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Philadelphia Indemnity Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, PA.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 13, 2017

Philadelphia Indemnity Insurance Company
National Union Fire Insurance Company of Pittsburgh, PA


          Mitchell H. Kaplan, Justice.

         Plaintiff Philadelphia Indemnity Insurance Company (PIIC) and defendant National Union Fire Insurance Company (National Union) each issued insurance policies to North Suffolk Mental Health Associated, Inc. (North Suffolk). PIIC issued a Commercial General Liability (CGL) policy; and National Union issued a Workers' Compensation and General Liability (Workers' Comp.) policy. In a case filed in the Middlesex Superior Court in 2011, captioned Estate of Stephanie Moulton v. Nicholas Puopola et al. (the Underlying Action), the plaintiff estate brought suit against eighteen directors of North Suffolk (the Director Defendants) asserting claims arising out of the work-related death of Ms. Moulton, a North Suffolk employee. The Director Defendants tendered the claim to both PIIC and National Union. PIIC defended the claim (under a reservation of right) and National Union declined coverage. The Director Defendants' motion to dismiss the Underlying Action was eventually allowed, after appeal to the Supreme Judicial Court (SJC). See Estate of Moulton v. Puopolo, 467 Mass. 478, 5 N.E.3d 908 (2014) ( Moulton ). In this action, PIIC has filed suit against National Union asserting claims for declaratory judgment and equitable subordination and seeking to recover the cost of its successful defense of the Underlying Action. The case is now before the court on the parties' cross motions for summary judgment. For the reasons that follow, National Union's motion is ALLOWED, and PIIC's motion is DENIED.


         The following additional facts are undisputed.

         Ms. Moulton was an employee of North Suffolk, a charitable corporation that provides mental health and rehabilitation services. She was assaulted and killed by a patient while performing her job. As explained in Moulton, her estate (the Estate) filed the Underlying Action against the directors of North Suffolk and others. It alleged claims for willful, wanton, reckless, malicious and grossly negligent conduct and, also, as to the Director Defendants, breach of fiduciary duty. The complaint alleged that the Director Defendants " effectuated" policies and failed to " effectuate" other policies that caused Ms. Moulton's death. Id. at 480. They " moved to dismiss the complaint chiefly on the grounds that, with respect to the wrongful death action, they are immune from suit, as Ms. Moulton's employer, under the exclusive remedy provision, G.L.c. 152, § 24 of the Workers' Compensation Act (act), and, with respect to the breach of fiduciary duty claim, they owed Moulton no such duty." Id. The Superior Court denied the motion to dismiss; the director defendants sought interlocutory review under the doctrine of present execution; and the case was transferred to the SJC.

         As relevant to this case, the SJC found that: " The complaint, fairly read, alleges that the Director Defendants, acting qua directors rather than in any other capacity, set and enforced misguided and wrongful corporate policies that resulted in Moulton's death while in the course of her employment. There is no allegation that the directors undertook any action without a formal board meeting or vote, . . . to the extent that the complaint alleges that Moulton's death arose from the adoption of or failure to adopt corporate policies, it alleges conduct by the charitable corporation that could have been occasioned only by the vote of its directors acting collectively as a board." Id. at 488-89. It then held that, " we conclude that the director defendants were Moulton's employer for purposes of the exclusivity provision of the act. As Moulton's employer, the director defendants are therefore immune from suit for workplace injuries due to actions taken by the board." Id. at 490-91.[1]

         The Workers' Comp. Policy

         The National Union Workers' Comp. policy was in effect when the Moulton claim was asserted. It is a standard form of Workers' Comp. policy issued in Massachusetts. It has two coverage parts. Part One provides for payment of any benefits " required of you by the workers' compensation law"; and that National Union has " the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this insurance . . . We have no duty to defend a claim, proceeding or suit that is not covered by this insurance."

         Part Two provides Employers' Liability Insurance. As explained by the SJC in HDH Corporation v. Atlantic Charter Ins. Co., 425 Mass. 433, 681 N.E.2d 847 (1997) ( Atlantic Charter ), the seminal decision addressing the coverage provided under a workers' compensation policy, discussed at greater length infra : " Part Two, the employers' liability portion of the insurance policy, is intended to provide coverage in the rare circumstance in which an employee who has affirmatively opted out [of the workers' compensation benefits system at the time of hire] brings a tort action for personal injuries." Id. at 439 n.11.

         The declarations page of the Workers' Comp. policy identifies North Suffolk as the named insured. There are no policy provisions or endorsements that broaden the definition of named insured to include directors, officers, or employees.


         PIIC first argues that since, in Moulton, the SJC held that " the director defendants were Moulton's employer for purposes of the exclusivity provision of the act, " they might also be insureds under the Workers' Comp. policy, even though the policy terms do not extend coverage to them; or, at least, there is a " possibility" that they would be held to be insureds in a declaratory judgment action addressing coverage issues under the Workers' Comp. policy. PIIC next argues that there then also exists a " possibility" that the claims asserted by the Estate in the Underlying Action were covered under either Part One or Part Two of the Workers' Comp. policy coverage provisions. PIIC then goes on to cite Billings v. Commerce Ins. Co., 458 Mass. 194, 200-01, 936 N.E.2d 408 (2010), for the long established principle that: " In order for the duty of defense to arise, the underlying complaint need only show through general allegations, a possibility that the liability claim falls within the insurance coverage." (Emphasis supplied.) According to PIIC, given this possibility of coverage, National Union had a duty to defend the Director Defendants in the Underlying Action.

         The court finds it doubtful that the SJC's holding that, under the " so-called exclusivity provision of the act, " the directors of a corporation cannot be sued for work place injuries in the Superior Court, when they were alleged to have done nothing more than vote on corporate policies, could be interpreted to mean that the directors were additional insureds under a workers' compensation policy. However, the court declines to address that argument. This is because the SJC's decision in Atlantic Charter clearly establishes that National Union's Workers' Comp. policy did not provide coverage for the claims asserted by the Estate in the Underlying Action.

         Claims Asserted under Part One of the ...

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