In my last post I discussed the duty of an insurer to enter into a reasonable settlement agreement. What about when an insurer fails to do so?
“The insurer may also notify the insured of a reasonable settlement offer and give the insured an opportunity to accept the offer or assume its own defense.” Medical Malpractice Joint Underwriting Ass'n v. Goldberg, 425 Mass. 46, 59 (1997).
I am not aware of any Massachusetts case that discusses the exposure of the insurer if it notifies the insured of a settlement offer and gives it the opportunity to accept the offer or assume the defense. If the insured pays the settlement amount and the declaratory judgment action later results in a finding of coverage, the insurer is clearly liable to reimburse the insured for the judgment amount. If the insurer is found to have breached Mass. Gen. Laws ch. 93A in refusing to pay the settlement amount itself, it would be liable for 93A damages, which includes costs and attorney’s fees, and can include up to treble damages.
Where there is coverage under the policy, if the insurer fails to settle where no reasonable insurer would have refused to settle, and also fails to tender the defense to the insured, and an excess judgment is eventually entered, the insurer is liable for the amount of the actual judgment. DiMarzo v. Am. Mut. Ins. Co., 389 Mass. 85, 101-102 (1983). But see Bolden v. O’Connor Café of Worcester, Inc., 50 Mass. App. Ct. 56, 68 (2000) (questioning the analysis of DiMarzo in the context of a subsequent settlement protecting the insured from liability for an excess judgment).
Showing posts with label settlement. Show all posts
Showing posts with label settlement. Show all posts
Wednesday, October 7, 2009
Monday, October 5, 2009
An insurer's duty to settle when defending under a reservation of rights
As a general rule an insurer is liable to an insured for failing to settle a case within the policy limits “if no reasonable insurer would have failed to settle the case within the policy limits.” Hartford Casualty Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 121 (1994).
I am not aware of any Massachusetts case that discuss the duty of an insurer to settle where the insurer is defending under a reservation of rights. However, an insurer and an insured may agree that the insurer will settle a case within the policy limits and then seek indemnification from the insured on the grounds that there was no coverage under the policy. Medical Malpractice Joint Underwriting Ass’n v. Goldberg, 425 Mass. 46, 56 and fn 26 (1997). If the insured agrees to those terms, there is no reason why the general rule should not apply.
I am not aware of any Massachusetts case that discuss the duty of an insurer to settle where the insurer is defending under a reservation of rights. However, an insurer and an insured may agree that the insurer will settle a case within the policy limits and then seek indemnification from the insured on the grounds that there was no coverage under the policy. Medical Malpractice Joint Underwriting Ass’n v. Goldberg, 425 Mass. 46, 56 and fn 26 (1997). If the insured agrees to those terms, there is no reason why the general rule should not apply.
Wednesday, April 1, 2009
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.
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.
Thursday, March 26, 2009
Superior Court holds that insurer's demand for release of 93A/176D claim in exchange for settling underlying case violates 176D
In last month's Superior Court decision in Sterlin v. Commerce Insurance Company the insurer, Commerce, made an offer to settle of an automobile accident claim contingent upon receiving a release of its own liability for violation of Mass. Gen. Laws ch. 93A and 176D.
Judge Tucker held that such an offer was in itself a violation of those statutes. He wrote, "By seeking a release of itself upon the payment of its insured's benefits to the claimants, Commerce was in effect seeking to have the insurance coverage afforded to its insured, Mukesh Patel, cover its own liability to plaintiff for any statutory violations. Although the statute does not specifically define such actions as unfair claims settlement practices, it does set forth in § 3(9)(m) that it is a violation and an unfair claims settlement practice by 'failing to settle claims promptly . . . under one portion of the insurance policy coverage in order to influence settlements under other potions of the insurance policy coverage.' In a like manner, this court believes that an insurer's attempt to settle its own claims against itself by the payment of its insured's liability benefits is likewise a violation of the statute and an unfair or deceptive act or practice under G.L.c. 93A."
Judge Tucker held that such an offer was in itself a violation of those statutes. He wrote, "By seeking a release of itself upon the payment of its insured's benefits to the claimants, Commerce was in effect seeking to have the insurance coverage afforded to its insured, Mukesh Patel, cover its own liability to plaintiff for any statutory violations. Although the statute does not specifically define such actions as unfair claims settlement practices, it does set forth in § 3(9)(m) that it is a violation and an unfair claims settlement practice by 'failing to settle claims promptly . . . under one portion of the insurance policy coverage in order to influence settlements under other potions of the insurance policy coverage.' In a like manner, this court believes that an insurer's attempt to settle its own claims against itself by the payment of its insured's liability benefits is likewise a violation of the statute and an unfair or deceptive act or practice under G.L.c. 93A."
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