895 F.2d 830 (1st Cir. 1990), 89-1556, Peckham v. Continental Cas. Ins. Co.

Docket Nº:89-1556, 89-1557.
Citation:895 F.2d 830
Party Name:Scott PECKHAM, et al., Plaintiffs, Appellants, v. CONTINENTAL CASUALTY INSURANCE CO., Defendant, Appellee. Scott PECKHAM, et al., Plaintiffs, Appellees, v. CONTINENTAL CASUALTY INSURANCE CO., Defendant, Appellant.
Case Date:February 08, 1990
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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Page 830

895 F.2d 830 (1st Cir. 1990)

Scott PECKHAM, et al., Plaintiffs, Appellants,

v.

CONTINENTAL CASUALTY INSURANCE CO., Defendant, Appellee.

Scott PECKHAM, et al., Plaintiffs, Appellees,

v.

CONTINENTAL CASUALTY INSURANCE CO., Defendant, Appellant.

Nos. 89-1556, 89-1557.

United States Court of Appeals, First Circuit

February 8, 1990

Heard Dec. 6, 1989.

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Philip N. Beauregard, New Bedford, Mass., for plaintiffs, appellants.

Thomas D. Burns, with whom Michael J. Grace, Ann M. Donovan, and Burns & Levinson, Boston, Mass., were on brief, for defendant, appellee.

Before TORRUELLA and SELYA, Circuit Judges, and COFFIN, Senior Circuit Judge.

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SELYA, Circuit Judge.

These appeals stem from a tragic highway accident in which plaintiff Scott Peckham was rendered a quadriplegic. Andrew Tripp was driving the vehicle in which Peckham was a passenger. The facts of the accident are relatively unimportant. It suffices to say that Tripp's liability was clear and his coverage, underwritten by defendant Continental Casualty Co. (CNA), was meagre.

Peckham and his wife, plaintiff JoAnne Peckham, thereafter engaged counsel, Brian Corey, who strove mightily to find a silver lining amidst clouds of despair. Counsel's efforts led, eventually, to a megaverdict, an assignment of rights from Tripp, and a suit against CNA alleging inter alia negligence, bad faith, breach of contract, and unfair claim settlement practices. Following a bifurcated trial, all parties appeal.

I. BACKGROUND

Tripp was insured by CNA under a standard Massachusetts automobile policy, 1983 vintage. The policy provided bodily injury coverage of $10,000 "for injuries to any one person as a result of any one accident" (the "per person" limit), and $20,000 "for injuries to two or more people as a result of any one accident" (the "per accident" limit). Underinsured motorist coverage, subject to the same monetary limits, was afforded. The policy also contained certain ancillary avails to which Peckham was entitled, i.e., $5,000 in medical payments coverage and $2,000 in no-fault personal injury protection benefits.

The sequence of events which ensued can be capsulized as follows:

1. In October 1983, Corey spoke to Eileen Kelley, a CNA claim representative. He presented claims for Scott and JoAnne (who, although not herself involved in the accident, alleged a loss of consortium). CNA promptly offered to settle the claims for the "full policy limits."

2. A hitch soon developed. Corey believed that JoAnne's loss of consortium constituted an injury to her person, thus entitling her to $10,000 under the policy's bodily injury coverage and $10,000 under the underinsured motorist coverage, completely independent of her spouse's claim. Kelley disagreed, believing that, under the policy, JoAnne's loss of consortium flowed from the injury to Scott's person and that, consequently, the per person limits blanketed the plaintiffs' claims. Translated into dollars, Corey believed CNA's maximum contractual exposure to be $47,000 (the $10,000 per person liability limit applying separately to Scott's claim and to JoAnne's claim, totalling $20,000; the $10,000 underinsured motorist limit applying in the same manner, totalling another $20,000; and $7,000 being payable in ancillary benefits), whereas CNA thought its full exposure on the Peckhams' claims was capped at $27,000 (the $10,000 per person liability limit vis-a-vis Scott's injuries subsuming both his claim and his wife's derivative claim for loss of consortium; the $10,000 per person underinsured motorist limit operating in the same way; and $7,000 being payable in ancillaries). Because CNA did not consider the consortium claim to be a separate injury under the policy, Kelley's offer of "full" policy limits translated into a settlement offer of $27,000 for all claims.

3. In February 1984, Corey rejected CNA's proposal, but offered either to settle Scott's claim alone for $27,000, or to settle all claims for $47,000.

