The Business Litigation Session of the Massachusetts Superior Court has issued a ruling holding that insurer Privilege Underwriters Reciprocal Exchange (PURE) breached ch. 93A in handling a first party property damage claim, but that no 93A damages should be awarded.
The fire and PURE's adjustment of the loss
The
plaintiffs owned a large house with features such as wood
construction made from American Chestnut, and fireplaces set in hand-crafted
lake stone chimneys.
PURE insured the property. The policy had a $5,679,540 dwelling limit, but the limit would not apply (meaning there would be no limit) if reconstruction was begun within two years of a loss.
In December, 2020, the house suffered significant damage from a major fire. PURE's internal communications showed that it knew that the cost to rebuild would far exceed the coverage limit. It nevertheless provided the plaintiffs with a reconstruction estimate below that limit.
In Deutschv. Privilege Underwriters Reciprocal Exchange Judge Salinger of the Massachusetts Superior Court's Business Litigation
Session found that the PURE estimate did not reflect the
kind and quality of material and workmanship used to construct the
house. For example, the estimate proposed replacing maple floors with
oak flooring, and replacing a hand-built stone foundation with a poured
concrete foundation. It also left out the replacement of windows and
doors and underestimated the size of the dwelling by 30 percent. When the insureds pointed out that the estimate was lacking, the PURE
adjuster told them that the estimate was only a "starting
point."
PURE later offered to pay $8.2 million as a lump sum settlement of the claim. The insureds counteroffered that they would accept $10.4 million, and PURE responded with an offer of $8.645 million.
At that point the insureds hired their own construction experts to prepare an estimate. When PURE's adjusters learned of this, they became angry, even though they knew that their original estimate had been too low. In an internal communication, one of the adjusters wrote that the plaintiffs "are pissing me off" and that he was no longer going to follow the "love our members approach."
The plaintiffs requested a total settlement package of $17.66 million, which they supported with a detailed report showing their reconstruction costs. PURE responded with an estimate showing reconstruction costs of $7.268 million. The plaintiffs' next demand exceeded $19 million.
The reference proceedings
PURE moved to compel a reference proceeding, which was allowed. The reference panel ordered PURE to pay the plaintiffs $11.5 million in reconstruction costs.
PURE subsequently moved to compel further reference proceedings, which resulted in an award of $700,000 for unpaid contents and additional living expenses.
In total,
PURE paid $11,783 million in dwelling coverage. $2.272 million in contents
coverage, and $1,945 million in additional living expenses.
The ch. 93A lawsuit: 93A violation found, but no 93A damages
After a subsequent trial on the plaintiffs' claim that PURE breached Mass. Gen. Laws ch. 93A, the court held that PURE was liable because it engaged in unfair settlement practices by making lowball offers and by compelling the plaintiffs to instigate litigation and then to participate in reference proceedings to recover amounts due under the policy. The court noted that PURE's final offer was only 63 percent of the amount awarded at the reference proceeding.
The court held that amounts awarded at a reference proceeding are not single damages subject to multiplication for breach of ch. 93A, because reference proceedings are a form of arbitration and the reference proceeding award was paid without being confirmed by the court. The court then found that the plaintiffs had not met their burden of proving any damages under ch. 93A.
The court cited two cases, Bonofiglio v. Commercial Union Ins. Co. 411 Mass. 31, 37 (1991) and Murphy v. Nat'l Union Fire Ins. Co., 438 Mass. 529 (2003). Those cases hold that unlike a court judgment, arbitration awards are not the basis for single damages under ch. 93A.
But both those cases hold that 93A damages may be awarded after an arbitration even if the arbitration amount is not reduced to a court judgment. While the court is correct that an unconfirmed arbitration award is not the basis for single 93A damages subject to doubling or trebling under the statute, both cases held that post-arbitration 93A damages is lost interest accrued between when the insurer should have paid the underlying damages and when it did pay those damages.
The Superior Court held that the plaintiffs had not proved any ch. 93A damages, such as increased construction costs. Perhaps this was a failure of advocacy, but it seems to me that the only proof required for lost interest is the date that the insurer had sufficient information to understand what the damages were and the date that the insurer actually paid those damages.
I would like to see a legislative solution
As to an arbitration award never being the basis for single damages under ch. 93A subject to doubling or trebling, I would support a legislative solution that when arbitration is mandatory under state law – which includes reference proceedings for first party property losses as well as underinsured and uninsured motorist claims – the arbitration award should be considered single damages under ch. 93A subject to doubling or trebling. In voluntary arbitrations, the parties can set the parameters, including choosing to allow the arbitrator to award ch. 93A damages based on the underlying award. But an insured with a first party property damage claim is required by statute to use a reference proceeding to resolve a dispute with their insurer over the amount of their loss, and that is all that reference proceedings determine. It is arbitrary and unfair that if someone’s house burns down and they seek payment from their own insurer who engages in bad faith settlement practices, their 93A damages are limited to lost interest. But if they seek damages from their next door neighbor who negligently started the fire and the neighbor’s insurer engages in bad faith settlement practices, they can be awarded double or treble their amount of loss.
Massachusetts Lawyers Weekly quoted me in an article about this case, here.
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