Claims alleging violations of the Massachusetts Consumer Protection Act, i.e., Massachusetts General Laws Chapter 93A, may present a range of issues for both insureds and insurers.
In a previous issue, we identified the “Top 5” things to consider relative to claims against policy holders. In this edition, we note the “Top 5” things to keep in mind relative to claims against insurers, more particularly, claims made alleging unfair and deceptive claims handling or settlement practices.
Chapter 176D, “Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance,” sets forth a non-exclusive list of acts and practices that are deemed unfair and deceptive. A violation of Chapter 176D is generally deemed a per se violation of Chapter 93A, exposing the insurer to the damages available under that statute.
1. Claims may be brought by insureds.
Common examples of claims by insureds are for wrongful denial of coverage, either first-party or third-party claims, and for failure to settle a claim which exposes a policyholder to an excess judgment. Regarding these types of claims, the Insurer’s Coverage Position must be based on a plausible, good faith interpretation of the policy language and case law. Remaining objective and applying the correct interpretation standards and precedents is crucial. Relying on coverage counsel when faced with difficult questions is advisable. Relative to an insured’s potential exposure in excess of the limits, a court will not find a violation if the insurer insists upon a release for its insured before paying its limits. It would be a violation to condition payment on a release of the insurer.
2. Claims may be brought by third-party claimants directly against the insurer.
A single act is enough to find a violation; a 176D claimant need not show a broader pattern or practice of bad faith. The most common disputes involve an argument that the insurer failed to make a fair offer when faced with “reasonably clear liability.”
3. “Reasonably Clear Liability” involves consideration of the insured’s fault, the claimant’s damages, and the availability of coverage.
If all are “reasonably clear,” the insurer has a duty to extend a fair offer, regardless of whether the settlement demand is reasonable.
4. If a violation is found, the damages awarded will include attorney’s fees and, if appropriate, double or treble damages as allowed under Chapter 93A.
Claimants’ attorneys allege violations by insurers in the same fashion as claims against policy holders, that is, in a demand letter citing to Chapter 93A. Attorneys send these demand letters with reference to the statute in order to try and obtain otherwise unavailable attorney’s fees and “multiple damages.” In particular, if a violation of Chapter 176D is deemed willful or knowing, the amount subject to double or treble damages is the entire judgment against the insured. However, if the response to the 93A Demand Letter includes a reasonable offer of settlement, and that offer is rejected, any future award is limited / reduced to that offer. It also precludes attorney’s fees and multiple damages. We always recommend considering an offer if the insured’s liability seems likely. This was mentioned in our previous article, but is worth repeating.
5. Treat every communication as a future trial exhibit in the bad faith case.
This applies to communications with the insured, claimant, or counsel. While mistakes may be found in a claims file, it is an inflammatory, insensitive or insulting remark that will make a Chapter 176D claim dangerous.
Share this article:
