Duty to Defend Does Not Extend to Prosecution of Affirmative Counterclaims

The Supreme Judicial Court of Massachusetts has held that under a duty to defend policy, “the insurer’s duty to defend does not require it to prosecute affirmative counterclaims on behalf of its insured.”  Mount Vernon Fire Ins. Co. v. Visionaid, Inc., 2017 WL 2703949 (Mass. June 22, 2017).

The insured terminated one of its employees after discovering that the individual appeared to have misappropriated company funds.  Subsequently, the former employee commenced an action for wrongful termination and related employment claims against the insured.  The insurer agreed to defend the company against the former employee’s lawsuit, but maintained that the policy did not require it to prosecute the company’s counterclaim for misappropriation of funds, asserting that the duty to defend did not include the duty to prosecute an affirmative counterclaim.

In response to certified questions from the United States Court of Appeals for the First Circuit, the state high court held that under the plain language of the policy, which obligated the insurer to “defend” the company against any “Claim,” defined as “any proceeding initiated against [the company] . . . seeking to hold [the company] responsible for a Wrongful Act,” there was no contractual obligation to prosecute affirmative counterclaims.  According to the court, “[a]s the plain meaning of the word ‘defend’ is clear, we do not deviate from it.”  The court also concluded that the “in for one, in for all” doctrine does not extend to the prosecution of affirmative counterclaims because the doctrine does “not change the meaning of the word ‘defend,’” and requires only that an insurer defend claims brought against the insured.  The court also concluded that because the duty to pay defense costs is coextensive with the duty to defend under Massachusetts law, such a duty does not require an insurer to fund the prosecution of a counterclaim on behalf of the insured.