Massachusetts General Laws Chapter 93A and 176D have long provided the plaintiffs’ personal injury bar with an exceptionally sharp check on insurance carriers’ settlement practices. While many claims under Chapter 93A/176D appear from the outset to be pro forma, a recent Massachusetts Appeals Court in Chiulli v. Liberty Mutual Insurance, Inc., 97 Mass. App. Ct. 248 (2020) illustrates the perils of Chapter 93A/176D violations in settlement practices and the substantial penalties that may be imposed in the event of a finding of willful and/or knowing violation of good faith and equitable settlement practices.
Chiulli arose from a physical altercation at a prominent Boston restaurant in 2008. Shortly before the altercation, restaurant staff separated two groups of individuals involved in a spirited argument over the occupancy of a certain barstool but allowed both groups to remain on the premises. Unfortunately, the argument soon turned violent. Chiulli was knocked unconscious and sustained a traumatic brain injury.
Chiulli, in turn, filed suit against the Restaurant, its parent company, and the opposing combatant seeking medical damages in excess of $600,000. He asserted a negligent security claim against the Restaurant and its operating group claiming they failed to reasonably address the initial altercation by not removing the respective parties from the premises and failing to ensure that the factions did not leave the premises together which was bolstered by expert testimony. The Restaurant did not offer its own expert and instead argued that it conducted itself in a reasonable manner in addressing the argument and altercation.
The case went to trial in 2012. The only settlement offer extended prior to or during trial was an offer for $150,000 made by the Restaurant’s primary insurance carrier. The three-week trial ended in a plaintiff’s verdict finding that both the Restaurant and its operating company were each 45% at fault for the altercation. The jury awarded Chiulli approximately $4.5 Million in damages.
Post-Verdict Claims Handling
After confirming that the primary carrier did not tender its policy limits of $1 Million to the Restaurant’s excess carrier, Chiulli served Chapter 93A demand letters on both carriers 16 days after the verdict. There, Chiulli alleged that both insurers failed to effectuate a fair and prompt settlement of the underlying tort action despite the fact liability was reasonably clear vis-à-vis the jury verdict. Chiulli sought $5.7 Million “to resolve the [underlying tort] case, and to avoid further litigation” wherein he would seek multiple damages under Chapter 93A.
Twenty-two days after the underlying verdict, the Restaurant’s primary carrier still had not tendered its policy limits, which resulted in the excess carrier serving its own demand upon the primary carrier. The primary carrier soon acquiesced and tendered its $1 Million policy limit to the excess carrier. During this timeframe, Chiulli served a second Chapter 93A demand on both carriers. This time, he sought $5.7 Million to resolve the tort case and an additional $10 Million demand to resolve putative bad faith settlement claims against both insurers.
The excess carrier, taking the lead in efforts to resolve the claim, responded to the 93A demand letter and tendered a settlement offer to Chiulli for $5.7 Million to resolve only the underlying tort claim against the Restaurant defendants. Chiulli accepted that offer and executed a release that expressly preserved his 93A/176D claims against both insurance carriers. After the underlying tort matter was resolved the primary carrier then responded to Chiulli’s 93A demand wherein it denied all liability for the putative bad faith settlement claim.
Chapter 93A Litigation
Chiulli initiated a Chapter 93A claim against the primary carrier alleging that it failed to engage in reasonable settlement practices. During a jury-waived trial, the court made numerous findings of fact including: (1) liability was reasonably clear after closing arguments in the underlying case; (2) Chiulli prepared a strong case which the primary insurer and defense were not prepared to rebut; (3) defense counsel and the carrier did not realistically assess the case and overestimated the likelihood of a defense verdict; (4) after the verdict, the carrier “by its own assessment” knew that success of post-trial motions or an appeal was unlikely; and (5) the carrier utilized Chiulli’s dire financial condition as leverage in hoping that it would lead to a more favorable settlement.
