Williamson-Green v. Interstate Fire & Casualty Co.
| Decision Date | 26 May 2017 |
| Docket Number | 1684 CV 03141-BLS2 |
| Parties | Michelle Williamson-Green as Administratrix of the Estate of James W. Williamson, IV v. Interstate Fire and Casualty Company No. 137203 |
| Court | Massachusetts Superior Court |
MEMORANDUM AND ORDER DENYING DEFENDANTS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS
James W. Williamson, IV died from injuries sustained while he was inspecting a roof from a bucket lift that tipped over. His estate brought a wrongful death action against both the lift manufacturer and the company that had had rented out the lift, Equipment 4 Rent, Inc. (" E4R"). The jury found that the manufacturer and E4R were both negligent and awarded compensatory damages of $4.3 million. It also found that " E4R's conduct was grossly negligent, willful wanton, or reckless" and awarded additional punitive damages of $5.9 million, as allowed under G.L.c. 229, § 2. Interstate Fire and Casualty Company had insured E4R. It paid E4R's share of the compensatory damages but refused to pay any part of the punitive damage award.
In this action Plaintiff claims that Interstate failed to settle the claims against E4R after its liability had become reasonably clear. She asserts one claim on behalf of Mr Williamson's estate and four claims as E4R's assignee. The assigned claims allege that E4R's damages include " being exposed to an uncovered punitive damages award that would have been avoided had Interstate settled the " Underlying Action."
Interstate has moved for judgment on the pleadings on the assigned claims. It argues that requiring an insurer to pay any part of a punitive damages award, even as consequential damages arising from the insurer's failure to settle a meritorious claim, would be against public policy. The Court must DENY Interstate's motion because Massachusetts law does not insulate an insurer from liability for damages incurred because its insured caused bodily injury, engaged in reckless or grossly negligent misconduct, or did both. The limitation on insurers' liability sought by Interstate would be inconsistent with G.L.c. 175, § 47, cl. Sixth (b), which " codifies the entire public policy" of Massachusetts regarding the insurability of losses resulting from reckless misconduct. Andover Newton Theological Sch., Inc. v. Cont'l Cas. Co., 409 Mass. 350, 353 n.2, 566 N.E.2d 1117 (1991).[1]
1. Insurers' Liability for Failing to Settle Claims
Once insured's liability for a particular claim has become reasonably clear, the insurer has a duty under Massachusetts law to make a fair offer to settle the claim and to do so promptly. This duty is imposed on all insurers by statute. See G.L.c. 176D, § 3(9)(f); Hopkins v. Liberty Mut Ins. Co., 434 Mass. 556, 566-67, 750 N.E.2d 943 (2001). In many cases it is also an implicit part of the insurer's contractual obligations. When insurance policy imposes a duty to defend on an insurer, that duty carries with it an implicit obligation " to make reasonable, prudent efforts to settle" the claims against the insured. Boyle v. Zurich American Ins. Co., 472 Mass. 649, 659, 36 N.E.3d 1229 (2015); accord Murach v. Massachusetts Bonding & Ins. Co., 339 Mass. 184, 186-87, 158 N.E.2d 338 (1959) (). Thus, where liability has become reasonably clear, an insurer with a duty to defend also has a duty " to settle the case within the . . . policy limits when it had the opportunity to do so." Medical Malpractice Joint Underwriting Ass'n of Massachusetts v. Goldberg, 425 Mass. 46, 60 n.33, 680 N.E.2d 1121 (1997).
An insurer that violates its duty to make reasonable efforts to settle a claim may be sued in contract for breaching the insurance policy, in tort for negligently breaching its duty to settle, or for violating G.L.c. 93A by committing an unfair claims settlement practice in violation of G.L.c. 176D. See generally Boyle, supra, at 654-55 & 659 (contract claim); Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 120-21, 628 N.E.2d 14 (1994) (negligence claim); Rhodes v. AIG Domestic Claims, Inc., 461 Mass. 486, 494, 961 N.E.2d 1067 (2012) (claim under G.L.c. 93A, § 9); Silva v. Steadfast Ins. Co., 87 Mass.App.Ct. 800, 803-04, 35 N.E.3d 401 (2015) (claim under G.L.c. 93A, § 11).[2]
If an insurer breaches its duty to settle a claim, the insured party may recover from the insurer for " all losses" that were " foreseeable consequences" of the failure to settle, even if those losses exceed what is covered by the insurance policy. DiMarzo v. American Mut. Ins. Co., 389 Mass. 85, 101-02, 449 N.E.2d 1189 (1983). For example, " [i]f the insurer violated the law in failing to settle for the policy limits, then the insurer will be liable to the insured for the damages exceeding the policy limit." Gore v. Arbella Mut. Ins. Co., 77 Mass.App.Ct. 518, 526, 932 N.E.2d 837 (2010); accord Boyle, 472 Mass. at 654 & 660. The losses recoverable by the insured include all consequential damages caused by the insurer's breach of its duty to settle; the insured's recovery is not limited to compensatory damages awarded against it in the underlying tort action. See, e.g., Rivera v. Commerce Ins. Co., 84 Mass.App.Ct. 146, 149, 993 N.E.2d 1208 (2013) ().
