Clegg v. Butler
| Decision Date | 12 March 1997 |
| Citation | 424 Mass. 413,676 N.E.2d 1134 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | James A. CLEGG & another 1 v. Jeff L. BUTLER & others. 2 |
John G. Ryan (Stimpson B. Hubbard with him), Boston, for Utica Mutual Insurance Company.
David W. White-Lief (Marc L. Breakstone with him), Boston, for plaintiffs.
Thomas R. Murphy, Boston, for Louis C. Butler and another.
Edward T. Hinchey and Miles W. McDonough, Boston, for amicus curiae Amica Mutual Insurance Company and another.
Frederic N. Halstrom, Boston, and John J. St. Andre, Jr., for amicus curiae Massachusetts Academy of Trial Attorneys.
Erik Lund and Jeffrey S. Brody, Boston, for amicus curiae New England Insurance Company.
Before WILKINS, C.J., and O'CONNOR, GREANEY, FRIED and MARSHALL, JJ.
These cross appeals in this case arise from a claim brought by the plaintiffs against the defendant insurer, Utica Mutual Insurance Company (Utica), alleging unfair settlement practices in violation of G.L. c. 176D, § 3(9) (f ), and seeking damages under G.L. c. 93A, § 9(3). 3 Finding Utica liable on this count, the judge awarded the plaintiff James A. Clegg treble damages based on a settlement reached with the insured prior to the trial. The insurer appeals from this damage award. As to the settlement, the parties reached a stalemate as to how the claims were to be closed out. The plaintiffs filed a motion for entry of judgment against the Butlers. This motion was denied as moot, and the plaintiffs appealed. We granted Utica's application for direct appellate review. We affirm the judgment in part, we reverse in part, and we remand the case for further proceedings.
On May 4, 1991, James Clegg was seriously injured in a two-car automobile accident after the vehicle driven by Jeff Butler struck Clegg's automobile in a head-on collision. Butler's vehicle was insured by Utica under a policy issued to his parents which insured bodily injuries up to a limit of $250,000 per person. The Butlers also had coverage pursuant to an excess liability policy issued by Merrimack Mutual Insurance Co. (Merrimack) which had a policy limit of $1,000,000.
Shortly after the accident, Utica became aware that the Cleggs were represented by counsel. Utica promptly began an investigation of the accident and, according to the judge's detailed findings, quickly determined that its insured was clearly at fault in the accident. In June, 1991, Utica scheduled an independent medical examination of Clegg to investigate the extent of his injuries but because the orthopedic specialist performing the examination lacked medical information concerning Clegg's care and treatment history, Utica did not consider the evaluation accurate or helpful. Utica never sought an additional independent medical examination of Clegg.
In June and November of 1991, and December, 1992, Utica hired investigators to conduct surveillance and "activity checks" on Clegg. Contrary to its own policies which prohibited interviewing claimants represented by counsel, Utica did not inform any of the investigators that the Cleggs had hired an attorney and thus both Clegg and his wife were approached and interviewed as part of these investigations. After the first investigation in July, 1991, an investigator told Utica that this was a serious case that appeared to be a "long term, total disability case" and recommended that Utica make sure its reserves were sufficient to cover the claim.
The Cleggs presented their first settlement demand to Utica on September 20, 1991, in which they asked for $200,000. As part of the settlement demand and pursuant to requests by the insurer, the Cleggs provided Utica with numerous medical records. Utica did not respond to this demand for settlement. On January 23, 1992, the Cleggs sent a demand letter to Utica, claiming that Utica was violating its obligation to "effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear" under G.L. c. 176D, § 3(9)(f ). The letter demanded relief under G.L. c. 93A and made a new settlement demand in the amount of $750,000. Utica's response was dated February 20, 1992. It included no settlement offer, denied any violations of G.L. c. 176D or G.L. c. 93A, and requested additional medical records which were said to be part of a "long outstanding request" for information regarding a former back injury. The Cleggs's attorney responded by letter four days later, in which he provided new copies of the requested records and notified Utica that these records had already been provided to Utica the previous October. Utica did not request any additional medical information on this matter following this response.
