Massachusetts Appeals Court holds insurer acted in bad faith by conditioning contribution to settlement on waiver of insured's claims against it

I have been posting about Rass v. The Travelers Cos. Inc., __ N.E.3d __, 2016 WL 6636281 (Mass. App. Ct.).  The underlying plaintiff manufactured an Indian sauce that she had worked with the insured, Rass, to create.  Rass distributed the sauce to Trader Joe's.  When Rass decided to use a different manufacturer, it sent an email to Trader Joe's stating that the plaintiff might contact them directly for the sale of the sauce.  The insured wrote that such an action would be illegal.

 

The claimant sued for trade disparagement arising out of the contents of the email, and for misappropriation of trade secrets.  Rass hired counsel, Mishky, and later notified its insurer, Travelers, of the claim.  As I wrote here, the Appeals Court held that Travelers was not responsible for pre-notice defense costs.  Travelers also complained that Mishky's hourly fee was unreasonable. 

 

Settlement negotiations occurred on the eve of trial.  Travelers agreed to contribute to settlement if Rass would waive its right to dispute Mishky's hourly fee, or, later, if Rass would waive its right to seek indemnification for the rest of the settlement under the policy.  Rass refused, and settled the case for $175,000 with no contribution from Travelers.  Rass then sued Travelers.   

 

As I wrote in my previous post, Travelers asserted that there was no coverage for the trade disparagement claim.  The court disagreed.

 

There was, however, no coverage for the claim for misappropriation of trade secrets.  Travelers was obligated to pay only the portion of the settlement that could be attributed to the covered loss.  The Appeals Court affirmed the trial judge's allocation of eighty percent of the loss to the covered claim. 

 

The Appeals Court also affirmed the trial judge's finding that Travelers had breached Mass. Gen. Laws ch. 93A by engaging in unfair settlement tactics.  Travelers had acknowledged that it would be required to indemnify Rass for the claims arising from the email.  It should have been aware of the strength of that claim, but offered a settlement fair below Rass's likely exposure.

 

Travelers also attempted to condition its settlement on a waiver of Rass's right to seek attorney's fees or indemnification.  That was a violation of its duty to effectuate a fair and equitable settlement of claims in which liability had become reasonably clear. 

 

The court held that Travelers also violated the law by refusing to pay Mishky's reasonable hourly rates.   

 

Finally, the court affirmed the finding of the trial court that Travelers' actions were not willful or knowing, so that multiple damages would not be awarded.