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Defense's Improper Conduct Leads to c. 93A/176D Damages Despite Comparative Negligence Finding

In a recent Massachusetts Superior Court order, the Court held that a jury’s finding of comparative negligence was not a bar to a post-judgment insurance bad faith claim brought by the plaintiff. This ruling reinforces the Massachusetts Supreme Judicial Court’s landmark decision inRhodes v. AIG Domestic Claims, Inc., where the Court significantly increased an insurer’s potential exposure under M.G.L. c. 93A and 176D where liability against its insured was “reasonably clear” and the insurer failed to take reasonable settlement action prior to judgment. 

In Anderson, et al. v. American International Group, Inc. et al, the plaintiff, Odin Anderson, was severely injured when a shuttle bus operated by a Partners Healthcare employee struck him while crossing the street. The accident occurred on September 2, 1998. The plaintiff spent several weeks in the hospital with brain injuries that ultimately resulted in brain damage. Partners Healthcare was insured under a primary and excess auto insurance policy issued by defendant National Union Fire Insurance Company. The policies were handled by subsidiaries of American International Group, Inc. (“AIG”).  

Adjusters for AIG initially believed that liability on behalf of their insured was clear. However, some investigative work revealed that the plaintiff had an elevated blood-alcohol level at the time of the accident. Prior to filing suit, plaintiff’s counsel made a $5 million demand. In 2001, after three years of fruitless settlement attempts, plaintiff’s counsel filed a personal-injury lawsuit against Partners Healthcare and the driver of the shuttle bus. AIG never countered plaintiff’s initial $5 million demand. 

At trial it was discovered that AIG had suppressed relevant witness statements, thereby enabling their lawyers to devise a defense strategy more favorable to them. Nevertheless, a jury awarded the plaintiff $2.9 million in damages, although it found the plaintiff 47% comparatively negligent. Lawyers for AIG counseled the insureds that the verdict was highly favorable to them under the circumstances, and that the probability of success on appeal was below 50%. Notwithstanding the advice of its legal counsel, AIG decided to appeal the verdict. The Appeals Court affirmed the trial court’s ruling, and the Supreme Judicial Court rejected AIG’s appeal. In December of 2008, over 10 years after the date of the accident, AIG paid the full amount of the original verdict to Mr. Anderson, plus interest.   

Plaintiff’s counsel, on behalf of Mr. Anderson and his family, brought suit under M.G.L. c. 93A and 176D against AIG for failing to effectuate a prompt settlement once liability was reasonably clear and for disputing the claim post-judgment contrary to their counsel’s advice. In Massachusetts, pursuant to M.G.L c. 93A and 176D, an insurer has a statutory obligation to make a prompt, fair and equitable settlement of claims where liability has become clear. If an insurer breaches this duty, the opposing party may file suit against the insurer for unfair settlement practices. If it is found that the insurer willfully and knowingly violated its statutory duty, then the affected party may be entitled to recover at least double, and possibly treble damages.

In September of 2013 the plaintiff’s bad faith claim was heard by Massachusetts Superior Court Judge Brian A. Davis. The defendants argued that liability could not possibly be “reasonably clear” as the plaintiff was found to be 47% comparatively negligent for having an elevated blood alcohol level. However, Judge Davis did not agree with the defendants’ argument. Judge Davis felt the jury’s comparative negligence finding in the underlying case was brought about by defense counsel’s “pre-trial suppression of crucial evidence, the creation of an alternative accident scenario based upon fictitious facts, and improper manipulation of critical witness testimony.” Judge Davis described AIG’s handling of the Anderson’s claim as “deliberate or callously indifferent acts designed to conceal the truth, improperly skew the legal system and deprive the Andersons of fair compensation for their injuries for almost a decade.” On April 8, 2014 the Court ruled that AIG’s misconduct warranted the sanction of double damages under M.G.L. c. 93A, and awarded Mr. Anderson $6.5 million. 

Despite the comparative negligence jury finding, Judge Davis found “no weight” in the defendants’ comparative negligence argument in deciding whether liability was “reasonably clear” under M.G.L. c. 93A/176D. The judge’s focus was solely on what he perceived were egregious litigation actions by the defense, and not on Mr. Anderson’s comparative negligence. The improper acts committed by the defense, as identified by Judge Davis in his opinion, was enough to award double damages to the plaintiff under M.G.L. c. 93A/176D, and led the judge to disregard the jury’s finding of comparative negligence in the underlying case.     

This case is yet another reminder of the current trend in Massachusetts insurance litigation which strongly encourages insurance carriers to carefully consider and evaluate the possibility of settlement before taking a case to trial. This decision adds some context to the “reasonably clear” standard of M.G.L. c. 176D, §3(9)(f). Improper litigation tactics, such as those allegedly used by the defense in this matter, may expose an insurer to treble damages pursuant to M.G.L. 93A/176D, despite a comparative negligence finding. Judgments of this nature continue to be unsettling for insurers which decide to forgo settlement opportunities and take a case to trial, or decide to appeal a verdict.