Title: Commerce Insurance Co. v. Szafarowicz

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

NOTICE:  All slip opinions and orders are subject to formal 
revision and are superseded by the advance sheets and bound 
volumes of the Official Reports.  If you find a typographical 
error or other formal error, please notify the Reporter of 
Decisions, Supreme Judicial Court, John Adams Courthouse, 1 
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us 
 
SJC-12655 
SJC-12656 
 
COMMERCE INSURANCE COMPANY  vs.  JUSTINA M. SZAFAROWICZ, special 
representative,1 & others.2 
 
JUSTINA M. SZAFAROWICZ, special representative,3  vs.  MATTHEW S. 
PADOVANO & others.4 
 
 
 
Worcester.     March 7, 2019. - October 1, 2019. 
 
Present:  Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, 
& Kafker, JJ. 
 
 
Motor Vehicle, Insurance.  Insurance, Motor vehicle insurance, 
Insurer's obligation to defend, Interest.  Practice, Civil, 
Wrongful death, Declaratory proceeding, Interest.  
Negligence, Wrongful death.  Declaratory Relief.  Interest.  
Escrow. 
 
 
 
 
Civil action commenced in the Superior Court Department on 
January 21, 2014. 
 
                     
 
1 Of the estate of David M. Szafarowicz. 
 
 
2 Matthew Padovano; Stephen Padovano; and Damion Szafarowicz 
and Alysha Szafarowicz, by their mother and next friend, Justina 
M. Szafarowicz. 
 
 
3 Of the estate of David M. Szafarowicz. 
 
 
4 Stephen Padovano and Kona Enterprises, Inc. 
2 
 
 
 
A motion to deposit money with the court or in an interest-
bearing account was heard by Richard T. Tucker, J. 
 
 
An application for leave to prosecute an interlocutory 
appeal was allowed by Ariane D. Vuono, J., in the Appeals Court, 
and the appeal was reported by her to a panel of that court.  
The Supreme Judicial Court on its own initiative transferred the 
case from the Appeals Court. 
 
 
Civil action commenced in the Superior Court Department on 
August 23, 2013. 
 
 
Motions to stay were heard by David Ricciardone, J., and 
the case was heard by him. 
 
 
The Supreme Judicial Court on its own initiative 
transferred the case from the Appeals Court. 
 
 
 
John P. Graceffa (Lawrence M. Slotnick also present) for 
Commerce Insurance Company. 
 
David R. Bikofsky & Michael K. Gillis (Joseph I. Rogers 
also present) for Justina M. Szafarowicz & others. 
 
Stephanie V. Corrao & Laura A. Foggan, of the District of 
Columbia, Richard J. Riley, & Peter C. Kober, for Complex 
Insurance Claims Litigation Association & another, amici curiae, 
submitted a brief. 
 
Kim V. Marrkand & Mathilda S. McGee-Tubb, for Massachusetts 
Insurance and Reinsurance Bar Association, amicus curiae, 
submitted a brief. 
 
 
 
GANTS, C.J.  These appeals present three issues that arise 
where a motor vehicle insurer recognizes its duty to defend its 
insureds in a wrongful death action, but does so under a 
reservation of rights, and then brings a separate action seeking 
a declaratory judgment that it owes no duty to indemnify its 
insureds for damages arising from the wrongful death action 
under the "Optional Bodily Injury To Others" provision of the 
insurance policy. 
3 
 
 
 
As to these three issues, we conclude, first, that there 
was no abuse of discretion in the judge's denial of the 
insurer's motions to stay trial in the wrongful death action 
until the question of coverage had been determined in the 
declaratory judgment action. 
 
Second, over the insurer's objection, the parties settled 
the wrongful death action before trial through agreements in 
which the defendants admitted to negligence, agreed that the 
amount of damages would be determined through a damages 
assessment hearing, and assigned all their rights under the 
insurance policy to the plaintiff.5  In return, the plaintiff 
agreed to release the defendants from liability and seek damages 
only from the insurer.  Because of the amount of damages 
assessed (more than $5 million, plus prejudgment interest) and 
because the policy obligated the insurer to pay postjudgment 
interest, the insurer moved to deposit with the court the policy 
limits and the accrued postjudgment interest under Mass. R. Civ. 
P. 67, 365 Mass. 835 (1974), in an attempt to prevent the 
continued accrual of postjudgment interest pending resolution of 
the declaratory judgment action and the insurer's appeal in the 
wrongful death action.  We conclude that the judge did not abuse 
                     
 
5 We refer to these agreements as "settlement/assignment 
agreements" throughout this opinion. 
4 
 
 
his discretion in denying the insurer's motion to deposit these 
funds. 
 
Third, we conclude that, where the insurer timely objected 
to the settlement/assignment agreements, and where it is 
obligated to pay the accrued postjudgment interest on the 
wrongful death judgment, the insurer may be bound by the amount 
of that judgment only where a judge determines that the 
settlement/assignment agreements were reasonable under the 
circumstances.  Here, the settlements were executed with no 
determination of reasonableness.  We therefore vacate the 
wrongful death judgment and remand the case to the Superior 
Court for a hearing on the reasonableness of the 
settlement/assignment agreements.6 
 
Background.  The relevant factual and procedural background 
is not materially in dispute.  On August 3, 2013, shortly after 
a verbal altercation at a bar in Leominster, David M. 
Szafarowicz was struck and killed by a vehicle operated by 
Matthew Padovano, who later pleaded guilty to voluntary 
manslaughter in connection with the fatal incident.  The vehicle 
was owned by Matthew's father, Stephen Padovano, who had 
                     
 
6 We acknowledge the amicus briefs submitted by the Complex 
Insurance Claims Litigation Association and the American 
Property Casualty Insurance Association, and by the 
Massachusetts Insurance and Reinsurance Bar Association. 
5 
 
 
purchased an automobile insurance policy from Commerce Insurance 
Company (Commerce).7 
 
Justina M. Szafarowicz, David's mother, in her capacity as 
special representative of David's estate (estate), brought a 
wrongful death action against the Padovanos in the Superior 
Court, claiming that David's death was caused by Matthew's gross 
negligence in operating a motor vehicle that was negligently 
entrusted to him by Stephen.8  Under the Commerce insurance 
policy, Stephen was covered for bodily injury to others by 
compulsory insurance in the amount of $20,000 per person, and by 
optional insurance in the additional amount of $480,000 per 
person. 
 
