DiMarzo v. American Mut. Ins. Co.

• Decision Date: 04 May 1983
• Citation: 389 Mass. 85,449 N.E.2d 1189
• Parties: Louis DiMARZO v. AMERICAN MUTUAL INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1189

449 N.E.2d 1189

389 Mass. 85

Louis DiMARZO v. AMERICAN MUTUAL INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts,

Plymouth.

Argued Oct. 7, 1982.

Decided May 4, 1983.

Phillip M. Davis, Boston (Stephen J. Andrick and D. Alice Olsen, Boston, with him), for defendant.

Michael E. Mone, Boston (Patricia L. Kelly, Boston, with him), for plaintiff.

Before HENNESSEY, C.J., and WILKINS, LIACOS, ABRAMS, NOLAN, LYNCH and O'CONNOR, JJ.

LIACOS, Justice.

The defendant, American Mutual Insurance Company (American Mutual), appeals from a judgment for damages, attorneys' fees, and costs. Following a jury trial, a judge of the Superior Court found that American Mutual had committed unfair or deceptive acts or practices by refusing to settle the tort claim of the plaintiff Louis DiMarzo for the limits of its motor vehicle liability insurance policy. DiMarzo had claimed that American Mutual's insured, William J. MacDonald, was liable for DiMarzo's injuries. The judge awarded double damages and attorneys' fees to MacDonald's assignee, Louis DiMarzo, under G.L. c. 93A, §§ 2, 9. We vacate the judgment and remand the case for entry of a modified judgment in accordance with this opinion.

The facts giving rise to this appeal are as follows. On June 25, 1971, DiMarzo sustained serious injuries as a result of an automobile accident caused by MacDonald. As a result of the accident, DiMarzo incurred substantial medical expenses. DiMarzo received $2,000 in Personal Injury Protection (P.I.P.) benefits from his own insurance company, Providence Washington Insurance Company (Providence Washington), and brought suit in 1971 against MacDonald to recover damages of $500,000 for his injuries.

At the time of the accident, MacDonald was insured by a policy issued by American Mutual. This policy provided bodily injury coverage in the amount of $20,000 a person. The policy contained the usual provisions obligating American Mutual to defend MacDonald against any claims arising out of his operation of the insured automobile, and required MacDonald to cooperate with American Mutual in defending any such claim.

American Mutual investigated the accident. It determined that MacDonald was liable to DiMarzo, and that DiMarzo's damages exceeded the policy limits. It recognized that it had an obligation to offer the policy limits in settlement of DiMarzo's claim so as to avoid exposing MacDonald to liability in excess of those limits. American Mutual took the position, however, that only $18,000 coverage remained on the policy because of the $2,000 payment made to Providence Washington to reimburse Providence Washington for the P.I.P. payments it made to DiMarzo. American Mutual therefore made an offer of settlement for $18,000 in April, 1973. ¹ This offer was rejected.

In February, 1976, a master's hearing was scheduled on the tort action by DiMarzo against MacDonald. American Mutual's counsel, Thomas F. Quinn, mailed a certified letter concerning the hearing to MacDonald at 430 Warren Avenue in Brockton. Mr. Quinn had sent two previous letters to MacDonald at the same address. The first letter, asking MacDonald to appear at a deposition, had been sent by certified mail. The return was signed by a person other than the insured. MacDonald did not appear for the deposition. The second letter, sent to the same address two weeks later, was returned unclaimed. The third letter, relative to the scheduled master's hearing, was returned unclaimed. MacDonald did not appear at the hearing. The hearing proceeded, and the master found for DiMarzo in the amount of $75,000.

The tort case subsequently was scheduled for a jury trial. Throughout this period, the parties discussed the possibility of a settlement. DiMarzo indicated that he would be willing to settle for $20,000, the face amount of the policy. American Mutual insisted that only $17,800 coverage remained on the policy and refused to offer more. On March 7, 1977, American Mutual filed a complaint for a declaratory judgment concerning the amount of coverage available under the policy. While this complaint was scheduled for hearing, it apparently never was heard.

The tort case went to trial on September 19 and 20, 1977. During that trial, Mr. Quinn stated for the first time that American Mutual was proceeding under a reservation of rights. ² The attorneys for the parties discussed the possibility of a settlement. No agreement was reached. While the jury were deliberating, Mr. Quinn withdrew American Mutual's offer to settle for $17,800. The jury returned a verdict in the amount of approximately $104,000, which, with interest and costs, resulted in a judgment and execution for $149,068.78. The execution was sent to Mr. Quinn.

