In my last post I discussed Commerce Ins. Co. v. Szafarowicz, __ N.E.3d __, 2019 WL 4774348 (Mass.), a case in which the SJC upheld the legitimacy of settlement/assignment agreements, but only to the extent that the settlement is reasonable including in light of the available insurance coverage.
A settlement/assignment agreement generally consists of three parts:
1. The plaintiff and insured defendant agree to a settlement amount.
2. The plaintiff agrees not to enforce the agreement against the defendant but only against the defendant's insurer.
3. The defendant assigns his or her own rights against the insurer to the plaintiff.
Unsurprisingly, this case has received a lot of attention. Dennis Wall, a Florida attorney who writes the Claims and Bad Faith Law Blog, posted about it here.
In his post Dennis asked me, if I understand him correctly, to comment on the courage of the insurer, Commerce, and its attorneys in holding fast in fighting what could have been a multi-million dollar loss far exceeding the policy limit.
In reading the case the first thing that jumped out at me was that the attorneys for all the parties seem to have done a stellar job of protecting and advocating for their client’s interests -- and the trial court and SJC made decisions that showed a broad understanding of the competing interests. I wrote about how the parties' interests overlapped and diverged in my last post.
As far as the positions that Commerce took, Dennis seems to be implying that there may have been a lot of pressure on Commerce to settle the claim because of the settlement in the underlying case in which both sides agreed that the insured driver had been negligent, and that the damages vastly exceeded the policy limit.
To understand why Commerce resisted the settlement, we need to acknowledge that the primary purpose of the settlement agreement was to get insurance coverage for the loss. If the insured driver, Matthew Padavano, intentionally struck David Szafarowicz with his vehicle, resulting in David's death, there was no coverage under the policy. There seemed to be plenty of evidence that Matthew did act intentionally and eventually the trial court so found in the declaratory judgment action. The settlement agreement providing that Matthew had acted negligently was an effort to protect the assets of Matthew and his family and to provide insurance funds to David's survivors. It was not proof, or even evidence, of negligence as opposed to an intentional action.
The only reason that the case was complicated was because of the weird quirk of the insurance policy that required Commerce to pay interest on the entire amount of the underlying multimillion dollar judgment. That clause exists to encourage settlements -- but there are times when an insurer is justified in holding firm even in the face of the high risk of a big price tag when it does so. The policy exclusion for intentional acts -- insurance doesn't pay damages when a policyholder murders someone, for example, which the declaratory judgment trial court found is what happened here -- exists for very good reasons. I'm terribly sorry for David's family, who have suffered an unimaginable loss. But insurance simply cannot cover murder, and I applaud Commerce for holding firm on that, despite the fact that ultimately the company would have saved money if it had simply settled the case.