Commerce acknowledged its duty to defend the Padovanos in 
the wrongful death action under its policy.9  See Metropolitan 
                     
 
7 We refer individually to members of the Padovano and 
Szafarowicz families by their first names to avoid confusion, 
but we refer collectively to the Padovanos. 
 
 
8 Justina, as special representative of her son's estate 
(estate), also claimed that Kona Enterprises, Inc. (Kona), which 
operated the bar where the incident took place, was negligent in 
failing to provide adequate supervision and security to David at 
its premises.  The estate reached a settlement with Kona, and it 
is not a party to this appeal. 
 
 
9 The Commerce Insurance Company (Commerce) motor vehicle 
policy at issue states: 
 
"We [(Commerce)] have the right to defend any lawsuit 
brought against anyone covered under this policy for 
damages which might be payable under this policy.  We also 
6 
 
 
Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 357 (2011) 
(Morrison), quoting Billings v. Commerce Ins. Co., 458 Mass. 
194, 200-201 (2010) ("An insurer has a duty to defend an insured 
when the allegations in a complaint are reasonably susceptible 
of an interpretation that states or roughly sketches a claim 
covered by the policy terms"). 
 
As to its duty to indemnify for damages, Commerce 
acknowledged its duty to pay the $20,000 in compulsory insurance 
(and ultimately paid the estate this amount) but issued a 
reservation of rights regarding the $480,000 in optional 
insurance.  By doing so, Commerce effectively reserved its right 
to refuse to indemnify the Padovanos beyond $20,000 for damages 
arising from the wrongful death action if it were determined 
that David's death was caused by Matthew's intentional act, and 
was therefore not an "accident" covered by the terms of the 
policy.10  See Morrison, 460 Mass. at 357, quoting A.W. 
                     
have a duty to defend any such lawsuit, even if it is 
without merit, but our duty to defend ends when we tender, 
or pay to any claimant or to a court of competent 
jurisdiction, with the court's permission, the maximum 
limits of coverage under this policy.  We may end our duty 
to defend at any time during the course of the lawsuit, by 
tendering, or paying the maximum limits of coverage under 
the policy, without the need for a judgment or settlement 
of the lawsuit or a release by the claimant." 
 
 
10 Commerce also reserved its rights to refuse to indemnify 
on the ground that Matthew was not identified as a designated 
driver on the policy. 
7 
 
 
Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 
Mass. 502, 527 (2005) (duty to defend "is independent from, and 
broader than, [the] duty to indemnify"); Three Sons, Inc. v. 
Phoenix Ins. Co., 357 Mass. 271, 276 (1970) ("A reservation of 
rights . . . notifies the insured that the insurer's [defense] 
is subject to the later right to disclaim liability"). 
 
On January 21, 2014, approximately five months after the 
estate initiated the wrongful death action, Commerce brought a 
separate declaratory judgment action against the Padovanos and 
the estate, seeking a declaration from the court that Commerce 
had no obligation under its optional insurance coverage to 
indemnify the Padovanos for the damages arising from the fatal 
incident.  The wrongful death action and the declaratory 
judgment action were consolidated for discovery purposes only. 
 
On April 21, 2016, less than three weeks before the trial 
in the wrongful death case was scheduled to begin, Commerce 
filed an emergency motion to intervene and participate in that 
case pursuant to Mass. R. Civ. P. 24, 365 Mass. 769 (1974).  
Commerce noted that, based on the summary of evidence proffered 
by the prosecutor at Matthew's plea hearing, on the night of 
David's death, Matthew and his girlfriend got into a dispute 
with David at a bar and the staff asked the three to leave.  
Matthew and his girlfriend went out the back door, where 
Matthew's vehicle was parked, and David left through the front 
8 
 
 
door and walked into the bar's parking lot.  Rather than depart, 
Matthew returned in his vehicle to the bar's parking lot, where 
he saw David and drove near him.  David gestured toward Matthew, 
who then accelerated his vehicle and ran over David, dragging 
him for forty to fifty feet, killing him. 
 
Commerce noted that, in the wrongful death action, the 
estate's attorneys had presented a quite different description 
of events that was consistent with their theory of negligence.  
The estate's attorneys contend that when Matthew returned in his 
vehicle to the bar's parking lot, he was frightened by unknown 
persons who came from the bar with knives, and did not see David 
when he ran over him. 
 
Commerce argued that it should be permitted to intervene 
because neither the estate nor the Padovanos had any incentive 
to offer evidence tending to show that the incident was not an 
accident, because all parties to the action "would prefer that 
insurance coverage exist for this loss."  Commerce wished to 
ensure that, if a judgment were to issue in the wrongful death 
action premised on the finding that David's death was caused by 
Matthew's negligence rather than by his intentional conduct, it 
would not be procedurally foreclosed in the declaratory judgment 
action from litigating the dispositive issue whether David's 
death arose from an accident. 
9 
 
 
 
The judge ordered that the wrongful death trial be 
continued, and conducted a hearing on Commerce's motion to 
intervene on May 4, 2016.  In his decision denying the motion to 
intervene, issued on August 22, 2016, the judge acknowledged 
that Commerce had reason to be concerned about the risk of 
"underlitigation" in the wrongful death suit -- which he 
defined, quoting Pryor, W. Page Keeton Symposium on Tort Law, 
The Stories We Tell:  Intentional Harm and the Quest for 
Insurance Funding, 75 Tex. L. Rev. 1721, 1722 (1997), as "a 
plaintiff's choice to plead and prove negligence rather than or 
in addition to intentional tort theories when, absent insurance 
considerations, the plaintiff would either frame the case solely 
as an intentional tort claim or emphasize the intentional tort 
claim."  The judge noted the "legitimate interest" of a 
liability insurer in preventing improper underlitigation of tort 
claims, and recognized that it would be "patently unfair" to 
require Commerce to be bound by a jury's negligence finding in 
the wrongful death action if it were denied the means to 
challenge the validity of that finding. 
 
