Miller v. Risk Management Foundation of Harvard Medical Institutions, Inc., 92-P-1127

• Decision Date: 28 June 1994
• Docket Number: No. 92-P-1127,92-P-1127
• Citation: 36 Mass.App.Ct. 411,632 N.E.2d 841
• Parties: Mary MILLER, Administratrix, 1 v. RISK MANAGEMENT FOUNDATION OF the HARVARD MEDICAL INSTITUTIONS, INC. (and a companion case 2 ).
• Court: Appeals Court of Massachusetts

Page 841

632 N.E.2d 841

36 Mass.App.Ct. 411

Mary MILLER, Administratrix, ¹ v. RISK MANAGEMENT FOUNDATION OF the HARVARD MEDICAL INSTITUTIONS, INC. (and a companion case² ).

No. 92-P-1127.

Appeals Court of Massachusetts,

Norfolk.

Argued Nov. 8, 1993.

Decided April 29, 1994.

Further Appellate Review Denied June 28, 1994.

Stephen J. Paris, Boston, for defendant.

William F. Looney, Jr., Boston, for plaintiff.

Before PERRETTA, KAPLAN and FINE, JJ.

KAPLAN, Justice.

1. Summary. Malcolm Miller, a patient at Beth Israel Hospital in Boston, was injured through the probable negligence of the hospital and the possible negligence of a doctor and nurse.

Risk Management Foundation of the Harvard Medical Institutions, Inc. (Risk Management), acts as a "facilitator" in handling malpractice claims against Beth Israel and other Harvard related hospitals. Over a period of time the company made no move to effect a settlement of Miller's case. Accordingly, the Millers, husband and wife, brought a malpractice action in Superior Court against the hospital and the doctor and nurse. The action succeeded against the hospital, but the two substantial verdicts against it were each reduced to the statutory maximum of $20,000 allowed against a charitable institution for its tortious conduct. No appeal was taken.

The present actions were brought by the Millers against Risk Management under the Consumer Protection Act, G.L. c. 93A, § 9, and the statute regarding unfair acts and practices in the business of insurance, G.L. c. 176D, based upon the failure of the company to make a reasonable offer of settlement, even after formal demand under c. 93A, although liability of the hospital, at least, appeared plain. Upon a consolidated nonjury trial, a judge of the Superior Court awarded treble damages to the Millers under c. 93A for the delay in their recovery and also allowed attorney's fees (and costs) for legal work on behalf of the Millers done in the present actions and the earlier malpractice suit. The c. 176D claims were dismissed. ³

Risk Management appeals. ⁴ We affirm the judgments except as to a feature of the award of damages for the delay and certain aspects of the allowance of attorney's fees. The trial court is to reconsider these matters on remand.

2. The lawsuits. Malcolm Miller, seventy years of age at the time, underwent a coronary artery triple bypass at the Beth Israel Hospital early in April, 1983. A surgical procedure followed on April 9, 1983, to remove an intraaortic balloon pump from his left thigh. Through error, a high intensity heat lamp rather than an operating lamp was brought into Miller's room and used, with the result that Miller suffered second and third degree burns. Present in the room were at least one doctor, Dr. Eric Hanson, and a nurse, Patricia Cady. The injuries were painful and serious; to graft skin over the burned area required two operations with additional hospitalizations.

Risk Management received notice of the incident on April 14, 1983. Three months later, on July 14, 1983, the company assigned the claim to a claims investigator, John J. Doyle, Jr. Doyle prepared a "15 day report" on July 22, 1983, which stated that liability was "probable" and that among Doyle's "future plans" was "settle." Doyle's "60 day report" had a brief recap of the incident, indicating that an employee had mistakenly failed to take a lamp from the operating room and placed a heat lamp in Miller's room instead. Doctors and nurses might be involved for omitting to check. Doyle wrote that he should try to settle with Miller's attorney.

In June, 1983, the Millers retained Mr. Daniel Hourihan to represent them. There were minor contacts between Doyle and Hourihan over the next months but nothing significant until June 28, 1984, when Hourihan accompanied a packet of medical records and bills with a letter to Doyle making an over-all settlement offer of $169,000. On August 8, 1984, Hourihan wrote asking for a response to his earlier letter.

In September, 1984, Doyle went to the Millers' house to view Miller's scars. Doyle did not speak to Hanson, Cady, or other persons at the hospital; nor did he propose any settlement to Hourihan.

Hourihan filed a malpractice action on Miller's behalf on November 21, 1984 (a consortium claim on behalf of the wife was later added). The amended complaint named Beth Israel, Hanson, and Cady as defendants.