On December 12, 1977, Mr. Quinn sent a letter to American Mutual stating that American Mutual should not pay the execution. He stated that American Mutual now was liable only for the minimum $5,000 statutory coverage. He recommended that an offer of $2,800 be made (the minimum statutory coverage, minus the P.I.P. payment). A district claim manager agreed and recommended offering the minimum statutory coverage, less the P.I.P. payment, "under the guise that we are disclaiming relative to the insured's noncooperation." Accordingly, American Mutual authorized Mr. Quinn to extend an offer of $2,800, and he did so on May 27, 1978. DiMarzo rejected the offer.

In December, 1978, DiMarzo hired a private investigator to locate MacDonald. The investigator was instructed to tell MacDonald that if he executed an assignment of his rights and claims against American Mutual, DiMarzo would release him from all liability. After a week-long search, the investigator located MacDonald, and MacDonald executed the assignment.

DiMarzo then brought the present action against American Mutual individually and as MacDonald's assignee. Pursuant to G.L. c. 93A, § 9, a thirty day written demand for relief was sent to American Mutual on behalf of DiMarzo. American Mutual responded by denying liability but offered $50,000 in settlement of all the claims of DiMarzo and of MacDonald. The offer was rejected. DiMarzo amended his complaint to add counts under G.L. c. 93A, §§ 2 & 9.

As finally amended, DiMarzo's complaint contained seven counts. Under count one, DiMarzo sought to reach and apply the full proceeds of the policy issued by American Mutual to MacDonald. Under count two, he sought damages as MacDonald's assignee for breach of contract. Under count three, he sought damages, as MacDonald's assignee, for failure to settle in good faith the tort claim against MacDonald. Under count four, he sought damages, as MacDonald's assignee, for failure to settle DiMarzo's claim with due care. Under count five, he sought multiple damages individually for violations of G.L. c. 176D, § 3(9), and G.L. c. 93A, §§ 2 & 9. Under count six, he sought multiple damages, as MacDonald's assignee, for wilful and knowing violations of c. 93A, §§ 2 & 9. DiMarzo also sought reasonable attorneys' fees under each count. ³

The case went to trial before a jury on January 16, 1981. ⁴ The judge submitted written questions to the jury, and the jury made written findings under Mass.R.Civ.P. 49(a), 365 Mass. 812 (1974), as follows. First, American Mutual acted in bad faith by refusing to pay $20,000 and by maintaining that the payment to Providence Washington reduced the amount of insurance available under the policy to pay any judgment or settlement on behalf of MacDonald to DiMarzo. Second, American Mutual acted in bad faith by offering $2,800 after DiMarzo had secured the execution. Third, the conduct in bad faith of American Mutual proximately caused damage to MacDonald by exposing him to liability in excess of the limits of his policy. Fourth, MacDonald did not cooperate with American Mutual in accordance with the provisions of the policy, but American Mutual waived the defense of noncooperation and failed to assert a valid reservation of its right to disclaim liability. Fifth, MacDonald executed a valid assignment of his rights against American Mutual to DiMarzo. ⁵ The judge found the answers consistent.

The judge then conducted a hearing on counts one, five, and six. He filed his findings, rulings, and orders for judgment on August 24, 1981. ⁶ The judge adopted the answers to the special questions and made findings of fact consistent with the jury's answers. He found that each failure to settle DiMarzo's claim for the policy limits after American Mutual had determined that MacDonald's liability extended beyond the policy limits constituted an unfair or deceptive act or practice which damaged DiMarzo both individually and as MacDonald's assignee. Second, he found that American Mutual refused to settle solely because of its insistence that the policy limits had been reduced to $17,800 and not because MacDonald failed to cooperate. Third, he found that DiMarzo complied with the procedural requirements of a written demand for relief under c. 93A, § 9(3). Fourth, he found that MacDonald's assignment of his rights to DiMarzo was valid and included any rights MacDonald had under c. 93A. Fifth, the judge found that American Mutual's written tender of settlement was not reasonable, that American Mutual committed wilful and knowing violations of c. 93A, § 2, by refusing to settle for the policy limits; that American Mutual's refusal to grant adequate relief on demand was in bad faith with knowledge or reason to know that the act or practice complained of violated c. 93A, § 2; that DiMarzo was entitled to double damages in the amount of $386,716.06, based on the amount of the execution ($149,068.28) plus interest ($44,289.75); and that the award had an independent basis under either count five or six. Sixth, the judge found that, under counts five or six, DiMarzo was entitled to attorneys' fees of $71,962, plus costs of $2,392.50. Seventh, the judge found that DiMarzo is entitled to reach and apply the full...