4. In March, Kelley learned that a case was pending before the Massachusetts Supreme Judicial Court (SJC) which would determine the precise (and unsettled) question of whether a loss of consortium claim was to be treated as an injury to the person of the claimant for coverage purposes. She informed Corey of this development and told him that a judicial decision was expected in the near future. At Kelley's request, attorney Stephen Paris then drafted a proposed agreement providing that, in exchange for the Peckhams' general release (discharging Tripp and CNA), the insurer would pay Scott $27,000 and would forthwith pay JoAnne an additional $20,000 if and when the SJC held that a consortium claim was an independent injury for coverage purposes. The proposal (which we

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shall call a "Bilodeau agreement") was received by Corey on or about March 23, 1984.

5. Corey never responded directly to this proposal. Indeed, the record does not show that he contemporaneously revealed it to his clients or discussed it with them. Rather, Corey advised the Peckhams that CNA refused to settle Scott's claim unless JoAnne also signed a release. He neither mentioned the SJC case nor alerted the Peckhams that CNA's proposition envisioned paying JoAnne an additional $20,000 should the coverage issue be resolved favorably.

6. On April 19, 1984, Corey filed suit against Tripp in state superior court, seeking $8,000,000 in damages for Scott's injuries and $3,000,000 for JoAnne's loss of consortium. When Kelley inquired ten days later as to the status of CNA's settlement offer, Corey did not allude to the suit but advised her that a response would be forthcoming shortly.

7. On May 30, 1984, Christine Cooney, a staff attorney for CNA, learned that Tripp had been sued and was already in default for failure to answer. She called Corey. He said that his offer to settle for $47,000 was no longer open and that he was now seeking payment in excess of the policy limits because of CNA's "bad faith." The superior court allowed a motion to remove the default and CNA answered the case on Tripp's behalf.

8. No CNA representative met with Tripp until Kenneth Roberts interviewed him on June 18, 1984. Prior thereto, the insurer made no effort to apprise Tripp of the status of negotiations or the coverage dispute. The record is also clear that CNA did not, before then, inform Tripp of the pendency of Bilodeau in the SJC or explain to him that he might have the benefit of an additional $20,000 in coverage if the SJC were to hold that loss of consortium was a separate injury for coverage purposes. Roberts did request authority from Tripp to offer the policy limits to Scott Peckham ($27,000), leaving JoAnne's claim open. Tripp did not authorize Roberts to pursue that course of action. Roberts spoke with Tripp again in late June. He testified that he mentioned "there was a pending case that would deal with the wife's claim," and discussed it with Tripp in layman's terms (although he apparently never spelled out the case's implications). Roberts again sought Tripp's acquiescence in a $27,000 offer to Scott Peckham. Tripp, again, was noncommittal.

9. On July 17, 1984, the SJC decided the unresolved coverage question, holding that under a standard automobile policy loss of consortium was an "injury" to the claimant's person separate and distinct from the spouse's physical injury. See Bilodeau v. Lumbermens Mut. Cas. Co., 392 Mass. 537, 467 N.E.2d 137 (1984). The record is clear that Bilodeau represented a radical departure from the previously prevailing view within the industry.

10. Within a matter of weeks, Kelley informed Corey that CNA would settle all claims for $47,000 as Corey had earlier demanded. This overture was unceremoniously rejected. Thereafter, Paris and Corey engaged in negotiations which addressed not only the Peckhams' bodily injury claims but also the potential bad faith claim against CNA. The insurer proposed, for example, that it would pay the full coverage ($47,000); that Tripp would be relieved of all personal liability and would assign any rights he might have against CNA to the Peckhams; and that CNA's liability for damages in excess of the policy limits, if any, would be determined in subsequent court proceedings. Corey rejected this proposal on January 23, 1985, wanting a jury to reduce the Peckhams' claims against Tripp to verdict before the Peckhams went to the mat with CNA. Negotiations stalled.

11. Meanwhile, CNA continued to provide Tripp with a defense as the policy required. By July 1986, Timothy Sterritt had replaced Cooney as Tripp's counsel of record. Corey told Sterritt that his clients would accept CNA's policy limits and release Tripp on condition that Tripp assign his rights against CNA to them. Sterritt informed Tripp of this proposition and recommended that he engage private counsel.

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Tripp took the advice and retained attorney Steven Chananie.

12. In late 1986, Chananie sent a letter to Corey confirming Tripp's acceptance of an offer to hold Tripp harmless for any excess judgment in exchange for an assignment of rights against CNA. Chananie's acceptance of a pending offer seems to have clinched a deal. Corey claims, however, that he held matters in abeyance at that point (although agreeing to keep the offer open until after a verdict had been returned). The trial then took place in March 1987. The jury awarded $3,000,000 to Scott Peckham and $75,000 to JoAnne Peckham. CNA paid its full policy limits, together with interest and costs as required. 1

13. In May 1987, Tripp and the Peckhams formalized their pretrial agreement. Tripp executed and delivered an assignment; the Peckhams executed and delivered a release. The Peckhams, in their capacity as...

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