Morrison v. Toys "R" US, Inc., SJC-09179 (Mass. 3/1/2004)

• Decision Date: 01 March 2004
• Docket Number: SJC-09179
• Citation: 441 Mass. 451
• Parties: SUSAN MORRISON vs . TOYS "R" US, INC., MASSACHUSETTS.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

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SUSAN MORRISON vs. TOYS "R" US, INC., MASSACHUSETTS.

SJC-09179

Supreme Judicial Court of Massachusetts.

March 1, 2004.

April 15, 2004.

Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, Sosman, & Cordy, JJ.

Consumer Protection Act, Availability of remedy, Insurance, Offer of settlement, Unfair act or practice, Trade or commerce. Statute, Construction.

Civil action commenced in the Superior Court Department on November 7, 2000.

The case was heard by Charles J. Hely, J., on a motion for summary judgment.

After review by the Appeals Court, the Supreme Judicial Court granted leave to obtain further appellate review.

Steven T. Alpert (Martin D. Finkel with him) for the plaintiff.

Thomas F. Maffei for the defendant.

GREANEY, J.

We granted further appellate review in this case to consider whether an independent right of action exists under G. L. c. 93A, § 9, for unfair or deceptive claims settlement practices by a self-insuring corporate entity engaged in a trade or business. A judge in the Superior Court granted summary judgment dismissing the plaintiff's complaint alleging that the defendant corporation (a noninsurer) violated G. L. c. 93A, § 9, and G. L. c. 176D, § 3 (9), by engaging in "bad faith settlement practices." The Appeals Court concluded that the dismissal of the plaintiff's complaint was an error of law, based ostensibly on principles stated in Miller v. Risk Mgt. Found. of the Harvard Med. Insts., Inc., 36 Mass. App. Ct. 411 (1994), and held that the defendant may be liable under G. L. c. 93A, § 9, for its conduct during claims settlement negotiations, guided by criteria set forth in G. L. c. 176D, § 3 (9), defining unfair insurance claims settlement practices. Morrison v. Toys "R" Us, Inc., Mass., 59 Mass. App. Ct. 613, 617-621 (2003). We disagree and now affirm the judgment.

1. No disputes of fact appear in the summary judgment record, which we briefly summarize. The plaintiff was injured on May 30, 1996, while shopping in a Toys "R" Us store in Kingston, when she was struck on the head and face by a falling sign. She initiated a negligence action in the Superior Court against the defendant, a wholly owned subsidiary of the holding company, Toys "R" Us, Inc. (together, Toys), to recover damages for her injuries.

The record indicates that, when a claim of less than $1 million is made against Toys, or one of its subsidiaries, the company handles that claim internally, through a risk management department in its national office designed exclusively to administer such claims. Claims adjusters in Toys' risk management department conducted settlement negotiations with the plaintiff. The plaintiff's initial demand for $250,000 was countered by an offer of $15,000, which the plaintiff rejected. After receiving a medical report of a dentist, hired by Toys, documenting the plaintiff's "substantial disability," Toys increased its settlement offer to $30,000. This, too, was rejected by the plaintiff. On the morning of trial, Toys made its highest offer of $45,000. At trial, the jury rendered a special verdict finding that negligence on the part of the defendant caused the plaintiff's injuries. The jury awarded the plaintiff $1.2 million in damages. The plaintiff accepted an order of remittitur, and an amended judgment ultimately was entered awarding damages in the amount of $250,000 (plus interest). No appeal from that judgment has been taken.

Shortly after the jury verdict in her favor, the plaintiff initiated the present action in the Superior Court under G. L. c. 93A, § 9, and G. L. c. 176D, seeking punitive damages, interest, costs, and attorney's fees, based on the failure of Toys' claims adjusters "to effectuate [a] prompt, fair, and equitable settlement[]" of her claim after the liability of Toys became reasonably clear. G. L. c. 176D, § 3 (9) (f). Toys moved to dismiss the complaint, and a judge (not the same judge who tried the negligence claim), treating the motion as one for summary judgment, see Mass. R. Civ. P. 12 (b), 365 Mass. 754 (1974), entered judgment in favor of the defendant. The judge reasoned that the defendant owed no legal duty to the plaintiff, under either G. L. c. 93A or G. L. c. 176D, to effectuate settlement of her claim, because, as a retail toy company not engaged in the business of insurance, it is not subject to the unfair settlement prohibitions set forth in G. L. c. 176D exclusively for insurers.

