Source: https://www.bwglaw.com/bad-faith-litigation-in-massachusetts-the-plaintiff-s-perspectiv.html
Timestamp: 2019-04-21 08:25:49+00:00

Document:
Since its enactment in 1967, G.L. c. 93A, the Massachusetts Consumer Protection Act, has grown to be one of the most important adjuncts to the litigation of personal injury and other insurance-related claims in Massachusetts. The revisions to G.L. c. 176D, the Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance Act strengthened the protections to Massachusetts consumers, be they third party claimants seeking damages, or the insured herself seeking indemnification or other contractual benefits.
This article will trace some of the origins of the law and its evolution leading up to the most recent developments in theories of liability against insurers and their agents. This article will also explore the methods of presenting and preserving claims and the means to be utilized to obtain maximum recovery against insurers on behalf of the client.
(a) Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.
For individual consumers, the remedies are set forth in G.L. c. 93A, § 9. (See the Appendix for the full text of this section.) The requirements of this section are straightforward. The claimant must make a written demand for relief, setting forth the unfair and deceptive acts with reasonable specificity. The claimant must describe the damages he or she sustained, and make an appropriate demand for relief. The claimant must also notify the respondent that they might be liable for multiple damages, attorneys' fees, interest and costs if they fail to make an appropriate response within thirty days. If an appropriate offer is not received after thirty days, the claimant may bring suit on the claim.
Section 9 was amended in 1979 to make clear that claims against insurers for violations of G.L. c. 176D, § 3, clause 9 (see full text below), were specifically included in the Act's declaration of unfair and deceptive acts. Thus, for example, insurers who failed "to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear" (in violation of G.L. c. 176D, § 3(9)(f)) were clearly liable under G.L. c. 93A.
(a) Misrepresenting Facts of Provisions: This section would appear to be for the benefit of both insureds and third parties, though no reported cases have dealt directly with this issue. There is a companion statute, G.L. c. 175, § 112C, which requires insurers to disclose liability coverages upon written demand. Furthermore, Mass. R. Civ. P. 26 specifically provides for disclosure of insurance information, and Mass. R. Civ. P. 26(e) requires supplementation of discovery responses if previously supplied information is found to be inaccurate. A violation of any of these laws would most likely be a strong basis for a bad faith claim, assuming damages resulting therefrom could be demonstrated.
(b) Failing to Communicate Promptly: This section also benefits both insureds and third parties. Although this section provides useful standards for the evaluation of the manner in which a claim was handled, it is unlikely to provide the sole basis for a damages claim against an insurer. However, the repeated failure of an insurer to respond to written demands for information or for relief will most certainly buttress claims under subsection (f). See, Brandley v. U.S. Fidelity & Guaranty Co., 819 F.Supp. 101 (D.Mass. 1993) (opinion vacated and withdrawn upon reconsideration).
(c) Failing to Adopt and Implement Reasonable Standards: This section also benefits both the insured and the third party. It also is unlikely to be the sole basis of a bad faith claim, but it prescribes a useful standard against which to measure the insurer's conduct. Since the section requires standards to be adopted by the insurer, discovery should focus on the existence of the standards and adherence to the standards. Evidence at trial should include an analysis of the adequacy of the standards, and any deviations from the standards themselves, or from more general standards prevailing in the industry.
(d) Refusing to Pay Claims Without Conducting Reasonable Investigation: As with subsection (c), this section is also unlikely to be the sole basis for a bad faith claim, but it provides another basis for developing evidence of the insurer's misconduct.
(f) Failing to Effectuate Prompt, Fair Settlement: This is the most commonly used subsection. The first requirement is that liability must be reasonably clear. Liability in this sense would include not only the liability for the cause of the injury, but also for the damages alleged. The test is an objective one. Demeo v. State Farm Mutual Automobile Insurance Co., 38 Mass. App. Ct. 955 (1995). In other words, would a reasonable person, with knowledge of the relevant facts and law, probably conclude, for good reason, that the insurer was liable to the plaintiff. Id. at 956-957.
(g) Compelling an Insured to Institute Litigation: This section is solely for the benefit of the insured.
(m) Failing to Settle Portions of a Claim in Order to Influence Settlements under other Provisions: There are times where a party may have claims under two or more sections of an insurance policy. Each claim is entitled to be treated as a separate claim, and it is improper for the insurer to insist on wholesale settlement of all claims, or to use any of the claims to its tactical advantage in settling other claims.
