An insurance carrier that challenged a $500,000 jury verdict did not commit unfair claims settlement practices when it stopped short of extending a formal offer to resolve the case, a Superior Court judge has ruled.
The plaintiff, who was injured in a barroom scuffle, argued that the insurer violated G.L.c. 176D, §3(9)(f) “when it failed to effectuate a prompt, fair and equitable settlement of her tort claim despite the fact that liability had become reasonably clear.”
The defendant insurer’s first formal offer — $500,000 plus post-judgment interest — came on July 16, 2010, more than five months after the verdict was rendered. The defendant contended that it had not offered a pre-trial settlement on the advice of its “experienced and skilled” counsel, who also advised it to adopt a “two-track” approach of pursuing an appeal and settlement simultaneously.
Judge Edward J. McDonough Jr. found that the defendant had done enough to dodge Chapter 176D liability.
“In sum, [the defendant] acted in good faith to advance rather than derail the settlement process,” McDonough wrote, crediting the insurance company’s “persistence and flexibility” with ultimately yielding a partial settlement.
The 53-page decision is Graf v. Hospitality Mutual Insurance Company, Lawyers Weekly No. 12-068-15. The full text of the ruling can be ordered by clicking here.
‘Rhodes’ paved the way
Boston lawyer James E. Harvey Jr. of O’Malley & Harvey defended Hospitality Mutual Insurance Co. against the Chapter 176D claim. A contrary finding by the judge would have chilled insurance companies from pursuing non-frivolous appeals, he said.
“If you would violate 93A when you take an appeal, you really don’t have a right to appeal,” Harvey said.
Opinions on whether the case was decided correctly hinged on whether Chapter 176D should be read as strictly requiring the extension of a formal offer or whether, as the judge found, the “functional equivalent” will suffice.
Mark J. Albano of Springfield, who represented the plaintiff, said lawyers should be troubled by the way McDonough “filled in the gap” here.
“It would appear that by recognizing an exception to the rule that requires a tender of an offer of settlement when liability becomes clear, the court is creating uncertainty and controversy when it comes to an insurer’s obligations, which after Rhodes were quite clear,” Albano said, referring to the Supreme Judicial Court’s 2012 ruling in Rhodes, et al. v. AIG Domestic Claims.
Rhodes established that plaintiffs’ double or treble damages for a post-judgment violation of G.L.c. 93A or 176D “must be based on the underlying judgment in the plaintiffs’ tort action,” rather than a calculation of the cost of the “loss of use” of the late-tendered settlement (essentially, the interest that would have been earned on the settlement).
The plaintiffs in Rhodes were awarded $22 million in damages under G.L.c. 93A on top of the $11.3 million judgment they had obtained on their tort claim.
Boston’s John P. Ryan, the Sloane & Walsh lawyer who argued for the defense in the Rhodes appeal, was retained post-verdict by the defendant insurer in Graf. Ryan noted a “disturbing trend” of Chapter 176D being invoked where, as in Graf, liability is not “reasonably clear” or there are substantial appellate or collateral issues.
“My concern would be that the extreme factual record of Rhodes may be being misconstrued and applied to more conventional disputes,” he said, noting that liability was not in doubt in Rhodes.
Boston lawyer Thomas F. Maffei agreed that Graf was more “conventional” and thus correctly decided.
“The extensive law under 176D boils down to this: ‘If there are two sides to the story and both are reasonable, there is no violation,’” the Sherin & Lodgen lawyer said.
Unlike in Rhodes, there were several good-faith disputes in Graf, from the “credibility contest” at the heart of the trial to a judge’s evidentiary ruling, to the limits of coverage under the defendant insurer’s policy, to whether the insurer would have to foot the bill for an attachment that the plaintiff would obtain against the liquor license held by its insured.
Ryan said he hoped the judge’s detailed decision would “function somewhat as a counterweight” against the proliferation of 93A and 176D claims, which he said are “time-consuming, expensive and not consistent with the goal of fairly and justly adjudicating civil disputes.”
Albano, meanwhile, said he worried about an insurer extending the “functional equivalent” of a settlement offer, a plaintiff’s attorney indicating a willingness to accept it, and then the insurer never extending it formally, leaving the plaintiff without recourse under 93A and 176D.
Margaret M. Pinkham of Pinkham Busny in Woburn, who represented the plaintiffs in Rhodes, shared Albano’s dismay in the ruling.
“A claimant has no ability to accept an offer unless and until it is made,” she said.
