Understanding the Consequences of Delay in Settling Insurance Claims

The definition and consequence of “unfair settlement practices” in the context of insurance claims is one of the most litigated, and most controversial , legal topics in the Commonwealth of Massachusetts .     Under Massachusetts General Laws Chapter 176D and 93A, insurers are required to effectuate a “prompt, fair and equitable settlement” of any claim in which liability has become reasonably clear, or risk paying the aggrieved claimant(s) all damages resulting from the insurer’s delay, plus attorney’s fees.   If the insurer willfully deviates from this standard, then the claimant’s damages may be doubled or tripled.   Recent cases have clarified when, exactly, liability has become reasonably clear, and the scope of actual damages and attorney’s fees.

In Rhodes v. AIG Domestic Claims, Inc., the Massachusetts Supreme Judicial Court ruled on several important points concerning the applicability of Chapters 176D and 93A. First, the SJC decision clearly supports the notion that unfair and deceptive settlement practices can occur prior to the plaintiff filing its lawsuit; throughout the lawsuit and prior to trial; and post-verdict, through the appeal process and until a final settlement has been reached or appeals exhausted.   In Rhodes, the defendant insurance company failed to submit a reasonable settlement offer during pre-trial mediation, after suit was filed, and even after the plaintiff secured a judgment of $11.3 million (which defendants appealed).   Only after the plaintiff filed a separate action under Chapter 93A did the defendant insurance company agree to a reasonable settlement offer, apparently after re-considering its appeal.

The SJC also decided in Rhodes that the amount of actual damages to be multiplied for willful violations of Chapters176D and 93A is the amount of judgment, if one has entered, plus attorney’s fees.   If the underlying negligence claim has been settled prior to trial, then statutory interest on the settlement will be awarded under Chapter 93A, and doubled or tripled from the time that the defendant insurance company should have offered the settlement.   The Court in Rhodes made clear that insurance companies are obliged to make reasonable settlement offers once the insured’s fault  AND the claimant’s damages are reasonably clear.

Another recent Massachusetts case, decided by the intermediate Appeals Court, ruled on the award of attorney’s fees under Chapter 93A/176D cases.   In this case, the defendant insurer waited until just before trial to offer a reasonable settlement to the claimant, who thereafter filed a second lawsuit under Chapter 93A, seeking loss of money (statutory interest) on the settlement since the date that liability became clear, as well as the approximately $27,000 she incurred in litigating both actions.   After the trial court denied plaintiff’s request for attorney’s fees, the Appeals Court in Martinez Rivera, et al. v. Commerce Insurance Company ruled that those fees incurred by the plaintiff were foreseeable to the insurer from the point that liability became reasonable clear, and reversed the trial court’s decision.

Cases such as Rhodes and Martinez-Rivera serve as a step-by-step guide for commercial litigation practitioners, plaintiff and defense side, and provide a serious check against prejudicial delay in the processing of insurance claims.

The attorneys at Mirageas & Avery, LLC are able competently advise companies and individuals on filing successful insurance claims for injury to person and property.  Please call 508-381-0499 for help with any questions.