Last week the Massachusetts Supreme Judicial Court issued an important and strongly pro-consumer decision in the case of Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486 (2012). 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 follows is a brief summary of the case. A more in-depth discussion can be found on our website by clicking here.
The case arose from a serious motor vehicle 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 brushed away AIGDC’s other arguments. AIGDC attempted to resurrect the state of the law as it existed prior to 1979, when privity was required and c. 93A afforded relief in only first party claims. That rule was abolished by legislative amendments in 1979, as recognized by Van Dyke v. St. Paul Fire & Marine Ins. Co., 338 Mass. 671, 674-675 (1983). The court also rejected the assertion that the judgment in the tort case was not the same and underlying transaction or occurrence and therefore could not be the basis for multiple damages. Again, there was ample precedent that a separate but related case can be considered the same and underlying transaction or occurrence for the purposes of § 9.
Finally, 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 bottom line: 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.
Practice Pointers: Chapter 93A retains its force as a powerful inducement to settlement 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 spur 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.
For a copy of the complete opinion, click here.