The “Objective” Standard of Reasonability and Hindsight Bias

Certain principles are routinely stated in cases analyzing whether an insurer has failed to make a reasonable offer of settlement when liability became reasonably clear.  First, there is indisputably such an obligation.  M.G.L. c. 176D, § 3(9)(f). Second, the determination of when liability is reasonably clear encompasses both liability and damages (and, where applicable, coverage).  Third, the assessment of the determination after the fact should be “objective.” 

Although the cases also usually say that the determination does not hinge on the outcome of the trial on the underlying case, one cannot help but suspect that it often does, even if subconsciously.  Hindsight bias is a well-recognized psychological phenomenon, where people tend to perceive past events as having been more predictable than they actually were before the outcome was known.  If the plaintiff wins a massive trial verdict, the likelihood of a bad faith finding against the insurer naturally seems to increase. Conversely, if the plaintiff loses, the likelihood of the court finding that the insurer resisted settlement in bad faith plummets.  But as a theoretical and doctrinal matter, that is not how it is supposed to work.

This past January 2026, the Court of Appeals affirmed a judgment rejecting Chapter 176D liability for the insurer in a case where the jury rendered a defense verdict on the underlying claims.  Liberty Mutual Ins. Co. v. Mansour Construction, Inc.  The court’s account of the facts certainly makes it sound like a rational outcome.  But one must wonder to what extent hindsight bias drove the result.  If the plaintiff had won its claims against the insured, would the result have been different on the Chapter 176D claim?  And where the plaintiff lost, how big a factor was the adverse judgment in the analysis of the evidence of what the insurer knew or should have known when evaluating its settlement offers?  To be fair, the insurer did make some offers pre-trial and that also properly played a role in the court’s determination that there was no bad faith.  This decision may well be correct on the merits.  But hindsight bias is real and practitioners must take it into account when evaluating what to do post-verdict.