(n) Failing to Explain Basis of Denial: In the event the insurer denies a claim, the claimant is entitled to a reasonable factual or legal explanation. Thus, vague explanations are unacceptable; a detailed basis must be provided.
As mentioned above, the insurance agreement between the insurer and the insured is an enforceable contract and any bad faith denial of a claim presented by an insured gives rise to an action in contract, as well as the collateral actions for violations of G.L. c. 93A and G.L. c. 176D. These are the types of claims first recognized under G.L. c. 93A.
The third party claims can be divided into two categories. The first encompasses those claims which arise from the misconduct of the insurer, which misconduct gives rise to injury to the insured. For example, the bad faith refusal on an insurer to settle a claim may expose the insured to a large excess judgment. The second category is the direct claim of the third party against the insurer for its bad faith.
This class of cases has its roots in DiMarzo v. American Mutual Insurance Company, 389 Mass. 85 (1983). In DiMarzo, the injured plaintiff, who had been seriously injured, offered to settle his bodily injury claim for the insured's policy limits of $20,000.00. The insurer refused to offer its limits, claiming that it was entitled to an offset for the Personal Injury Protection benefits of $2,000.00 it had paid, as well as an offset for some administrative charges. The plaintiff refused this diminished offer and obtained a verdict of $75,000.00 at trial. Thereafter, plaintiff sought and obtained an assignment of the insured's bad faith claim against American Mutual. He sought and obtained multiple damages against American Mutual based on its bad faith failure to offer the policy limits of $20,000.00. The Supreme Judicial Court found no good faith basis in American Mutual's position on the law and further found that its misconduct had indeed exposed the insured to the excess liability. The court ultimately affirmed the award of multiple damages, and after minor changes in the calculation of the damages award to avoid duplicate payment ordered entry of judgment which, with interest, exceeded $500,000.00.
As Justice Hennessey noted in his concurrence, one of the effects of the Consumer Protection Act may be at the expense of other consumers namely, the insureds of a mutual company.
It may be that the threat of c. 93A may hurt the bargaining position of insurers in many other cases, even in cases where controversy is rooted in genuine differences of opinion and there is no bad faith on the insurer's part. If the large ultimate judgment here is an unexpected effect of c. 93A, it ensues, not from the application of any new or surprising legal principles, but from the large amount of actual damages, to which are applied, as permitted by statute, punitive multiple damages and a proportionate lawyer's fee. Arguments that no such results were ever contemplated, that persons insured in mutual companies, indeed in all insurance companies, are the losers, and to that extent the effect is anti-consumer, are policy arguments and are more appropriately addressed to the Legislature than to the courts. Id. at 109.
Claims may also arise from the misconduct of the insurance company directly to the third party claimant. The courts are increasingly recognizing that the duty of the insurer includes not only the duty to indemnify the insured, and to provide an adequate defense, but also the duty to the third party claimant to resolve his or her claim. Most recently, the Supreme Judicial Court has affirmed that the insurer owes this duty to the claimant as a third party beneficiary of the contract of insurance. Clegg v. Butler, 424 Mass. 413, 418-419 (1997); Flattery v. Gregory, 397 Mass. 143, 150 (1986). This principle has also been extended to the point that the insurer may not insist on a release or dismissal and must pay the liability insurance policy limits to an injured claimant when liability is not disputed and damages clearly exceed the policy limits. Thaler v. The American Insurance Co., 34 Mass. App. Ct. 639 (1993). The most common basis for this type of claim is the violation of G.L. c. 176D, § 3(9)(f), failure to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
Of course, a party may be in the position to pursue multiple G.L. c. 93A claims against an insurance company. A party may be in the position to step into the shoes of the insured on an assignment and may also have direct claims against the insurer for failure to effectuate the settlement when liability is clear. It is the attorney's responsibility to develop maximum pressure for settlement, and maximum opportunity for punitive damages, through the development of the case.
First, a philosophical note: While c. 93A is one of the great tools to bring pressure for settlement, it is not a proper tool in every case. The matter of disputed negligence, disputed causation, or disputed damages does not lend itself well to c. 93A claims. The lawyer who over-utilizes c. 93A creates unnecessary excess animosity, may develop a reputation for empty threats, and certainly dilutes the overall forcefulness of this remedy. In other words, the c. 93A demand should be saved for the exceptional case, but then it should be pursued with zeal.
