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. 

U.S. District Court holds Progressive automobile policy website violates 93A

Named plaintiffs in a putative class action suit purchased automobile insurance from Progressive Insurance Company.  Some purchased the policies by telephone and others through the Progressive website.  All were subsequently denied PIP benefits because their policies had an $8,000 PIP deductible.  They sued Progressive alleging that they purchased the policies with a deductible because of Progressive's unfair and deceptive acts and practices. 

From 2008 to 2010 Progressive's website gave Massachusetts customers the opportunity to answer a series of questions.  If they indicated that they or their household members did not have health insurance, it generated plans and quotes with no PIP deductible.  If they indicated that they and their household members all had health insurance, it generated plans and quotes that included an $8,000 PIP deductible.  The customers could then choose different options on the website and compare premiums.  The deductible changed the policy price by $3.00.  A customer who chose an $8,000 PIP deductible for himself or herself could purchase $8,000 PIP coverage for household members for no additional charge.

Progressive knew that PIP deductibles were not customary in Massachusetts.  Approximately 90 percent of Massachusetts insureds purchased PIP with no deductible whether or not they had health insurance.  In June, 2008 Progressive held a focus group that found that customers did not understand the PIP deductible. 

In 2009 Progressive began receiving formal complaints through the Massachusetts Department of Insurance from customers who had bought policies with a PIP deductible but thought they were buying policies that did not have a PIP deductible. 

In 2010, as a result of negotiations with the Department of Insurance, Progressive added a line to its website, "Your PIP coverage currently includes a deductible.  You may elect a deductible of up to $8,000 or no deductible."  It also changed the website so that the default position for customers with health insurance was a $250 PIP deductible instead of an $8,000 deductible. 

In Estrada v. Progressive Direct Ins. Co., __ F.Supp.3d __, 2014 WL 5323422 (D. Mass.), the United States District Court for the District of Massachusetts dismissed plaintiffs who had purchased Progressive policies by telephone, as allegations with respect to telephone sales practices were not included in the complaint. 

With respect to claims by plaintiffs who purchased Progressive policies online, the court first dismissed counts alleging only violation of Mass. Gen. Laws ch. 176D, as a private right of action for violation of that statute exists only through a 93A claim.  It also dismissed a count alleging violation of Mass. Gen. Laws ch. 175 §181, as that statute does not create a private cause of action for an insured under an automobile policy.

The court denied summary judgment to Progressive on the 93A count.  It held that the evidence taken as a whole was sufficient to establish that the website had the "capacity or tendency to deceive."  The fact that the plaintiffs testified that if they had been told that they could obtain PIP coverage for their household members with no increase in premiums they would have done so was sufficient to establish causation on the 93A claim. 

Progressive argued that the because after review the Department of Insurance and the Massachusetts Attorney General's office allowed the website to remain, its website was affirmatively permitted by the laws of the Commonwealth, creating an exemption from 93A liability.  The court disagreed, because there was no evidence that the DOI or AG's office explicitly approved the manner in which the website defaulted customers to an $8,000 PIP deductible for themselves and their household members.   

Appeals Court holds that 93A claim can proceed after insurer rectifies failure to pay PIP damages

Marie Chery was injured in a car accident while she was a passenger in a car insured by Metropolitan. She submitted her PIP claim to Met, which failed to pay the medical bills within the time prescribed by Mass. Gen. Laws ch. 90 § 34M. Chery then sued for breach of the statute and Mass. Gen. Laws ch. 93A.

Six months later Met paid the medical bills. It then moved for summary judgment on the ground that an insured cannot prevail on a PIP claim if the disputed amount is paid prior to judgment entering; and that the 93A claim should be dismissed because Chery suffered no damages.

Chery did not dispute the first assertion. (See my post on that issue here.) She argued that Met had not paid a bill she submitted after she filed the complaint. That argument was ineffective because she had never amended the complaint to include reference to that bill.

In Chery v. Metropolitan Prop. & Cas. Ins. Co., 79 Mass. App. Ct. 697 (2011), the Massachusetts Appeals Court held that her 93A claim could survive summary judgment. It held that Metropolitan has caused her injury by failing to settle her claim after its liability was reasonably clear and forcing her to bring suit to receive benefits to which she was entitled.

The court also found support in the record for the claim that Chery had suffered emotional distress from having to prosecute the lawsuit and concern for the effect the unpaid bills would have on her credit.

