Court Opinion

ID: 2929019
Source: CourtListenerOpinion
Date Created: 2015-09-14 14:05:48.616634+00
Date Added: 2024-06-11T15:22:31.758640
License: Public Domain

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SJC-11791

   JOSEPH P. BOYLE & another1 vs. ZURICH AMERICAN INSURANCE
                            COMPANY.

        Middlesex.     April 6, 2015. - September 14, 2015.

 Present:   Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, &
                            Hines, JJ.

Insurance, Insurer's obligation to defend, Notice, Settlement of
     claim. Notice, Insurance claim. Consumer Protection Act,
     Insurance, Unfair or deceptive act. Practice, Civil,
     Damages.

     Civil action commenced in the Superior Court Department on
June 27, 2011.

    The case was heard by Kenneth W. Salinger, J.

     The Supreme Judicial Court granted an application for
direct appellate review.

     John T. Harding (Rachel M. Davison with him) for the
defendant.
     Michael K. Gillis (David R. Bikofsky & Joseph I. Rogers
with him) for the plaintiff.
     The following submitted briefs for amici curiae:
     Laura Foggan, of the District of Columbia, & Rosanna
Sattler for Complex Insurance Claims Litigation Association.

    1
        Janice M. Boyle.
                                                                   2

     Anthony R. Zelle & Robert J. Maselek, Jr., for
Massachusetts Defense Lawyers Association.
     Charlotte E. Glinka, Thomas R. Murphy, & J. Michael Conley
for Massachusetts Academy of Trial Attorneys.

     LENK, J.   Joseph P. Boyle was injured by an exploding tire

in an automobile repair shop operated by C&N Corporation (C&N).

Joseph2 and his wife, Janice M. Boyle, filed a complaint against

C&N, asserting claims for bodily injury and loss of consortium.

C&N held an insurance policy issued by Zurich American Insurance

Company (Zurich).   The policy required that C&N provide notice

to Zurich of any suit brought against it.    C&N informed Zurich

about Joseph's injury.     It did not notify Zurich about the

lawsuit, but the Boyles' counsel eventually did.     Zurich did not

defend against the suit.     C&N defaulted, and judgment by default

was entered for the Boyles.

     Subsequently, the Boyles brought suit against Zurich,

asserting both their individual claims and the claims of C&N,

which, in the interim, C&N had assigned to the Boyles.     In

return for a negotiated sum of money, the Boyles released the

claims that they had asserted on their own behalf; these

individual claims arose from Zurich's asserted failure to settle

the Boyles' personal injury action when liability had become

reasonably clear.   After a jury-waived trial on C&N's claims

     2
       Because they share a last name, we refer to Joseph P.
Boyle and Janice M. Boyle by their first names.
                                                                    3

against Zurich, a Superior Court judge determined that Zurich

had committed a breach of its contractual duty to defend C&N.

The judge declined to award the Boyles (as C&N's assignees)

multiple damages, costs, and attorney's fees pursuant to G. L.

c. 93A.   The judge also subtracted from the Boyles' damages (as

assignees) the amount that Zurich had agreed to pay to settle

the Boyles' individual claims.   The parties filed cross appeals,

and we granted Zurich's petition for direct appellate review.

    We conclude that the judge did not err in his determination

that Zurich committed a breach of its duty to defend C&N.     In

essence, as we have held in the line of cases proceeding from

Johnson Controls, Inc. v. Bowes, 381 Mass. 278 (1980) (Johnson

Controls), an insured's failure to comply with a notice

obligation in an insurance policy does not relieve the insurer

of its duties under that policy unless the insurer demonstrates

that it suffered prejudice as a result of the breach.     Zurich

has not shown such prejudice.

    We do not disturb the judge's conclusion that Zurich did

not violate G. L. c. 93A.   We do, however, conclude that the sum

agreed upon to settle the Boyles' individual claims should not
                                                                      4

have been subtracted from the damages awarded to the Boyles as

C&N's assignees.3

     1.    Background.   We recite the essential facts found by the

judge, which we accept "unless they are clearly erroneous,"

Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81 (2014), quoting

Makrigiannis v. Nintendo of Am., Inc., 442 Mass. 675, 677

(2004), and which the parties do not challenge, supplemented by

other undisputed information from the record.

     a.    Underlying facts.   C&N operated an automobile repair

shop.    In March, 2006, Nicholas Rago, one of C&N's co-owners,

raised a customer's truck on a lift at C&N's shop.    At Rago's

request, Joseph stepped into the garage to listen to the truck's

transmission.    As Rago revved the engine, one of the truck's

tires exploded, severely lacerating and fracturing Joseph's left

forearm and hand.

