Boyle v. Zurich Am. Ins. Co.

Citation472 Mass. 649,36 N.E.3d 1229
Decision Date14 September 2015
Docket NumberSJC–11791.
CourtUnited States State Supreme Judicial Court of Massachusetts

John T. Harding (Rachel M. Davison with him), Boston, for the defendant.

Michael K. Gillis (David R. Bikofsky & Joseph I. Rogers with him), Newton, for the plaintiff.

The following submitted briefs for amici curiae:

Laura Foggan, of the District of Columbia, & Rosanna Sattler, Boston, for Complex Insurance Claims Litigation Association.

Anthony R. Zelle & Robert J. Maselek, Jr., Boston, for Massachusetts Defense Lawyers Association.

Charlotte E. Glinka, Taunton, Thomas R. Murphy, Salem, & J. Michael Conley, Braintree, for Massachusetts Academy of Trial Attorneys.




, J.

Joseph P. Boyle was injured by an exploding tire in an automobile repair shop operated by C & N Corporation (C & N). Joseph2 and his wife, Janice M. Boyle, filed a complaint against C & N, asserting claims for bodily injury and loss of consortium. C & N held an insurance policy issued by Zurich American Insurance Company (Zurich). The policy required that C & N provide notice to Zurich of any suit brought against it. C & N informed Zurich about Joseph's injury. It did not notify Zurich about the lawsuit, but the Boyles' counsel eventually did. Zurich did not defend against the suit. C & N defaulted, and judgment by default was entered for the Boyles.

Subsequently, the Boyles brought suit against Zurich, asserting both their individual claims and the claims of C & N, which, in the interim, C & N had assigned to the Boyles. In return for a negotiated sum of money, the Boyles released the claims that they had asserted on their own behalf; these individual claims arose from Zurich's asserted failure to settle the Boyles' personal injury action when liability had become reasonably clear. After a jury-waived trial on C & N's claims against Zurich, a Superior Court judge determined that Zurich had committed a breach of its contractual duty to defend C & N. The judge declined to award the Boyles (as C & N's assignees) multiple damages, costs, and attorney's fees pursuant to G.L. c. 93A. The judge also subtracted from the Boyles' damages (as assignees) the amount that Zurich had agreed to pay to settle the Boyles' individual claims. The parties filed cross appeals, and we granted Zurich's petition for direct appellate review.

We conclude that the judge did not err in his determination that Zurich committed a breach of its duty to defend C & N. In essence,

as we have held in the line of cases proceeding from Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 409 N.E.2d 185 (1980)

(Johnson Controls ), an insured's failure to comply with a notice obligation in an insurance policy does not relieve the insurer of its duties under that policy unless the insurer demonstrates that it suffered prejudice as a result of the breach. Zurich has not shown such prejudice.

We do not disturb the judge's conclusion that Zurich did not violate G.L. c. 93A. We do, however, conclude that the sum agreed upon to settle the Boyles' individual claims should not have been subtracted from the damages awarded to the Boyles as C & N's assignees.3

1. Background. We recite the essential facts found by the judge, which we accept “unless they are clearly erroneous,” Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81, 12 N.E.3d 354 (2014)

, quoting Makrigiannis v. Nintendo of Am., Inc., 442 Mass. 675, 677, 815 N.E.2d 1066 (2004), and which the parties do not challenge, supplemented by other undisputed information from the record.

a. Underlying facts. C & N operated an automobile repair shop. In March, 2006, Nicholas Rago, one of C & N's co-owners, raised a customer's truck on a lift at C & N's shop. At Rago's request, Joseph stepped into the garage to listen to the truck's transmission. As Rago revved the engine, one of the truck's tires exploded, severely lacerating and fracturing Joseph's left forearm and hand.

Joseph underwent several surgical procedures, incurring approximately $106,000 in medical expenses. He suffered permanent scarring and partial loss of function in his left arm and hand. For approximately one year, Joseph was unable to work. Subsequently, he was compelled to seek less-skilled, lower-paying employment than he previously had held.

C & N carried a “business auto” insurance policy issued by Zurich, which included liability coverage. The coverage limit of that policy was $50,000. Rago reported Joseph's accident to his insurance agent, Tarpey Insurance Group (Tarpey), twelve days after the accident. Tarpey relayed written notice to Zurich, which opened a claim file and began an investigation.

