Auto insurance is designed to provide benefits after an accident to help streamline payments and help the injured parties heal. During a stressful, unusual time, an insured may not be in the state of mind to ensure the company has her or his best interests in mind. To protect consumers, the Massachusetts legislature prohibited insurance companies from participating in unfair claim settlement practices, delineated in G. L. c. 176D, § 3(9)(f) and G. L. c. 93A, § 2. A recently issued Massachusetts opinion (No. 16-P-927) reviews whether or not an insurance company committed unfair claim settlement practices when it conditioned the payment of the policy limit on the release of claims against its insured.
The Appeals Court ultimately held that it did not but gave insight into what does and does not qualify as an unfair settlement. The front-seat passenger was seriously injured after the driver crashed his rental car. The driver rented the car for work a few weeks before and was covered by his employer’s primary commercial automobile insurance policy, as well as two excess insurance policies. The primary coverage was $1 million, and the excess policies provided $5 million worth of coverage each. Following the accident, the passenger filed suit against the driver and his employer, alleging negligence.
The primary insurer, providing the defense for both the driver and the company, exchanged several letters discussing the settlement of the negligence claim with the injured party. In the initial demand letter, the injured passenger claimed the driver’s negligence was reasonably clear, and the parties were liable for his damages, totaling over $1 million. The letter offered that in exchange for the $1 million insurance policy limit, he would release the insurer from further claims of any kind. The passenger did not offer to release the driver or the employer, since he intended to pursue claims for additional damages. However, the injured person noted he was willing to enter into an agreement with the driver and the driver’s employer if the insurer met his demand for the $1 million policy limit.
The insurer declined this offer, arguing that a release this early before an independent medical examination would be inappropriate and could lead to a bad-faith claim. Additional correspondence continued, with both parties reiterating the same positions until the insurer offered to settle if the payment was conditioned upon the release of its insured. In this letter, the insurer referred to a 1998 Massachusetts decision, Lazaris v. Metropolitan & Cas. Ins. Co., 428 Mass. 508, which makes no mention of excess insurance. Following this letter, the injured passenger moved to amend his complaint to add a claim of unfair claim settlement practices by the insurer. This was granted but stayed by the court until the resolution of the negligence action.
An additional demand letter was sent, this time to all insurers, seeking $3.9 million. The passenger claimed the primary insurer’s reliance on Lazaris was misplaced and that the excess insurers protected and released the driver and his employer from future personal liability and damages. The insurer responded by saying it was willing to pay the remaining amount on the policy ($770,000) to settle the claim in exchange for the general release of its insureds. The passenger agreed to this settlement, but not to the general release. The passenger instead proposed that any judgment in excess of the $770,000 would only be sought from the excess insurers. A few months afterward, one of the excess insurers and the primary insurer reached a settlement for $900,000, upon which a release was granted to the driver and his employer. The insurer then filed for summary judgment on the remaining unfair claim settlement practices claim, which was granted. The passenger appealed.
The Appeals Court affirmed the trial court’s dismissal of the remaining claim, determining that the offer from the insurance company was reasonable. The court looked at the insurer’s reliance on case law in its responses and found that it was far from the typical characteristics of unfair claim settlement practices, in which offers are made in bad faith, using extortionate tactics. The Appeals Court agreed with the trial court, determining the insurer’s response to the injured person to be prompt and clear. The lower court’s ruling was upheld, leaving the claim of unfair claim settlement practices dismissed.
In any personal injury case, you want experienced, knowledgeable legal counsel at your side. The Massachusetts attorneys at Karsner & Meehan can help you negotiate and litigate your auto accident lawsuit. Call today for a free, confidential consultation at 508-822-6600.
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