     Joseph underwent several surgical procedures, incurring

approximately $106,000 in medical expenses.    He suffered

permanent scarring and partial loss of function in his left arm

and hand.    For approximately one year, Joseph was unable to

work.     Subsequently, he was compelled to seek less-skilled,

lower-paying employment than he previously had held.

     3
       We acknowledge the amicus briefs submitted by the Complex
Insurance Claims Litigation Association, the Massachusetts
Defense Lawyers Association, and the Massachusetts Academy of
Trial Attorneys.
                                                                    5

    C&N carried a "business auto" insurance policy issued by

Zurich, which included liability coverage.    The coverage limit

of that policy was $50,000.    Rago reported Joseph's accident to

his insurance agent, Tarpey Insurance Group (Tarpey), twelve

days after the accident.    Tarpey relayed written notice to

Zurich, which opened a claim file and began an investigation.

    In June, 2006, an investigator for Zurich interviewed Rago,

who described the accident and reported that Joseph was

undergoing surgeries.    That same month, an attorney retained by

the Boyles informed C&N by letter that the Boyles intended to

assert a claim for bodily injury.    This letter was forwarded by

C&N to Tarpey, and by Tarpey to Zurich.    In October, 2006, the

Boyles' attorney wrote to Zurich directly, informing it of the

Boyles' intention to pursue a bodily injury claim and asking for

information about the coverage limits of C&N's policy.    Another,

similar letter, marked "2nd request," was delivered to Zurich in

December, 2006.    Although Zurich was required to provide the

information sought by the Boyles, see G. L. c. 175, § 112C, it

did not respond.

    By October, 2007, Zurich had determined that C&N would be

held liable for Joseph's injuries.   By early 2008, it had

concluded that Joseph's injuries were covered by C&N's policy.

Zurich did not relay these determinations to C&N.    It also did

not attempt to estimate the liability that C&N might face, or to
                                                                     6

settle the Boyles' claims.     Instead, in February, 2008, Zurich

closed its file for the Boyles' claim.

     b.    Suit against C&N.   In August, 2008, the Boyles brought

an action in the Superior Court against C&N,4 seeking damages for

Joseph's injuries and for Janice's loss of consortium.     By that

time, C&N no longer was operating as a business; it had been

administratively dissolved for approximately fourteen months.

C&N did not inform Tarpey or Zurich that the suit had been

filed, and did not forward to Zurich the complaint or other

documents filed in the proceedings.     C&N did not answer the

complaint, and in January, 2009, C&N's default was entered.

     The Boyles then moved for a judgment by default.     In

September, 2009, the Boyles' attorney sent Zurich a letter

stating that a hearing had been scheduled in the Superior Court

to determine the amount of the Boyles' damages.     The letter

specified the docket number assigned to the Boyles' complaint.

Another letter, sent by the attorney later the same month,

informed Zurich that the damages hearing had been postponed

until October, 2009.    That letter also stated the amount of

Joseph's medical expenses, and enclosed copies of his medical

bills.    Upon receipt of these letters, a Zurich clerk scanned

them and added them to the closed file for the Boyles'

     4
         Nicholas Rago also was named as a defendant in that suit.
                                                                     7

complaint.    The clerk did not realize that any other action was

necessary.    Zurich therefore did not move to have C&N's default

set aside; did not contact C&N to discuss the suit; and did not

attempt to settle the suit with the Boyles, or otherwise to

contact them or their attorney.

     The October, 2009, hearing on the Boyles' damages was not

attended by C&N or by Zurich.    After the hearing, the judge

awarded damages of $1.5 million to Joseph and $750,000 to

Janice.   The Boyles also were awarded pre- and postjudgment

interest.    Final judgment was entered against C&N in January,

2010.5

     c.   Suit against Zurich.    In June, 2011, the Boyles

commenced their current suit, also in the Superior Court, naming

Zurich as the defendant.    Among other things, the Boyles

asserted that they were third-party beneficiaries of C&N's

policy, and that Zurich had violated G. L. c. 93A by failing to

settle the Boyles' suit against C&N.     In September, 2013, C&N

was revived by the Secretary of the Commonwealth for a period

not to exceed one year.    Upon being revived, C&N assigned to the

Boyles all of its rights and claims against Zurich, including a

claim that Zurich had committed a breach of its contractual duty

     5
       The judgment was entered jointly and severally against C&N
and Rago, who also had defaulted.
                                                                   8

to defend C&N.6   C&N's claims against Zurich, assigned to the

Boyles, subsequently were consolidated with the Boyles' claims

on their own behalf.