In June, 2006, an investigator for Zurich interviewed Rago, who described the accident and reported that Joseph was undergoing

surgeries. That same month, an attorney retained by the Boyles informed C & N by letter that the Boyles intended to assert a claim for bodily injury. This letter was forwarded by C & N to Tarpey, and by Tarpey to Zurich. In October, 2006, the Boyles' attorney wrote to Zurich directly, informing it of the Boyles' intention to pursue a bodily injury claim and asking for information about the coverage limits of C & N's policy. Another, similar letter, marked 2nd request,” was delivered to Zurich in December, 2006. Although Zurich was required to provide the information sought by the Boyles, see G.L. c. 175, § 112C

, it did not respond.

By October, 2007, Zurich had determined that C & N would be held liable for Joseph's injuries. By early 2008, it had concluded that Joseph's injuries were covered by C & N's policy. Zurich did not relay these determinations to C & N. It also did not attempt to estimate the liability that C & N might face, or to settle the Boyles' claims. Instead, in February, 2008, Zurich closed its file for the Boyles' claim.

b. Suit against C & N. In August, 2008, the Boyles brought an action in the Superior Court against C & N,4 seeking damages for Joseph's injuries and for Janice's loss of consortium. By that time, C & N no longer was operating as a business; it had been administratively dissolved for approximately fourteen months. C & N did not inform Tarpey or Zurich that the suit had been filed, and did not forward to Zurich the complaint or other documents filed in the proceedings. C & N did not answer the complaint, and in January, 2009, C & N's default was entered.

The Boyles then moved for a judgment by default. In September, 2009, the Boyles' attorney sent Zurich a letter stating that a hearing had been scheduled in the Superior Court to determine the amount of the Boyles' damages. The letter specified the docket number assigned to the Boyles' complaint. Another letter, sent by the attorney later the same month, informed Zurich that the damages hearing had been postponed until October, 2009. That letter also stated the amount of Joseph's medical expenses, and enclosed copies of his medical bills. Upon receipt of these letters, a Zurich clerk scanned them and added them to the closed file for the Boyles' complaint. The clerk did not realize that any other action was necessary. Zurich therefore did not move to have C & N's default set aside; did not contact C & N to discuss the suit;

and did not attempt to settle the suit with the Boyles, or otherwise to contact them or their attorney.

The October, 2009, hearing on the Boyles' damages was not attended by C & N or by Zurich. After the hearing, the judge awarded damages of $1.5 million to Joseph and $750,000 to Janice. The Boyles also were awarded pre-and postjudgment interest. Final judgment was entered against C & N in January, 2010.5

c. Suit against Zurich. In June, 2011, the Boyles commenced their current suit, also in the Superior Court, naming Zurich as the defendant. Among other things, the Boyles asserted that they were third-party beneficiaries of C & N's policy, and that Zurich had violated G.L. c. 93A by failing to settle the Boyles' suit against C & N. In September, 2013, C & N was revived by the Secretary of the Commonwealth for a period not to exceed one year. Upon being revived, C & N assigned to the Boyles all of its rights and claims against Zurich, including a claim that Zurich had committed a breach of its contractual duty to defend C & N.6 C & N's claims against Zurich, assigned to the Boyles, subsequently were consolidated with the Boyles' claims on their own behalf.

Several days before the case was scheduled to be tried, the Boyles and Zurich reached an agreement to settle the Boyles' individual claims. The Boyles signed a release relinquishing any claims they had “in their individual capacities.” In return, they were to receive $1,324,357, a sum equal to the amount that had accrued in postjudgment interest on the default judgment that the Boyles had obtained against C & N. A release executed by the Boyles as part of the settlement stated that it “specifically excludes ... the rights of the Boyles as assignees of [C & N] to pursue the full amount of the judgment entered in [the Boyles' suit against C & N], with interest.”

A jury-waived trial was conducted on the remaining claims, namely, those that C & N had assigned to the Boyles. In detailed written findings, the Superior Court judge concluded that Zurich had committed a breach of its contractual duty to defend C & N.

The judge determined that Zurich's duty to defend was triggered by the notice it had received of Joseph's injury (from C & N), coupled with its notice of the impending damages hearing (received from the Boyles' attorney). Based primarily on the testimony of a Zurich employee, the judge found that any reasonable insurer would have attempted, by the time of the damages hearing, to settle the Boyles' claim for the policy limit of $50,000. The judge credited the testimony of the Boyles and their attorney that if, at that time, Zurich...

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