Boyle v. Zurich American Insurance Co.

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SJC-11791
JOSEPH P. BOYLE & another1 vs. ZURICH AMERICAN INSURANCE
COMPANY.
Middlesex. April 6, 2015. - September 14, 2015.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, &
Hines, JJ.
Insurance, Insurer's obligation to defend, Notice, Settlement of
claim. Notice, Insurance claim. Consumer Protection Act,
Insurance, Unfair or deceptive act. Practice, Civil,
Damages.
Civil action commenced in the Superior Court Department on
June 27, 2011.
The case was heard by Kenneth W. Salinger, J.
The Supreme Judicial Court granted an application for
direct appellate review.
John T. Harding (Rachel M. Davison with him) for the
defendant.
Michael K. Gillis (David R. Bikofsky & Joseph I. Rogers
with him) for the plaintiff.
The following submitted briefs for amici curiae:
Laura Foggan, of the District of Columbia, & Rosanna
Sattler for Complex Insurance Claims Litigation Association.
1
Janice M. Boyle.
2
Anthony R. Zelle & Robert J. Maselek, Jr., for
Massachusetts Defense Lawyers Association.
Charlotte E. Glinka, Thomas R. Murphy, & J. Michael Conley
for Massachusetts Academy of Trial Attorneys.
LENK, J. Joseph P. Boyle was injured by an exploding tire
in an automobile repair shop operated by C&N Corporation (C&N).
Joseph2 and his wife, Janice M. Boyle, filed a complaint against
C&N, asserting claims for bodily injury and loss of consortium.
C&N held an insurance policy issued by Zurich American Insurance
Company (Zurich). The policy required that C&N provide notice
to Zurich of any suit brought against it. C&N informed Zurich
about Joseph's injury. It did not notify Zurich about the
lawsuit, but the Boyles' counsel eventually did. Zurich did not
defend against the suit. C&N defaulted, and judgment by default
was entered for the Boyles.
Subsequently, the Boyles brought suit against Zurich,
asserting both their individual claims and the claims of C&N,
which, in the interim, C&N had assigned to the Boyles. In
return for a negotiated sum of money, the Boyles released the
claims that they had asserted on their own behalf; these
individual claims arose from Zurich's asserted failure to settle
the Boyles' personal injury action when liability had become
reasonably clear. After a jury-waived trial on C&N's claims
2
Because they share a last name, we refer to Joseph P.
Boyle and Janice M. Boyle by their first names.
3
against Zurich, a Superior Court judge determined that Zurich
had committed a breach of its contractual duty to defend C&N.
The judge declined to award the Boyles (as C&N's assignees)
multiple damages, costs, and attorney's fees pursuant to G. L.
c. 93A. The judge also subtracted from the Boyles' damages (as
assignees) the amount that Zurich had agreed to pay to settle
the Boyles' individual claims. The parties filed cross appeals,
and we granted Zurich's petition for direct appellate review.
We conclude that the judge did not err in his determination
that Zurich committed a breach of its duty to defend C&N. In
essence, as we have held in the line of cases proceeding from
Johnson Controls, Inc. v. Bowes, 381 Mass. 278 (1980) (Johnson
Controls), an insured's failure to comply with a notice
obligation in an insurance policy does not relieve the insurer
of its duties under that policy unless the insurer demonstrates
that it suffered prejudice as a result of the breach. Zurich
has not shown such prejudice.
We do not disturb the judge's conclusion that Zurich did
not violate G. L. c. 93A. We do, however, conclude that the sum
agreed upon to settle the Boyles' individual claims should not
4
have been subtracted from the damages awarded to the Boyles as
C&N's assignees.3
1. Background. We recite the essential facts found by the
judge, which we accept "unless they are clearly erroneous,"
Weiler v. PortfolioScope, Inc., 469 Mass. 75, 81 (2014), quoting
Makrigiannis v. Nintendo of Am., Inc., 442 Mass. 675, 677
(2004), and which the parties do not challenge, supplemented by
other undisputed information from the record.
a. Underlying facts. C&N operated an automobile repair
shop. In March, 2006, Nicholas Rago, one of C&N's co-owners,
raised a customer's truck on a lift at C&N's shop. At Rago's
request, Joseph stepped into the garage to listen to the truck's
transmission. As Rago revved the engine, one of the truck's
tires exploded, severely lacerating and fracturing Joseph's left
forearm and hand.