But the judge also recognized the need to balance the 
rights of the insurer with those of the insured.  He noted, 
first, that the Padovanos would be "severely compromised" in 
their ability to defend themselves if their insurer were 
permitted to actively participate in the trial and offer 
10 
 
 
evidence that Matthew intentionally struck David.  Second, 
citing concerns raised in Goldstein v. Gontarz, 364 Mass. 800 
(1974), the judge noted that Commerce's participation would 
alert the jury to the possible existence of insurance coverage 
for the automobile that caused David's death, and to the 
possibility that an insurer may therefore be responsible to pay 
some or all of the damages if liability were found.  Id. at 808 
("Exposing juries to [evidence of insurance coverage] is 
condemned because it is not itself probative of any relevant 
proposition and is taken to lead to undeserved verdicts for 
plaintiffs and exaggerated awards which jurors will readily load 
on faceless insurance companies supposedly paid for taking the 
risk"). 
 
Seeking to balance these considerations, the judge chose to 
adopt a "carefully balanced procedural solution" crafted by the 
Court of Appeals of Maryland in Allstate Ins. Co. v. Atwood, 319 
Md. 247 (1990) (Atwood).  The Atwood court concluded that, where 
there is a risk of underlitigation, it is not appropriate to 
allow the "insurer to intervene in the trial of the tort suit 
against its insured," id. at 258, but leaving an insurer with no 
legal avenue to challenge a potentially collusive damages award 
would be contrary to "considerations of public policy and 
fairness."  Id. at 262.  Therefore, the court ruled that "the 
insurer should be able to bring a post-tort trial declaratory 
11 
 
 
judgment action" where the judge "would first determine, as a 
legal matter, whether the issue, which was resolved in the tort 
trial and which determines insurance coverage, was fairly 
litigated in the tort trial."  Id.  If the judge were to 
determine that it was fairly litigated, then there would be no 
relitigation of the issue in the declaratory judgment action.  
However, if the judge were to determine that it was not fairly 
litigated, "then the insurer should be permitted to relitigate 
the matter in the declaratory judgment action."  Id.  The motion 
judge declared that this procedure would be consistent with our 
holding in Blais v. Quincy Mut. Fire Ins. Co., 361 Mass. 68, 70-
71 (1972) -- that an insurer is bound by an underlying judgment 
as to insurance coverage, so long as there is no "fraud or 
collusion" -- with the declaratory judgment action determining 
whether the tort action was indeed tainted by fraud or 
collusion.11 
 
After the denial of its motion to intervene, Commerce moved 
to stay the wrongful death trial until after the question of 
insurance coverage was resolved in the declaratory judgment 
action.  Another judge denied the motion.12 
                     
 
11 Commerce does not appeal from the denial of its motion to 
intervene in the wrongful death action. 
 
 
12 Commerce filed another emergency motion on December 13, 
2016, to stay proceedings of the wrongful death action until the 
12 
 
 
 
Shortly before the wrongful death trial was scheduled to 
begin, the estate and the Padovanos entered into agreements to 
settle the wrongful death suit.  Under the agreements, Matthew 
agreed that he "grossly negligently" caused David's injuries, 
and Stephen admitted liability for negligent entrustment of the 
vehicle.  The parties agreed that damages would be determined in 
a jury-waived proceeding.  The estate agreed that it would not 
seek to collect or enforce any judgment against the Padovanos 
beyond the amount payable under their insurance policy, and the 
Padovanos agreed both to assign to the estate all their rights 
with respect to insurance coverage and to cooperate with the 
estate in litigation related to insurance coverage. 
 
Commerce timely objected in writing to the proposed 
settlements, arguing that this type of settlement/assignment 
agreement should not be permitted.  Among the objections it 
lodged were objections to the assignment of rights by its 
insureds against the insurer; to consent to judgment in excess 
of policy limits; and to the court's role in assessing damages, 
if the estate were to request that a judgment enter as to the 
amount assessed.  Commerce also renewed its objection to the 
denial of its motions to stay the wrongful death case until the 
declaratory judgment action was tried. 
                     
declaratory judgment action had been fully litigated.  That 
motion was also denied. 
13 
 
 
 
The same judge who had denied Commerce's motions to stay 
overruled Commerce's objections to the settlement and to the 
assessment of damages hearing, and conducted a hearing to assess 
the amount of damages in the wrongful death action.  On December 
28, 2016, the judge ordered that judgment enter in favor of the 
estate in the amount of $5,617,510.  The judge later agreed to 
reduce the judgment by $150,000, to reflect the $150,000 
received in settlement from Kona Enterprises, Inc. (see note 8, 
supra), and judgment ultimately entered, nunc pro tunc to 
December 28, in the amount of $7,669,254.41 (damages in the 
amount of $5,467,510 plus prejudgment interest in the amount of 
$2,201,744.41). 
 
Commerce filed a notice of appeal on January 26, 2017, 
challenging the denial of its motions to stay the wrongful death 
action so that the declaratory judgment action could be 
adjudicated first, and the overruling of its objections to the 
settlement. 
 
On February 15, 2017, Commerce paid the estate $20,000, the 
limit of its compulsory bodily injury coverage.  On April 21, 
2017, in an attempt to stop the accrual of postjudgment interest 
on the wrongful death judgment during the pendency of the 
declaratory judgment action and its appeal from the wrongful 
death judgment, Commerce filed a motion asking the court's 
permission to deposit with the court -- or, in the alternative, 
14 
 
 
to deposit in an interest bearing account -- the policy limit of 
its optional bodily injury coverage ($480,000), plus already 
accrued postjudgment interest, pursuant to Mass. R. Civ. P. 67.  
Rule 67 provides in relevant part: 
"In an action in which any part of the relief sought is a 
judgment for a sum of money or the disposition of a sum of 
money or the disposition of any other thing capable of 
delivery, a party, upon notice to every other party, and by 
leave of court, may deposit with the court all or any part 
of such sum or thing." 
 
 
Commerce's obligation to pay postjudgment interest derives 
from the provision in the policy where the insurer agrees: 
"We will pay, in addition to the limits shown for 
Compulsory and Optional Bodily Injury to Others . . . 
[i]nterest that accrues after judgment is entered in any 
suit we defend.  We will not pay interest that accrues 
after we have offered to pay up to the limits you 
selected."13 
 
Given the amount of the wrongful death judgment, Commerce 
alleges that, unless allowed to deposit these funds, it would be 
obliged to pay postjudgment interest, at the twelve percent 
annual rate of interest established by statute, see G. L. 
c. 231, § 6B, accruing at a rate of over $920,000 per year from 
the date of the judgment. 
                     