Relying on its earlier decision in Miller v. Risk Mgt. Found. of the Harvard Med. Insts., Inc., supra, the Appeals Court concluded that, although Toys plainly is not an insurer within the meaning of G. L. c. 176D, it can still be liable in an independent cause of action for unfair claim settlement activities under G. L. c. 93A. The court reasoned that the claims settlement practices of a "self-insurer" such as Toys, conducted through its risk management department, "fall within the domain of the general consumer protections of [G. L.] c. 93A and, if conducted in an unfair and deceptive manner, may give rise to potential liability . . . irrespective of the applicability of the [G. L.] c. 176D insurance regulatory scheme of oversight." Morrison v. Toys "R" Us, Inc., Mass., supra at 618-619. The court then reaffirmed what had been stated in the Miller decision, that the criteria set forth in G. L. c. 176D, § 3 (9), defining what is or is not "unfair or deceptive" for purposes of G. L. c. 93A, are relevant to a court's determination whether a defendant has engaged in unfair settlement practices under G. L. c. 93A. See id. at 620-621.

2. The plaintiff now appears to concede that Toys is not "engaged in the business of insurance" and, thus, not directly subject to G. L. c. 176D's regulatory scheme setting forth unfair or deceptive acts or practices in the business of insurance. She contends, nonetheless, that, as a corporation engaged in "trade or commerce," Toys became subject to G. L. c. 176D's standard of fair settlement practices when it made the business decision not to purchase insurance from an outside insurer but, rather, to handle internally any claims for injuries occurring as a result of its negligence, thereby engaging itself in the business of claims handling.¹ The plaintiff argues that Toys violated G. L. c. 93A, § 9, when its claims adjusters offered only $15,000, $30,000, and $45,000 to settle her negligence claim, in view of its clear liability for the plaintiff's well-documented injuries and its receipt of two separate G. L. c. 93A demand letters requesting a settlement of $250,000. The plaintiff points to the jury's ultimate award of $1.2 million as further evidence that settlement negotiations with the plaintiff were conducted in bad faith. We review the entry of summary judgment under well-established standards, to determine whether Toys has demonstrated that there is no genuine issue as to any material fact and that it is entitled to a judgment as matter of law. See Greater Lawrence Sanitary Dist. v. North Andover, 439 Mass. 16, 20-21 (2003); Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991).

The prohibitions set forth in G. L. c. 176D, § 3 (9), the statute regulating unfair acts and practices in the business of insurance, "were enacted to encourage settlement of insurance claims . . . and discourage insurers from forcing claimants into unnecessary litigation to obtain relief." Hopkins v. Liberty Mut. Ins. Co., 434 Mass. 556, 567-568 (2001), quoting Clegg v. Butler, 424 Mass. 413, 419 (1997). They specifically were "designed to remedy a host of possible violations in the insurance industry and [were imported to G. L. c. 93A by virtue of St. 1979, c. 406, § 1, amending G. L. c. 93A, § 9 (1),] to subject insurers committing violations to the remedies available to an injured party under G. L. c. 93A." Hopkins v. Liberty Mut. Ins. Co., supra at 562. See Bobick v. United States Fid. & Guar. Co., 439 Mass. 652, 659 (2003); Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 121 (1994). One obvious legislative concern was that entities that profit from selling insurance policies not abuse exclusive rights and duties to control litigation vested through those same policies.

The plaintiff argues that Toys committed unfair trade practices prohibited by G. L. c. 176D, § 3 (9) (d), (f), and (g), when it refused initially to pay her claim without conducting a reasonable investigation; when it failed to effectuate a prompt, fair, and equitable settlement of her claim when its liability was clear; and when it compelled her to institute litigation by offering substantially less than the amount ultimately recovered in her underlying negligence action. The difficulty with the plaintiff's argument is that the conduct of which she complains, by the statute's own terms, is unlawful only when committed by entities "engaged in the business of insurance." G. L. c. 176D, § 1 (a). See Miller v. Risk Mgt. Found. of the Harvard Med. Insts., Inc., supra at 417-418. The concerns underlying the enactment of G. L. c. 176D and G. L. c. 93A cannot legitimately be extended to a self-insurer such as Toys, which had no contractual obligation to settle the plaintiff's claim and is not otherwise regulated by the Commonwealth for insurance activities. See Poznik v. Massachusetts Med. Professional Ins. Ass'n, 417 Mass. 48, 51 (1994) (business of insurance "involves `profit driven business decisions about premiums, commissions, marketing, reserves and settlement policies and practices'").

The Appeals Court's reliance on Miller v. Risk Mgt. Found. of the Harvard Med. Insts., Inc., supra, is misplaced. The defendant in that case (Risk Management) was a Massachusetts charitable organization that operated as a "facilitator" in handing medical malpractice claims against Harvard University affiliated hospitals. Id. at 412. Medical malpractice insurance for the hospitals was provided by Controlled Risk Insurance Company (CRICO), an entity organized in...