Wednesday, December 18, 2019

SJC holds that insurer is not liable for bad faith litigation tactics if the bad faith did not cause damages

In my last post I discussed how in  Rawan v. Continental Casualty Company (no citation available yet) the SJC upheld the legality of consent-to-settle clauses. 

The plaintiffs in Rawan also alleged that Continental Casualty Insurance had violated Mass. Gen. Laws chs. 93A and 176D by its "persistent effort" to hide a report that supported their claim that the insured engineer, Kanayo Lala, had done faulty work, and by its misrepresentation of the applicable policy limits. 

The court noted that an insure has a duty to a third-party claimant not to engage in misleading, improper, or extortionate conduct or otherwise act in bad faith.  "We emphasize that the conduct at issue here, viewed in the light most favorable to the plaintiffs, is problematic to Continental's duty as an insurer to act in good faith, and we do not condone it."

Here, however, the court held, any bad faith by Continental did not cause any damages to the Rawans.  The delay in issuing the report made no difference with respect to Lala's refusal to settle. 

Continental had claimed to both Lala and the Rawans that the policy limits were $250,000/$500,000, when in fact they were twice that.  However, once it revealed the actual policy limits Lala did not change his position that he would not settle.  Continental tendered its policy limits to the plaintiffs after judgment, and Lala paid the excess judgment.  Therefore, the plaintiffs were not harmed by the initial incorrect representation of the limits. 

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