MA Appeals Court Increases Pressure on Insurers to Promptly Settle Cases

The Massachusetts Appeals Court issued another in a series of decisions which increases pressure on insurers to settle cases where their insureds’ liability has become “reasonably clear.” In McLaughlin v. American States Ins. Co., 90 Mass. App. Ct. 22 (2016), the court ruled that an insurer had engaged in unfair claim settlement practices in violation of M.G.L. c. 93A and c. 176D by failing to make a reasonable offer of settlement prior to litigation, where it was clear that its insured was likely to be held liable for property damage.

The insurer insisted that liability – which includes both fault and damages in this context – could not be considered “reasonably clear” where there were two other potential joint tortfeasors, and thus the percentage of damages attributable to its own insured could not have been determined with any certainty. Moreover, those other parties eventually settled with the plaintiffs, and the jury later found that the plaintiffs’ total damages were not only considerably less than the amount that they had initially demanded, but were actually less than the amount which they had already recovered from other parties. As such, the plaintiffs ultimately recovered nothing from the insured, and the insurer argued that this outcome precluded any liability for failure to settle.

The Appeals Court flatly rejected the insurer’s arguments. It ruled that the insurer owed a duty to settle once its insured’s liability was clear, even if its insured’s share of damages was not readily apparent due to the existence of other joint tortfeasors. The court reasoned that it would “significantly diminish, if not defeat” the purpose of the statute if the mere presence of other tortfeasors excused the insurer from making a reasonable offer of settlement where its insured’s liability was reasonably clear. The court also brushed aside the fact that the plaintiffs’ demand was nearly twice what the jury eventually awarded, holding that the initial damage estimates were “substantiated” and that the insurer did nothing at the claim stage to demonstrate that the plaintiffs’ demand was inflated.

Although the plaintiffs were already fully compensated for their property damage via the settlements with other parties, the court concluded that the plaintiffs were entitled to be reimbursed for reasonable attorneys’ fees incurred in pursuing their claim against the insured and in pursuing the c. 93A/c. 176D claim against the insurer. It also ruled that the plaintiffs were entitled to recover interest for the loss of use of the settlement proceeds, from the time that the insured’s liability became clear up through the time that they were compensated by other parties.

The decision makes it clear that the Appeals Court has little concern for factors other than the insured’s potential liability which may influence an insurer’s decision on the timing and amount of a settlement offer. Rather, the court’s focus is increasingly on strengthening incentives for insurers to settle promptly. If you have any questions regarding an insurer’s settlement obligations or potential bad faith liability, we welcome you to contact us anytime.

 

Photo Credit: untvweb.com