U.S. District court holds that Automatic Extended Reporting Period requires that claims be reported but not made during extended period

NEET is a small environmental consulting business. It purchased from American Safety consecutive claims-made policies, with the policy periods ending on March 2 of each year.

A claims-made policy provides coverage if a claim is made and reported during the policy period, regardless of when the loss occurred. That's in contrast to the more usual occurrence-based policy, which provides coverage if the loss occurred during the policy period, regardless of when the claim was made.

The policies contained an Automatic Extended Reporting Period which provided that they will cover a claim made and reported to American Safety within 30 days of the end of the policy period, but only if no other similar insurance is in force during that time.

In February, 2008, NEET received a demand that it pay for remediation of an oil spill caused by heating oil tanks NEET allegedly installed improperly. NEET forwarded the demand detter to its insurance agent on March 6, 2008.

In a motion for summary judgment American Safety argued that for the Extended Reporting Period to apply the claim had to be both made and reported to the insurer during the 30 days after the policy expired. In New England Environmental Tech. v. Am. Safety Risk Retention, __ F. Supp. __, 2010 3622250 (D. Mass.) the court disagreed, holding that the policy could reasonably be construed to require only that the claim be reported to the insurer within 30 days after the policy expired. It also held that denying coverage to claims reported within the 30 day period would not assist the goal of claims-made policies of setting future premiums.

American Safety then argued there was no coverage because NEET had "other similar coverage" (the next consecutive American Safety policy) in effect for the policy period beginning on March 3, 2008. In somewhat convoluted logic the court held that the consecutive policy was not "other similar coverage." The heart of its decision is that failure to provide coverage because a consecutive policy was in place "is counterintuitive to a reasonable insured."

The court granted summary judgment to American Safety on NEET's 93A and 176D claims, on the grounds that American Safety's interpretation of the policy was plausible and there was no evidence it had acted in bad faith.

Another decision finding wiggle room for attorney's fees in PIP case after insurer tenders payment of medical bills

I wrote here about a recent Appellate Division case, Metro West Med. Assocs. v. Amica Mut. Ins. Co., which held that payment of outstanding PIP bills by an insurer does not necessarily prevent the award of attorney's fees under the PIP statute. Another Appellate Division decision has come to the same conclusion.

Howard Physical Therapy provided medical services to Joel DaSilva for injuries he suffered in a motor vehicle accident. Howard submitted to DaSilva's insurer, Premier, a request for PIP reimbursement of medical expenses. Premier paid some of the bills and refused to pay the remainder, asserting that the balance was unreasonable "upon review by an outside company."

Howard took no further action for more than four years, when it filed suit. Two weeks after Howard filed suit, Premier offered to pay the balance plus costs incurred by Howard in filing and serving the complaint. Howard rejected the offer. Premier then sent Howard a check for only the unpaid bill amounts, and moved for summary judgment. The District Court allowed the motion for summary judgment.

In Howard Physical Therapy, Inc. v. Premier Ins. Co., 2010 WL 3855302 (Mass. App. Div.) the Appellate Division reversed the summary judgment decision. It cited Metro West for the proposition that "the mere payment of the balance, in and of itself, would not justify summary judgment for Premier." Rather, the insurer must show that it had "a valid reason not to pay, and that it paid an invalid claim for reasons unrelated to its merits."

The court noted that although Premier had based its original decision, not to pay the full bill, on a review of the bill by "an outside company," there was no indication that the bill was reviewed by a registered or licensed practitioner in the same field as the practitioner submitting the bills, as required by statute. For that reason the Appellate Division reversed the District Court's summary judgment decision.

The court held, however, that Howard could not amend the complaint to add a count for breach of G.L. c. 93A, where Howard had not sent a demand letter prior to suit and Premier made a reasonable offer of settlement within 30 days after suit was filed.

Appeals Court affirms $1,007,342.58 award against Arbella for unfair settlement on $20,000 policy

A cautionary tale for adjusters:

On August 30, 1998 Angelina Dattilo was seriously injured when her car was struck by a car driven by Anthony Caban. Caban had an auto insurance policy with Arbella with a per person limit of $20,000.

Both Dattilo's attorney and Arbella investigated the accident and concluded that Dattilo was not negligent. It was clear that the damages significantly exceeded the policy limits.

Dattilo's attorney sent a letter to Arbella demanding that Arbella tender within 30 days the $20,000 policy limit to Dattilo. The attorney offered to release Caban and Arbella from all additional liability in exchange for the $20,000.

