SJC Affirms Multiple Damages Award in Insurance Bad Faith Case

Every year significant appellate rulings come down that affect tort (a civil wrong or injury) practice in Massachusetts.

The Supreme Judicial Court’s recent decision in Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486 (2012), is another example.

The court ruled that the sum of money (or “measure of damages”) to be doubled or trebled in an insurer bad-faith case arising out of an underlying tort liability case — in which an insurer willfully or knowingly violates its obligations under Chapters 176D/93A by failing to settle — is the amount of the judgment in the underlying tort case, not merely interest on insurance benefits that were wrongfully withheld by the insurer.

The difference between the two measures can be huge. In Rhodes, the difference was about $21 million.

The decision erased uncertainties created by the Appeals Court decision in the same case (78 Mass. App. Ct. 518 (2010), and it affirmed the strong damages remedies available for consumers who have been wronged by unfair claims practices by insurance companies.

What happened in ‘Rhodes’?

The case arose from a serious car accident which rendered the plaintiff paraplegic. She, her husband, and her children all brought claims. The claims management company, AIG Domestic Claims, Inc. (AIGDC) delayed making any offer of settlement, then made a very low settlement offer before trial, and then a slightly better offer during trial. All offers were rejected. The jury verdict was in excess of $9 million, resulting in a judgment of $11.3 million.

Defendant appealed, and AIGDC failed to pay the judgment until after a c. 93A letter was sent and suit was instituted in a second action for violations of c. 93A and c. 176D. Plaintiff prevailed, but they were not awarded full damages based upon the judgment. They appealed.

The Appeals Court affirmed in part, but still failed to recognize that the proper measure of damages should be based upon the judgment. The SJC granted further appellate review.

Fortunately, the SJC reversed. Affirming its earlier decisions in Hopkins v. Liberty Mutual Ins. Co., 434 Mass. 556 (2001) and Bobick v. United States Fid. & Guar. Co., 349 Mass. 652 (2003), the court held that plaintiffs were not required to demonstrate that they would have accepted or rejected a settlement offer, if it had been made. Rather, the court stated, “[i]t has been and remains the rule that the plaintiffs need only prove that they suffered a loss, or an adverse consequence, due to the insurer’s failure to make a timely, reasonable offer; the plaintiffs need not speculate about what they would have done with a hypothetical offer that the insurers might have, but in fact did not, make on a timely basis.”

The court then turned to the question of the measure of damages. The court reviewed the history of damages under the c. 93A cases which led to the 1989 amendment to c. 93A, § 9. That amendment states in part, “For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence.” The court found that the 1989 amendment applied to the plaintiff’s case, and that the amount to be multiplied should be the underlying judgment of $11.3 million. Precedent for using the judgment in a post-judgment misconduct case had already been established by the SJC in R.W. Granger & Sons v. J & S Insulation, Inc., 345 Mass. 66 (2001). 

The court dismissed AIGDC’s argument that the double damages award would be grossly excessive punitive damages. The court carefully considered the constitution requirements governing punitive damages, and concluded that the double damages in this case would not offend due process protections. The court also affirmed the trial court’s findings that the underlying insurer, Zurich, was not liable for violations of c. 93A. 

The court held that the underlying judgment of $11.3 million should be the basis of the c. 93A judgment, and that it should be doubled. “We recognize that $22 million in c. 93A damages is an enormous sum, but the language and history of the 1989 amendment to c. 93A leave no option but to calculate the double damages award against AIGDC based on the amount of the underlying tort judgment.”

The Takeaway: The Rhodes decision confirms that Chapter 93A is a powerful inducement for insurers to settle claims when liability, including fault and damages, is reasonably clear. A properly crafted c. 93A letter sent when the insurance company is violating c. 93A and c. 176D, should help to commnence appropriate settlement discussions. The letter also maximizes your client’s rights if the matter is tried and goes to judgment. While the better practice is to send the letter prior to trial, a letter post-judgment will still have effect if there is a frivolous appeal.

Personal Injury

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