A recent Appeals Court decision underscores the risks of delaying settlement when the defense encounters problems at trial. In Robert Chiulli v. Liberty Mutual, et al., the plaintiff was badly injured in a fight outside of a bar and sued the bar’s owners and operators, alleging negligence in failing to prevent the fight. A federal jury returned a $4.5 million verdict. The owners’ primary insurer controlled the defense and never offered more than $150,000 before verdict, and then continued to resist paying its $1 million policy limits and chose to appeal. Internally, the carrier believed that the appeal was unlikely to succeed, but it chose that strategy at least in part to pressure the plaintiff to accept a lower settlement. The plaintiff responded to this tactic by pursuing a Chapter 93A/176D claim for bad faith insurance practices. The owners’ excess carrier was also frustrated by the primary insurer’s approach and demanded that it tender its limits so that the excess insurer could settle the matter.
The primary insurer eventually tendered its policy limits and the excess carrier paid $5.5 million to resolve the underlying tort action. The plaintiff continued to pursue a Chapter 93A/176D claim against the primary insurer. The trial court found that the owners’ liability was reasonably clear by the time the tort claim was submitted to the jury, and the Appeals Court declined to disturb this finding. The Appeals Court also agreed that the failure to effectuate a fair settlement when liability was reasonably clear caused the plaintiff to suffer damages resulting from the loss of use of the settlement funds, even though that loss was ultimately offset by the excess insurer’s settlement for more than the amount of the underlying judgment. Significantly, however, Chapter 93A provides that multiple damages for knowing or willful failure to settle are calculated using the full amount of the underlying judgment.
Perhaps out of reluctance to impose multiple damages based upon a $4.5 million judgment in a case where the insurer’s delay in settling lasted only a few weeks, the Superior Court judge found that the insurer had not acted willfully or knowingly. However, the Appeals Court overturned the trial court’s findings in that regard, concluding that the evidence clearly demonstrated knowing and willful misconduct. The trial court found that the insurer knew that it had little chance of success on appeal and that plaintiff was “in dire need of cash” to pay medical bills. It chose to take advantage of this situation “in an attempt to leverage a better settlement” for itself and to “take the wind out of [plaintiff’s] sails.” The judge explicitly found that even after liability was reasonably clear, the insurer made the plaintiff wait over Thanksgiving and Christmas, forcing him to fight to recover the amount of the verdict. According to the Appeals Court, these subsidiary findings compelled the conclusion that the insurer’s violations were willful or knowing. The Appeals Court remanded the matter directing the trial court to decide between an award of double or treble damages.
There are several important takeaways here for insurers. The duty to make a reasonable settlement offer is triggered whenever liability becomes “reasonably” clear – not certain – whether that occurs before, during, or after trial. An insurer cannot rely on arguments that its insured has a right to a jury trial or that there is a slight possibility that the jury will find other tortfeasors more responsible. An insurer cannot use an appeal or any form of litigation to pressure a litigant “in dire need of cash” by forestalling settlement. The case also provides a reminder that claim file notes and communications with defense counsel may become discoverable in Chapter 93A cases, and careless or poorly-worded comments may be seen as damning evidence of bad faith. Finally, this case illustrates how the consequences of violating Chapter 93A can be severe. As the primary carrier, the insurer had little to gain by delaying the tender of its $1 million policy limit after the verdict was returned and the odds of a successful appeal appeared slim. By doing so – even for just a few weeks – it transformed a $1 million loss into one which will now cost $5 to $10 million.