The first essential ingredient is full cooperation with the insurance company. Clean hands and an open file are mandatory. Timely production of relevant medical information, relevant lost wage information, and responses to reasonable requests for other information will enable the reviewing court to look upon the plaintiff's conduct with favor. Although "reverse bad faith" is clearly not a remedy the insurer has available, there have been comments, perhaps foreshadowing, of such a remedy on the horizon. See, e.g., DiVenuti v. Reardon, 37 Mass. App. Ct. 73, 80 (1994).
Along with the timely production of information should come the timely and detailed demand for settlement. Any failure of the insurer to respond within thirty days to the demand for settlement should be met with a steady stream of written requests for follow-up, which should escalate, after a decent interval, into formal written demands under G.L. c. 93A.
The process for making the demand is detailed in G.L. c. 93A, § 9. The demand should include a detailed statement of the misconduct, with appropriate citations to the relevant violations of G.L. c. 176D; a statement of the damages incurred by the client (e.g., loss of the use of the money); references to the possibility of the awards of multiple damages and attorneys' fees if the claimant is successful; notice that a response should be made within thirty days; and a reasonable demand for settlement. The absence of these matters from the letter, or the inclusion of a wildly excessive demand, may render the c. 93A letter inadequate, thus voiding the remedy. See, Cassano v. Gogos, 20 Mass. App. Ct. 348, 350 (1985); York v. Sullivan, 369 Mass. 157, 162 (1975); Spring v. Geriatric Authority of Holyoke, 394 Mass. 274, 288 (1985). The demand should also include appropriate attachments, such as previous demand letters and other previous correspondence. Remember: The purpose of this letter is not just to advise the insurer of the impending intent to invoke c. 93A; the purpose is also to make a record which the court may someday be reviewing in detail.
In many cases the demand for relief may include a demand for the policy limits. If the value of the case is at or near the limits of the available insurance coverages, an offer to settle the matter either for the policy limits, or within the policy limits, will activate the remedies available under DiMarzo v. American Mutual Insurance Company, 389 Mass. 85 (1983). In other words, in order to establish the causal nexus between the damages suffered by the insured and the failure of the insurer to settle the matter within the policy limits, the plaintiff must demonstrate that the case would have been settled for that amount. The written offer to do so creates the necessary proof. However, if the intent is to pursue the possibility of a larger judgment against the insured individually, then a demand pursuant to Thaler v. The American Insurance Co., 34 Mass. App. Ct. 639 (1993) is the appropriate measure.
The bad faith claim may be filed with the underlying claim, or separately. If filed with the underlying claim, then most defendant insurance companies will seek a stay of the proceedings against them, arguing that the file materials carry a qualified privilege, and that their revelation during the pendency of the underlying claim will prejudice the defense of the insured. Often the courts will be sympathetic to a compromise to seek only non-privileged materials pending the resolution of the underlying claim. However, the matter of stay is largely one of discretion, and thus the matter will depend largely on the judge considering the motion.
Discovery of the c. 93A case should focus on several different areas. First, there is little doubt that every insurance company maintains some procedures for accepting, reviewing, and settling claims. These must be obtained, and every action of the adjusters must be measured against the internal standards. It will be the exceptional case indeed in which the adjusters will be able to claim a strict adherence to internal guidelines. Discovery must then focus on each of the actors involved in the handling of the claim. Each adjuster, and each supervisor who shared any supervisory responsibility for the file should be deposed; these will be the witnesses at trial. In addition, look beyond the insurance company to outside adjusters, investigators, and so-called independent examiners. The reports these individuals generate may be based upon faulty assumptions, misinformation, or information gathered as a result of misconduct, e.g., improper contact with the claimant or the claimants' treating physicians. Conduct whatever additional discovery is necessary to uncover such misconduct. The courts should allow discovery of the bulk of the claims file, even if the demand is made during the pendency of the underlying action. See Nazzaro v. Cummings, Suffolk C.A. No. 95-2159 (Memorandum of Decision on Plaintiff's Motion to Compel Production of Documents, November 6, 1995).
Consideration must be given to the use of an expert witness. An expert witness may be used to develop the standards of care in the industry, and to give opinions on when the case should have been settled and the settlement value of the case. The decision whether to call the expert at trial will often be a tactical one, but in any event the expert should be retained, expert interrogatories should be answered, and the witness should be prepared for the trial. Short of trial, the expert will be useful at identifying potential discovery areas you may have overlooked, particularly if your experience in this type of case is limited.
