In my last post I discussed the duty of an insurer to enter into a reasonable settlement agreement. What about when an insurer fails to do so?
“The insurer may also notify the insured of a reasonable settlement offer and give the insured an opportunity to accept the offer or assume its own defense.” Medical Malpractice Joint Underwriting Ass'n v. Goldberg, 425 Mass. 46, 59 (1997).
I am not aware of any Massachusetts case that discusses the exposure of the insurer if it notifies the insured of a settlement offer and gives it the opportunity to accept the offer or assume the defense. If the insured pays the settlement amount and the declaratory judgment action later results in a finding of coverage, the insurer is clearly liable to reimburse the insured for the judgment amount. If the insurer is found to have breached Mass. Gen. Laws ch. 93A in refusing to pay the settlement amount itself, it would be liable for 93A damages, which includes costs and attorney’s fees, and can include up to treble damages.
Where there is coverage under the policy, if the insurer fails to settle where no reasonable insurer would have refused to settle, and also fails to tender the defense to the insured, and an excess judgment is eventually entered, the insurer is liable for the amount of the actual judgment. DiMarzo v. Am. Mut. Ins. Co., 389 Mass. 85, 101-102 (1983). But see Bolden v. O’Connor Café of Worcester, Inc., 50 Mass. App. Ct. 56, 68 (2000) (questioning the analysis of DiMarzo in the context of a subsequent settlement protecting the insured from liability for an excess judgment).