     Several days before the case was scheduled to be tried, the

Boyles and Zurich reached an agreement to settle the Boyles'

individual claims.   The Boyles signed a release relinquishing

any claims they had "in their individual capacities."   In

return, they were to receive $1,324,357, a sum equal to the

amount that had accrued in postjudgment interest on the default

judgment that the Boyles had obtained against C&N.   A release

executed by the Boyles as part of the settlement stated that it

"specifically excludes . . . the rights of the Boyles as

assignees of [C&N] to pursue the full amount of the judgment

entered in [the Boyles' suit against C&N], with interest."

     A jury-waived trial was conducted on the remaining claims,

namely, those that C&N had assigned to the Boyles.   In detailed

written findings, the Superior Court judge concluded that Zurich

had committed a breach of its contractual duty to defend C&N.

The judge determined that Zurich's duty to defend was triggered

by the notice it had received of Joseph's injury (from C&N),

     6
       It is permissible and not uncommon for an insured to
assign his or her rights against an insurer to the injured
party. See Ratner v. Canadian Universal Ins. Co., 359 Mass.
375, 379 (1971); Gore v. Arbella Mut. Ins. Co., 77 Mass. App.
Ct. 518, 526 (2010).
                                                                   9

coupled with its notice of the impending damages hearing

(received from the Boyles' attorney).   Based primarily on the

testimony of a Zurich employee, the judge found that any

reasonable insurer would have attempted, by the time of the

damages hearing, to settle the Boyles' claim for the policy

limit of $50,000.   The judge credited the testimony of the

Boyles and their attorney that if, at that time, Zurich had

offered to settle for the policy limit, such an offer would have

been accepted, and no default judgment against C&N would have

been pursued.

    Accordingly, the judge concluded that Zurich's failure to

defend C&N caused C&N damages in the full amount of the judgment

rendered against it, namely, $2,250,000, plus interest.    The

judge did not, however, award the Boyles (as assignees) multiple

damages, finding no violation of G. L. c. 93A.    At the end of

his order, the judge wrote that "the $1,324,357 in post-judgment

interest that [Zurich] has already agreed to pay to the Boyles

in order to settle their direct claims" would be subtracted from

the award of damages.   Both parties appealed.

    2.   Discussion.    Before us, Zurich contends that its duty

to defend C&N was not triggered at any time, given that C&N

itself never informed Zurich of the Boyles' lawsuit, never

forwarded the complaint and related documents to Zurich, and

never requested that Zurich provide a defense.   The Boyles, for
                                                                    10

their part, challenge the judge's determinations that Zurich

committed no violation of G. L. c. 93A, and that the Boyles'

damages should be reduced by the amount that Zurich had agreed

to pay in order to settle the Boyles' individual claims.

Examining these arguments "without deference [to] the legal

standard which the judge applied," Makrigiannis v. Nintendo of

Am., Inc., 442 Mass. 675, 678 (2004), quoting Kendall v.

Selvaggio, 413 Mass. 619, 621 (1992), we conclude that only the

Boyles' challenge to the subtraction of the settlement payment

from their damages award is meritorious.

    a.    Duty to defend.    "It is well settled in this

jurisdiction that a liability insurer owes a broad duty to

defend its insured against any claims that create a potential

for indemnity."   Doe v. Liberty Mut. Ins. Co., 423 Mass. 366,

368 (1996), citing Liberty Mut. Ins. Co. v. SCA Servs., Inc.,

412 Mass. 330, 332 (1992).     A breach of the duty to defend can

support claims in contract, in tort, and under G. L. c. 93A.

See Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass.

115, 118, 120 (1994).   Closely tied to the duty to defend is an

insurer's obligation "to effectuate prompt, fair and equitable

settlements of claims in which liability has become reasonably

clear."   Id. at 120, quoting G. L. c. 176D, § 3 (9) (f).

    The duty to defend also was incorporated explicitly into

the policy that Zurich issued to C&N, by way of a mandatory
                                                                  11

indorsement approved by the Commonwealth's Division of

Insurance.   Zurich argues, however, that it was not subject to

any duty to defend C&N because of other terms in C&N's policy.

That policy, which (according to the parties) is in widespread

use in Massachusetts, stated that Zurich would "ha[ve] no duty

to provide coverage . . . unless there has been full compliance"

with specified obligations, including the obligation to

"[i]mmediately send [Zurich] copies of any request, demand,

order, notice, summons[,] or legal paper received concerning [a]

claim or 'suit.'"   In Zurich's view, C&N's failure to forward

the Boyles' complaint and related documents to Zurich relieved

Zurich of its duty to defend.

