Supreme Judicial Court of Massachusetts, Worcester
DOUGLAS M. RAWAN & another 
CONTINENTAL CASUALTY COMPANY.
Heard: September 6, 2019.
action commenced in the Superior Court Department on August
case was heard by J. Gavin Reardon, Jr., J., on motions for
summary judgment. The Supreme Judicial Court on its own
initiative transferred the case from the Appeals Court.
J. Lyne (Andrea L. Maclver also present) for the plaintiffs.
E. Roman (Jessica H. Park & John G. O'Neill also
present) for the defendant.
following submitted briefs for amici curiae:
J. Hatem, Patricia B. Gary, Paul T. Muniz, Jon C. Cowen,
& Katherine L. Connolly for American Council of
Engineering Companies of Massachusetts & another.
J. Barter for Professional Liability Foundation, Ltd.
N. David, Maureen Mulligan, & Steven E. DiCairano for
Boston Bar Association.
L. Schreckinger & Harvey Nosowitz for American Property
and Casualty Insurance Association & others.
Kristen M. Whittle, Alexandra L. Rotondo, & Derek M.
Gillis for Massachusetts Defense Lawyers Association.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
defendant, Continental Casualty Company (Continental), issued
a professional liability policy to its insured, Kanayo Lala,
an engineer, that contained a consent-to-settle clause. After
the plaintiff homeowners, Douglas M. Rawan and Kristen A.
Rawan, sued Lala for engineering design errors, he refused to
consent to settle as recommended by the insurer. Eventually,
the homeowners commenced an action under G. L. c. 93A against
Continental for its failure to effectuate a prompt, fair, and
equitable settlement once liability had become reasonably
clear, as required by G. L. c. 176D, § 3 (9) (f) . The
motion judge allowed summary judgment for Continental on all
counts, finding that the consent-to-settle clause in
Lala's policy limited Continental's ability to engage
in further settlement practices with the plaintiffs once Lala
refused to give Continental consent to settle the claims
dispositive question at issue in this appeal is whether
consent-to-settle clauses in professional liability policies
violate G. L. c. 176D, § 3 (9) (f) . We conclude that
they do not as a matter of law, but we hold that an insurer
still owes residual duties to a third-party claimant under G.
L. c. 176D, even when an insured refuses to settle. In this
case, Continental made good faith efforts to investigate the
claim and encourage its insured to settle. Furthermore, given
the insured's obstinacy, the particular shortcomings of
Continental identified by the plaintiffs did not proximately
cause harm to the plaintiffs. For these reasons, we affirm
the decision of the Superior Court allowing Continental's
motion for summary judgment.
following facts from the record are summarized in the light
most favorable to the plaintiffs, the unsuccessful opposing
party on the parties' cross-motions for summary judgment.
See Dzung Duy Nguyen v. Massachusetts Inst, of
Tech., 479 Mass. 436, 448 (2018). In 2005, the
plaintiffs hired Lala, a registered professional engineer, to
design structural members for their new home. Lala signed and
stamped a construction control agreement with the town of
Westborough (town). Lala significantly underestimated the
building loads and stresses in his calculations for the
design. He filed eleven construction control reports with the
town's building commissioner over the course of the
project, which falsely certified that the project complied
with the State building code. After the construction was
completed, its beams and joists began to crack. When the
design errors became apparent, Douglas Rawan raised the
issues directly with Lala in an electronic mail (e-mail)
message dated December 3, 2010. That message confirmed a
prior conversation the plaintiffs had had with Lala in which
he admitted his miscalculations in designing the home.
August 2011, the plaintiffs commenced an action against Lala
in Superior Court for professional negligence, negligent
supervision, breach of contract, breach of the covenant of
good faith and fair dealing, breach of the implied warranty
of fitness, and violations of G. L. c. 93A. The
plaintiffs' claims against Lala relied on the
professional opinion of Neal Mitchell, a structural engineer
they hired, who reviewed Lala's work. At the time of the
underlying acts of negligence and at the time of the lawsuit,
Continental insured Lala under a professional liability
policy provided that Continental would "not settle any
claim without the informed consent" of Lala. The
consent-to-settle clause in Lala's policy did not contain
a so-called "hammer clause" found in other
insurance policies. A "hammer clause" generally
requires an insurer to obtain the insured's approval
before settling a claim for a certain amount -- however, a
hammer clause "allows the insurer to limit its liability
to that amount if the insured rejects the settlement."
