Good News and Bad News From the Massachusetts Appeals Courts on G.L. c. 93A Damages

By David White
January 5, 2011

The Massachusetts Appeals Court ruled on two significant G.L. c. 93A cases in 2010, and the results are inconsistent. In one, Gore v. Arbella Mutual Insurance Company, 77 Mass.App.Ct. 518 (2010), the court enforced the clear language of G.L. c. 93A, § 9(3), which 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, regardless of the existence or nonexistence of insurance coverage available in payment of the claim.” The result was a very large damages award against the insurer, and the case was returned to the trial court for imposition of additional damages.

In the other case, Rhodes v. AIG Domestic Claims, Inc., 78 Mass. Ap. Ct 299 (2010), the court chose a completely different method of calculating damages. The court limited to the damages to brief periods for loss of the use of the money the insurance company should have paid to the injured victim, despite the existence of an underlying judgment.

Gore arose from an automobile accident in Florida in 1998. Plaintiff (actually plaintiff’s decedent, Dattilo) was seriously injured. The defendant, Caban, was insured by Arbella Mutual Insurance Company, but only to the limits of $20,000 per person/$40,000 per accident. Despite her serious injuries, Dattilo (through counsel) offered to settle for the full $20,000 with a full release to the defendant driver and to the insurance company. Remarkably, Arbella did not respond to this offer for a full five months. Arbella also failed to communicate the offer of the release to its insured.

Taking the silence as a rejection of the offer, Dattilo filed suit in Florida. Dattilo also sent demands to Arbella pursuant to G.L. c. 93A and c. 176D alleging bad faith insurance practices and violation of the Massachusetts Consumer Protection Act.

The case was not tried. Instead, the plaintiff and the defendant agreed to a stipulated judgment of $450,000 which was entered on the Florida court’s docket.  Plaintiff then took an assignment of defendant Caban’s claims against Arbella, and in exchange, released Caban from further liability. Plaintiff then brought suit against Arbella for its violations of G.L. c. 93A and c. 176D both in her name, and as the assignee of the rights of the former defendant, Caban. Arbella paid its $20,000 and defended the suit.

After trial in the Superior Court, the rulings were largely favorable for the plaintiff. The court found that the stipulated judgment was not collusive; that Arbella had violated c. 93A and c. 176D in several respects with regard to the demands made by Datillo; that Arbella had violated c. 93A and c. 176D when it failed to notify its insured about the settlement offer for the policy limits and to settle within those limits; that there was nothing about plaintiff’s attorney’s conduct that was inappropriate, and regardless, that any conduct of counsel did not relieve Arbella of its duties under c. 176D; and that the violations of c. 93A and c. 176D by Arbella were wilful and knowing. The Superior Court justice awarded over $1 million to the plaintiff, which included doubling plaintiff’s attorney’s, pre-trial interest on the stipulated judgment, costs, and post-judgment interest. The trial justice did not award damages on the underlying award of $450,000.

The parties cross-appealed, and on appeal the Appeals Court affirmed the lower court in every respect except the failure to award damages based upon the assignment and the underlying judgment.

On the issue raised by the plaintiff on the cross-appeal, the Appeals Court found that the stipulated judgment entered in Florida was a judgment for the purposes of G.L. c. 93A, § 9(3). Accordingly, the court found that the stipulated judgment of $450,000 should be considered the multiplicand under the law and remanded the matter for further proceedings to determine whether that amount should be doubled or tripled. The final judgment in this case will be in excess of $2 million, a strong punishment for insurance company bad faith over a $20,000 policy.

On December 23, 2010, the Supreme Judicial Court denied further appellate review.

Gore answers a question that had been lingering since the amendments to G.L. c. 93A in 1989. The courts have generally held that settlements are not to be considered “judgments” under the amended statute, and usually arbitration awards will not be considered judgments either, thought there are exceptions. It is now clear that stipulated judgments have the same weight as other court-entered judgments for the purposes of calculating c. 93A damages. Accordingly, counsel handling claims on behalf of c. 93A plaintiffs should seek agreements for judgment pursuant to Mass. R. Civ. P. 58(a).

Five months later, a different Appeals Court panel took a completely different view of damages in a case that was arguably even stronger for the plaintiffs. The Rhodes case arose from a serious motor vehicle accident; in 2002 plaintiff was rear-ended by an 18-wheel tractor-trailer while stopped by a traffic detail for tree work over the roadway. Plaintiff was left paraplegic and had documented past and future special damages over $3 million. Other plaintiffs in the suit included her husband and children for loss of consortium claims.

By August 2003, plaintiffs’ counsel had fully documented the damages, provided a day-in-the-life videotape, and made a demand for settlement. The demand was forwarded to the two insurers: Zurich American Insurance Company, which provided the primary layer of $2 million in liability insurance, and to the claims administrator for the AIG affiliate, which provided an additional $50 million of coverage. (The insurer was National Union Fire Insurance Company of Pittsburgh, PA; its claims administrator was AIG Domestic Claims, Inc., formerly known as AIG Technical Services, Inc. They will simply be called AIG.)

Despite file notes from inside and outside adjusters, as well as the opinion of defense counsel, which considered the liability to be clear and the damage likely to exceed $5 million, no offers of settlement were forthcoming until August 2004, just weeks before trial, when the parties met at mediation. Then, despite authority to make a larger offer, the combined offer of settlement (which included Zurich, AIG, and a contribution from the insurer for the tree service company) was only $3.5 million. The offer was rejected.

At trial, liability was stipulated. After the jury retired to deliberate, AIG raised the combined offer to $5 million, which was also rejected.  The jury found in favor of the plaintiffs in the amount of $9.412 million, which, with interest, came to approximately $11.3 million. AIG appealed.

After the post-trial motions were denied and while the appeal was pending, a G.L. c. 93A letter was sent by the plaintiffs. In response, Zurich paid its entire policy limits plus a share of the pre-trial interest, and the offer from the tree service company was accepted. AIG continued to stall until June 2005, when it paid close to $9 million, putting the total recovery for the plaintiffs on the underlying case close to $12 million. The c. 93A and c. 176D claims were not released.

In the trial of the c. 93A case, the Superior Court judge found that AIG had committed knowing and wilful violations of c. 93A and c. 176D. He also found that the offer of $3.5 million in August was at the “low end” of the reasonable offer range. The judge also found that the plaintiffs would have rejected an offer of anything less than $8 million, thus, as he ruled, plaintiffs were limited in their claim for pre-trial c. 93A damages.

The judge also ruled that the appeal was without merit. However, despite the fact that a judgment had been entered after trial and a jury’s verdict, the court awarded only loss of use damages from the date of the judgment until the matter was ultimately settled, which amount was doubled for wilful and knowing misconduct. The parties appealed.

The Appeals Court rejected the trial judge’s limitations on pre-trial damages, concluding that the plaintiff’s conduct prior to trial did not relieve the insurer of its duty to make a reasonable settlement offer. The Appeals Court concluded that there was clear precedent in Hopkins v. Liberty Mutual Insurance Company, 434 Mass. 556 (2001) and Bobick v. United States Fidelity & Guaranty Co., 439 Mass. 652 (2003) that the burden is not on the plaintiff to demonstrate that an offer would have been accepted. Rather, the duty is on the defendant insurer to make a reasonable offer of settlement, without regard to the conduct of the plaintiff.

Then, however, in a unique twist on c. 93A damages, the Appeals Court determined the damages should be a multiple of the loss of use damages from the time an offer should have been made up to the time the “low end” offer was made at mediation. Despite the fact that the insurer had made no offer up to the month before trial, and despite the fact that the jury awarded over $9 million, the court held that the minimal offer cut off further damages prior to trial. On top of that, the court ruled that the damages would be limited to the loss of the use of the funds. The analysis was totally without precedent.

The Appeals Court also affirmed the loss of use damages for the post-trial misconduct, agreeing that the appeal was without merit. But again, the court declined to utilize the judgment for the purposes of measuring damages, completely skipping over any analysis of the clear language of G.L. c. 93A, § 9(3).

Justice Berry dissented sharply, disagreeing with the analysis of the majority on how damages should be calculated. She argued that the pretrial conduct of AIG was clearly in bad faith; that the majority improperly analyzed the measure of damages for offers made late in the pretrial proceedings; that the defendant had the burden of demonstrating its offer was reasonable and made in good faith, which it failed to do; that the “low end” offer accepted as reasonable by the trial judge was unsustainable and should have been reversed on appeal; and that appropriate judicial review of the trial court’s findings should have included not just the low settlement, but also the totality of AIG’s conduct, including the timing of its unfairly low offer. Justice Berry argued that the jury’s verdict should have formed the basis of the determination of the c. 93A damages.

Despite a record of years of bad faith claims handling by AIG, the majority framed a damage calculation that was limited to just a few months in 2004, based on the loss of the use of the $3.5 million offer, and for the eight-month post-trial period. Inexplicably, the court completely ignored the statutory mandate in G.L. c. 93A, § 9(3) which mandates that the damages be based upon the judgment amount, and the clear legislative intent which supports significant punitive damages for unfair claims settlement practices. The court also ignored clear precedent supporting damages based upon the judgment amount. For example, in R.W. Granger & Sons, Inc. v. J & S Insulation, Inc., 435 Mass. 66 (2001), the Supreme Judicial Court affirmed damages against an insurer that were a multiple of the underlying judgment against its insured. It also neglected to follow the Gore case, decided by the Appeals Court just a few months earlier.

As of this writing, plaintiff’s petition for further appellate review in Rhodes is pending before the Supreme Judicial Court.

One of the concerns left by the Rhodes case is whether insurers will now perceive a new way to minimize bad faith damages. Under the Appeals Court ruling in Rhodes, an insurer needs only to make a marginally good faith offer just before trial. Then, no matter how long its bad faith has been on-going and no matter how outrageous its conduct, its damages will be limited to the loss of the use of money on the low-ball offer. If this ruling stands, then the purposes of our strong consumer protection statutes and decades of strong legal precedent will be seriously diminished.