Joseph underwent several surgical procedures, incurring
approximately $106,000 in medical expenses. He suffered
permanent scarring and partial loss of function in his left arm
and hand. For approximately one year, Joseph was unable to
work. Subsequently, he was compelled to seek less-skilled,
lower-paying employment than he previously had held.
3
We acknowledge the amicus briefs submitted by the Complex
Insurance Claims Litigation Association, the Massachusetts
Defense Lawyers Association, and the Massachusetts Academy of
Trial Attorneys.
5
C&N carried a "business auto" insurance policy issued by
Zurich, which included liability coverage. The coverage limit
of that policy was $50,000. Rago reported Joseph's accident to
his insurance agent, Tarpey Insurance Group (Tarpey), twelve
days after the accident. Tarpey relayed written notice to
Zurich, which opened a claim file and began an investigation.
In June, 2006, an investigator for Zurich interviewed Rago,
who described the accident and reported that Joseph was
undergoing surgeries. That same month, an attorney retained by
the Boyles informed C&N by letter that the Boyles intended to
assert a claim for bodily injury. This letter was forwarded by
C&N to Tarpey, and by Tarpey to Zurich. In October, 2006, the
Boyles' attorney wrote to Zurich directly, informing it of the
Boyles' intention to pursue a bodily injury claim and asking for
information about the coverage limits of C&N's policy. Another,
similar letter, marked "2nd request," was delivered to Zurich in
December, 2006. Although Zurich was required to provide the
information sought by the Boyles, see G. L. c. 175, § 112C, it
did not respond.
By October, 2007, Zurich had determined that C&N would be
held liable for Joseph's injuries. By early 2008, it had
concluded that Joseph's injuries were covered by C&N's policy.
Zurich did not relay these determinations to C&N. It also did
not attempt to estimate the liability that C&N might face, or to
6
settle the Boyles' claims. Instead, in February, 2008, Zurich
closed its file for the Boyles' claim.
b. Suit against C&N. In August, 2008, the Boyles brought
an action in the Superior Court against C&N,4 seeking damages for
Joseph's injuries and for Janice's loss of consortium. By that
time, C&N no longer was operating as a business; it had been
administratively dissolved for approximately fourteen months.
C&N did not inform Tarpey or Zurich that the suit had been
filed, and did not forward to Zurich the complaint or other
documents filed in the proceedings. C&N did not answer the
complaint, and in January, 2009, C&N's default was entered.
The Boyles then moved for a judgment by default. In
September, 2009, the Boyles' attorney sent Zurich a letter
stating that a hearing had been scheduled in the Superior Court
to determine the amount of the Boyles' damages. The letter
specified the docket number assigned to the Boyles' complaint.
Another letter, sent by the attorney later the same month,
informed Zurich that the damages hearing had been postponed
until October, 2009. That letter also stated the amount of
Joseph's medical expenses, and enclosed copies of his medical
bills. Upon receipt of these letters, a Zurich clerk scanned
them and added them to the closed file for the Boyles'
4
Nicholas Rago also was named as a defendant in that suit.
7
complaint. The clerk did not realize that any other action was
necessary. Zurich therefore did not move to have C&N's default
set aside; did not contact C&N to discuss the suit; and did not
attempt to settle the suit with the Boyles, or otherwise to
contact them or their attorney.
The October, 2009, hearing on the Boyles' damages was not
attended by C&N or by Zurich. After the hearing, the judge
awarded damages of $1.5 million to Joseph and $750,000 to
Janice. The Boyles also were awarded pre- and postjudgment
interest. Final judgment was entered against C&N in January,
2010.5
c. Suit against Zurich. In June, 2011, the Boyles
commenced their current suit, also in the Superior Court, naming
Zurich as the defendant. Among other things, the Boyles
asserted that they were third-party beneficiaries of C&N's
policy, and that Zurich had violated G. L. c. 93A by failing to
settle the Boyles' suit against C&N. In September, 2013, C&N
was revived by the Secretary of the Commonwealth for a period
not to exceed one year. Upon being revived, C&N assigned to the
Boyles all of its rights and claims against Zurich, including a
claim that Zurich had committed a breach of its contractual duty
5
The judgment was entered jointly and severally against C&N
and Rago, who also had defaulted.