     The approach advocated by Zurich long has been rejected in

Massachusetts, both by way of legislation and in our

jurisprudence.   The Legislature, in 1977, amended G. L. c. 175,

§ 112, to provide that "[a]n insurance company shall not deny

insurance coverage to an insured because of failure of an

insured to seasonably notify an insurance company of an

occurrence, incident, claim or of a suit . . . unless the

insurance company has been prejudiced thereby."   See St. 1977,

c. 437.7   This provision applies to motor vehicle insurance

     7
       Zurich argues that it never "den[ied] insurance coverage"
to C&N Corporation (C&N). We reject the suggestion, implicit in
this argument, that an insurer may avoid the consequences of an
                                                                 12

policies, like the one issued to C&N, and to other policies

insuring against liability due to bodily injury, death, or

property damage.

     Our decision in Johnson Controls, supra, extended the same

treatment to other liability insurance policies.8   The insured in

that case, an attorney, failed to provide his malpractice

insurance carrier with written notification of a claim against

him, and failed also "to forward suit papers" to the insurer,

all "in violation of the provisions of his insurance contract."

381 Mass. at 279.9   We held that, in subsequent cases, an

insurance company seeking to be "relieved of its obligations

under a liability insurance policy . . . on the ground of

untimely notice . . . will be required to prove both that the

otherwise wrongful denial of coverage by ignoring a claim
altogether.
     8
       The approach to notice obligations prescribed by Johnson
Controls, Inc. v. Bowes, 381 Mass. 278, 279 n.2 (1980) (Johnson
Controls), and its progeny concerns "occurrence"-based liability
insurance policies like the one at issue in this case.
Different considerations apply to "claims-made" policies. See
Chas. T. Main, Inc. v. Fireman's Fund Ins. Co., 406 Mass. 862,
863-864 (1990).
     9
       Because the insured in Johnson Controls never provided
notice of the claim against him, Zurich is incorrect in
suggesting that the analysis adopted in that case is restricted
to instances in which the insured did eventually, if belatedly,
provide notice of the suit against it. See Darcy v. Hartford
Ins. Co., 407 Mass. 481, 482-483 (1990). See also Couch on
Insurance § 200:33, at 200-48 (3d ed. 2005) (prejudice
requirement applies to "failure of the insured to give notice").
                                                                      13

notice provision was in fact breached and that the breach

resulted in prejudice to its position."    Id. at 282.

    Our reasoning in Johnson Controls, as we later paraphrased

it, was that "[a] violation of a policy provision should bar

coverage only where the breach frustrates the purpose underlying

that provision."    Augat, Inc. v. Liberty Mut. Ins. Co., 410

Mass. 117, 123 (1991).    Notice requirements are intended to

permit the insurer to undertake a "seasonable investigation of

the facts relating to liability," see Johnson Controls, 381

Mass. at 281, quoting Bayer & Mingolla Constr. Co. v. Deschenes,

348 Mass. 594, 600 (1965), so that it may preserve "an

opportunity to defend effectively."    See Johnson Controls,

supra, quoting Brakeman v. Potomac Ins. Co., 472 Pa. 66, 75

(1977).   These purposes are undermined by an insured's breach

only if the insurer is prejudiced thereby.   See Johnson

Controls, supra at 281.   The contrary approach, which treats a

notice provision as a condition precedent to the insurer's

obligations, results in "a forfeiture, for the carrier

seeks . . . to deny the insured the very thing paid for."       Id.

at 281, quoting Cooper v. Government Employees Ins. Co., 51 N.J.

86, 93-94 (1968).   We noted also in Johnson Controls, supra at

281, quoting Brakeman, supra at 72, that the traditional notion

that courts should not "redraft" policy provisions "fails to

recognize the true nature of the relationship between insurance
                                                                      14

companies and their insureds," insofar as "[a]n insurance

contract is not a negotiated agreement; rather its conditions

are by and large dictated by the insurance company to the

insured."10

     We reaffirmed and fortified the rule of Johnson Controls in

Darcy v. Hartford Ins. Co., 407 Mass. 481 (1990) (Darcy).

There, too, the insured, a corporation, did not notify the

insurer about the lawsuit brought against it.     The insurer

learned of the suit when it was impleaded as a third party into

another action arising from the same underlying accident.       See

id. at 482-483.   The insurer refused to defend its insured

because, among other things, the insured had not provided it

with notice of the suit.   Id. at 484.   The injured parties later

obtained a judgment against the insurer.    Id.   On appeal, we

declined to adopt "a rebuttable presumption of prejudice in

cases where the delay in notifying an insurer of a claim or

possible claim is 'extreme.'"   Id. at 485.   We explained that an

insurer should not be permitted "to avoid liability on the basis

of the possibility, rather than on proof of actual prejudice."

