U.S. District Court awards $5.4 million in bad faith settlement practices claim arising from car accident after minor was served alcohol at her place of employment

Kailee Higgins, a 20 year old woman, worked as an exotic dancer at a nightclub in Worcester called Centerfolds II, owned by P.J.D. Entertainment of Worcester, Inc.  In November, 2010, she completed a shift at 2 AM. Within minutes of beginning to drive away she was in an accident.  She suffered serous and permanent injuries including traumatic brain injury. 

P.J.D notified its insurer, Capitol Specialty Insurance Corporation.  Capitol referred the claim to Norfield & Associates, an adjustment agency.  Capitol instructed Norfield to do a "limited investigation."

Norfield sent Capitol a preliminary report after interviewing only the owner, the owner's brother, who was the General Manager at P.J.D., and one bartender.  They all denied that Higgins had been drinking at the club or had been intoxicated when she left.  As the court later noted, they all had a vested interest in denying Higgins' alcohol consumption.  The accident had received a lot of publicity and the club was being investigated by the Liquor Liability Commission.

Norfield indicated that it was obtaining contact information for everyone who had worked at the club on the night of the accident so it could interview them.  Capitol terminated Norfield's investigation.  Capitol did not conduct any further investigation until Higgins sued P.J.D. three years later.


Insurance defense counsel hired by Capitol to defend P.J.D. filed successive reports to Capitol in which he indicated that at the time of the accident Higgins had a .155 blood alcohol level, which was twice the legal limit; that a police officer who had been detailed to the club that night stated that she may have consumed alcohol at the club; that there was other evidence that she had been drunk at the club; that it was a known practice at that club and other similar clubs that dancers encourage the patrons to buy them drinks; that it was likely Higgins had been drinking on the night of the accident; that there was a question about whether P.J.D. should have monitored that; that Higgins was actually stumbling on her way to her vehicle; and that she was escorted to her vehicle by an employee of the club.   He opined that there was clearly a seven figure potential on her claim, and that its full value could be as high as $3 million. 

After receiving the communications from insurance defense counsel Capitol sent an email to counsel for Higgins offering the policy limits minus the costs of defense.  Her attorney did not receive the email.  Capitol never recommunicated the settlement offer or confirmed that it had been received. 

Almost two years later, Capitol tendered a check to Higgins for $267,000, the amount remaining in the policy (after it had been eroded by defense costs).

P.J.D. then settled with Higgins for $7.5 million.  Under the settlement agreement it paid a nominal amount to her and assigned to her its rights against Capitol.  Higgins sued Capitol for bad faith settlement practices.

In Capitol Specialty Ins. Co. v. Higgins, 375 F. Supp.2d 124 (D. Mass. 2019), a judge of the United States District Court for the District of Massachusetts held that Capitol had violated Mass. Gen. Laws chs. 93A and 176D.   He held that if Capitol had allowed Norfield to complete its investigation it would have learned at that point that liability was reasonably clear, and that it had many opportunities after that to conduct a full investigation. 

The court noted that the "reasonably clear" standard under ch. 176D is not based on information that an insurer actually obtained and possessed, but on information that a reasonable insurer conducting an investigation of all available information would have obtained and possessed. 

Capitol argued that P.J.D's liability was not reasonably clear because Higgins had been contributorily negligent.  The court dismissed that argument, holding that such a defense is not applicable to a claim of serving alcohol to an underage person. 

The judge disregarded the amount of the settlement between Higgins and P.J.D., holding that it was not an arm's-length transaction.  He assessed single damages in the amount of $1.8 million.  He tripled that under Mass. Gen. Laws ch. 93A to $5.4 million, holding, "[q]uite simply, Capital's conduct in handling this claim was exactly the type of conduct that C.176D and C.93A proscribe."  

Capitol has filed an appeal.  Stay tuned.