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Williamson-Green v. Interstate Fire & Casualty Co.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

May 26, 2017

Michelle Williamson-Green as Administratrix of the Estate of James W. Williamson, IV
Interstate Fire and Casualty Company No. 137203


          Kenneth W. Salinger, Justice of the Superior Court.

         James W. Williamson, IV died from injuries sustained while he was inspecting a roof from a bucket lift that tipped over. His estate brought a wrongful death action against both the lift manufacturer and the company that had had rented out the lift, Equipment 4 Rent, Inc. (" E4R"). The jury found that the manufacturer and E4R were both negligent and awarded compensatory damages of $4.3 million. It also found that " E4R's conduct was grossly negligent, willful, wanton, or reckless" and awarded additional punitive damages of $5.9 million, as allowed under G.L.c. 229, § 2. Interstate Fire and Casualty Company had insured E4R. It paid E4R's share of the compensatory damages but refused to pay any part of the punitive damage award.

         In this action Plaintiff claims that Interstate failed to settle the claims against E4R after its liability had become reasonably clear. She asserts one claim on behalf of Mr. Williamson's estate and four claims as E4R's assignee. The assigned claims allege that E4R's damages include " being exposed to an uncovered punitive damages award that would have been avoided had Interstate settled the " Underlying Action."

         Interstate has moved for judgment on the pleadings on the assigned claims. It argues that requiring an insurer to pay any part of a punitive damages award, even as consequential damages arising from the insurer's failure to settle a meritorious claim, would be against public policy. The Court must DENY Interstate's motion because Massachusetts law does not insulate an insurer from liability for damages incurred because its insured caused bodily injury, engaged in reckless or grossly negligent misconduct, or did both. The limitation on insurers' liability sought by Interstate would be inconsistent with G.L.c. 175, § 47, cl. Sixth (b), which " codifies the entire public policy" of Massachusetts regarding the insurability of losses resulting from reckless misconduct. Andover Newton Theological Sch., Inc. v. Cont'l Cas. Co., 409 Mass. 350, 353 n.2, 566 N.E.2d 1117 (1991).[1]

         1. Insurers' Liability for Failing to Settle Claims

         Once insured's liability for a particular claim has become reasonably clear, the insurer has a duty under Massachusetts law to make a fair offer to settle the claim and to do so promptly. This duty is imposed on all insurers by statute. See G.L.c. 176D, § 3(9)(f); Hopkins v. Liberty Mut. Ins. Co., 434 Mass. 556, 566-67, 750 N.E.2d 943 (2001). In many cases it is also an implicit part of the insurer's contractual obligations. When insurance policy imposes a duty to defend on an insurer, that duty carries with it an implicit obligation " to make reasonable, prudent efforts to settle" the claims against the insured. Boyle v. Zurich American Ins. Co., 472 Mass. 649, 659, 36 N.E.3d 1229 (2015); accord Murach v. Massachusetts Bonding & Ins. Co., 339 Mass. 184, 186-87, 158 N.E.2d 338 (1959) (duty to defend includes duty " to act in good faith" to settle claims). Thus, where liability has become reasonably clear, an insurer with a duty to defend also has a duty " to settle the case within the . . . policy limits when it had the opportunity to do so." Medical Malpractice Joint Underwriting Ass'n of Massachusetts v. Goldberg, 425 Mass. 46, 60 n.33, 680 N.E.2d 1121 (1997).

         An insurer that violates its duty to make reasonable efforts to settle a claim may be sued in contract for breaching the insurance policy, in tort for negligently breaching its duty to settle, or for violating G.L.c. 93A by committing an unfair claims settlement practice in violation of G.L.c. 176D. See generally Boyle, supra, at 654-55 & 659 (contract claim); Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 120-21, 628 N.E.2d 14 (1994) (negligence claim); Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486, 494, 961 N.E.2d 1067 (2012) (claim under G.L.c. 93A, § 9); Silva v. Steadfast Ins. Co., 87 Mass.App.Ct. 800, 803-04, 35 N.E.3d 401 (2015) (claim under G.L.c. 93A, § 11).[2]

         If an insurer breaches its duty to settle a claim, the insured party may recover from the insurer for " all losses" that were " foreseeable consequences" of the failure to settle, even if those losses exceed what is covered by the insurance policy. DiMarzo v. American Mut. Ins. Co., 389 Mass. 85, 101-02, 449 N.E.2d 1189 (1983). For example, " [i]f the insurer violated the law in failing to settle for the policy limits, then the insurer will be liable to the insured for the damages exceeding the policy limit." Gore v. Arbella Mut. Ins. Co., 77 Mass.App.Ct. 518, 526, 932 N.E.2d 837 (2010); accord Boyle, 472 Mass. at 654 & 660. The losses recoverable by the insured include all consequential damages caused by the insurer's breach of its duty to settle; the insured's recovery is not limited to compensatory damages awarded against it in the underlying tort action. See, e.g., Rivera v. Commerce Ins. Co., 84 Mass.App.Ct. 146, 149, 993 N.E.2d 1208 (2013) (insurer liable for litigation expenses incurred by insured after breach of duty to settle).

         This rule, that an insurer that breaches a duty to settle a claim is liable for all consequential damages suffered by its insured, applies whether the insurer is found liable for breach of contract or for engaging in unfair or deceptive conduct in violation of G.L.c. 93A. See Boyle, 472 Mass. at 659-60 & n.15 (breach of contract damages); Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 762-64, 610 N.E.2d 912 (1993) (breach of contract damages); DiMarzo, supra (c. 93A damages).[3]

         2. No Public Policy Exception for Reckless Misconduct

         Plaintiff claims that Interstate failed to settle the underlying tort claims after E4R's had liability become reasonably clear, that E4R would not have been ordered to pay punitive damages if Interstate had settled the case, and that as E4R's assignee Plaintiff is therefore entitled to recover the $5.9 million punitive damage award as consequential damages for Interstate's breach of its duty to settle the case. The amount of damages recoverable under the assigned claims is not affected by whether E4R has paid or is able to pay any or all of the punitive damage award. See Boyle, 472 Mass. at 660; DiMarzo, 389 Mass. at 95 n.9; Jenkins, 349 Mass. at 702-03.

         Interstate argues that allowing an insured (or its assignee) to seek compensation for punitive damages imposed as a result of the insurer's unreasonable failure to settle a claim " would defeat the socially useful purpose of punitive damages--to punish and deter--and would violate Massachusetts' public policy prohibiting a party from obtaining indemnity for a punitive damages award." It asks the Court to recognize a public policy exception to the rule that an insurer is liable for foreseeable damage caused by a breach of its duty to settle a claim against its insured. Specifically, Interstate argues that Plaintiff " should be precluded from recovering damages, as E4R's assignee, to compensate E4R for the punitive damages imposed against it."

         The highest courts in California, Colorado, and New York, plus a federal appeals court applying Pennsylvania law, have adopted some version of the rule advocated by Interstate.[4] These courts all held that allowing insureds to obtain compensation from their insurer for a punitive damage award that could have been avoided if the insurer had not breached its duty to settle the case would violate those State's public policies against allowing insurers to indemnify for punitive damages.[5]

         Interstate urges the Court to read a similar public policy exception into Massachusetts law. In response, Plaintiff argues that these four out-of-state decisions " are all distinguishable because the holdings in each are based on the clear law of their respective states that punitive ...

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