8
to defend C&N.6 C&N's claims against Zurich, assigned to the
Boyles, subsequently were consolidated with the Boyles' claims
on their own behalf.
Several days before the case was scheduled to be tried, the
Boyles and Zurich reached an agreement to settle the Boyles'
individual claims. The Boyles signed a release relinquishing
any claims they had "in their individual capacities." In
return, they were to receive $1,324,357, a sum equal to the
amount that had accrued in postjudgment interest on the default
judgment that the Boyles had obtained against C&N. A release
executed by the Boyles as part of the settlement stated that it
"specifically excludes . . . the rights of the Boyles as
assignees of [C&N] to pursue the full amount of the judgment
entered in [the Boyles' suit against C&N], with interest."
A jury-waived trial was conducted on the remaining claims,
namely, those that C&N had assigned to the Boyles. In detailed
written findings, the Superior Court judge concluded that Zurich
had committed a breach of its contractual duty to defend C&N.
The judge determined that Zurich's duty to defend was triggered
by the notice it had received of Joseph's injury (from C&N),
6
It is permissible and not uncommon for an insured to
assign his or her rights against an insurer to the injured
party. See Ratner v. Canadian Universal Ins. Co., 359 Mass.
375, 379 (1971); Gore v. Arbella Mut. Ins. Co., 77 Mass. App.
Ct. 518, 526 (2010).
9
coupled with its notice of the impending damages hearing
(received from the Boyles' attorney). Based primarily on the
testimony of a Zurich employee, the judge found that any
reasonable insurer would have attempted, by the time of the
damages hearing, to settle the Boyles' claim for the policy
limit of $50,000. The judge credited the testimony of the
Boyles and their attorney that if, at that time, Zurich had
offered to settle for the policy limit, such an offer would have
been accepted, and no default judgment against C&N would have
been pursued.
Accordingly, the judge concluded that Zurich's failure to
defend C&N caused C&N damages in the full amount of the judgment
rendered against it, namely, $2,250,000, plus interest. The
judge did not, however, award the Boyles (as assignees) multiple
damages, finding no violation of G. L. c. 93A. At the end of
his order, the judge wrote that "the $1,324,357 in post-judgment
interest that [Zurich] has already agreed to pay to the Boyles
in order to settle their direct claims" would be subtracted from
the award of damages. Both parties appealed.
2. Discussion. Before us, Zurich contends that its duty
to defend C&N was not triggered at any time, given that C&N
itself never informed Zurich of the Boyles' lawsuit, never
forwarded the complaint and related documents to Zurich, and
never requested that Zurich provide a defense. The Boyles, for
10
their part, challenge the judge's determinations that Zurich
committed no violation of G. L. c. 93A, and that the Boyles'
damages should be reduced by the amount that Zurich had agreed
to pay in order to settle the Boyles' individual claims.
Examining these arguments "without deference [to] the legal
standard which the judge applied," Makrigiannis v. Nintendo of
Am., Inc., 442 Mass. 675, 678 (2004), quoting Kendall v.
Selvaggio, 413 Mass. 619, 621 (1992), we conclude that only the
Boyles' challenge to the subtraction of the settlement payment
from their damages award is meritorious.
a. Duty to defend. "It is well settled in this
jurisdiction that a liability insurer owes a broad duty to
defend its insured against any claims that create a potential
for indemnity." Doe v. Liberty Mut. Ins. Co., 423 Mass. 366,
368 (1996), citing Liberty Mut. Ins. Co. v. SCA Servs., Inc.,
412 Mass. 330, 332 (1992). A breach of the duty to defend can
support claims in contract, in tort, and under G. L. c. 93A.
See Hartford Cas. Ins. Co. v. New Hampshire Ins. Co., 417 Mass.
115, 118, 120 (1994). Closely tied to the duty to defend is an
insurer's obligation "to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear." Id. at 120, quoting G. L. c. 176D, § 3 (9) (f).
The duty to defend also was incorporated explicitly into
the policy that Zurich issued to C&N, by way of a mandatory
11
indorsement approved by the Commonwealth's Division of
Insurance. Zurich argues, however, that it was not subject to
any duty to defend C&N because of other terms in C&N's policy.