On November 23 and 27, 1984, Hourihan sent Risk Management c. 93A demand letters stating that suit would be brought against the company under the statute if a fair and equitable settlement of the malpractice action was not forthcoming within thirty days. ⁵ Doyle responded on December 18, 1984, that because of Miller's prior medical condition, he (Doyle) was "find[ing] it extremely difficult" to evaluate Miller's negligence claim he requested more information "to shed light upon the alleged" liability. On April 10, 1985, Risk Management offered $20,000 in full settlement of both plaintiffs' claims. The offer was refused.

Trial to a jury of the malpractice action took place in June and July, 1986. ⁶ Miller and his wife achieved verdicts against the hospital of, respectively, $278,000 and $130,000, but each was reduced to $20,000 in principal amount pursuant to G.L. c. 231, § 85K, which limits a tort recovery against a charitable institution to that sum (see partial text at note 9 below). Verdicts were returned for Dr. Hanson and Cady and against the Millers. There was no appeal from the judgments of July 10, 1986.

On February 15, 1985, Malcolm Miller commenced the present action against Risk Management (his wife later also filed an action). The gravamen was that Risk Management had wrongfully withheld settlement of the Millers' claims when liability was reasonably plain. After nonjury trial in April and May, 1989, the judge (not the judge who tried the malpractice case) made findings and rulings and ordered judgment for Risk Management on the c. 176D claim and for the Millers on the c. 93A claim. The judge found that Risk Management was not in the business of insurance and therefore not the object of a direct action under c. 176D. ⁷ However, the court found that Risk Management's role in handling claims against the hospitals made it subject to c. 93A and that it had violated the statute in dealing with the Millers. Upon decision of motions for amendments of the findings and rulings, and submissions and argument regarding attorney's fees, judgments entered for the Millers for treble the interest at a rate of six percent on the $40,000 from the date liability was reasonably clear for the malpractice (July 1983) until judgment thereon (July 1986), a total of $21,600; also for attorney's fees in amounts the judge found fair in respect to each lawsuit: $30,547.31, as against $45,593.00 requested (plus $1,276.55 costs) for the malpractice action, and $70,000, as against $146,496.75 requested (plus $12,152.51 costs) for the c. 93A actions. ⁸

In response to Risk Management's contentions, we consider whether the company is amenable to c. 93A; whether, in applying that statute, reference may be made to the standards of c. 176D, whether violations were properly found; and whether damages and attorneys' fees were correctly adjudged.

3. Amenability of Risk Management to c. 93A. Section 2(a) of c. 93A, as inserted by St.1967, c. 813, § 1, declares unlawful "unfair or deceptive acts or practices in the conduct of any trade or commerce." Risk Management denies that it engages in "trade" or "commerce," but the judge's finding in the affirmative appears sound.

In reaching for the right characterization, "[f]actors to be considered include the character of the party, the nature of the transaction, the activities engaged in by the party, and whether the transaction was motivated by business or personal reasons." Barrett v. Massachusetts Insurers Insolvency Fund, 412 Mass. 774, 775-776, 592 N.E.2d 1317 (1992). See also Begelfer v. Najarian, 381 Mass. 177, 190-191, 409 N.E.2d 167 (1980).

The record shows that medical malpractice insurance for Beth Israel Hospital and other Harvard affiliated hospitals and certain of their respective staffs is provided by Controlled Risk Insurance Company (CRICO), an entity organized in the Cayman Islands. Risk Management, incorporated as a Massachusetts charitable corporation, has been engaged in investigating claims asserted against the hospitals, negotiating settlements as appropriate, and appointing trial attorneys when claims proceed to litigation. Both CRICO and Risk Management are owned by Harvard University and the affiliated hospitals.

As the judge found, Risk Management was "engaged in the business of claim facilitation," i.e., in seeking to control or minimize the ultimate exposure of CRICO and thus of the hospitals. Such activity, the judge wrote, "was motivated by business and not personal reasons and was primarily commercial in character." The work was "done in a 'business context' which makes it part of trade or commerce within the meaning of G.L. c. 93A" (citing Lantner v. Carson, 374 Mass. 606, 611, 373 N.E.2d 973 [1978] ). True, the company did not render services to the Millers for consideration, the kind of connection usually presented in c. 93A litigation, but the commercial relation was there as the company was in arms-length negotiation with the Millers over their malpractice demand.

Risk Management offers particular objections, but in our view they fail. That the company is nominally a charitable organization, working in support of veritable charitable institutions, does not allow it an escape from c. 93A where, as here, it has in fact performed in a business way. This is clear from Planned Parenthood Federation of America, Inc. v. Problem Pregnancy of Worcester, Inc., 398 Mass. 480, 492- 498 N.E.2d 1044 (1986). ⁹ The company derives no comfort from All Seasons Servs., Inc. v. Commissioner of Health & Hosps. of Boston, 416 Mass....