     10
       This is thus a context in which both we and the
Legislature have declined to embrace the customary canon -- on
which Zurich leans heavily in its brief -- that "[a] policy of
insurance whose provisions are plainly and definitely
expressed . . . must be enforced in accordance with its terms."
Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146
(1982), quoting Hyfer v. Metropolitan Life Ins. Co., 318 Mass.
175, 179 (1945).
                                                                    15

Id. at 486.    Rather, the insurer must bear "the burden of

identifying the precise manner in which its interests have

suffered," id. at 487, for instance by showing that the

insured's breach of a notice requirement resulted in "the loss

of critical evidence[] or testimony from material witnesses[,]

despite diligent good faith efforts on the part of the insurer

to locate them."    Id. at 486.

    Both Johnson Controls, 381 Mass. at 278, and Darcy, 407

Mass. at 483, arose from complaints brought by injured parties

on their own behalf, seeking to reach and apply the proceeds of

the insureds' policies.    In Sarnafil, Inc. v. Peerless Ins. Co.,

418 Mass. 295 (1994) (Sarnafil), we applied the same approach to

an insured's complaint for breach of the duty to defend.      The

insured in Sarnafil, like C&N, informed the insurer about the

potential for a claim, but -- in violation of the terms of the

policy -- provided no notice about the initiation of legal

proceedings.    See id. at 298-301.   This court concluded that the

insured's violation of the notice provision would bar coverage

only if the breach frustrated the provision's purpose.     See id.

at 302, 305-306, citing Augat, Inc. v. Liberty Mut. Ins. Co.,

410 Mass. at 122-123, and Darcy, 407 Mass. at 491.    The court

rejected the view, advocated by a dissent, that the purpose of

the notice requirement was frustrated "as a matter of law" by

the insured's failure to "tender[] its defense to [the
                                                                    16

insurer]," id. at 313 (O'Connor, J., dissenting in part), and

that "[b]ecause there was no notice, there was no duty [to

defend]."    Id. at 315 (O'Connor, J., dissenting in part).

Instead, the court held that the insurer would not be excused of

its obligations without a showing of prejudice.    See Sarnafil,

supra at 305-306.11

     We have not seen cause to revise our holdings in Johnson

Control and its progeny.    See, e.g., Mello v. Hingham Mut. Fire

Ins. Co., 421 Mass. 333, 336-337 (1995); Goodman v. American

Cas. Co., 419 Mass. 138, 141 (1994).    See also Pilgrim Ins. Co.

v. Molard, 73 Mass. App. Ct. 326, 336-337 (2008).    The reasoning

of those decisions, described earlier, remains compelling

today.12    Indeed, similar rules have been adopted by a large

majority of other States.    See, e.g., Prince George's County v.

Local Gov't Ins. Trust, 388 Md. 162, 182-188 (2005), and cases

     11
       Under this analytical framework, the court concluded that
a genuine dispute remained as to whether the insurer had
suffered prejudice, precluding summary judgment. See Sarnafil,
Inc. v. Peerless Ins. Co., 418 Mass. 295, 302, 305-306 (1994).
     12
       Two of the amici suggest that a rule permitting an
insured to obtain coverage after failing to comply with a notice
provision opens the door to manipulations by insureds, who may
seek to "undermine the defense" and to "thwart the insurer's
ability to mount an effective, timely defense." But
circumstances in which the defense would be injured in these
ways are precisely those in which the prejudice requirement of
Johnson Controls, 381 Mass. at 282, would be satisfied.
                                                                     17

cited; Couch on Insurance § 199:135, at 199-187 to 199-189 (3d

ed. 2005).13

     Accordingly, C&N's failure to notify Zurich of the

complaint brought by the Boyles did not, standing alone, excuse

Zurich of its duty to defend C&N.   Instead, upon learning from

the Boyles' attorney that a lawsuit was pending against C&N for

an occurrence covered by the policy, Zurich was required to

defend against that suit unless C&N's breach of its notice

obligation prejudiced Zurich, by depriving it of an opportunity

to mount an effective defense.

     The judge determined that Zurich did not establish that it

had been prejudiced in this way.    Although Zurich made no

argument to the contrary in the Superior Court, it challenges

this determination in a footnote to its appellate brief.      Even

     13
       Zurich American Insurance Company (Zurich) cites
decisions from several other jurisdictions for the proposition
that the duty to defend is not triggered unless the insured
affirmatively requests that a defense be provided. See, e.g.,
Purvis v. Hartford Acc. & Indem. Co., 179 Ariz. 254, 258 (Ct.
App. 1994); First Bank of Turley v. Fidelity & Deposit Ins. Co.
of Maryland, 928 P.2d 298, 304 (Okla. 1996). Other courts do
not impose this condition. See, e.g., Cincinnati Cos. v. West
Am. Ins. Co., 183 Ill. 2d 317, 326 (1998); Garcia v.
Underwriters at Lloyd's, London, 143 N.M. 732, 738 (2008). See
generally Couch on Insurance § 200:32, at 200-47 to 200-48. As
we have indicated in Johnson Controls, supra at 282, and Darcy
v. Hartford Ins. Co., 407 Mass. 481, 482-483 (1990), we
subscribe to the latter school of thought. See note 9, supra.
                                                                     18

