U.S. District Court holds that insurer that did not control defense could not be liable for unfair claims settlement practices

In my last post I discussed the decision of the United States District Court for the District of Massachusetts in Mut. Ins. Co. v. Murphy, in which the court dismissed Judge Murphy's claim against the Boston Herald's insurer for unfair claims settlement practices. The reason for that decision was that the insurer did not have control over defense or settlement of the claims.

The Herald was insured under a "media insurance policy" issued by Mutual Insurance Co. for damages arising out of libel. The policy had a $50,000 self-insured retention (similar to a deductible). After the first $50,000, the Herald would continue to pay twenty percent of defense expenses up to $500,000.

Under the policy the Herald had s duty to retain its own counsel for the defense or settlement of a claim, although choice of counsel was subject to the approval of Mutual. The Herald was also obligated to advise Mutual of the likelihood of success or failure, provide an initial estimate of legal costs, and advise it of offers of settlement and other information pertinent to a claim. The Herald was also required to notify Mutual when it became clear that a claim was like to exceed $50,000, and regularly to update it as to expenses.

As to Mutual's obligations, the policy stated, "The company shall not be called upon to assume charge of the settlement, or the defense of any claim made, or suit brought, or proceeding instituted against the insured."

Under the policy Mutual had the right to associate with the Herald in defense and control of any claim which appears likely to involve payment by Mutual, in which event the Herald and Mutual were required to cooperate in defense or settlement of the claim; or, if Mutual was dissatisfied with the Herald's choice of counsel, to suggest replacement with new counsel to be jointly approved by Mutual and the Herald. No settlement could be made without Mutual's consent, but Mutual could not unreasonably deny consent. If judgment entered against the Herald and the Herald chose not to appeal, Mutual could appeal the judgment.

The court held that those policy clauses did not give Mutual control over defense or settlement sufficient to make it liable for unfair claims settlement practices.

U.S. District Court rules on Judge Ernest Murphy's claim against Boston Herald's insurer

Another chapter in the long, sometimes strange story of former Massachusetts Superior Court Judge Ernest Murphy's libel suit against the Boston Herald:

The Boston Herald published a story claiming that Judge Murphy had told a 14year old rape victim to "get over it." Judge Murphy sued the Herald for libel and won. He then sent somewhat threatening letters directly to the Herald (rather than its attorneys) on trial court stationery demanding that it drop its appeal. (Contrary to what you might sometimes see on TV, parties in a lawsuit are forbidden from communicating directly with each other; they may communicate only through their attorneys. And judges are forbidden from communicating personal business on court stationery.)

The judge subsequently asserted that he suffered from post-traumatic stress syndrome as a result of the Herald's articles and entered into an agreement with the Superior Court by which he agreed that he is permanently disabled from performing his judicial duties.

The most recent chapter in this case is Judge Murphy's lawsuit against the Herald's insurer, in which he sought damages for the insurer's failure to promptly settle his libel claim. The United States District Court for the District of Massachusetts has dismissed his claim in Mut. Ins. Co. v. Murphy, on the grounds that the Herald rather than the insurer exercised control over the defense.