 
13 The policy language at issue is found in the standard 
Massachusetts automobile insurance policy, which is "prescribed 
by statute and controlled by the Division of Insurance."  
Ramirez v. Commerce Ins. Co., 91 Mass. App. Ct. 144, 147 (2017).  
As discussed infra, this provision of the standard policy was 
later amended, but the amendment has no effect on these cases. 
15 
 
 
 
Another judge denied Commerce's motion to deposit these 
funds.  The judge noted that in Davis v. Allstate Ins. Co., 434 
Mass. 174, 183, 186 (2001), we held that, to stop the accrual of 
postjudgment interest, the insurer must make an unconditional 
offer of payment of the full policy limit, plus the accrued 
postjudgment interest.  Here, the offer of payment of the 
optional bodily injury coverage limit was not unconditional; 
Commerce would seek its return if it prevailed in the 
declaratory judgment action.  The judge, while acknowledging our 
observation in Davis that an insurer "may be able to control its 
postjudgment interest obligations by paying the policy limits 
(with accrued interest) into court," id. at 187 n.13, concluded 
that accepting a deposit reflecting a conditional offer to pay 
would be inconsistent with the requirement that Commerce first 
make an unconditional offer to pay the policy limits. 
 
Commerce petitioned for relief from the judge's 
interlocutory order pursuant to G. L. c. 231, § 118.  A single 
justice of the Appeals Court allowed Commerce's petition, 
concluding that the issue "presents extraordinary circumstances 
warranting an interlocutory appeal."  We transferred both 
appeals to this court on our own motion. 
 
On February 21, 2019, during the pendency of these appeals, 
another Superior Court judge resolved the declaratory judgment 
action.  After a jury-waived trial, the judge ruled that 
16 
 
 
Commerce has no duty to indemnify the Padovanos for any claims 
arising from the optional bodily injury coverage of its 
automobile policy because Matthew "decided to hit the 
accelerator of the vehicle knowing to a substantial certainty 
that the vehicle would strike David," and therefore David's 
"injuries and death did not arise out of an accident under the 
policy."14  As a result of that declaratory judgment, Commerce 
has no obligation to pay any amount of the $7.7 million judgment 
in the wrongful death action beyond the $20,000 it already paid 
under its compulsory bodily injury coverage.  But under the 
terms of the policy, Commerce still has an obligation to pay 
postjudgment interest on the judgment.  The focus of these 
appeals is now on the scope of that obligation -- that is, how 
much in postjudgment interest Commerce must pay under the 
policy. 
 
Discussion.  We address Commerce's three claims of error on 
appeal. 
 
1.  Motions to stay.  Commerce claims that the judge abused 
his discretion in denying its motions to stay the proceedings of 
the wrongful death suit action until its parallel declaratory 
                     
 
14 The judge also ruled that Steven did not provide false 
information on his application for insurance by failing to list 
Matthew as a "customary operator."  Because the judge found that 
David's death did not arise from an "accident," this ruling did 
not affect the grant of declaratory judgment to Commerce as to 
the issue of coverage for the events at issue. 
17 
 
 
judgment action could be tried and the issue of coverage 
resolved.  See Travenol Lab., Inc. v. Zotal, Ltd., 394 Mass. 95, 
97 (1985) ("a motion to stay proceedings is ordinarily a matter 
addressed to the sound discretion of the trial judge").  We 
conclude that the judge did not abuse his discretion in denying 
the stay. 
 
"Where there is uncertainty as to whether an insurer owes a 
duty to defend, the insurer has the option of providing the 
insured with a defense under a reservation of rights, filing a 
declaratory judgment action to resolve whether it owes a duty to 
defend or to indemnify, moving to stay the underlying action 
until a declaratory judgment enters, and withdrawing from the 
defense if it obtains a declaration that it owes no duty to the 
insured."  Morrison, 460 Mass. at 358-359.  An insurer who 
provides its insured with a defense under a reservation of 
rights is not entitled as a matter of law to a stay of the 
underlying action so that the issue of coverage can be resolved 
first in a declaratory judgment action.  See 16 L.R. Russ & T.F. 
Segalla, Couch on Insurance 3d § 232:65, at 232-90 (2005) 
(Couch) ("An insurer suing for a declaratory judgment to 
determine its obligation to defend a suit pending against the 
insured does not, however, have the right to obtain a stay of 
the pending suit"). 
18 
 
 
 
A judge deciding an insurer's motion to stay may properly 
consider, among other matters, whether a stay will delay the 
final resolution of the underlying tort action, initially by 
proceeding first with the trial in the declaratory judgment 
action and then, if the insurer were to prevail, by the need for 
the insured to retain its own counsel if the insurer were then 
to withdraw its defense.  See Parking Concepts, Inc. v. Tenney, 
207 Ariz. 19, 24 (2004) (en banc) (fundamentally unfair to 
claimant to "be compelled to await the outcome of satellite 
coverage litigation before seeking redress for his [or her] 
injuries").15 
 
It is also proper to consider whether disposition of the 
tort action may be expedited, rather than delayed, by first 
resolving whether an insurer would be responsible for paying all 
or part of any settlement or judgment.  See O'Bannon v. 
Friedman's, Inc., 437 F. Supp. 2d 490, 496 (D. Md. 2006) (prompt 
resolution of coverage issue in declaratory judgment action can 
                     
 
15 It may also be relevant whether all parties to the 
underlying action are also parties to the declaratory judgment 
action and thus able to adequately represent their interests.  
See G. L. c. 231A, § 8 ("When declaratory relief is sought, all 
persons shall be made parties who have or claim any interest 
which would be affected by the declaration, and no declaration 
shall prejudice the rights of persons not parties to the 
proceeding"); 16 L.R. Russ & T.F. Segalla, Couch on Insurance 3d 
§ 232:67, at 232-93 (2005) (observing that "concerns for 
stepping on the factual issues in the underlying action are, of 
course, lessened when all the parties to that action are parties 
to the declaratory judgment and able to litigate the point"). 
19 
 
 
"dispel doubt among the parties, . . . allow[] them to move 
forward with settlement talks," and may, at times, "expedite the 
resolution of the underlying complaint"). 
 