Other than a voicemail message left on the attorney's answering machine, Arbella did not respond to the demand letter for five months. Nor did it notify Caban of Dattilo's demand and offer to release additional liability.

Seven months after the demand letter Arbella offered to settle Dattilo’s claims for $20,000 in exchange for a release. Dattilo refused.

Several months later Dattilo and Caban agreed that a judgment was to be entered against Caban for $450,000. Caban assigned to Dattilo his rights against Arbella for unfair settlement practices. Dattilo agreed not to execute the judgment against Caban. Arbella was aware of the negotiations and waived in writing any claim against Caban for noncooperation under the policy.

Dattilo then sent a 93A demand letter to Arbella demanding $1.4 million to settle the unfair settlement practices claim. Arbella responded with an offer of $23,966. After a jury waived trial, a Superior Court judge awarded Dattilo $1,007,342.58, which included compensatory damages, multiple damages, interest, and costs. Arbella appealed.

In Gore v. Arbella Mut. Ins. Co., 77 Mass. App. Ct. 518 (2010), issued last week, the Massachusetts Appeals Court affirmed the verdict. The decision contains a good review of 93A liability and damages. Of note, the court held that the judgment agreed to by Caban and Dattilo constituted a judgment, not a settlement, for the purpose of calculating 93A damages. (As I discussed here, where a 93A case goes to verdict the actual damages is the verdict amount. Where a 93A case settles, actual damages is lost interest on the settlement.)

It is also worth noting that the court was not unsympathetic to Arbella's claim that it needed more time than the initial 30 days given to it to determine how to proceed. The court noted that the issue was that Arbella never communicated that need to Dattilo's attorney.

Court rules that insurer is not liable for low settlement offer in low impact case, or for not conceding liability

One constant area of contention between personal injury attorneys and insurers is damages from low impact collisions. A low implact collision is one in which there is contact between the vehicles but it is so slight that it often results in little or no damage to the cars. Plaintiffs' attorneys contend that despite the seemingly minor nature of the accidents, severe back injuries can nevertheless result. Insurers are dubious of such claims.

In Lanton v. Lin, 2010 WL 3038719 (Mass. Super.), Superior Court Judge Fremont-Smith held that an insurer did not violate Mass. Gen. Laws ch. 93A by offering $1,500 to settle a low impact case, especially where the jury had found that the plaintiff had not suffered any damages.

The plaintiff contended that the insurer had violated 93A on a second ground, because it did not concede liability even though the plaintiff had been rear-ended. That failure caused the plaintiff to incur additional attorney's fees to prove that the insured defendant was at fault. Judge Fremont Smith ruled in favor of the insurer on this issue as well. He held, first, that there were no damages because liability was not contested at trial and, second, that the plaintiff had not demanded in his 93A demand letter that the insurer concede damages and so it had no obligation to do so.

No 93A damages for mistaken interpretation of policy

I have been discussing Fundquest Inc. v. Travelers Cas. & Sur. Co., 2010 WL 2223301 (D. Mass.). The United States District Court for the District of Massachusetts held that there was coverage under an employee dishonesty clause of a policy where the human resources department of the company accidentally deposited the bi-monthly salary of the CEO into the bank account of a low-level employee, and such deposits continued after the employee left the company.

The court held that the insurer's denial of part of the claim on the ground that there was no coverage for deposits after the employee left the company was not a breach of Mass. Gen. Laws ch. 93A. Although the court ultimately agreed with the company, the company had been unable to marshal any case law supporting its position on the novel issue, and the one seemingly relevant case arguably pointed in the other direction. "Despite Travelers' ultimately erroneous interpretation of the Bond, the court does not believe that . . . a reasonable insurer could not have deemed the issue one open to reasonable debate, particularly given the court's own struggle to see through the insurance-ese in which the Bond is written."

Massachusetts Appellate Division holds that insurer did not violate 93A when it relied on IME opinion to deny PIP benefits

I reported here on the Salem District Court case of Genest v. Commerce Ins. Co., 2010 WL 1740605 (Mass. App. Div.), in which an insurer was held not to have violated Mass. Gen. Laws ch. 93A when it failed to pay PIP benefits.

The Massachusetts Appellate Division has affirmed that ruling. 2010 WL 1740605 (Mass. App. Div.).

Genest, the insured, was injured in an automobile accident. She sought PIP benefits from Commerce. Commerce paid medical expenses but cut off additional payments on the advice of an independent medical examiner, who opined that injuries caused by the accident had resolved.