That policy, which (according to the parties) is in widespread
use in Massachusetts, stated that Zurich would "ha[ve] no duty
to provide coverage . . . unless there has been full compliance"
with specified obligations, including the obligation to
"[i]mmediately send [Zurich] copies of any request, demand,
order, notice, summons[,] or legal paper received concerning [a]
claim or 'suit.'" In Zurich's view, C&N's failure to forward
the Boyles' complaint and related documents to Zurich relieved
Zurich of its duty to defend.
The approach advocated by Zurich long has been rejected in
Massachusetts, both by way of legislation and in our
jurisprudence. The Legislature, in 1977, amended G. L. c. 175,
§ 112, to provide that "[a]n insurance company shall not deny
insurance coverage to an insured because of failure of an
insured to seasonably notify an insurance company of an
occurrence, incident, claim or of a suit . . . unless the
insurance company has been prejudiced thereby." See St. 1977,
c. 437.7 This provision applies to motor vehicle insurance
7
Zurich argues that it never "den[ied] insurance coverage"
to C&N Corporation (C&N). We reject the suggestion, implicit in
this argument, that an insurer may avoid the consequences of an
12
policies, like the one issued to C&N, and to other policies
insuring against liability due to bodily injury, death, or
property damage.
Our decision in Johnson Controls, supra, extended the same
treatment to other liability insurance policies.8 The insured in
that case, an attorney, failed to provide his malpractice
insurance carrier with written notification of a claim against
him, and failed also "to forward suit papers" to the insurer,
all "in violation of the provisions of his insurance contract."
381 Mass. at 279.9 We held that, in subsequent cases, an
insurance company seeking to be "relieved of its obligations
under a liability insurance policy . . . on the ground of
untimely notice . . . will be required to prove both that the
otherwise wrongful denial of coverage by ignoring a claim
altogether.
8
The approach to notice obligations prescribed by Johnson
Controls, Inc. v. Bowes, 381 Mass. 278, 279 n.2 (1980) (Johnson
Controls), and its progeny concerns "occurrence"-based liability
insurance policies like the one at issue in this case.
Different considerations apply to "claims-made" policies. See
Chas. T. Main, Inc. v. Fireman's Fund Ins. Co., 406 Mass. 862,
863-864 (1990).
9
Because the insured in Johnson Controls never provided
notice of the claim against him, Zurich is incorrect in
suggesting that the analysis adopted in that case is restricted
to instances in which the insured did eventually, if belatedly,
provide notice of the suit against it. See Darcy v. Hartford
Ins. Co., 407 Mass. 481, 482-483 (1990). See also Couch on
Insurance § 200:33, at 200-48 (3d ed. 2005) (prejudice
requirement applies to "failure of the insured to give notice").
13
notice provision was in fact breached and that the breach
resulted in prejudice to its position." Id. at 282.
Our reasoning in Johnson Controls, as we later paraphrased
it, was that "[a] violation of a policy provision should bar
coverage only where the breach frustrates the purpose underlying
that provision." Augat, Inc. v. Liberty Mut. Ins. Co., 410
Mass. 117, 123 (1991). Notice requirements are intended to
permit the insurer to undertake a "seasonable investigation of
the facts relating to liability," see Johnson Controls, 381
Mass. at 281, quoting Bayer & Mingolla Constr. Co. v. Deschenes,
348 Mass. 594, 600 (1965), so that it may preserve "an
opportunity to defend effectively." See Johnson Controls,
supra, quoting Brakeman v. Potomac Ins. Co., 472 Pa. 66, 75
(1977). These purposes are undermined by an insured's breach
only if the insurer is prejudiced thereby. See Johnson
Controls, supra at 281. The contrary approach, which treats a
notice provision as a condition precedent to the insurer's
obligations, results in "a forfeiture, for the carrier
seeks . . . to deny the insured the very thing paid for." Id.
at 281, quoting Cooper v. Government Employees Ins. Co., 51 N.J.