A judge may also consider whether trying the tort action 
first might render the declaratory judgment action moot if the 
insured were to prevail.  See, e.g., Guaranty Nat'l Ins. Co. v. 
Beeline Stores, Inc., 945 F. Supp. 1510, 1515 (M.D. Ala. 1996) 
(where insured "could prevail in the underlying lawsuit . . . 
the issue of whether [insurer] must indemnify [insured] would be 
moot"; "[t]he time and effort the court and the parties would 
have put toward resolving the issue would be wasted"); LabMD, 
Inc. v. Admiral Ins. Co., 323 Ga. App. 906, 908 (2013) ("a 
declaratory judgment action regarding an insurer's duty to 
defend can be rendered moot where the underlying liability 
lawsuit has proceeded to judgment"). 
 
In addition, a judge may consider whether the insurer would 
be unfairly prejudiced in the adjudication of the declaratory 
judgment action if it were to be bound by a finding made in the 
adjudication of the underlying tort case.  See North Star Mut. 
Ins. Co. v. Kneen, 484 N.W.2d 908, 911 (S.D. 1992). 
 
Here, the judge who denied Commerce's motion to intervene 
protected Commerce from the risk that it would be unfairly 
prejudiced by a finding of negligence in the wrongful death 
action by allowing Commerce to ask a court for a determination 
20 
 
 
whether that issue was fairly litigated in the wrongful death 
action.  And, in fact, we know now that Commerce was not 
prejudiced in the declaratory judgment action by the parties' 
stipulation to negligence because the judge in that action 
independently determined that David's injuries and death were 
caused by Matthew's intentional conduct, not an accident, 
without making any mention of the stipulation in the settlement 
or giving any apparent weight to it.  Where Commerce was 
protected from prejudice and where a stay would have delayed a 
wrongful death trial that had already been continued because of 
Commerce's emergency motion to intervene, the judge did not 
abuse his discretion by denying the motions to stay. 
 
2.  Motion to deposit funds.  A motion to deposit a sum of 
money with the court pursuant to Mass. R. Civ. P. 67 is 
generally left to the sound discretion of the judge.  See 
Augustine v. Rogers, 47 Mass. App. Ct. 901, 903 (1999).  Where 
Commerce's offer to deposit its policy limit for optional bodily 
injury coverage was conditional, that is, Commerce wanted 
$480,000 of the deposit returned if it prevailed in the 
declaratory judgment action, we conclude that the judge did not 
abuse his discretion in denying Commerce's motion to deposit 
these funds with the court (or, in the alternative, to deposit 
them in an interest-bearing account) for the purpose of stopping 
the accrual of postjudgment interest. 
21 
 
 
 
In Davis, 434 Mass. at 175, 178 n.7, the vehicle that 
struck and injured the plaintiff was insured by Allstate 
Insurance Company (Allstate) under the standard Massachusetts 
automobile insurance policy, which contained the same provision 
as the Commerce policy regarding the payment of postjudgment 
interest.  Allstate defended its insured at trial in accordance 
with its duty to defend under the policy.  Id. at 175.  Before 
trial, Allstate offered the plaintiff payment of the $25,000 
policy limits in exchange for a release of its insured from all 
liability relating to the accident.  Id.  The plaintiff 
declined.  Id.  After a jury trial, judgment entered against the 
insured in an amount slightly greater than $400,000 on October 
18, 1990, well in excess of the $25,000 policy limit for bodily 
injury to another person.  Id. at 175-176. 
 
On July 1, 1996, after the Appeals Court affirmed the 
judgment and Allstate did not seek further appellate review, 
Allstate made an unconditional payment to the plaintiff of the 
$25,000 policy limits.  Id. at 176-177.  The plaintiff claimed 
that Allstate was liable under the policy for postjudgment 
interest accrued from the date of judgment to the date that 
Allstate tendered the unconditional payment of the policy 
limits.  Id. at 177.  Allstate claimed that it was not required 
to pay any postjudgment interest because it had offered its 
policy limits before trial, albeit on the condition that the 
22 
 
 
plaintiff release its insured from all liability.  Id. at 177-
178. 
 
We held that, under the postjudgment interest provision of 
the policy, where Allstate owed its insured a duty to defend him 
in the lawsuit, Allstate was required to pay the interest that 
accrued after judgment was entered until it "offered to pay" the 
policy limits.  Id. at 183.  Interpreting the insurance policy 
at issue "according to the 'fair meaning of the language used, 
as applied to the subject matter,'" id. at 179, quoting Bilodeau 
v. Lumbermens Mut. Cas. Co., 392 Mass. 537, 541 (1984), we 
concluded that "offered to pay" did not mean "offered to settle" 
Davis, supra at 183.  Rather, "Allstate was required to make an 
unconditional offer to pay the policy limits in order to 
terminate its express obligation to pay postjudgment interest."  
Id.  Where it made only a conditional offer until it 
unconditionally paid the policy limits on July 1, 1996, we held 
that Allstate was required to pay postjudgment interest from the 
date of judgment through that date.  Id. at 183-184. 
 
In Davis, we observed that "[t]he clear majority of courts, 
interpreting a standard interest clause in a motor vehicle 
liability insurance policy, have held insurers liable for 
postjudgment interest on the entire amount of the judgment, 
notwithstanding the fact that the policy limits may cover only a 
portion of the judgment."  Id. at 181.  We explained that this 
23 
 
 
rule serves to protect injured plaintiffs from unreasonable 
delays by insurers or, where delay arises from an appeal, to 
compensate the plaintiffs for that delay.  Id. at 182.  And we 
further observed that, while interpreting the policy in 
accordance with its plain language imposes a burden on insurers, 
it is not an "unfair burden," where the insurer "remain[s] in 
control of both the tolling of interest and the litigation" and 
can toll the accrual of interest at any time by offering to pay 
the policy limit.  Id., quoting Fratus v. Republic W. Ins. Co., 
147 F.3d 25, 29 (1st Cir. 1998). 
 