The case of Hartford Casualty Insurance Company v. New Hampshire Insurance Company, 417 Mass. 115 (1994) recently redefined the measure of proof required in a c. 93A case. The court declared that the standard for review shall be the negligence standard. Id. at 120. The court stated, "The negligence standard by which the actions of an insurer concerning settlement will be tested hereafter will be in practice not significantly different from the good faith test that has been evolving in this Commonwealth. The test is not whether a reasonable insurer might have settled the case within the policy limits, but rather whether no reasonable insurer would have failed to settle the case within the policy limits." This test requires the insured (or its excess insurer) to prove that the plaintiff in the underlying action would have settled the claim within the policy limits and that, assuming the insurer's unlimited exposure (that is, viewing the question from the point of view of the insured), no reasonable insurer would have refused the settlement offer or would have refused to respond to the offer.
Causation is an element of the plaintiff's case. An insurer will not be found to have acted in bad faith, even if it was lacking a basis for denying a claim at the time a denial was made, if it later obtains an expert's opinion that the case is defensible. Van Dyke v. St. Paul Fire & Marine Ins. Co., 388 Mass. 671 (1983). This matter was illustrated as well in Parker v. D'Avolio, 40 Mass. App. Ct. 394 (1996) a lead poisoning case. In Parker, the defendant had what the court considered a reasonable opinion from a medical expert which was in sharp disagreement with the opinions of plaintiff's experts. The jury at the housing court trial found in favor of the plaintiff (to the tune of $1,250,000), and the housing court justice awarded c. 93A damages as well. The Appeals Court reversed; based upon its review of the record, no bad faith was evident. In its conclusion, the court discussed the very narrow grounds upon which c. 93A damages might be appropriate.
The c. 93A claim is a non-jury claim, though the trial justice may agree to employ an advisory jury. In either case, a thorough trial brief is an essential introduction to the case for the judge. As with any other trial, important cases should be reproduced and included with the trial brief. Begin preparing the Requests for Findings of Fact and Rulings of Law before the trial in order to focus your attention on the essential elements of proof in the case.
There are three theories to keep in mind. The first is the type of damages obtained by the plaintiff in the case of DiMarzo v. American Mutual Insurance Company, 389 Mass. 85 (1983). In that case the plaintiff recovered the entire judgment amount, even though it greatly exceeded the amount of insurance available ($20,000.00), because the plaintiff was able to step into the shoes of the insured, who had suffered an excess judgment, by taking an assignment of his claim.
The success of the plaintiff in the DiMarzo case fueled a number of claims, with plaintiffs assuming they would recover some multiple of their damages which the insurance companies had wrongfully withheld. This wave of litigation came up short, however, after the court's ruling in Wallace v. American Manufacturers Mutual Insurance Company, 22 Mass. App. Ct. 938 (1986). In Wallace, the court held that the measure of damages for the claimant who had wrongfully been deprived of an insurance settlement was the loss of the use of the money, which amount was subject to multiple damages. Thus, Mr. Wallace, whose car had been stolen, and who had to incur rental charges, was not entitled to a multiple of the sum of the value of the car plus rental charges (a figure of $4,950.00). Rather, he was entitled to receive the loss of the use of this money computed at the statutory rate, which amount was doubled, plus his consequential damages (excess rental charges), which were doubled.
The statute took effect on March 5, 1990, and governs all claims which arise after that date. Greelish v. Drew, 35 Mass. App. Ct. 541, 543-545 (1993).
It is an unfortunate reality that, despite the reasonably clear intent of the proponent of the 1989 amendment, the statute has had little effect on the damages to be granted by the courts. Now, roughly ten years later, no claimant has recovered damages based upon a multiple of the "same and underlying judgment." It is now perfectly clear that the larger damages envisioned by the statute will be reserved for an extremely narrow class of cases, and will be granted only when the underlying matter has gone to judgment, and only when bad faith can be demonstrated.
The courts first indicated that the requirement of a "judgment" would be strictly construed in the case of Bonofiglio v. Commercial Union Insurance Co., 412 Mass. 612 (1992). The claimants in Bonofiglio sought bad faith damages for the delay in the settlement of an uninsured motorist claim. They sought to obtain a multiple of the arbitration award as damages, but the court held that they were only entitled to the loss of the use of the funds to which they had been entitled. An arbitration award was not considered to a judgment under § 9.