86, 93-94 (1968). We noted also in Johnson Controls, supra at
281, quoting Brakeman, supra at 72, that the traditional notion
that courts should not "redraft" policy provisions "fails to
recognize the true nature of the relationship between insurance
14
companies and their insureds," insofar as "[a]n insurance
contract is not a negotiated agreement; rather its conditions
are by and large dictated by the insurance company to the
insured."10
We reaffirmed and fortified the rule of Johnson Controls in
Darcy v. Hartford Ins. Co., 407 Mass. 481 (1990) (Darcy).
There, too, the insured, a corporation, did not notify the
insurer about the lawsuit brought against it. The insurer
learned of the suit when it was impleaded as a third party into
another action arising from the same underlying accident. See
id. at 482-483. The insurer refused to defend its insured
because, among other things, the insured had not provided it
with notice of the suit. Id. at 484. The injured parties later
obtained a judgment against the insurer. Id. On appeal, we
declined to adopt "a rebuttable presumption of prejudice in
cases where the delay in notifying an insurer of a claim or
possible claim is 'extreme.'" Id. at 485. We explained that an
insurer should not be permitted "to avoid liability on the basis
of the possibility, rather than on proof of actual prejudice."
10
This is thus a context in which both we and the
Legislature have declined to embrace the customary canon -- on
which Zurich leans heavily in its brief -- that "[a] policy of
insurance whose provisions are plainly and definitely
expressed . . . must be enforced in accordance with its terms."
Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146
(1982), quoting Hyfer v. Metropolitan Life Ins. Co., 318 Mass.
175, 179 (1945).
15
Id. at 486. Rather, the insurer must bear "the burden of
identifying the precise manner in which its interests have
suffered," id. at 487, for instance by showing that the
insured's breach of a notice requirement resulted in "the loss
of critical evidence[] or testimony from material witnesses[,]
despite diligent good faith efforts on the part of the insurer
to locate them." Id. at 486.
Both Johnson Controls, 381 Mass. at 278, and Darcy, 407
Mass. at 483, arose from complaints brought by injured parties
on their own behalf, seeking to reach and apply the proceeds of
the insureds' policies. In Sarnafil, Inc. v. Peerless Ins. Co.,
418 Mass. 295 (1994) (Sarnafil), we applied the same approach to
an insured's complaint for breach of the duty to defend. The
insured in Sarnafil, like C&N, informed the insurer about the
potential for a claim, but -- in violation of the terms of the
policy -- provided no notice about the initiation of legal
proceedings. See id. at 298-301. This court concluded that the
insured's violation of the notice provision would bar coverage
only if the breach frustrated the provision's purpose. See id.
at 302, 305-306, citing Augat, Inc. v. Liberty Mut. Ins. Co.,
410 Mass. at 122-123, and Darcy, 407 Mass. at 491. The court
rejected the view, advocated by a dissent, that the purpose of
the notice requirement was frustrated "as a matter of law" by
the insured's failure to "tender[] its defense to [the
16
insurer]," id. at 313 (O'Connor, J., dissenting in part), and
that "[b]ecause there was no notice, there was no duty [to
defend]." Id. at 315 (O'Connor, J., dissenting in part).
Instead, the court held that the insurer would not be excused of
its obligations without a showing of prejudice. See Sarnafil,
supra at 305-306.11
We have not seen cause to revise our holdings in Johnson
Control and its progeny. See, e.g., Mello v. Hingham Mut. Fire
Ins. Co., 421 Mass. 333, 336-337 (1995); Goodman v. American
Cas. Co., 419 Mass. 138, 141 (1994). See also Pilgrim Ins. Co.
v. Molard, 73 Mass. App. Ct. 326, 336-337 (2008). The reasoning
of those decisions, described earlier, remains compelling
today.12 Indeed, similar rules have been adopted by a large
majority of other States. See, e.g., Prince George's County v.
Local Gov't Ins. Trust, 388 Md. 162, 182-188 (2005), and cases
11
Under this analytical framework, the court concluded that
a genuine dispute remained as to whether the insurer had
suffered prejudice, precluding summary judgment. See Sarnafil,
Inc. v. Peerless Ins. Co., 418 Mass. 295, 302, 305-306 (1994).
12
Two of the amici suggest that a rule permitting an
insured to obtain coverage after failing to comply with a notice
provision opens the door to manipulations by insureds, who may
seek to "undermine the defense" and to "thwart the insurer's
ability to mount an effective, timely defense." But
circumstances in which the defense would be injured in these
ways are precisely those in which the prejudice requirement of
Johnson Controls, 381 Mass. at 282, would be satisfied.
