August 25, 2017 Practice Points

Massachusetts Holds That Insurers Need Not Fund Insured’s Counterclaims

The state's highest court decided an insurer’s duty to defend does not include the obligation to fund counterclaims on behalf of its insured

by Brandon Arber

So you’ve determined an insurer has a duty to defend its insured in a lawsuit. Now the insured wants to assert counterclaims arising from the same events. Must the insurer foot the bill to pursue those counterclaims? Not in Massachusetts. In Mount Vernon Fire Insurance Company v. Visionaid, No. SJC-12142 (June 22, 2017), the Massachusetts Supreme Judicial Court considered the standard language in the ISO Form CGL insuring agreement, and Massachusetts common law, and decided an insurer’s duty to defend does not include the obligation to fund counterclaims on behalf of its insured.

Visionaid held an employment practices policy with Mount Vernon. During the term of the policy, it fired an employee suspected of “misappropriating” funds. The employee sued for discrimination and wrongful termination. Mount Vernon agreed to provide a defense under reservation of rights. However, Mount Vernon balked when Visionaid sought to have Mount Vernon pay for Visionaid’s prosecution of a counterclaim to recover the funds allegedly taken by the employee. Mount Vernon contended that it had no duty to pay for these affirmative counterclaims, and it brought a declaratory judgment action in federal court, seeking a ruling to that effect.

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