Murach v. Massachusetts Bonding & Ins. Co.

• Decision Date: 08 May 1959
• Parties: Matthew A. MURACH and another v. MASS. BONDING AND INS. CO. and others.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 338

158 N.E.2d 338

339 Mass. 184

Matthew A. MURACH and another v. MASS. BONDING AND INS. CO. and others.

Supreme Judicial Court of Massachusetts, Essex.

Argued Feb. 4, 1959.

Decided May 8, 1959.

George Karelitz, Haverhill (Norman Brisson, Haverhill, with him), for plaintiffs.

John B. Donohue, Lynn (John Z. Doherty, Lynn, with him) for defendant Mass. Bonding and Ins. Co.

Before WILKINS, C. J., and RONAN, SPALDING, WILLIAMS and CUTTER, JJ.

RONAN, Justice.

The plaintiffs seek to hold their motor vehicle liability insurer for its failure to settle a tort claim which resulted in a verdict against them in an amount substantially in excess of their policy coverage. From a final decree dismissing the bill the plaintiffs appealed.

The claim was by a pedestrian (hereinafter called the claimant) who was struck by a motor vehicle forced into her path when the plaintiffs' agent was unable to prevent the vehicle he was driving from skidding on an icy road. The plaintiffs gave timely notice of the accident to the insurer, which caused an investigation to be made. Eventually the claimant brought suit alleging damages in the amount of $20,000. The applicable policy limit was $10,000. Upon receipt of the summons served upon the insured, counsel for the insurer sent a form letter to the insured which read in part: 'In passing we note you have been sued in a sum much in excess of the amount of the policy of insurance which you carry in this company. Therefore, you may, if you so desire, have your personal counsel associate himself in the defence of this action with our attorneys, any expense in this regard to be borne by you personally.' The claimant, in answer to an interrogatory, alleged that she had sustained numerous injuries in the accident, among them a fracture of the skull and loss of her sense of smell. Independent counsel of long experience was engaged by the insurer to try the case. He defended on the grounds that the accident was unavoidable because of the icy condition of the road and that the claim was exaggerated. The evidence with respect to damages did not indicate that the claimant's injuries had included a skull fracture. There was a jury verdict in the amount of $4,900. Counsel for the claimant moved for a new trial on the ground that the verdict was inadequate. The trial judge then ordered that there should be a new trial unless within ten days the parties agreed to an additur of $7,500. Until the verdict and order there had been no serious talk relative to settlement: the claimant had indicated a willingness to settle her claim for $15,000 and not less; the insurer had made no offer.

Thereafter the following took place: Counsel for the defence, in notifying the insured of the additur, noted the possibility of a verdict in excess of the policy limit, and suggested the possibility that the insured retain additional personal counsel. The insured replied in effect that they believed the claimant's injuries were feigned and her allegations exaggerated, and that they themselves were, in any event, judgment proof. During the ten day period allowed by the order no attempt was made to settle the case. Sometime prior to the second trial, however, the claimant's attorney offered to settle for $9,300. The offer was not made known to the insured. On the first day of the second trial the insurer made a counter offer of $7,500, which was refused by the claimant. Counsel for the defence testified during the trial of the present suit that this figure was the insurer's best estimate of the settlement value of the case according to its assessment of the factors relating to liability and damages. Evidence was introduced at the second trial that the claimant had sustained a skull fracture in the accident. During his closing argument to the jury, defence counsel admitted liability, thereby narrowing the issue to one of the extent of the claimant's injuries. A motion to increase the ad damnum to $50,000 (which had been filed prior to the first trial) was allowed after the jury returned a verdict which with interest and costs amounted to $29,887.07. No exception was taken. In the instant case, the trial judge found that after the second trial the insured engaged the attorney who had defended in both trials (not the attorney who brought the present suit) to settle for $1,500 to $2,000 and paid him for his work and that they never made any complaint against that attorney.

The policy in its terms prohibits an insured from settling a claim except at his own expense, and provides that '* * * the company shall * * * defend any suit against the insured * * * even if * * * groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.' Although this language leaves the matter of settlement entirely to the insurer's discretion, its privilege in this respect imports a reciprocal obligation for its exercise. Abrams v. Factory Mut. Liability Ins. Co., 298 Mass. 141, 145, 10 N.E.2d 82; Service Mut. Liability Ins. Co. v. Aronofsky, 308 Mass. 249, 252, 31 N.E.2d 837; Bartlett v. Travelers' Ins. Co., 117 Conn. 147, 151, 167 A. 180; Douglas v. United States Fidelity & Guaranty Co., 81 N.H. 371, 127 A. 708, 37 A.L.R. 1477; Hilker v. Western Auto. Ins. Co., 204 Wis. 1, 231 N.W. 257 affirmed on rehearing, 204 Wis. 12, 235 N.W. 413. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1138. Cf. Long v. Union Indemnity Co., 277 Mass. 428, 430, 178 N.E. 737, 79 A.L.R. 1116. That obligation is to act in good faith. Abrams v. Factory Mut. Liability Ins. Co., 298 Mass. 141, 145, 10 N.E.2d 82; Service Mut. Liability Ins. Co. v. Aronofsky, 308 Mass. 249, 252, 31 N.E.2d 837. For liability to attach 'something more must be shown than [its] failing to make a settlement which a reasonably prudent person exercising due care 'from the standpoint of the assured' would have made.' Abrams v. Factory Mut. Liability Ins. Co., 298 Mass. 141, 145, 10 N.E.2d 82, 84. To mitigate the danger, however, that the insurer will favor its own interest to the exclusion of the insured's good faith requires that it make the decision (whether to settle a claim within the limits of the policy or to try the case) as it would if no policy limit were applicable to the claim. American Fidelity & Cas. Co. v. L. C. Jones Trucking Co., Okl., 321 P.2d 685, 687. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1148. See Dumas v. Hartford Acc. & Indem. Co., 94 N.H. 484, 488, 56 A.2d 57; Cowden v. Aetna Casualty & Surety Co., 389 Pa. 459, 470, 134 A.2d 223. Good faith also requires that it exercise common prudence to discover the facts as...