Co-authored by Brian Gross 

On February 10, 2012, the Massachusetts Supreme Judicial Court found that plaintiffs were entitled to more than $22 million when it held that the damages to which a plaintiff is entitled to recover pursuant to M.G.L. c. 93A and 176D for an insurers’ failure to effect prompt, fair and equitable settlement of claims must be based on the underlying judgment in the plaintiffs’ tort action, and not the loss of use of the sum ultimately offered by the defendant-insurers.  See Rhodes v. AIG Domestic Claims, Inc., — N.E. 2D —-,Mass., 2012 WL 401034 (Mass., February 10, 2012).

The Rhodes case arose out of Rhode’s catastrophic personal injuries when a tractor trailer truck rear ended her car.  Rhodes, her husband and daughter brought a tort action against inter aliaGAF Building Corp. (“GAF”), the company that leased the tractor trailer truck. GAF was insured by Zurich American Insurance Company (“Zurich”) which carried a $2 million primary policy, and National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), which carried a $50 million excess umbrella policy. AIG Domestic Claims, Inc. (“AIGDC”) acted as National Union’s claims administrator.

Defendants’ and their Insurers’ evaluation of plaintiffs’ claims and the various settlement offers and demands are detailed at length in the Court’s opinion.  For purposes of this report, it is sufficient to note Zurich tendered its policy limits to AIGDC, but AIGDC’s highest offer prior to trial was $3.5 million, which increased to $6 million at the close of evidence.

After a trial on damages, the jury awarded plaintiffs damages in the approximate amount of $11.3 million, after deducting a co-defendant settlement and adding statutory interest.  The underlying tort action was settled pending appeal, but, plaintiffs’ claims against Zurich and AIGDC for both pretrial and postjudgment violations of Chapters 93A/176D proceeded to bench trial, where the judge found in favor of Zurich, but against AIGDC.  In calculating plaintiffs’ damages pursuant to Chapters 93A and 176D, the trial court andAppeals Courtboth held that plaintiffs’ damages are based on plaintiffs’ lost use of the funds.

On further appeal, the Massachusetts Supreme Judicial Court disagreed and held that the plain language of the Massachusetts Legislature’s 1989 amendments to Chapter 93A provides that the damages for knowing and willful violations of Chapters 93A and 176D committed by insurers are calculated by doubling or trebling the amount of the underlying judgment – in this case $11.3 million.

While the SJC’s decision invites the Legislature to consider expanding the range of permissible damages to be awarded for such cases, it is clear that under current law, liability insurers face significant risk in their claims handling practices, particularly where the underlying matter involves clear liability and potential for significant damages.