insurance. We find no
support in G. L. c. 175D for this limited view of the scope of
§ 17, given that the statute nowhere restricts the Fund's
coverage to third-party liability insurance or even references
the term.
 9

workers' compensation self-insurance group, see id., or becoming

licensed as a self-insurer, see G. L. c. 152, § 25A (2).

"On behalf of" is not a defined term or phrase in § 17 (3),

but "[w]ords that are not defined in a statute . . . should be

given their usual and accepted meanings, derived from sources

presumably known to the statute's enactors, such as their use in

other legal contexts and dictionary definitions" (quotations and

citation omitted).3 See MacLaurin v. Holyoke, 475 Mass. 231, 239

(2016). The phrase "on behalf of" is generally defined to mean

"in the interest of; as the representative of; for the benefit

of." Webster's Third New International Dictionary 198 (1993).

See Black's Law Dictionary 184 (10th ed. 2014) (same). Using

this definition, it is clear, as the Fund argues, that in making

payments of workers' compensation benefits to an injured

employee, the insurer does so "in the interest of" or "for the

benefit of" the employer: the insurer is acting pursuant to an

insurance contract that the employer has entered into to satisfy

its statutory obligation to provide for workers' compensation

benefits.

Berkshire contends, however, that this interpretation of

"on behalf of" is fatally flawed because the phrase must be

3
The parties have not pointed to any legislative history
(and we have found none) to suggest that, in using the phrase
"on behalf of" in § 17 (3), the Legislature intended a meaning
diverging from the phrase's usual one.
 10

considered in conjunction with the words that immediately follow

in § 17 (3) -- "for indemnity, defense[,] or otherwise" -- and

in Berkshire's view, the Fund's payments to Poli cannot

permissibly be characterized as being for any one of these

purposes. Berkshire argues that, in the insurance context,

"indemnity" and "defense" have each "acquired a technical

meaning as recognized by the Legislature" that refers

essentially to the insurer's obligation to indemnify (i.e., to

pay for the legal liability of) its insured or to defend its

insured against legal liability, but under the Massachusetts

workers' compensation system, the legal liability to pay

benefits rests solely with the insurer, and the insured employer

has none.4

This view is difficult to reconcile with the language of

the Centennial policy insuring Berkshire. That policy contains

provisions requiring the insurer to "pay promptly when due the

benefits required of you [Berkshire] by the workers compensation

law", and "to defend at our expense any claim, proceeding or

suit against you [Berkshire] for benefits payable by this

insurance." These provisions are identical to policy provisions

4
Berkshire argues further that "otherwise" refers only "to
the additional payments found in policy provisions that are
usually identified as 'supplementary payments' or 'additional
costs we will pay.'" There is no language in § 17 (3) or
elsewhere in the statute -- or, to our knowledge, in its
legislative history -- to support Berkshire's claim.
 11

that this court previously has recognized as providing "defense

and indemnity of the employer to claims for benefits required by

the workers' compensation statute." See HDH Corp. v. Atlantic

Charter Ins. Co., 425 Mass. 433, 436 & n.7 (1997). The Fund

argues that in making the payments to Poli at issue here, it was

providing to Berkshire the contractual indemnity benefits to

which Berkshire was entitled under the Centennial policy that

Berkshire (through Woronoco) had purchased to satisfy its

statutory obligation as a Massachusetts employer to provide for

workers' compensation benefits. See G. L. c. 152, § 25A. We

agree, and conclude that the Fund's payments to Poli meet the

requirement of § 17 (3) that they be "amounts paid by the [F]und

to or on behalf of the insured, whether for indemnity,

defense[,] or otherwise."

As previously noted, § 17 contains no language expressly

exempting any type of insurance that is otherwise covered by the

Fund. Accordingly, Berkshire's proposed interpretation of

§ 17 (3) necessarily takes as its premise that the Legislature

implicitly intended to exempt workers' compensation insurance

and high net worth insured employers from the obligation to

reimburse the Fund for any workers' compensation amounts that

the Fund might be required to pay. The history of G. L.

c. 175D, however, reflects that where the Legislature has wished

to treat a particular type of insurance in a distinct way, it
 12

has done so explicitly -- or at least it has done so with

respect to workers' compensation insurance. Thus, as enacted in

1970, G. L. c. 175D explicitly exempted workers' compensation

insurance from the statute's application. See G. L. c. 175D,

§ 2, inserted by St. 1970, c. 261, § 1. In 1988, the

Legislature explicitly removed this specific exemption. See St.