if the issue had been properly preserved and presented,14

Zurich's position would be belied by the judge's unchallenged

findings of fact.     When Zurich learned of the Boyles' lawsuit,

the hearing to assess the Boyles' damages had not yet taken

place.    At that juncture, Zurich could have contacted C&N and

arranged to enter an appearance on its behalf.     Zurich could

have requested a postponement of the damages hearing.     It could

have moved to have C&N's default set aside, pursuant to Mass. R.

Civ. P. 55 (c), 365 Mass. 822 (1974).     Even after a judgment had

entered, Zurich could have moved to set the judgment aside,

pursuant to rule 55 (c) and Mass. R. Civ. P. 60 (b), 365 Mass.

828 (1974).    Most importantly, Zurich still could have resolved

the Boyles' claim by offering to pay the policy limit of

$50,000, an offer that, the judge found, the Boyles would have

accepted.    On these facts, the judge's conclusion that Zurich

failed to present "proof of actual prejudice," Darcy, 407 Mass.

at 486, was well-founded.

     b.     Consequences of the duty to defend.   Zurich presents no

other challenge to the judge's analysis.     In conjunction with

its duty to defend, Zurich was obliged to make reasonable,

     14
       See Canton v. Commissioner of Mass. Highway Dep't, 455
Mass. 783, 795 n.18 (2010) (argument waived where it was not
made in trial court); Mole v. University of Mass., 442 Mass.
582, 603 n.18 (2004) (sentence in footnote did not amount to
argument).
                                                                    19

prudent efforts to settle the Boyles' suit.   See Medical

Malpractice Joint Underwriting Ass'n of Mass. v. Goldberg, 425

Mass. 46, 60 n.33 (1997); Hartford Cas. Ins. Co. v. New

Hampshire Ins. Co., 417 Mass. 115, 119-120 (1994).   Zurich

committed a breach of that duty by failing to settle the suit

for the policy limit, an endeavor that, the judge found, any

reasonable insurer would have undertaken.

     The judge calculated the Boyles' total amount of damages by

using the method we endorsed in DiMarzo v. American Mut. Ins.

Co., 389 Mass. 85 (1983) (DiMarzo).   In that case, too, an

insurer failed to settle an injured plaintiff's tort claim

against an insured for the policy limit, there $20,000.15     See

     15
       Whereas Zurich failed to make any effort to settle the
Boyles' suit, the insurer in DiMarzo v. American Mut. Ins. Co.,
389 Mass. 85, 89 (1983), offered the injured plaintiff less than
the policy limit. This distinction does not affect the manner
in which an insured's damages are calculated. See note 7,
supra. Nor is the judge's method of calculating damages
rendered incorrect by the fact that DiMarzo v. American Mut.
Ins. Co., supra at 87, concerned a claim under G. L. c. 93A,
whereas the judge found Zurich liable on a breach of contract
theory. Breach of the contractual duty to defend entitles the
insured "to contract damages caused by the breach."
Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352,
359 (2011), citing Polaroid Corp. v. Travelers Indem. Co., 414
Mass. 747, 763 (1993). "Contract damages are 'those that cannot
be reasonably prevented and arise naturally from the breach, or
which are reasonably contemplated by the parties.'" Polaroid
Corp. v. Travelers Indem. Co., supra at 762, quoting Delano
Growers' Coop. Winery v. Supreme Wine Co., 393 Mass. 666, 680
(1985). Where breach of the duty to defend results in a
judgment against the insured that otherwise would not have
occurred, the amount of that judgment may be deemed damages
                                                                     20

id. at 89, 100-101.    The plaintiff's tort case went to trial,

and resulted in a judgment against the insured for approximately

$149,068.   See id. at 89.    There, as here, the plaintiff

obtained an assignment of the insured's rights against the

insurer.    See id. at 93-94.   We upheld a subsequent award of

damages against the insurer for the full amount of the tort

judgment, explaining that "[i]f [the insurer] had offered

$20,000, [the insured] would have been released from the

judgment against him."     Id. at 101.   See also Metropolitan Prop.

& Cas. Ins. Co. v. Morrison, 460 Mass. 352, 360 (2011) (insurer

committing breach of duty to defend may incur "obligation to pay

the default judgment"); Polaroid Corp. v. Travelers Indem. Co.,

414 Mass. 747, 764 (1993) (Polaroid) ("an insured's losses in

the underlying claim could well be the result of a breach of the

duty to defend").     The amount of damages was not affected, we

explained, by the question whether the insured was (like C&N)

insolvent; as we had reasoned in an earlier case, "if solvency

is required in order to sue for damages, an insurer is likely to

be less responsive to its duty to act in good faith toward an

insured who cannot pay the judgment."      Jenkins v. General Acc.

