Opinion ID: 202661
Heading Depth: 3
Heading Rank: 1

Heading: Unfair Trade Practices Determination

Text: 31 The Massachusetts Supreme Judicial Court has concluded that a violation of General Laws chapter 176D, § 3, which defines unfair claim settlement practices in the insurance industry, is evidence of an unfair business practice under chapter 93A, § 2, which would give rise to a cause of action under chapter 93A, § 11. 6 See Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 610 N.E.2d 912, 917 (1993); see also Peterborough Oil Co. v. Great Am. Ins. Co., 397 F.Supp.2d 230, 244 (D.Mass. 2005) (Unlike in the context of consumer plaintiffs under § 9, a violation of chapter 176D is only evidence of a violation of chapter 93A, § 11.). The question for us then is whether the district court correctly concluded that Federal breached its statutory duties to investigate and to effectuate settlement. 32 With respect to the duty to investigate, the record supports the district court's determination that Federal did not conduct a reasonable investigation before filing its suit for rescission. Specifically, the district court found that MacKay never confirmed her tentative conclusion regarding Morrison's authority over the accounts in question, and no one at Federal ever attempted to contact HPSC to obtain more information regarding the apparent discrepancy between HPSC's answer to Question 12 on the renewal application and the conclusions in the PwC report. 7 Thus, other than reviewing the materials submitted with HPSC's claim, it appears that Federal did no investigation of the available facts before denying coverage. Consequently, the district court correctly concluded that Federal's failure to investigate breached its statutory duty under chapter 176D, § 3(9)(d). 33 The record also supports the district court's finding that Federal breached its statutory duty to effectuate settlement. An insurer's duty to make a settlement offer arises when liability has become reasonably clear. Mass. Gen. Laws ch. 176D, § 3(9)(f). The determination as to when liability is reasonably clear depends on when a reasonable person, with knowledge of the relevant facts and law, would probably have concluded, for good reason, that the insurer was liable to the plaintiff. Nyer v. Winterthur Int'l, 290 F.3d 456, 461 (1st Cir.2002) (quoting Demeo v. State Farm Mut. Auto. Ins. Co., 38 Mass.App. Ct. 955, 649 N.E.2d 803, 804 (1995)). Here, the district court considered liability sufficiently clear after Federal learned that Morrison did not have reconciliation and check-writing duties with respect to ACFC's fifteen operating accounts. Instead of admitting its error and making a settlement offer, however, Federal changed its legal theory, and when that one failed, Federal again shifted its position, finally settling on the theory that HPSC's misrepresentation regarding the petty cash account was material enough to warrant denying the claim. While we have some doubt that a reasonable person would probably have concluded that Federal was liable on HPSC's claim, we are not prepared to say that the court's conclusion was clearly erroneous. 34 Federal contends that it had a plausible basis for denying coverage at all times, even after it learned that HPSC's only misrepresentation involved the petty cash account, and that an insurer who has a good faith, plausible basis for denying a claim cannot ordinarily be said to have committed a violation of [chapter] 93A. Lumbermens Mut. Cas. Co. v. Offices Unlimited, Inc., 419 Mass. 462, 645 N.E.2d 1165, 1169 (1995). Even if we were inclined to agree that Federal's basis for denying coverage was plausible, in that it was a [s]eemly or apparently valid legal theory, Webster's II New Riverside University Dictionary 901 (1988), the district court explicitly determined, with sufficient support in the record, as explained below, that Federal was not acting in good faith after February 6, 2003. The absence of good faith supports the district court's unfair settlement practice determination, even in the face of a plausible coverage position. See Guity v. Commerce Ins. Co., 36 Mass.App.Ct. 339, 631 N.E.2d 75, 77-78 (1994) (A plausible, reasoned legal position that may ultimately turn out to be mistaken . . . is outside the scope of the punitive aspects of the combined application of c. 93A and c. 176D. An absence of good faith and the presence of extortionate tactics generally characterize the basis for a c. 93A-176D action based on unfair settlement practice. (citations omitted)). 35 In sum, the district court did not clearly err in finding that Federal failed to conduct a reasonable investigation before seeking rescission and then failed to make a settlement offer once liability was reasonably clear, and thus that Federal breached its statutory duties. Therefore, we affirm the district court's legal conclusion that Federal violated chapter 93A by engaging in unfair claim settlement practices as defined in chapter 176D, § 3(9). See Cont'l Ins. Co. v. Bahnan, 216 F.3d 150, 157 (1st Cir.2000) (We are persuaded here . . . that the court's finding that [the plaintiff] satisfied the imperatives of chapter 176D was amply supported by competent and credible evidence. So, too, were the court's fairness determinations under chapter 93A. We need go no further.)