Fire in apartment and tenants' underlying lawsuit against landlord
Robinson and Lorraine Hames were tenants in a multi-unit apartment building
owned by Edward Toland and Cogavin Associates. A fire forced them to move out.
The tenants sued the landlords in Superior Court for negligence, breach of covenant of quiet enjoyment
and violation of Mass. Gen. Laws ch. 93A. Vermont Mutual Insurance Company defended the landlords under a reservation of rights.
Exercising their option to choose counsel to be paid by the insurer when the insurer is defending
under a reservation of rights, the landlords chose Emil Ward, an experienced landlord tenant lawyer, as their
Underlying jury verdict and insurer's settlement offers that do not match the verdict
communicated with Vermont Mutual about the claim. Throughout the litigation, Vermont Mutual
made several settlement offers, but no offer exceeded $30,000. Vermont Mutual believed that the landlords
would prevail on the merits, based on Ward’s representations as to the strength
of the defense. Ward believed the
tenants’ case was generally weak before and during trial, and was surprised when the jury verdict
came back against the landlords in the amount $61,750 for negligence and about
$20,000 for breach of the covenant of quiet enjoyment. With prejudment interest the total award was
more than $120,000. The plaintiffs were
also entitled to attorneys fees because of the quiet enjoyment claim. Those fees exceeded $240,000.
After trial but
before the judge’s ruling on the 93A claim, Vermont Mutual raised its settlement
offer to $112,016.
At that point Ward predicted
that the Superior Court would rule in favor of the tenants on the 93A
claim. He asked Vermont Mutual to make a
larger settlement offer. Vermont Mutual
refused. The court granted 93A damages
to the tenants and entered an aggregate judgment of over $405,000.
settlement authority from Vermont Mutual in the amount of the judgment. Vermont Mutual refused.
appealed the judgment.
While the appeal was pending, the landlords settled with the tenants for $380,000. Vermont
Mutual did not participate in the settlement.
Insurer's declaratory judgment action and counterclaims by landlords and tenants
filed a declaratory judgment lawsuit against the landlords and tenants in federal court. The tenants counterclaimed for breach of Mass.
Gen. Laws chs. 93A and 176D, alleging that Vermont Mutual had failed to make a
reasonable offer of settlement. The
landlords also counterclaimed, alleging that Vermont Mutual had breached its
contract with them.
Reckless acts, even if they breach ch. 93A, are occurrences
argued that because the Superior Court awarded damages for the landlords’
violation of ch. 93A, the fire was not an “accident” within the meaning of the
policy. Therefore, it had no duty to
indemnify any damages related to the fire, because the harm that flowed from
the landlords’ unfair and deceptive conduct was largely the same as the harm
caused by their negligence and breach of covenant of quiet enjoyment. Moreover, the Superior Court had ruled that
the landlords’ violation of ch. 93A was willful or knowing, and therefore the
damages were not caused by an occurrence.
The United States
District Court for the District of Massachusetts held in Vermont Mut. Ins.Co. v. Toland, 2022 WL 4481508 (D.
Mass.) (unpublished) that an injury that ensues from a volitional act of
an insured is still an accident within the meaning of an insurance policy if
the insured does not specifically intend to cause the resulting harm or is not
substantially certain such harm will occur.
Thus, injuries caused by recklessness are covered as caused by an
The court noted that in the context of ch. 93A
reckless conduct is considered willful.
But that does not affect insurance coverage for reckless acts.
Insurer's post-judgment settlement offer was unreasonable
The court then examined whether Vermont Mutual
breached its duty to make a reasonable offer of settlement. The court held that the pre-trial settlement
offers of $30,000 were not unreasonable. The insurer could have plausibly believed that the policy did not cover some
of the claims brought by the tenants, as there was evidence that the landlords’
conduct was intentional. In
addition, Vermont Mutual believed in good faith that the landlords would prevail
at trial, based on Ward’s reports.
The court held that Vermont Mutual’s offer after
verdict but before the 93A ruling was unreasable. A jury verdict makes liability reasonably (or
even “pellucidly”) clear. It would have been reasonable for Vermont Mutual to
make a substantial offer, discounting the jury verdict by the likelihood of
success on appeal. Here, the likelihood
of a successful appeal was low. Taking such factors into account, Vermont Mutual’s offer of $112,026 was too
Insurer cannot base post-judgment settlement offer on its self-serving division of damages for covered claims from damages for non-covered claims
Vermont Mutual based its offer on its analysis
of the “proportionate share of recoveries” – in other words, what percentage of
the verdict pertained to a covered loss.
But, “because Vermont Mutual failed to intervene to allocate damages in
the underlying action, it had the burden to establish allocation, and the
Supreme Judicial Court has rejected the kind of speculative calculation made by
Vermont Mutual – which was effectively an attempt to determine the particular
amount that happened to be in the juror’s minds as they returned the
verdict.” The federal court held that
Vermont Mutual’s self-serving figures were not reasonable.
Multiple damages not awarded, but Vermont Mutual put on notice for future claims
The court declined to award multiple
damages on the 93A claim. The tenants
argued that multiple damages were warranted in light of what they claim is
Vermont Mutual’s continuing practice of litigating hopeless positions in order
to drive inadequate settlements. The Court ruled that it did not have before
it sufficient evidence to compel such a conclusion. “Vermont Mutual is on notice, however that
further such conduct could well warrant Chapter 93A sanctions.”
· What constitutes a reasonable offer of
settlement changes as the situation changes.
The court held that Vermont Mutual’s pretrial offers of $30,000 were not
unreasonable, given the assessment of defense counsel that the plaintiffs’ claim
was weak. But once there was a jury
verdict, liability was “pellucidly” clear, and Vermont Mutual was required to
make an offer of settlement based on that understanding.
· After a jury verdict an insurer can’t swoop in and
claim to know what amount of the verdict was for damages covered by the
policy and what amount was for damages not covered by the policy. The insurer has the burden of establishing
allocation, and the proper procedure to do so is to intervene in the underlying
trial. Although not discussed in the
decision, intervention would allow the insurer to request special verdict forms
in which the jury would say what damages were awarded for what acts. Otherwise, the insurer must engage in
impermissible speculation (or have a later trial on allocation issues).
· Although the court chose not to award multiple damages under
ch. 93A against Vermont Mutual, it had some harsh words for the company. The court did not discuss what evidence the
plaintiffs offered of Vermont Mutual’s alleged practice of litigating hopeless
positions in order to drive inadequate settlements. It merely held that the evidence was insufficient. But it did put Vermont Mutual on notice that
“further such conduct could well warrant Chapter 93A sanctions.” The court appears to be inviting future
litigants to cite this statement as a basis for multiple damages in future 93A
claims against Vermont Mutual.
Massachusetts Lawyers Weekly quoted me in an article about this case, here.