The Appellate Division held that Commerce's reliance on the IME was reasonable, and that its subsequent decision to pay the medical bills was merely a business decision. Because Commerce's liability to pay the medical expenses was not reasonably clear, it was not liable for breach of 93A.

SJC holds that Massachusetts Insurers Insolvency Fund is subject to 93A liability

In Wheatley v. Mass. Insurers Insolvency Fund, 456 Mass. 594 (2010), the Supreme Judicial Court of Massachusetts held that the Massachusetts Insurers Insolvency Fund is subject to suits for breach of Mass. Gen. Laws ch. 93A when it breaches Mass. Gen. Laws ch. 176D, § 3(9). (See here for an explanation of the statutory scheme.)

The Insolvency Fund is an entity created by statute to provide insurance coverage when the insurer on the risk is no longer in business.

The court held that it was subject to 93A liability to the same extent as insurance companies because of statutory language of 93A and 176D.

Massachusetts Appeals Court holds that claimant can recover for breach of 93A and 176D even when there is no coverage under the policy

In my last post I discussed Vt. Mut. Ins. Co. v. Eldridge, 76 Mass. App. Ct. 1122, 2010 WL 1253170 (unpublished opinion), in which the Massachusetts Appeals Court held that coverage under a homeowners policy was voided by the insureds' failure to disclose the ownership of two bull mastiffs on their insurance application even though the application asked if they kept any animals on the premises.

Even though the court found that coverage was voided under the policy, it affirmed the denial of summary judgment to the insurer on a claim that the insurer breached Mass. Gen. Laws chs. 93A and 176D.

The claimant, Gagnon, alleged that the insurer violated those statutes by "failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies," in violation of Mass. Gen. Laws ch. 176D § 3(9)(b). The court held:

[A] court will not find unfair or deceptive acts or practices where there was no inordinate or unreasonable delay, or if there was no resulting prejudice or harm caused by the delay. . . .

On this record, we also cannot say that Gagnon has no reasonable expectation of proving an essential element of her claim at trial.

Thus, we conclude that the trial judge correctly denied summary judgment, leaving the determination of unreasonable delay and resulting prejudice to the fact finder.

When I first read this opinion, I assumed that Gagnon had brought the motion for summary judgment on the 93A/176D count, in which case it would have made common sense to affirm the denial of the motion, since the court had found that the policy did not provide coverage for her claim. Upon rereading the decision, however, it appears that it was the insurer who brought the motion for summary judgment on the 93A/176D claim. If that is so, then the court is saying that an insurer can be liable for breach of 93A and 176D even when there is no coverage under the policy. That is contrary to many opinions which simply dismiss 93A/176D claims after finding no coverage.

Massachusetts Appellate Division overturns summary judgment to PIP insurer for failure to show decision-making process

In N.E. Physical Therapy Plus, Inc. v. Commerce Ins. Co., 2009 WL 3381750 (Mass. App. Div.), physical therapist NEPT sued Commerce pursuant to Mass. Gen. Laws ch. 90 § 34M (the PIP statute) and ch. 93A § 11 (the consumer protection statute) for failing to pay physical therapy bills on behalf of Commerce's insured, who was entitled to PIP benefits.

After suit was filed Commerce paid the disputed bill, which extinguished the ch. 90 § 34 M claim. Commerce then moved for summary judgement on the 93A claim. In support of its motion Commerce submitted only an affidavit of a Commerce employee.

The court denied Commerce's motion for summary judgment, holding:

The Affidavit is composed almost entirely of the affiant's facile and conclusory characterizations of Commerce's claims records. Even if the Affidavit were admissible in its entirety, a question we do not reach here, Commerce's summary judgment materials provide no insight into Commerce's strategy for handling NEPT's claims; into the particulars of Commerce's decision-making process with respect to those claims; into the results of any expert review of the claims; or, in fact, into any of the subjective questions on which G.L. c. 93A claims generally rise and fall.

Appellate Division holds that decision to sever and stay 93A/176D claim from underlying claim is in trial judge's discretion

In Rodgriguez v. Alvelo, 2009 WL 2438328 (Mass. App. Div.) the Massachusetts Appellate Division affirmed a trial judge's decision not to sever a 93A claim against an insurer from the underlying action.

Following an automobile accident Rodriguez sued the driver of the car he was in for negligence and the driver's insurer, Premier, for breach of Mass. Gen. Laws 93A and 176D for failing to effectuate a prompt settlement.