Citing the dissenting opinion in Davis, Commerce argues 
that we should revisit Davis to the extent that it unfairly 
penalizes an insurer for pursuing a meritorious appeal on behalf 
of the insured, where "the interest that mounts on the judgment 
during an appeal will soon eclipse the policy limit."  Davis, 
supra at 193 (Sosman, J., concurring in part and dissenting in 
part).  We decline to revisit the Davis court's interpretation 
of the language of the standard automobile policy regarding 
postjudgment interest.  Although "[t]he principle of stare 
decisis is not absolute . . . adhering to precedent is our 
'preferred course because it promotes the evenhanded, 
predictable, and consistent development of legal principles, 
fosters reliance on judicial decisions, and contributes to the 
actual and perceived integrity of the judicial process.'"  Shiel 
24 
 
 
v. Rowell, 480 Mass. 106, 108 (2018), quoting Payne v. 
Tennessee, 501 U.S. 808, 827 (1991). 
 
The principle of adhering to long-standing precedent is 
particularly pronounced where "the Legislature has declined to 
exercise its authority to overturn the court's interpretation of 
a statute."  Commonwealth v. Rivera, 445 Mass. 119, 128 (2005).  
In 2016, the standard Massachusetts automobile insurance policy, 
which is prescribed by statute, was amended to reduce the scope 
of postjudgment interest that an insurer is required to pay.  It 
now provides that interest will accrue only "on that part of a 
judgment or arbitration award that is within [the insurer's] 
limits of liability which accrues after the judgment or award in 
any matter [it] defend[s]."  Notably, the Legislature did 
nothing to change the provision stating that the insurer "will 
not pay interest that accrues after [it has] offered to pay up 
to the limits" of the policy.  Specifically, it did not amend 
"offered to pay" to read "offered to settle," and therefore 
implicitly left intact our interpretation of "offered to pay" as 
an unconditional offer. 
 
Commerce claims that the motion judge's ruling was an abuse 
of discretion because we noted in a footnote in Davis, 434 Mass. 
at 187 n.13, that an insurer "may be able to control its 
postjudgment interest obligations by paying the policy limits 
(with accrued interest) into court."  We disagree.  First, this 
25 
 
 
was not a holding of the court; we "[left] the availability of 
this procedure for another day because it [was] not involved in 
[that] case."  Id.  Second, under our holding in Davis, the rule 
67 deposit offered by Commerce, even if accepted by the court, 
would not stop the accrual of postjudgment interest because it 
was not an unconditional offer to pay the full policy limits.16  
Id. at 183.  Lastly, unlike some other jurisdictions, rule 67 in 
Massachusetts does not expressly provide for abatement of 
postjudgment interest when money is deposited with the court.  
Compare JTX Tax, Inc. v. Flowers, 311 Ga. App. 495, 496-497 
(2011) (Georgia equivalent to rule 67 provides that "[w]here the 
thing deposited is money, interest thereupon shall abate" 
[citation omitted]).  Where the proffered rule 67 deposit was 
not mandated by Davis and would not have stopped the accrual of 
postjudgment interest, the motion judge did not abuse his 
discretion in denying Commerce's rule 67 motion. 
 
3.  Settlement/assignment agreements.  Having concluded 
that Commerce remains obligated to pay accrued postjudgment 
interest, the next issue we must confront is whether Commerce 
                     
 
16 In contrast, it might be an abuse of discretion for a 
judge to decline to accept a rule 67 deposit to stop the accrual 
of postjudgment interest where the deposit was an unconditional 
offer to pay the policy limits, and the plaintiff refused to 
accept payment directly, causing postjudgment interest to 
continue to accrue.  We need not decide the issue because those 
are not the facts present before us in these appeals. 
26 
 
 
may challenge the validity or amount of that judgment, where its 
objection to the settlement agreement was overruled and where 
there was a substantial risk of underlitigation in the 
negotiation of that agreement. 
 
Commerce, supported by the amici, claims that it is not 
bound by the settlement because of the provision in the policy 
that states, "If any person covered under this policy settles a 
claim without our consent, we will not be bound by that 
settlement."  Where an insurer acknowledges its duty to 
indemnify the insured for damages arising from a claim, and 
thereby agrees to pay a judgment arising from a settlement 
within the policy limits, the insurer will not be bound by a 
settlement entered into without its consent where material, 
actual prejudice is shown.  See Augat, Inc. v. Liberty Mut. Ins. 
Co., 410 Mass. 117, 123 (1991) (recognizing that "consent-to-
settlement . . . and cooperation provisions . . . give an 
insurer the opportunity to protect its interests," and where 
insured commits breach of one of these provisions, insurer may 
disclaim liability where it proves actual prejudice from 
breach); MacInnis v. Aetna Life & Cas. Co., 403 Mass. 220, 223 
(1988) ("an insurer must prove material prejudice resulting from 
its policyholder's violation of a consent-to-settlement 
provision in order to rely on that violation as an affirmative 
27 
 
 
defense to a claim for underinsured motorist coverage 
benefits"). 
 
But where, as here, the insurer agrees to pay for the 
defense of a claim against an insured under a reservation of 
rights, and thereby reserves its right to seek a declaration 
from a court that it owes no obligation to indemnify the insured 
for damages arising from the claim, the insurer has no right to 
control the defense with respect to the settlement of the claim.  
See Three Sons, Inc. v. Phoenix Ins. Co., 357 Mass. 271, 276-277 
(1970).  See also Herbert A. Sullivan, Inc. v. Utica Mut. Ins. 
Co., 439 Mass. 387, 406 (2003) (recognizing that insurer may not 
"reserve its rights to disclaim liability while also insisting 
on retaining control of the insured's defense"); Travelers 
Indem. Co. v. Dingwell, 884 F.2d 629, 639 (1st Cir. 1989) 
("well-established policy that an insurer who reserves the right 
to deny coverage cannot control the defense of a lawsuit brought 
against its insured by an injured party"). 
 
Where an insurer reserves its right to indemnify, the 
insured faces the risk that he or she alone will be responsible 
to pay the judgment.  The insured is entitled to mitigate that 
risk by entering into a settlement that will either protect him 
or her from liability or diminish the amount of a judgment that 
he or she might be obligated to pay.  See Three Sons, Inc., 357 
Mass. at 276 ("If liability is established, or a settlement 
28 
 
 
reached, and the insurer has a valid ground for disclaimer, the 
insured is left with a liability which, had he been able to 
defend or settle on other terms, might never have existed").  
 
