Home Indemnity Insurance v. Merchants Distributors, Inc.

Dreben, J.,

(dissenting). The question before us concerns the interpretation of a provision in an insurance policy giving the insurer the right to defend and settle claims brought by the insured’s employees. More particularly, we are asked to decide whether the recitation of the date of injury in a settlement agreement between the insurer and the employee, a matter which the master found to be of little or no concern to the employee,1 conclusively establishes as between the insured and insurer which of two policies issued by the insurer covers the loss. The majority of the panel have decided that the insured, which was not a party to the settlement, is bound by the recitation. As a result, the insured must pay to the insurer what appears, in the words of the motion judge, to be “all or substantially all the insurer’s payments to the claimants.”

The two insurance policies were not made parts of the report and are not before us. Frank D. Wayne Associates v. Lussier, 16 Mass. App. Ct. 986, 987 (1983). The record does not disclose whether they were called for by the motion judge. All that is before us is the excerpt from the 1972 policy quoted in the majority opinion which gives the insurer the right to defend and settle claims.

An obvious reason for giving the insurer control of a lawsuit against the insured is that it will be liable if the insured’s defenses fail. It is not at all obvious, however, that the plain meaning of the language gives the insurer the right to determine coverage. In fact, the excerpt itself limits the right to settle claims “[a]s respects the insurance afforded by . . . this policy'’’’ (emphasis supplied). Whether coverage is afforded by the 1972 policy is the issue here, and the settlement clause does not *27purport to give the insurer the authority to make that determination. In Liquid Transporters, Inc. v. Travelers Ins. Co., 308 F.2d 809, 810 (6th Cir. 1962), an insured, under a policy containing what appears to be the same clause, was not required to pay an insurer retrospective premiums despite a settlement made by the insurer. The settlement clause, which contained the language “with respect to such insurance as is afforded by this policy,” was construed as giving the insured the opportunity to show that the policy did not cover the risk. Ibid. Cf. Williams v. Bituminous Cas. Corp., 51 N.J. 146, 149 (1968). Once it could be shown that coverage did not exist, the question whether the insurer had acted in good or bad faith became irrelevant. Liquid Transporters, Inc., supra at 810.

The majority’s construction of the clause is also not in keeping with the rule of elementary fairness which entitles a party to be heard before imposing liability, see West’s Case, 313 Mass. 146, 155 (1943); Thayer’s Case, 345 Mass. 36, 44-45 (1962); Harkins v. Contributory Retirement Appeal Bd., 15 Mass. App. Ct. 964, 964-965 (1983), nor with the normal rule which construes insurance provisions against the insurer. Compare Lumbermens Mut. Cas. Co. v. DeCenzo, 18 Mass. App. Ct. 973, 975 (1984). Moreover, no policy of the workers’ compensation act requires the majority’s construction. To the contrary, in analogous situations where the employee’s right to basic compensation is not in dispute, the act provides, or has been construed to require, that each interested party be afforded an opportunity to present its own case without being bound by a previous determination to which it was not a party. See West’s Case, 313 Mass, at 153-155; Thayer’s Case, 345 Mass, at 45-46. See also G. L. c. 152, §§ 15A, 28, and 48.2

In my view, neither the language nor the purpose of the excerpt, to the extent apparent on this record, demands its application to this dispute between the insurer and the insured as to which of the two policies provides coverage.3 I would *28hold, therefore, that the insurer has not presented us with a record on appeal, see Commonwealth v. Dunnington, 390 Mass. 472, 479 n.5 (1983), sufficient to construe the excerpt as binding the insured in the circumstances here presented. I would affirm the judgment.

The master found, based on the employee’s “manner and demeanor,” that he “was not especially concerned whether the documents in question referred to the 1972 incident or to a 1975 incident, so long as he received the desired payments from the Insurer.” Although the rate of compensation payable on account of an earlier injury may be less than the rate payable on account of a later injury, the parties have flexibility to compromise on other factors such as the extent of the disability. As a result, the characterization of the date of the injury is often of little consequence to the injured employee. See Borstel’s Case, 307 Mass. 24, 26 (1940); Corbosiero’s Case, 11 Mass. App. Ct. 590, 593 (1981); Locke, Workmen’s Compensation § 551 (2d ed. 1981).

The second paragraph of § 48 was enacted by St. 1977, c. 776, § 1, subsequent to the settlement in this case.

Here the master found that the later incident contributed to the employee’s injury. That finding, unless the insured is bound by the recitation of date in *28the settlement, would under the application of the “successive insurer rule,” see pages 22-23 of the majority opinion, require the insurer under the 1975 policy and not the 1972 policy to cover the loss. No one has argued that a different rule should apply where there is only one insurer under two policies.