This rule, that an insurer that breaches a duty to settle a claim is liable for all consequential damages suffered by its insured, applies whether the insurer is found liable for breach of contract or for engaging in unfair or deceptive conduct in violation of G.L.c. 93A. See Boyle, 472 Mass. at 659-60 & n.15 (); Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 762-64, 610 N.E.2d 912 (1993) (); DiMarzo, supra (c. 93A damages).[3]
2. No Public Policy Exception for Reckless Misconduct
Plaintiff claims that Interstate failed to settle the underlying tort claims after E4R's had liability become reasonably clear, that E4R would not have been ordered to pay punitive damages if Interstate had settled the case, and that as E4R's assignee Plaintiff is therefore entitled to recover the $5.9 million punitive damage award as consequential damages for Interstate's breach of its duty to settle the case. The amount of damages recoverable under the assigned claims is not affected by whether E4R has paid or is able to pay any or all of the punitive damage award. See Boyle, 472 Mass. at 660; DiMarzo, 389 Mass. at 95 n.9; Jenkins, 349 Mass. at 702-03.
Interstate argues that allowing an insured (or its assignee) to seek compensation for punitive damages imposed as a result of the insurer's unreasonable failure to settle a claim " would defeat the socially useful purpose of punitive damages--to punish and deter--and would violate Massachusetts' public policy prohibiting a party from obtaining indemnity for a punitive damages award." It asks the Court to recognize a public policy exception to the rule that an insurer is liable for foreseeable damage caused by a breach of its duty to settle a claim against its insured. Specifically, Interstate argues that Plaintiff " should be precluded from recovering damages, as E4R's assignee, to compensate E4R for the punitive damages imposed against it."
The highest courts in California, Colorado, and New York, plus a federal appeals court applying Pennsylvania law, have adopted some version of the rule advocated by Interstate.[4] These courts all held that allowing insureds to obtain compensation from their insurer for a punitive damage award that could have been avoided if the insurer had not breached its duty to settle the case would violate those State's public policies against allowing insurers to indemnify for punitive damages.[5]
Interstate urges the Court to read a similar public policy exception into Massachusetts law. In response, Plaintiff argues that these four out-of-state decisions " are all distinguishable because the holdings in each are based on the clear law of their respective states that punitive damages are not insurable--a prohibition that Massachusetts does not have."
The Court agrees with Plaintiff that Massachusetts law does not reflect any public policy against an insurer indemnifying its insured for punitive damages awarded in a wrongful death case based on a finding that reckless or grossly negligent conduct caused bodily injury and thus death.[6]
The common-law rule in Massachusetts had long been that an insurance policy indemnifying an insured against liability due to an intentional wrong was void as against public policy. Sheehan v. Goriansky, 321 Mass. 200, 203, 72 N.E.2d 538 (1947) (collecting cases). But the Supreme Judicial Court held that liability arising from harm caused by reckless misconduct is insurable, and that there is not " any public policy against" a policy indemnifying an insured against liability for recklessness. Id. at 205.
This common-law rule has been modified and superseded by statute. See Andover Newton, 409 Mass. at 353 & n.2. The general insurance statute now provides " that no company may insure any person against legal liability for causing injury, other than bodily injury, by his deliberate or intentional crime or wrongdoing." G.L.c. 175, § 47, cl. Sixth (b).
The claims against Interstate that were assigned to Plaintiff by E4R do not violate the public policy reflected in this statute for several reasons.
First cl. Sixth (b) expressly permits insurers to cover all liability for misconduct causing " bodily injury, " even if that misconduct was undertaken deliberately or intentionally. See Andover Newton, 409 Mass. at 353. Punitive damages were assessed against E4R for...
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