Premier moved to sever the claim against it from the underlying claim, and to stay all discovery against it until the final disposition of the underlying claim. Insurers make such a motion in almost every case in which a bad faith claim is brought against it in the same lawsuit as the claim against the insured.

The trial judge denied the motion. At Premier's request, the judge reported the interlocutory finding the the Appellate Division.

The Appellate Division held that the denial of the motion to sever was within the discretion of the trial judge. The decision contains a lengthy discussion of the limited case law on the issue.

Massachusetts Appellate Division rules in favor of insurer in 93A/176D claim because insured presented no evidence of inadequate investigation

In O'Sullivan v. Hingham Mut. Fire Ins. Co., 2009 WL 2438329 (Mass. App. Div.), the Massachusetts Appellate Division overturned a trial judge's ruling that an insurer violated Mass. Gen. Laws ch. 93A.

O'Sullivan owned a building with a package store in it. (For blog readers not familiar with Massachusetts vernacular, a package store is a liquor store.) The store had a walk-in beer cooler. O'Sullivan discovered in October, 2004 that the back of the cooler had fallen through the floor to the crawl space below. She sought coverage from her businessowner's policy with Hingham.

The policy covered "loss caused by direct physical loss involving collapse . . . ." According to the policy terms collapse "does not include cracking, shrinking, bulging, or expanding."

Hingham sent an adjuster to inspect the floor. He concluded that the floor had "settled," not "collapsed."

A jury returned a verdict for O'Sullivan, finding that a collapse had occurred within the coverage. The trial judge then ruled that Hingham had violated Mass. Gen. Laws chs. 93A and 176D because its adjuster had conducted only a "cursory" inspection.

On appeal the Massachusetts Appellate Division upheld the jury's finding that the cooler had collapsed. However, the Appellate Division reversed the trial judge's ruling on the 93A count:

To prevail in an action for unfair settlement practices under G.L. c. 176D, § 3(9)(d), the plaintiff must show that the defendant "refus[ed] to pay claims without conducting a reasonable investigation based upon all available information." O'Sullivan made no such showing. She presented no evidence, expert or otherwise, of what Popoli had failed to do, or what additional steps he should have taken, in other words, what a reasonable investigation would have entailed. To the contrary, evidence was presented that Popoli spend between 30 and 45 minutes inspecting the outside and inside of the store, inspecting and taking measurements of the cooler, viewing the rot and deterioration beneath the floor though gaps in the raised boards, taking a number of photographs, and collecting a history from O'Sullivan. Far from a "cursory" inspection, the trial judge noted in his findings that [the adjuster] had "much probity and experience" and merely erred in this case.

Insurer did not violate 93A when it relied on IME to deny PIP claim

Massachusetts Lawyers Weekly recently reported on the case of Genest v. Commerce Ins. Co., a Salem District Court case in which an insurer was held not to have violated Mass. Gen. Laws ch. 93A when it failed to pay PIP benefits.

I was unable to obtain a copy of the decision online, so I am relying on the Lawyer's Weekly summary.

The insurer initially denied the plaintiff's $250 claim for PIP benefits, in reliance on an independent medical evaluation report.

The court held that in so doing the insurer did not violate Mass. Gen. Laws ch. 93A, even though judgment eventually entered against the insurer.

The court said, "where an insurance carrier has grounded its denial of a claim upon a legitimate defense and thereafter simply determines to pay a claim (in this case a nominal claim) within thirty (30) days of when the benefits are due and payable (in this instance within thirty (30) days of entry of any judgment), the plaintiff shall not be entitled to G.L. Ch. 93A relief."

Superior Court rules that businesses are not entitled to bring claim under Mass. Gen. Laws ch. 93A § 9 for violation of Mass. Gen. Laws ch. 176D

As I posted here, consumers can bring an action against an insurance company for violations of Mass. Gen. Laws ch. 93A § 9 if the insurer violated Mass. Gen. Laws ch. 176D. Businesses, however, cannot. They must show that the actions of the insurance company violated Mass. Gen. Laws ch. 93A § 11, and a violation of 176D is not an automatic violation of § 11.

The Massachusetts Superior Court recently reaffirmed that distinction. In Watt's Water Techs.,Inc. v. Fireman's Fund Ins. Co., the insured businesses argued that they were entitled to bring a suit against insurers pursuant to § 9 because § 9 states "any person whose rights are affected by another person violating the provisions of clause (9) of section three of chapter one hundred seventy six D may bring an action in the superior court."

