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In Rhodes, the court held that AIG
Domestic Claims, Inc. (fka AIG Technical Services) (“AIGDC”)
failed to effectuate a prompt, fair and equitable
settlement of a tort claim in which liability was
reasonably clear. After at 16-day bench trial, the Court
awarded $896,500 in damages and attorney’s fees against
AIGDC. The facts are long and complex; a significantly
shortened account follows.
Rhodes was rendered a paraplegic in a car accident, when
an 18-wheeler hit her stopped car. The driver of the
truck admitted the accident was his fault. GAF Building
Corp., the company for whom he was driving at the time,
was self-insured for $250,000, after which it had a
primary automobile insurance policy of $2 million with
Zurich American Insurance Company (the “primary
carrier”) and a $50 million excess umbrella policy
administered by AIGDC for the issuer, National Union
Fire Insurance of Pittsburgh.
On January 9, 2002, GAF’s third-party
claims administrator received plaintiff’s notice of
claim. The administrator quickly determined the claim
was “catastrophic” and carried a “high value.”
On July 12, 2002, Rhodes, her husband and
daughter (together, “plaintiffs”) commenced a lawsuit.
On July 22, 2003, plaintiffs made a demand of $18.5
million to settle their claims. By December 2003, the
adjuster for the primary policy had concluded that the
primary policy limits of $2 million should be tendered
to AIGDC. She concluded that there was a 100%
probability of a plaintiffs’ verdict, and no possibility
of comparative negligence. She estimated the total
damage award could be as high as $17.88 million. On
January 23, 2004, the adjuster for the primary carrier
telephoned AIGDC and orally tendered the policy limits.
On April 5, 2004, the primary tendered the $2 million in
writing.
At the mediation, on August 11, 2004,
AIGDC’s offer never exceeded $3.5 million. During trial,
AIGDC increased its offer to $6 million.
On September 15, 2004, the jury awarded
plaintiffs $9,412,000. With interest and after deducting
a settlement of $550,000 from another defendant, the
amount due to the plaintiffs was approximately $11.3
million.
AIGDC moved for a new trial, then
appealed. On December 17, 2004, it increased its
settlement offer to $7 million, including the primary
policy’s $2 million. On December 22, 2004, the primary
carrier tendered the full policy proceeds plus interest
directly to the plaintiffs, without getting a release.
On June 2, 2005, after some further
negotiations, AIGDC agreed to pay $8.965 million and
withdraw its appeal. Together with the other sums paid
by the other parties, this meant that the plaintiffs
obtained approximately $11.835 million in settlement of
their tort action. They did not agree to withdraw their
93A action against AIGDC as part of the settlement.
Pursuant to M.G.L. ch. 176D, § 3(9)(f),
an insurance company owes a duty both to its policy
holders and third parties making claims against its
policy holders to “effectuate, prompt, fair and
equitable settlements of claims in which liability has
become reasonably clear.” In this context, “liability
encompasses both fault and damages.” The court rejected
AIGDC’s contention that the damages were not reasonably
clear until the jury rendered its verdict, because pain
and suffering and loss of consortium are “inherently
unclear and unquantifiable.” “The Supreme Judicial Court
has plainly rejected this proposition, which would
effectively negate the statutory obligation of insurance
companies to make a prompt and fair settlement offer in
nearly all tort cases.”
The court found that the primary carrier
made a reasonably prompt tender of policy limits where
it had “completed its due diligence” by November 19,
2003
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and tendered by January 23, 2004. The
amount at issue -- $2 million – was substantial, and it
was reasonable for the carrier to require a detailed
written justification and high-level approval before
making the tender. In any event, given the conduct of
the excess carrier, even if the primary had tendered
earlier, there would have been no impact on AIGDC’s
offer to the plaintiff.
With regard to AIGDC, however, the court
held that the insurer had breached its statutory
obligations. The court agreed that AIGDC was reasonable
to insist that the plaintiff undergo an independent
medical examination (“IME”) before mediation, but
rejected AIGDC’s contention that it needed Rhodes’s
psychological records before it could determine if
liability was reasonably certain. “If a settlement offer
is allowed to await the completion of any possible
discovery that may be admissible at trial on the issue
of damages based on the premise that liability is not
reasonably clear until every bit of possible evidence
has been located and scrutinized, then the obligation to
give a prompt settlement offer would be rendered
toothless.”
The court held that liability, including
the extent of the plaintiffs’ damages, was reasonably
clear by December 5, 2003, when the final version of the
defense life care plan was completed. Even giving AIGDC
a “generous amount of time” to resolve issues, it should
have made a settlement offer by May 1, 2004.
The court held that the $3.5 million AIGDC offered at
the August 11, 2004 mediation was at the “low end of the
reasonable range of settlement offers.” It then examined
whether AIGDC caused the plaintiff to suffer damages by
failing to make a reasonable settlement offer between
May 1, 2004 and August 11, 2004. Plaintiffs would not
have accepted less than $8 million, so even if AIGDC had
made a prompt offer of $3.5 million, plaintiffs would
have rejected it.
Although the insurer’s obligation to make
a reasonable settlement offer is not dependent on the
plaintiff’s willingness to accept one, the plaintiff
must still prove that the insurers’ conduct “caused a
loss.” The statute provides that the penalty for failing
to make a reasonable settlement offer is to multiply the
actual judgment by two or three times. But before that
penalty applies, the violation must be willful and
knowing, and must cause the plaintiff actual damages,
otherwise “a smart plaintiff (or a plaintiff
intelligently represented), once he recognized that the
insurer had failed to make a prompt or reasonable offer,
would choose not to settle the case and proceed to
trial, even if the insurer later made a reasonable
settlement offer, because the plaintiff could obtain
punitive damages of double or treble the underlying
judgment only if he proceeded to judgment.” Accordingly,
where plaintiffs failed to prove any actual damages,
they were not entitled to an award of actual or punitive
damages based on the failure to settle pre-trial.
The court further found that AIGDC again
violated its obligations after losing a jury verdict, by
offering only 60% of the verdict in settlement. “AIGDC
did precisely what Chapter 176D was intended to prevent
– bully the plaintiffs into accepting an unreasonably
low settlement rather than wait the roughly two years
for their appeal to conclude and the judgment to be
paid.” This time, the facts showed that if AIGDC had
made a reasonable offer, the case would have settled,
because ultimately it did. Accordingly, the plaintiff
could prove “loss of use” damages from AIGDC’s failure
to make a prompt, reasonable settlement offer, and the
court awarded damages of $448,250. The court declined to
award emotional distress damages. The court also awarded
double damages and attorney’s fees incurred in
prosecuting the Chapter 93A Action.
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