Where the insurer has not agreed to pay a judgment, it 
cannot prevent its insured from protecting his or her financial 
interests through a settlement.  See United Servs. Auto. Ass'n 
v. Morris, 154 Ariz. 113, 119 (1987) (en banc) (Morris) ("[a]n 
insurer that performs the duty to defend but reserves the right 
to deny the duty to pay should not be allowed to control the 
conditions of payment"; insured must not be left without 
recourse "to take reasonable measures to protect himself [or 
herself] against the danger of personal liability").  See also 
Miller v. Shugart, 316 N.W.2d 729, 734 (Minn. 1982) ("insurer 
who is disputing coverage [may not] compel the insureds to 
[forgo] a settlement which is in their best interests").  
Therefore, an insured does not commit a breach of this provision 
of its policy by settling a case without the insurer's consent 
where the insurer is defending the claim under a reservation of 
rights. 
 
Such a settlement, if enforceable, would certainly bind the 
parties to the settlement; it is quite a separate issue whether 
it would bind the insurer where the insurer is not a party to 
the settlement and did not consent to it.  Commerce contends 
that it should not in any way be bound by the 
29 
 
 
settlement/assignment agreements executed by the estate and the 
Padovanos, which provided that 
 the insured defendants agreed to admit liability for 
negligence, to have the amount of damages determined by the 
judge at an assessment of damages hearing, and to assign 
all rights arising from their insurance coverage to the 
plaintiff; and 
 the plaintiff agreed to release the defendants from all 
liability arising from the incident. 
 
Here, Commerce was not bound by the parties' stipulation of 
negligence; the judge who granted Commerce declaratory judgment 
made a de novo determination that Stephen's death arose from 
Matthew's intentional act and was not an accident.  See 14 
Couch, supra at § 199:48, at 199-93, citing Morris, 154 Ariz. at 
120-121 ("upon entry of a settlement agreement between the 
claimant and [insureds] who were being defended under a 
reservation of rights . . . , the liability insurer was not 
bound by the settlement stipulations that the actions giving 
rise to the claim were either negligent or intentional, and the 
insurer could litigate the issue of intentional acts").  Nor 
will it be bound, under its optional bodily injury coverage, to 
pay the damages determined at the assessment hearing, because it 
obtained a declaratory judgment that it was not obligated to pay 
these damages. 
30 
 
 
 
But where Commerce recognized its duty to defend, and paid 
the compulsory bodily injury coverage of $20,000, it does owe a 
duty under its policy to pay "[i]nterest that accrues after 
judgment."  Therefore, the issue we confront is whether it is 
bound to pay such interest on the judgment arising from the 
settlement.  If so, its liability to pay postjudgment interest 
would well exceed $2 million, far more than the $480,000 limit 
of liability for optional bodily injury coverage under the 
policy, which it has no obligation to pay following the 
declaratory judgment. 
 
We have yet to decide whether the amount of a prejudgment 
settlement/assignment agreement is enforceable against the 
insurer.  We have recognized that, where an insured tortfeasor 
defendant enters into a prejudgment settlement with an injured 
plaintiff in which the defendant assigns his or her rights to 
the plaintiff in return for a release from personal liability, 
there is the risk that "collusion may exist between the injured 
party and the tortfeasor."  Campione v. Wilson, 422 Mass. 185, 
193 (1996).  This is because, as a result of such a settlement, 
"the insured . . . loses the incentive to contest his liability 
or the extent of the injured party's damages either in 
negotiations or at trial."  Id. at 191, quoting Freeman v. 
Schmidt Real Estate & Ins., Inc., 755 F.2d 135, 139 (8th Cir. 
1985).  See Spellman v. Shawmut Woodworking & Supply, Inc., 445 
31 
 
 
Mass. 675, 681 (2006) (where there is agreement for judgment, 
assignment of rights, and covenant in assignment not to pursue 
satisfaction of agreement against defendant, "we do not overlook 
the possibility of collusion or fraud"). 
 
But we do not join the minority of States that, because of 
the risk of collusion, declare such settlement/assignment 
agreements to be unenforceable where an insurer has honored its 
duty to defend.  See, e.g., Associated Wholesale Grocers, Inc. 
v. Americold Corp., 261 Kan. 806, 846 (1997) ("an insurance 
company should not be required to settle a claim when there is a 
good faith question as to whether there is coverage under its 
insurance policy"); State Farm Fire & Cas. Co. v. Gandy, 925 
S.W.2d 696, 713-714 (Tex. 1996) (concluding that prejudgment 
settlement/assignment agreement "confuse[s] and distort[s]" 
positions of parties, and prohibiting such agreements under 
certain circumstances where defendant's insurer has made good 
faith effort to adjudicate coverage issues prior to adjudication 
of plaintiff's claim).  See also State Farm Mut. Auto. Ins. Co. 
v. Freyer, 2013 MT 301, ¶¶ 36-38 (stipulated settlement that 
relieves insured of any financial stake in outcome of case gives 
insured "little incentive to minimize the settlement amount" 
and, if permitted, "would allow insureds to unilaterally inflate 
policy limits anytime an insurer tests coverage through a 
declaratory action"). 
32 
 
 
 
If we were to declare such settlement/assignment agreements 
always to be unenforceable, we would effectively prevent 
defendants whose insurer has offered a defense under a 
reservation of rights from being able to protect themselves from 
the risk that they will be held personally responsible to pay a 
judgment that they could ill afford.  See Morris, 154 Ariz. at 
118 (insured party, if prohibited from entering into settlement 
while defended under reservation of rights, "risk[s] financial 
catastrophe").  Moreover, the risk of collusion must be balanced 
against policy considerations that encourage settlement 
agreements, and "by settled law that most contract claims are 
assignable" and that "contracts not to sue . . . are usually 
valid."  Spellman, 445 Mass. at 681-682. 
 
Balancing these risks and benefits, we conclude that an 
insurer who defends a claim under a reservation of rights is 
bound by the amount of a judgment arising from a prejudgment 
settlement/assignment agreement where (1) the insurer is given 
notice of the settlement/assignment agreement and an opportunity 
to be heard by the court before judgment enters; (2) the insurer 
contests the judgment; and (3) the insured, after hearing, meets 
his or her burden of showing that the settlement is reasonable 
in amount.  See Patrons Oxford Ins. Co. v. Harris, 2006 ME 72, 
¶ 18, quoting Morris, 154 Ariz. at 120 (settlement/assignment 
agreements are valid where "the insured or claimant can show 
33 
 
 
that the settlement was reasonable and prudent"); Miller, 316 
N.W.2d at 735 ("The burden of proof is on the claimant . . . to 
show that the settlement is reasonable and prudent"). 
 