In March, 1992, Utica retained a neurologist to review Clegg's medical records, and he concluded that Clegg's injuries were causally related to the accident with Butler. In mid-April, Utica requested additional medical information which was provided over the course of the next month along with new medical data as they became available. In June, 1992, Utica's claims managers recommended raising the policy reserve to the policy limit of $250,000 and recommended authorization to settle the case at this limit. Although the judge found that Utica's home office accepted these recommendations within days, Utica did not present the Cleggs with a settlement offer until the beginning of July, at which time the Cleggs were presented with a series of structured settlements, each having a present value of less than $175,000. The Cleggs rejected these offers and commenced action against the Butlers and Utica in February, 1993, after having raised their settlement demand to the combined policy limits of $1.25 million in October, 1992. Utica retained an attorney to represent the Butlers. In the course of his investigation this attorney determined that the probable value of the case exceeded Utica's policy limit and in September and November of 1993, he recommended that Utica offer the Cleggs $250,000 in settlement, characterizing potential damages as "astronomical." Despite these recommendations, a second settlement offer was not forthcoming until a mediation session was conducted in May, 1994, just prior to the commencement of the scheduled trial. At that time, Utica finally offered the full $250,000, after which the excess insurer agreed to pay $425,000, and the parties agreed to settle for a combined amount of $675,000.
The Cleggs's allegations of unfair settlement practices on the part of Utica were not relinquished by this settlement. Following a jury-waived trial on this matter, the judge ruled that Utica had violated G.L. c. 176D, § 3(9)(f ), by failing to effectuate a prompt, fair, and equitable settlement of a claim in which liability was reasonably clear. According to his findings, "Utica knew or should have known that [Clegg] was permanently and totally disabled" by June, 1992. The judge ruled Utica's failure to extend a settlement offer in response to the Cleggs's demand letter violated G.L. c. 93A, § 9, and that this violation continued as Utica failed to offer its policy limits to the Cleggs despite his finding that "Utica possessed sufficiently adequate documentation to warrant" such an offering. He found that Utica did not need nor reasonably attempt to obtain further medical information, and instead "provoked unnecessary litigation in the faint hope of discovering damaging information" although it could not have had a reasonable belief that such information existed. Pursuant to these conclusions, the judge entered judgment for Clegg in the amount of $250,000 which he then trebled under the provisions c. 93A, § 9, for wilful and knowing violations. Attorney's fees in the amount of $150,000 were also awarded.
In the meantime, a disagreement had arisen in the settlement process as to how the claims against the Butlers were to be extinguished. After the Butlers' attorney refused to sign a settlement release denoted "Agreement for Judgment," the Cleggs's attorney drafted another release which provided, among other things, "that an appropriate judgment upon the underlying bodily injury claims in the total amount of [$675,000]" would be filed in the trial court. The Cleggs signed this release and forwarded it to the Butlers' attorney who then forwarded the check for $425,000 from the excess insurer. Utica's counsel notified the Butlers' counsel that they objected to the judgment language contained in the release. The Butlers' attorney repeated this objection when he sent Utica's check for $250,000 to the Cleggs. Although the settlement had been paid in full, there remained a dispute as to whether the parties had agreed that an agreement for judgment would be executed and filed. Because the Cleggs refused to enter into a stipulation of dismissal, they moved for an entry of judgment. When this motion was denied, the Cleggs moved for reconsideration; the motion for judgment was again denied. Following the conclusion of the trial on the c. 93A claims, on a motion by Utica, the judge allowed a motion dismissing the Cleggs's complaint against the Butlers.
Contesting its liability to the Cleggs, Utica argues that the Cleggs, as third-party claimants to the Butler's insurance policy, cannot recover against the insurer for its failure to effectuate a settlement under G.L. c. 176D, § 3(9)(f ). This statute provides that it is an unfair claim settlement practice for an insurer to fail "to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear." The crux of Utica's argument is that liability cannot be considered "reasonably clear" if either fault or damages are still contested. While we agree that liability is not "reasonably clear" if it is still the subject of good faith disagreement, we reject Utica's conclusion that, when the plaintiff is a third party rather than the insurer's insured, the...
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