Mutual Ins. Co. v. Murphy, 630 F.Supp.2d
158, 166 n.2 (D. Mass. 2009). This clause puts pressure on the
insured's right to refuse consent to settle and thereby
increases an insurer's ability to effectuate a
settlement. See Freedman vs. United Nat'l Ins. Co., U.S.
Dist. Ct., No. CV09-5959 AHM (CTx) (CD. Cal. Mar. 1, 2010)
(under terms of plaintiff's policy, insurer was able to
invoke "hammer clause" if policyholder unreasonably
refused to consent, thus allowing insurer to limit its
liability under particular circumstances); J. Kesselman, A.
Fox, & R. Sattler, Professional Liability Insurance
Issues, in Massachusetts Liability Insurance Manual §
5.6.3 (Mass. Cont. Legal Educ. 3d ed. 2017) (Massachusetts
Liability Insurance Manual) (defining "hammer
clause" as "common provision in professional
liability insurance policies [that] exposes the insured to
liability for eventual judgments that exceed a reasonable
settlement offer," somewhat tempering insured's
right to consent to settlement).
Factual background of the action against
contacted Jack Donovan, a claims representative for
Continental, in late November 2011 for assistance in
resolving the plaintiffs' lawsuit against him. Donovan
opened the matter as a "pre-claim" assistance file
in January 2012, as Lala did not yet wish to invoke his
coverage and elected to defend himself pro se. Continental
retained a law firm to represent Lala in January 2012, and
attorneys Thomas K. McCraw and Jeff Alitz of that firm
informally advised Lala until officially appearing on his
behalf after Lala invoked his coverage under the policy in
policy stated that Continental had "the right and duty
to defend any claim against [Lala] seeking amounts that are
payable under the terms of this Policy, even if any of the
allegations of the claim are groundless, false, or
fraudulent. We will designate or, at our option, approve
counsel to defend the claim. We are not obligated to defend
any claim or pay any amounts after the applicable Limit of
Liability has been exhausted." Continental exercised its
duty to defend here when the attorneys appointed by
Continental filed appearances on Lala's behalf in
the plaintiffs' consulting engineer, met with Donovan in
April 2012 to discuss and review Lala's work. Mitchell
concluded that Lala had made serious computational errors
based on erroneous engineering assumptions. Mitchell
questioned "all of the loading that was used in Mr.
Lala's initial computations," and stated that
Lala's "revised computations illustrate a complete
lack of understanding of structural design."
2012, Donovan suggested engaging a third-party engineer to
review Lala's engineering work and Mitchell's
assessment with the hope of "reach[ing] an accord."
Donovan also suggested selecting a third-party mediator if
the parties could not agree on the extent of Lala's
liability after meeting with the third-party engineer. More
specifically, on June 1, 2012, Donovan wrote:
"I will reach out to [Mitchell] ... to set up a meeting
in which I will also invite a third engineer so we may have a
frank and exhaustive discussion of the issues. ... I think
[at] the same time we may think about a mediation in an
effort to get this matter into a forum where each side can
express its side of the issues."
for the plaintiffs agreed to have Thomas Heger act as the
third-party engineering expert and to have Heger meet with
Lala and Mitchell. Donovan also indicated he was reaching out
to separate mediators at the same time that he was arranging
for the third-party engineer.
2012, Donovan wrote to Lala and Alitz, stating: "I think
we could agree that the case may be six figures," and
suggested pursuing mediation. Alitz responded, telling
Donovan and Lala that "[t]here is [zero] chance at
settling this [case] for under $100, 000. "
August 4, 2012, Mitchell wrote an e-mail message to Donovan
summarizing his review of Lala's engineering work. In
that message, Mitchell concluded that "this was the
worst example of improper engineering that I have seen in my
45 years of professional practice." Mitchell identified
multiple structural design errors, and concluded that the
home lacked the proper professional structural engineering
required by the State building code and the town.
September 2012, the plaintiffs' counsel reached out to
Heger to ask whether he had come to any conclusions. Heger
responded that he was currently putting together a summary of
his findings, but "need[ed] to defer to Mr. Donovan on
whether this information can be shared with the various
parties." In summarizing his findings, Heger agreed with
Mitchell's conclusions and concerns about the structural
adequacy of the plaintiffs' house: "Bottom line; I
found the same serious design errors as Neal Mitchell and
some additional ones as well as overstresses in the repaired
beams that Neal did not get involved with." Heger
independently reviewed six of the nineteen structural issues
that Mitchell identified, and found that, of those six
issues, five failed to meet the minimum strength and