Based upon those determinations, the court found that while the primary carrier failed to effectuate a prompt and fair settlement, its failure was not knowing or willful. This ruling entitled Chiulli to a portion of his attorneys’ fees and litigation costs in pursuing the Chapter 93A/176D claim, however, absent a finding that the violations were willful and knowing, Chiulli’s damages were limited to the minimum nominal damages available under the statute – $25 – as opposed to multiple damages on the underlying jury verdict.
Chiulli and the primary carrier appealed the trial court’s order. The crux of the carrier’s appeal centered on its claim that the trial court erred in not applying the safe harbor provision of Chapter 93A, § 9 referred to as the “settlement-offer” defense. In turn, Chiulli appealed on the basis that the trial court erred in finding that the primary carrier’s violation of Chapter 93A was not willful or knowing and, thus, the award of $25 was improper.
The Appeals Court rejected the primary carrier’s argument regarding the application of the safe-harbor provision. In the ordinary course, Chapter 93A, § 9 (3) and (4) permit a defendant to introduce evidence of a prior reasonable settlement offer that, if rejected by a claimant, can serve to limit the potential scope of damages otherwise available under Chapter 93A. Here, the primary carrier argued that it was entitled to this safe harbor defense because the excess carrier had tendered a written settlement offer to Chiulli within 30 days of the first demand. This argument, according to the Appeals Court, “conflate[d] the settlement of two different claims: Chiulli’s underlying [tort] claim … and the Chapter 93A claim … asserted directly against [the primary carrier].”
Indeed, the excess carrier’s settlement offer to Chiulli following the underlying verdict served to resolve only the underlying tort claim as evidenced by the fact the settlement agreement expressly reserved Chiulli’s Chapter 93A claims against both carriers. The Appeals Court clarified that its ruling does “not suggest that when an insurer receives a [Chapter] 93A demand alleging the failure to effectuate a prompt, fair, and equitable settlement, it may not make a written settlement offer to resolve both the underlying insurance claims and any associated [Chapter] 93A claims, or that a reasonable universal settlement offer would not entitle the insurer to the settlement-offer defense.” However, based on facts of this case, the Appeals Court determined that the primary carrier did not make any settlement offers and, thus, was not entitled to the safe harbor provision of the “settlement-offer” defense.
In contrast, Chiulli’s appeal focused squarely upon whether the trial court erred in determining that the primary carrier’s violation of Chapter 93A was neither willful or knowing. Chiulli did not challenge any of the trial court’s subsidiary findings, but instead argued that the totality of those findings necessitated a different conclusion. The Appeals Court agreed with Chiulli and ruled that the carrier’s conduct – i.e., knowing its marginal chance of success on appeal, using Chiulli’s financial state to leverage a settlement, delaying settlement, and virtually compelling him to litigate to recover his verdict – “require[d] the conclusion that [the primary carrier]’s violation was willful or knowing.” The Appeals Court found that on the whole, these findings demonstrated that the tactics utilized by the primary carrier were tantamount to “intentionally gainful” strategy and, as noted by the Appeals Court, “[n]othing about this conduct could be described as anything short of willful or knowing.”
The Appeals Court vacated the trial court’s ruling on this matter and remanded the case for a determination as to whether the underlying $4.5 Million judgment should be doubled or tripled under Chapter 93A, § 9(3).
Chiulli marks the most recent award wherein seven figure judgments in underlying tort cases were doubled or trebled for bad faith settlement practices under Chapter 93A. See e.g., Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486 (2012) (awarding $22 Million in Chapter 93A damages for willful violations of Chapter 93A/176D) and Capitol Specialty Insurance Co. v. Higgins., 953 F.3d 95 (1st Cir. 2020) (affirming trebled damages of $5.4 Million). Though Chiulli offers yet another cautionary tale of the high value potential of a bad faith settlement claim under Chapter 93A/176D, the case also offers significant guidance in establishing defensible positions in similar litigation.