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OCM is proud to report this decision, in
which Judge Gants ruled in favor of OCM’s client, Paull
Hejinian, on cross-motions for sum-mary judgment on Mr.
Hejinian’s claim that the defendant insurer violated
Chapter 176D by failing to effectuate a prompt, fair and
equitable settlement in which liability had become
reasonably clear.
In July 2007, Judge Gants held that Mr.
Hejinian was entitled to the $1 million benefits under a
life insurance policy issued to his late wife, Charlotte
Ellertson, who died of breast cancer in 2004 at the age
of 37. The defendant had denied Mr. Hejinian’s claim on
the basis that Ms. Ellertson failed to disclose her
breast cancer diagnosis, about which she learned after
submitting the application but prior to receiving the
policy. It was undisputed that: (a) the insurer did not
require a medical examination of Ms. Ellertson before
issuing the policy; (b) Ms. Ellertson did not know she
was ill, let alone had cancer, when she completed her
application; and therefore (c) all the statements in her
application were true. The Court held that the insurer
was required to pay Mr. Hejinian’s claim because G.L. c.
175, § 124 requires payment under a life insurance
policy issued without a medical examination unless the
insurer can prove that the decedent made a wilfully
false, fraudulent or misleading statement in the
application. The Court rejected the insurer’s argument
that G.L. c. 175, § 186 applied instead of Section 124.
Given the clarity of Section 124, and the
recent appellate case law interpreting the interplay
between Section 124 (applicable to life insurers only)
and Section 186 (applicable to all insurers), Mr.
Hejinian also asserted a claim for unfair claims
settlement practices under Chapter 176D. In particular,
Mr. Hejinian alleged that the insurer violated Chapter
176D, and by definition Chapter 93A, by failing to
effectuate a prompt, fair and equitable settlement in
which liability had become reasonably clear. The highest
settlement offer made by the insurer was to return the
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premium. Even after the Court determined
in July 2007 that Mr. Hejinian was entitled to the
$1,000,000 (plus interest since 2004), the insurer did
not increase its offer.
In determining the insurer’s liability
under Chapter 176D, the core issue was whether a
reason-able person could have concluded, for good
reason, that Mr. Hejinian’s claim under the policy was
governed by Section 186 rather than Section 124. The
Court held that “no reasonable person who made a
reasonable inquiry into the controlling Massachusetts
case law could have come to that legal conclusion.”
In particular, the Court held that “any
rudimentary legal research into Section 124 would have
included a review of the case annotations in
Massachusetts General Laws annotated, which would
quickly have revealed at least two Massachusetts
appellate cases that analyzed the scope of Section 124.”
The Court then found that the insurer not only ignored
Section 124 in denying coverage, it then sought legal
advice that justified its denial by misrepresenting both
the facts and the governing law.
The Court also held that the insurer’s
advice of counsel defense was insufficient to defeat Mr.
Hejinian’s motion for summary judgment because the
“advice was neither diligent nor in good faith and could
not have been reasonably relied upon by General
American.” The Court further found, as a matter of law,
that General American’s violation of Chapter 176D (and
Chapter 93A) was willful and knowing, and justified a
trebling of damages. It then held that the amount of
damages to be multiplied in this case was the policy
amount, not the interest on the policy, because Mr.
Hejinian had recovered a judgment on the underlying
breach of contract claim.
OCM filed its petition for attorneys’
fees in late January. Oral argument was conducted in
March before Judge Hinkle, who took the matter under
advisement. We hope to report on Judge Hinkle’s ruling
on the fee petition in the next edition of the
Session Watch.
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