Fire & Life Assur. Corp., 349 Mass. 699, 702 (1965).      See

arising naturally from the breach. See Metropolitan Prop. &
Cas. Ins. Co. v. Morrison, supra at 359-360; Polaroid Corp. v.
Travelers Indem. Co., supra at 762, 764.
                                                                    21

DiMarzo, supra at 95 n.9.     See also D.J. Wall, Litigation and

Prevention of Insurer Bad Faith § 5:19, at 231 (2d ed. 1994)

("rule . . . almost unanimously followed . . . holds that the

contents of the insured's wallet are irrelevant to accrual of

the insured's cause of action").

    We are not asked to revisit our DiMarzo decision, and we do

not now see cause to do so.    Applied here, the analysis of that

decision yields the result reached by the judge, namely, that

Zurich is liable to C&N for the amount of the judgment by

default entered in the suit that Zurich failed to defend.

    c.   General Laws c. 93A.     In their cross appeal, the Boyles

challenge the judge's decision that Zurich did not violate G. L.

c. 93A and that the Boyles are not entitled to multiple damages.

We discern no reversible error.

    The judge determined that Zurich committed a breach of both

its contractual duty to defend C&N and the statutory obligation

"to effectuate prompt, fair and equitable settlements of claims

in which liability has become reasonably clear."     G. L. c. 176D,

§ 3 (9) (f).   A violation of G. L. c. 176D, § 3 (9), itself

establishes a violation of G. L. c. 93A unless the injured party

is "engage[d] in the conduct of any trade or commerce."     See

G. L. c. 93A, §§ 9 (1), 11.    The judge found, in accordance with

the parties' agreed statement of facts, that C&N was indeed

engaged in trade or commerce.     Consequently, the Boyles (as
                                                                    22

C&N's assignees) are entitled to relief under G. L. c. 93A only

upon a showing that Zurich engaged in "[u]nfair or deceptive

acts or practices."   See G. L. c. 93A, § 2.    An award of "up to

three, but not less than two, times" C&N's actual damages is

warranted if such unfair or deceptive acts or practices were

"willful or knowing."     G. L. c. 93A, § 11.   See Auto Flat Car

Crushers, Inc. v. Hanover Ins. Co., 469 Mass. 813, 830 (2014);

Polaroid, supra at 754.

    The Boyles contend that Zurich engaged in unfair or

deceptive acts by failing to defend C&N against the Boyles'

suit; and, much later, by failing to settle the suit brought by

the Boyles as C&N's assignees.    The judge found that neither

episode amounted to an unfair or deceptive act.      "[W]hether a

particular set of acts, in their factual setting, is unfair or

deceptive is a question of fact," which we review for clear

error.   See Klairmont v. Gainsboro Restaurant, Inc., 465 Mass.

165, 171 (2013), quoting Casavant v. Norwegian Cruise Line Ltd.,

460 Mass. 500, 503 (2011).

    Zurich's failure to defend C&N against the Boyles' suit

was, the judge found, "inadvertent" and "negligent."     It stemmed

largely from the unfortunate decision of a Zurich clerk to take

no action upon receiving the letters informing Zurich of the

Boyles' damages hearing.    Mere negligence ordinarily does not
                                                                   23

represent an unfair or deceptive act.   See Darviris v. Petros,

442 Mass. 274, 278, 279 n.2 (2004), and cases cited.

    Zurich made an error of a different nature in failing, more

recently, to settle the Boyles' lawsuit as C&N's assignees.      By

the eve of the trial against it, Zurich apparently was not

averse to settlement, having agreed to resolve the Boyles'

individual claims for a sum of $1,324,357.    The final offer made

by Zurich to settle the Boyles' claims as C&N's assignees was

the policy limit of $50,000, plus interest.    The judge found

that "Zurich did not make this offer in bad faith or based on

any ulterior motive," but rather, "did so based on its reading

of its insurance policy."   The judge stated also, quoting Boston

Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass.

7, 15 (1989), that the position taken by Zurich was "a

plausible, although ultimately incorrect, interpretation of

[the] policy."

    In view of our long-standing jurisprudence, described

supra, we do not share the view that Zurich's position was

"plausible."   Even so, the judge's finding that Zurich's conduct

was neither "unfair" nor "deceptive" was not clearly erroneous.