The next wrinkle in the case law came with Cohen v. Liberty Mutual Ins. Co., Mass. App. Ct. , (1996). In Cohen, Liberty Mutual had failed to acknowledge its insurance coverage of a defendant motorist. The matter went to judgment against the motorist; Liberty failed to defend. Upon reflection and further investigation, Liberty Mutual discovered that it had, indeed, insured the responsible automobile. Thereafter, according to the courts, Liberty Mutual engaged in a bad faith attempt to avoid payment. Despite a judgment greatly in excess of the policy amount of $20,000.00, the court found that the c. 93A violations by Liberty Mutual only caused damages in the amount of $20,000.00, the amount that Liberty Mutual would have been required to pay if it had defended properly. The reasoning of the court appears to rest upon the fact that at the time the judgment against Liberty's insured entered, Liberty Mutual was still operating in good faith; it had merely neglected to discover its coverage due to clerical error.
In the case of Clegg v. Butler, 424 Mass. 421 (1997), the court declined to allow the plaintiff to collect multiple damages on a settlement amount when the matter was settled shortly before trial. Mr. Clegg had been badly injured in an automobile accident. The defendant in the automobile accident case was insured by Utica Mutual for $250,000, and by an excess carrier for $1,000,000. Utica Mutual steadfastly refused to tender its policy limits, and thus the settlement negotiations with the excess carrier could not be undertaken. Shortly before trial, Utica Mutual tendered its policy limits, the excess carrier promptly paid an additional $425,000, settling the underlying claim for a total of $675,000. The trial court found, and the Supreme Judicial Court affirmed, that Utica Mutual had acted in bad faith and that plaintiff was entitled to treble damages. Plaintiff attempted to enforce the terms of the release, accepted by Utica Mutual, which called for the entry of judgment. The trial justice had denied the motion for entry of judgment and the Supreme Judicial Court affirmed, holding that the settlement did not constitute a judgment. The matter was remanded to the Superior Court for re-calculation of the judgment, which was to be based on the plaintiff's loss of use of money. The period for calculation of the damages was the date that the excess carrier would likely have settled, up to the time the plaintiff received the settlement funds. Upon re-trial, plaintiff obtained a judgment of just under $675,000, inclusive of attorneys' fees and costs.
The judgment question was next visited in Yeagle v. Aetna Casualty & Surety Co., 42 Mass. App. Ct. 650 (1997). Mr. Yeagle had been unable to resolve his personal injury case with Aetna and the matter was tried to a verdict. After the c. 93A trial, Mr. Yeagle recovered an award of single damages in the Superior Court for Aetna's c. 93A violations in the handling of the case. The trial justice applied the 1989 amendment to G.L. c. 93A, § 9 and awarded one times the judgment in the case. However, on appeal, the judgment was reversed. The Appeals Court, seemingly ignoring rather plan statutory language, reasoned that the c. 580 was meant to apply only to awards of multiple damages, and that awards of single damages would still only consist of damages for loss of the use of the money.
Most recently, the Supreme Judicial Court in Kapp v. Arbella Mutual Insurance Company, 426 Mass. 675 1988), affirmed that without a judgment in the underlying case, the c. 93A damages will be limited to loss of the use of the money. In Kapp, the plaintiff recognized that liability was absolutely clear, and the damages clearly exceeded the policy limits. Plaintiff was entitled to the policy limits under Thaler, but the insurer refused to tender the limits without a release. Plaintiff brought suit against the insurer for its c. 93A violations, and the trial court found in his favor. The trial court found, and the Supreme Judicial Court affirmed, that the damages would be limited to loss of the use of the money absent the judgment on the underlying matter, namely the tort action against the insured. The lesson is that the underlying matter must be litigated to conclusion in order to trigger the larger damages under c. 580. In addition, the Kapp court cited the Yeagle case with approval, thus affirming the notion that in single damages cases, the damages will be only for the loss of the use of the money.
The lessons of the last year of c. 93A jurisprudence are now perfectly clear in one respect: Absent a judgment on the underlying tort action, damages will be limited to the loss of the use of the money. It is essential that one not try to put the cart before the horse; the underlying matter must be litigated first. While the courts have indicated a readiness to accept the notion that an appropriate judgment may be multiplied, see Miller v. Risk Management Foundation, 36 Mass. App. Ct. 411, fn. 15 (1994), that award has proved elusive for the last nine years.
This article was first published by the Massachusetts Bar Association in connection with its G.L. c. 93A and c. 176D Update educational program.

References: § 9
 § 3
 § 3
 § 112
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 3
 v. 
 § 9
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 9
 v. 
 v. 
 v. 
 § 9
 v. 
 v.