1988, c. 302, § 1. And in 1993, the Legislature explicitly

lifted the otherwise applicable cap on the Fund's individual

claim coverage obligation specifically for workers' compensation

insurance claims. See St. 1992, c. 318, § 1. In light of this

legislative history, we do not accept that in enacting the high

net worth insured recovery provision reflected in § 17, the

Legislature, without so stating, nonetheless intended to exclude

workers' compensation insurance and insureds from its reach.5

5
This conclusion finds support in a comment to § 11(B) of
the high net worth provision of the Post-Assessment Property and
Liability Insurance Guaranty Association Model Act (Model Act)
on which G. L. c. 175D is patterned. See Clark Equip. Co. v.
Massachusetts Insurers Insolvency Fund, 423 Mass. 165, 167 n.2
(1996). The comment in the Model Act states, "The reference to
'liability obligations' includes workers' compensation insurance
coverages." III National Association of Insurance
Commissioners, Model Laws, Regulations and Guidelines, at 540-12
(1996). According to the legislative history to § 11 (B), the
comment was added "to clarify the original drafter's intent that
the net worth provision apply to workers' compensation claims."
Id. at 540-31 (1997). Although Berkshire argues that the Model
Act contemplates only workers' compensation systems in which
employers are directly liable to employees, we find no support
in the Model Act for a distinction between such a scheme and one
in which, as in Massachusetts, the employer's responsibility is
to provide for workers' compensation coverage.
 13

We construe statutory language so that the purpose of its

framers may be effectuated. See MacLaurin, 475 Mass. at 238,

and cases cited. The interpretation of § 17 (3) that we adopt

here is consonant with the purpose of the Fund statute, G. L.

c. 175D, to protect insureds when their insurers fail, but to do

so in a manner that acknowledges the need to limit the cost

ultimately borne by the insurance-buying public. See Fund v.

Smith, 458 Mass. at 563, and cases cited. The motion judge,

quoting Pilon's Case, 69 Mass. App. Ct. 167, 172 (2007), opined

that "[t]he net-worth provisions of [§] 17 (3) are clearly

intended to make certain insureds that are capable of absorbing

the loss that occurs when an insurer becomes insolvent bear that

loss instead of the Fund, which 'minimizes the financial burden

on the insurance-buying public and conserves the . . . Fund's

limited resources.'"6 We agree.

Moreover, to read in an exception for one of the most

costly types of insurance claims would be contrary to the public

policy behind the Fund's creation and evolution. See, e.g., HDH

6
The parties have included a number of documents in the
record that form part of the legislative history of § 17,
including comments of the Office of Consumer Affairs and
Business Regulation in support of the legislation. These
comments are consistent with the motion judge's, and our,
understanding of the intent of § 17: "The purpose of this
legislation is to limit guaranty fund [G. L. c. 175D] coverage
to individuals and entities, i.e., the so called 'mom and pop'
claimants, who, unlike high net worth insureds, are not
typically in a position to finance a loss if their insurer
becomes insolvent."
 14

Corp., 425 Mass. at 440 (describing cost of mandatory workers'

compensation insurance as "significant aspect of the business

climate of the Commonwealth"). Where the Legislature has

recognized the expense of workers' compensation claims by

removing the statutory cap on recovery from the Fund for this

type of claim, see G. L. c. 175D, § 5 (1) (a), it is reasonable

to conclude that in enacting the high net worth insured

provision embodied in § 17, the Legislature did not intend to

preclude recovery from high net worth employers for this

expensive type of claim.7

Conclusion. The judgment of the Superior Court is

7
Berkshire's final argument is that the Fund's ability to
recover the value of workers' compensation claims from high net
worth insureds is prohibited by G. L. c. 175D, § 8 (1), which
provides that "[t]he Fund shall have no cause of action against
the insured of the insolvent insurer for any sums it has paid
out." But, as Berkshire recognizes, accepted principles of
statutory construction dictate that in the case of conflict, the
more specific and later-enacted statute governs. See, e.g.,
Commonwealth v. Houston, 430 Mass. 616, 625 (2000). Here, § 8
(1) is in direct conflict with the more recently enacted and
more specific high net worth insured provision set out in § 17.
If § 8 (1) were to apply, § 17 would be inapplicable to all
types of insurance purchased by high net worth insureds, not
only workers' compensation insurance -- a result that
contradicts the plain words and purpose of § 17. We interpret
legislation so as to render it "effective, consonant with reason
and common sense," and will not construe a statute in a manner
that achieves an illogical result (citation omitted). See,
e.g., Rotondi v. Contributory Retirement Appeal Bd., 463 Mass.
644, 648 (2012).
 15

reversed, and the case is remanded to the Superior Court for

entry of judgment in favor of the Fund.

So ordered.