"While G. L. c. 93A is a statute of 'broad impact,' the limits

of which are not precisely defined, a violation of G. L. c. 93A

requires, at the very least, more than a finding of mere

negligence."   Darviris v. Petros, 442 Mass. at 278, quoting
                                                                   24

Greenfield Country Estates Tenants Ass'n v. Deep, 423 Mass. 81,

88 (1996), and citing Mechanics Nat'l Bank v. Killeen, 377 Mass.

100, 109 (1979).   The judge found, in essence, that although

Zurich blundered badly in its reading of the legal landscape,

its unsuccessful efforts to settle the Boyles' claims as C&N's

assignees represented a negligent miscalculation, rather than

"conduct involving dishonesty, fraud, deceit or

misrepresentation."   Darviris v. Petros, supra, quoting Poly v.

Moylan, 423 Mass. 141, 151 (1996), cert. denied, 519 U.S. 1114

(1997).   Similarly, the judge's finding that Zurich's settlement

efforts, while misguided, were made in good faith, entails the

conclusion that Zurich's conduct was not "willful or knowing" in

the sense necessary to warrant an award of multiple damages.

See Cruz Mgt. Co. v. Thomas, 417 Mass. 782, 791 (1994); VMark

Software, Inc. v. EMC Corp., 37 Mass. App. Ct. 610, 623 (1994).

Nothing in the record compels conclusions to the contrary.

    d.    Deduction of settlement payment.   As noted, the judge

reduced the damages awarded to the Boyles as C&N's assignees by

$1,324,357, the amount for which the Boyles had settled their

individual claims against Zurich.    We agree with the Boyles that

this was error.

    The judge's concern was evidently that the Boyles not

recover twice for the same injury.   See Selmark Assocs., Inc. v.

Ehrlich, 467 Mass. 525, 544 (2014), citing Blake v. Commissioner
                                                                   25

of Correction, 403 Mass. 764, 767 (1989) ("double recovery for

same injury or loss is impermissible").    This concern appeared

to the judge warranted since, at Zurich's urging, the judge

characterized the payment of $1,324,357 as "post-judgment

interest that [Zurich] has already agreed to pay."16    But the

parties' own agreement concerning their settlement, in the form

of the written release signed by the Boyles (the validity of

which is not contested), dispels the notion that the payment

agreed upon overlaps with any subsequent award granted to the

Boyles as C&N's assignees.

     According to that release, the settlement payment was

granted to the Boyles specifically in conjunction with the

"claims, demands, causes of action . . . which the Boyles have

or could have brought directly and in their individual

capacities."   The crux of the Boyles' individual claims was that

Zurich had wronged them as third-party beneficiaries of C&N's

policy, by failing to settle the Boyles' suit when liability had

become reasonably clear.     This wrong, which had the potential to

result in multiple damages, attorney's fees, and costs (even if

C&N's claim under G. L. c. 93A proved unsuccessful), is

     16
       The suggestion that the payment should be so
characterized was based on the fact that, according to the
parties' joint statement of facts, the amount of postjudgment
interest that had accrued as of May, 2014, on the judgment by
default against C&N also was $1,324,357.
                                                                     26

analytically independent of the wrong that supported C&N's claim

against Zurich (assigned to the Boyles) -- i.e., that Zurich did

not provide C&N with a defense.    The release made in connection

with the settlement of the Boyles' individual claims against

Zurich acknowledged as much, stating that it "specifically

excludes . . . the rights of the Boyles as assignees of [C&N] to

pursue the full amount of the judgment entered in [the Boyles'

suit against C&N], with interest" (second emphasis added).

    In short, the parties made clear that the payment settling

the Boyles' individual claims against Zurich would not come at

the expense of any portion of Zurich's liability toward C&N,

including (as stated explicitly) interest.     The judgment should

not have been reduced, therefore, by the amount of the

settlement payment.

    3.   Conclusion.   The result of our analysis is that

Zurich's failure to defend on a $50,000 policy will culminate in

an award of damages that is, "in the circumstances,

extraordinarily large."   See DiMarzo, 389 Mass. at 108

(Hennessey, C.J., concurring).    This result flows from findings

of fact "warranted on the evidence," with "[t]he law, step by

step, . . . correctly applied."    Id.   "The crucial principles

are . . . established . . . by construction of . . . statute[s],

or by common law, in prior cases."    Id.   Those "crucial

principles" are intended, in part, to ensure that an insurer
                                                                  27

remains "responsive to its duty to act in good faith toward an

insured."   Jenkins v. General Acc. Fire & Life Assur. Corp., 349

Mass. 699, 702 (1965).   We are presented with no reason to

abandon those principles.

    The judgment is vacated and set aside, and the matter is

remanded to the Superior Court for entry of a modified judgment

consistent with this opinion.

                                    So ordered.