In deciding whether a settlement/assignment agreement is 
reasonable, a judge, examining the totality of the circumstances 
at a reasonableness hearing, should determine whether the amount 
of the settlement is reasonable in light of "the facts bearing 
on the liability and damage aspects of plaintiff's claim, as 
well as the risks of going to trial."  Miller, 316 N.W.2d at 
735.  See Patrons Oxford Ins. Co., 905 A.2d at 827 (in 
determining reasonableness of settlement, judge should consider 
"the possibility of the insured's liability, risk of an adverse 
verdict, and the damages portion of the claimant's case").  
Because the consequence of a settlement/assignment agreement is 
that the plaintiff may collect damages only from the insurer, 
having released the insured defendants from personal liability, 
a reasonable settlement amount may not exceed the limits of the 
insured's potential insurance coverage, because the plaintiff 
may recover in damages no more than that from the insurer.  See 
Kelly v. Iowa Mut. Ins. Co., 620 N.W.2d 637, 644-645 & n.6 (Iowa 
2000) (noting that insurer has "no obligation" to pay settlement 
amount "in excess of its [policy] limits").  See also Babcock & 
Wilcox Co. v. American Nuclear Insurers, 635 Pa. 1, 30 n.18 
(2015) (unless insurer acts in bad faith, reasonable settlement 
34 
 
 
"confined to the previously contracted policy limits").  And 
where optional bodily injury coverage, as here, requires a 
finding that the plaintiff's injuries were caused by an accident 
rather than by intentional conduct, the probability of such a 
finding may also be considered in determining the amount of a 
reasonable settlement.  See Miller, supra (highlighting 
importance of considering risk of adverse verdict); Patrons 
Oxford Ins. Co., supra (same). 
 
Binding an insurer to the amount in a settlement/assignment 
agreement that meets a reasonableness test is consistent with 
the approach of the majority of courts, which allow such 
agreements if they meet certain conditions.  See Great Divide 
Ins. Co. v. Carpenter, 79 P.3d 599, 610 (Alaska 2003) (approach 
declaring settlement/assignment agreements void as against 
public policy contrary to Alaska case law and "contrary to the 
decisions of most of the other states whose courts have ruled on 
the validity" of such agreements); Harris, Judicial Approaches 
to Stipulated Judgments, Assignments of Rights, and Covenants 
not to Execute in Insurance Litigation, 47 Drake L. Rev. 853, 
859 & n.31 (1999) (collecting cases where "[m]ost courts" have 
permitted settlement/assignment agreements).  The majority 
approach allows unauthorized settlements with stipulated 
liability to be enforced "so long as such agreements are made 
fairly, with notice to the insurer, and without fraud or 
35 
 
 
collusion on the insurer, and the settlement is reasonable and 
prudent" (footnote omitted).  14 Couch, supra at § 199:48, at 
199-92. 
 
We focus only on reasonableness, rather than "collusion," 
because every settlement/assignment agreement risks being 
characterized as "collusive" simply because the parties have 
negotiated a settlement where only the insurer is at risk of 
paying the plaintiff's damages and the defendant will be 
released from liability.  But if this is enough to defeat a 
settlement/assignment agreement, then all judgments arising from 
such agreements will be deemed unenforceable against the 
insurer, regardless of the amount.  Where the insurer expresses 
concern that the plaintiff and the insured defendant have 
colluded to improperly inflate the judgment, that concern may be 
considered in evaluating the reasonableness of the settlement 
amount. 
 
In the wrongful death action, Commerce objected on the 
record to the settlement/assignment agreements between the 
estate and the Padovanos.  We conclude that, in doing so, it 
preserved its right to be heard on the question whether the 
amount of the settlement was reasonable in the manner we have 
now described.  The settlement/assignment agreements here are 
not immune from a reasonableness review simply because the 
parties elected to have the amount of damages determined by a 
36 
 
 
judge at an assessment of damages hearing.  For all practical 
purposes, by agreeing that damages will be so calculated, the 
parties essentially agreed that the settlement amount is the 
amount of damages that would have been awarded had liability 
been found at a bench trial, without any compromise of the 
amount based on the risk of a finding that the defendants were 
not negligent. 
 
Because no reasonableness review was conducted, we vacate 
the judgment and remand the case to the Superior Court for a 
hearing on the reasonableness of the settlement/assignment 
agreements.  Where the amount of the judgment arising from the 
settlement/assignment agreements was greater than $500,000, the 
limits of the insured's combined mandatory and optional bodily 
injury coverage, we conclude that the amount obtained through 
the settlement is per se unreasonable.  But a reasonableness 
hearing is needed to allow the judge to determine what would 
have been a reasonable settlement amount under the 
circumstances, and a new judgment in that amount shall enter.  
Postjudgment interest will accrue nunc pro tunc from the date of 
the original judgment, December 29, 2016, on the judgment amount 
that the court deems reasonable. 
 
We note that the procedure we direct on remand is different 
from what we expect to happen in the future where an insurer 
successfully challenges a settlement/assignment agreement before 
37 
 
 
judgment.  Where the challenge is made before judgment enters, a 
judge who decides that the amount set forth in (or determined 
by) the settlement/assignment agreement is not reasonable may 
decline to enter a judgment in that amount, and invite the 
parties to renegotiate an agreement that might prove reasonable 
in amount.  Here, where so much time has passed since the 
judgment entered, we do not believe that to be a reasonable 
alternative under the circumstances.  We therefore direct the 
judge instead to make his or her own determination of a 
reasonable settlement amount so that postjudgment interest may 
be paid on that amount. 
 
Conclusion.  The orders denying Commerce's motions to stay 
the wrongful death action and denying Commerce's rule 67 motion 
are affirmed.  The entry of judgment in the wrongful death 
action is vacated, and the matter is remanded for a 
reasonableness hearing to be conducted in a manner consistent 
with this opinion. 
 
 
 
 
 
 
 
So ordered.