17
cited; Couch on Insurance § 199:135, at 199-187 to 199-189 (3d
ed. 2005).13
Accordingly, C&N's failure to notify Zurich of the
complaint brought by the Boyles did not, standing alone, excuse
Zurich of its duty to defend C&N. Instead, upon learning from
the Boyles' attorney that a lawsuit was pending against C&N for
an occurrence covered by the policy, Zurich was required to
defend against that suit unless C&N's breach of its notice
obligation prejudiced Zurich, by depriving it of an opportunity
to mount an effective defense.
The judge determined that Zurich did not establish that it
had been prejudiced in this way. Although Zurich made no
argument to the contrary in the Superior Court, it challenges
this determination in a footnote to its appellate brief. Even
13
Zurich American Insurance Company (Zurich) cites
decisions from several other jurisdictions for the proposition
that the duty to defend is not triggered unless the insured
affirmatively requests that a defense be provided. See, e.g.,
Purvis v. Hartford Acc. & Indem. Co., 179 Ariz. 254, 258 (Ct.
App. 1994); First Bank of Turley v. Fidelity & Deposit Ins. Co.
of Maryland, 928 P.2d 298, 304 (Okla. 1996). Other courts do
not impose this condition. See, e.g., Cincinnati Cos. v. West
Am. Ins. Co., 183 Ill. 2d 317, 326 (1998); Garcia v.
Underwriters at Lloyd's, London, 143 N.M. 732, 738 (2008). See
generally Couch on Insurance § 200:32, at 200-47 to 200-48. As
we have indicated in Johnson Controls, supra at 282, and Darcy
v. Hartford Ins. Co., 407 Mass. 481, 482-483 (1990), we
subscribe to the latter school of thought. See note 9, supra.
18
if the issue had been properly preserved and presented,14
Zurich's position would be belied by the judge's unchallenged
findings of fact. When Zurich learned of the Boyles' lawsuit,
the hearing to assess the Boyles' damages had not yet taken
place. At that juncture, Zurich could have contacted C&N and
arranged to enter an appearance on its behalf. Zurich could
have requested a postponement of the damages hearing. It could
have moved to have C&N's default set aside, pursuant to Mass. R.
Civ. P. 55 (c), 365 Mass. 822 (1974). Even after a judgment had
entered, Zurich could have moved to set the judgment aside,
pursuant to rule 55 (c) and Mass. R. Civ. P. 60 (b), 365 Mass.
828 (1974). Most importantly, Zurich still could have resolved
the Boyles' claim by offering to pay the policy limit of
$50,000, an offer that, the judge found, the Boyles would have
accepted. On these facts, the judge's conclusion that Zurich
failed to present "proof of actual prejudice," Darcy, 407 Mass.
at 486, was well-founded.
b. Consequences of the duty to defend. Zurich presents no
other challenge to the judge's analysis. In conjunction with
its duty to defend, Zurich was obliged to make reasonable,
14
See Canton v. Commissioner of Mass. Highway Dep't, 455
Mass. 783, 795 n.18 (2010) (argument waived where it was not
made in trial court); Mole v. University of Mass., 442 Mass.
582, 603 n.18 (2004) (sentence in footnote did not amount to
argument).
19
prudent efforts to settle the Boyles' suit. See Medical
Malpractice Joint Underwriting Ass'n of Mass. v. Goldberg, 425
Mass. 46, 60 n.33 (1997); Hartford Cas. Ins. Co. v. New
Hampshire Ins. Co., 417 Mass. 115, 119-120 (1994). Zurich
committed a breach of that duty by failing to settle the suit
for the policy limit, an endeavor that, the judge found, any
reasonable insurer would have undertaken.
The judge calculated the Boyles' total amount of damages by
using the method we endorsed in DiMarzo v. American Mut. Ins.