While Judge McDonough said his conclusion that the plaintiff would have rejected the insurer’s offer was “not a necessary basis” for his decision, Pinkham puzzled over why he felt the need to discuss the matter at all, noting that, “as was reiterated in Rhodes, the issue of whether a plaintiff would accept or reject an offer is irrelevant to the Chapter 176D analysis.”
Boston attorney Leonard H. Kesten said that while he had never seen a judge find the “functional equivalent” of an offer, the “universe of facts” supported McDonough’s opinion in Graf.
The insurer, through its counsel, made clear repeatedly that the plaintiff “could have had $500,000 anytime she wanted,” Kesten said. If she indicated a willingness to accept that amount and the offer was never formally extended, “then you have a case,” he added.
Plaintiff Katie Graf alleged that she suffered a severe ankle injury when a doorman at the Fat Cat Bar and Grill in Springfield picked her up and threw her while trying to “quell a disturbance” at the establishment.
The doorman claimed he never touched Graf and was physically incapable of throwing her. Meanwhile, the Fat Cat’s manager said she saw Graf knocked over before the doorman even arrived on the scene.
The trial turned when the plaintiff, over the defense’s objection, was allowed to testify that she had asked the Fat Cat staff to call an ambulance and that its failure to do so showed Fat Cat’s “consciousness of liability.”
Fat Cat’s manager maintained that it was Graf who refused an ambulance. According to the manager, Springfield police told her there was nothing she could do if an injured patron declined to have an ambulance called.
When defense counsel tried to get those statements admitted under the state-of-mind exception to the hearsay rule, counsel for the plaintiff successfully objected.
In her post-trial motion seeking judgment notwithstanding the verdict, defense counsel contended that Massachusetts case law clearly gave the defendant “an unqualified right to negate the inference of consciousness of guilt by explaining to the jury why he took the action in question.”
But McDonough was not convinced.
The defense proceeded to adopt a “two-track strategy” of pursuing appeal and settlement simultaneously.
The insurer’s initial “overture of settlement” was made on March 5, a little over a month post-verdict. The defendant proposed mediation or settling the case for what it believed were the limits of its policy: $500,000 plus post-judgment interest.
Plaintiff’s counsel rebuffed those suggestions, insisting that his client was also entitled to $115,000 in pre-judgment interest. When the defense did not accede to his demands, plaintiff’s counsel followed through on a threat to attach the insured’s assets to recover the $115,000.
On Aug. 16, the insurer added to its month-old offer of $500,000 plus post-judgment interest and court-assessed costs a “carve out,” allowing the plaintiff to continue to pursue a declaratory judgment related to the attachment as well as her claim under G.L.c. 176D.
The insurer agreed to stand in for its insured, putting itself on the hook for the $115,000 if it lost in the declaratory judgment action.
However, on July 26, 2013, the defendant insurer won in U.S. District Court, leaving only the G.L.c. 176D claim to resolve.
Take it to the limit
McDonough said there was a “good faith disagreement” between plaintiff’s counsel and the defense over what constituted the insurer’s policy limits.
Plaintiff’s counsel “was neither posturing nor negotiating,” the judge said, noting that Albano ultimately rejected a formal offer of Hospitality’s policy limits when it finally came.
Before trial, Albano offered to settle the case for $300,000, then lowered the demand to $125,000. But once his client prevailed with the jury and the judge on post-trial motions and also secured the attachment, the plaintiff’s posture from that point forward was “somewhat defined,” Albano said.
“[The defendants] needed to chase the plaintiff; the plaintiff didn’t need to chase them,” he said. “The plaintiff … did not need to bet against herself.”
In his opinion, McDonough credited Albano with “zealous advocacy.”
But with respect to the 176D claim, that zealous advocacy helped the defendant prove that it had bargained in good faith.
“Hospitality never tried to settle the case for less than its policy limits, nor was that ever its intent or goal,” McDonough wrote. “Neither did Hospitality then refuse to make a settlement offer.”
The judge concluded that on those facts, “to hold Hospitality in violation of c. 176D would exalt form over substance.”
Graf v. Hospitality Mutual Insurance Company
THE ISSUE: Can an insurance company be held liable for unfair settlement practices under chapters 93A and 176D after it refused to settle a post-verdict claim for an amount it believed exceeded its coverage limits?
DECISION: No (Hampden Superior Court)
LAWYERS: Mark J. Albano, Springfield (plaintiff); James E. Harvey Jr. of O’Malley & Harvey, Boston (defense)