Judge Hinckle held that that language does not permit a business plaintiff to sue under § 9 for a violation of 176D.

Calculation of punitive damages under 176D/93A

I reported here on a Superior Court case that I stated correctly awarded unfair settlement practices damages based on the lost interest amount. A reader pointed out that the damages that are trebled pursuant to Mass. Gen. Laws ch. 93A are actually the entire trial verdict.

He is correct. Under the current law of Mass. Gen. Laws chs. 93A and 176D, when a case goes to trial and judgment and damages are trebled pursuant to 93A, then the damages that are trebled are the verdict amount. When the underlying case settles, however, and the claimant successfully sues for treble damages under 93A, the amount that is trebled is the interest that was lost because of the delay in settlement. Single damages under 93A are always the lost interest.

More on Sterlin and 93A damages

This is my fourth and final post on Sterlin v. Commerce Ins. Co.

In my last post I discussed the 93A damages awarded by the judge, correctly based on the lost interest resulting from the delay in settlement.

Pierre took out a loan against the settlement. He sought 93A damages for the loss of the payment of $4,855 in loan origination fees and interest through the time the offer of settlement was made. The court denied this claim on the grounds that he had failed to prove his damages--Pierre testified about the loan, but did not support his testimony with documentary evidence.

By leaving open the possibility of paying such damages if proven, the judge has widened the scope of 93A/176D damages beyond lost interest on a settlement, to all damages resulting from the inconvenience of not having funds available. Should Pierre receive 93A damages for extra medical costs he personally incurred as a result of not being able to pay for health insurance? What if the bank had foreclosed on his house because he couldn't pay his mortgage?

Superior Court correctly awards 93A damages based only on lost interest

Update: See this post for a clarification.

In my last two posts I have discussed the recent Superior Court decision in Sterlin v. Commerce Insurance Company. As I noted, Commerce was slapped with 93A damages for ignoring overwhelming evidence that a car accident was the fault of its insured driver.

The plaintiffs' damages in that case were enough to make even a cold-hearted over-analytical lawyer like myself feel a twinge of sympathy. The car that was hit had three occupants. The woman who spent two weeks in a body cast was not the worst-injured. Rather that was Pierre, who suffered a degloving injury to his dominant right hand, and various fractures of his hand, fingers, and wrist. He was hospitalized for 16 days and had a total of four operations. His thumb was amputated. Eventually his pinky was amputated and reattached in his former thumb's position.

In addition, because he could not work he lost his job and his medical insurance. His wife also lost her job. After maxxing out help from charities, friends, family, and credit cards, he received a loan against the expected proceeds of the lawsuit.

With a $500,000 policy limit to be divided among Pierre and two other occupants of the car, he received $275,000 in settlement of the underlying claim.

The court held that the 93A damages would start to run from a month after the insurer received complete medical records, and would be cut off at the time that it finally made a reasonable offer of settlement, a period of about five months.

The court noted that unjust delay in reaching a settlement subjects a claimant to costs and frustrations that are encountered when litigation must be instituted. It continued, "Moreover, when an insurer wrongfully withholds funds from a claimant, it is depriving that claimant of the use of those funds." The court held that the loss of use of money constitutes actual damages, consisting of the interest that would have been earned on that money at a rate of five percent. Therefore, the judge held, the actual damages were $5,733.75. He trebled that amount pursuant to the punitive damages provision of 93A, to $17,201.25.

The judge correctly calculated the 93A damages. This case is a good reminder that no matter how egregious an insurer's actions are, damages are based on lost interest, not the amount of the settlement or verdict.

The judge also awarded costs and attorney's fees, to be determined at a later hearing.

Memo to adjusters: How not to act

In my last post I discussed the recent Superior Court decision in Sterlin v. Commerce Insurance Company. That case is a primer of how an insurer can get slapped with 93A damages.

An adjuster should not find that liability is unclear by:

1. ignoring the transcript of a 911 call in which the insured driver stated that he fell asleep at the wheel and hit the other car;

2. ignoring the statement made to the insurer by the father of the driver that the driver fell asleep at the wheel;

3. relying on photographs of a vehicle taken after the vehicle has been repaired as proof that there was no contact between the two cars; and

4. relying on the driver's statement that he did not cause the accident, made when he is facing criminal charges for operating to endanger and based on leading questions by the adjuster.