Co., 389 Mass. 85 (1983) (DiMarzo). In that case, too, an
insurer failed to settle an injured plaintiff's tort claim
against an insured for the policy limit, there $20,000.15 See
15
Whereas Zurich failed to make any effort to settle the
Boyles' suit, the insurer in DiMarzo v. American Mut. Ins. Co.,
389 Mass. 85, 89 (1983), offered the injured plaintiff less than
the policy limit. This distinction does not affect the manner
in which an insured's damages are calculated. See note 7,
supra. Nor is the judge's method of calculating damages
rendered incorrect by the fact that DiMarzo v. American Mut.
Ins. Co., supra at 87, concerned a claim under G. L. c. 93A,
whereas the judge found Zurich liable on a breach of contract
theory. Breach of the contractual duty to defend entitles the
insured "to contract damages caused by the breach."
Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352,
359 (2011), citing Polaroid Corp. v. Travelers Indem. Co., 414
Mass. 747, 763 (1993). "Contract damages are 'those that cannot
be reasonably prevented and arise naturally from the breach, or
which are reasonably contemplated by the parties.'" Polaroid
Corp. v. Travelers Indem. Co., supra at 762, quoting Delano
Growers' Coop. Winery v. Supreme Wine Co., 393 Mass. 666, 680
(1985). Where breach of the duty to defend results in a
judgment against the insured that otherwise would not have
occurred, the amount of that judgment may be deemed damages
20
id. at 89, 100-101. The plaintiff's tort case went to trial,
and resulted in a judgment against the insured for approximately
$149,068. See id. at 89. There, as here, the plaintiff
obtained an assignment of the insured's rights against the
insurer. See id. at 93-94. We upheld a subsequent award of
damages against the insurer for the full amount of the tort
judgment, explaining that "[i]f [the insurer] had offered
$20,000, [the insured] would have been released from the
judgment against him." Id. at 101. See also Metropolitan Prop.
& Cas. Ins. Co. v. Morrison, 460 Mass. 352, 360 (2011) (insurer
committing breach of duty to defend may incur "obligation to pay
the default judgment"); Polaroid Corp. v. Travelers Indem. Co.,
414 Mass. 747, 764 (1993) (Polaroid) ("an insured's losses in
the underlying claim could well be the result of a breach of the
duty to defend"). The amount of damages was not affected, we
explained, by the question whether the insured was (like C&N)
insolvent; as we had reasoned in an earlier case, "if solvency
is required in order to sue for damages, an insurer is likely to
be less responsive to its duty to act in good faith toward an
insured who cannot pay the judgment." Jenkins v. General Acc.
Fire & Life Assur. Corp., 349 Mass. 699, 702 (1965). See
arising naturally from the breach. See Metropolitan Prop. &
Cas. Ins. Co. v. Morrison, supra at 359-360; Polaroid Corp. v.
Travelers Indem. Co., supra at 762, 764.
21
DiMarzo, supra at 95 n.9. See also D.J. Wall, Litigation and
Prevention of Insurer Bad Faith § 5:19, at 231 (2d ed. 1994)
("rule . . . almost unanimously followed . . . holds that the
contents of the insured's wallet are irrelevant to accrual of
the insured's cause of action").
We are not asked to revisit our DiMarzo decision, and we do
not now see cause to do so. Applied here, the analysis of that
decision yields the result reached by the judge, namely, that
Zurich is liable to C&N for the amount of the judgment by
default entered in the suit that Zurich failed to defend.
c. General Laws c. 93A. In their cross appeal, the Boyles
challenge the judge's decision that Zurich did not violate G. L.
c. 93A and that the Boyles are not entitled to multiple damages.
We discern no reversible error.
The judge determined that Zurich committed a breach of both
its contractual duty to defend C&N and the statutory obligation
"to effectuate prompt, fair and equitable settlements of claims
in which liability has become reasonably clear." G. L. c. 176D,
§ 3 (9) (f). A violation of G. L. c. 176D, § 3 (9), itself
establishes a violation of G. L. c. 93A unless the injured party
is "engage[d] in the conduct of any trade or commerce." See
G. L. c. 93A, §§ 9 (1), 11. The judge found, in accordance with
the parties' agreed statement of facts, that C&N was indeed
engaged in trade or commerce. Consequently, the Boyles (as
22
C&N's assignees) are entitled to relief under G. L. c. 93A only
upon a showing that Zurich engaged in "[u]nfair or deceptive
acts or practices." See G. L. c. 93A, § 2. An award of "up to
three, but not less than two, times" C&N's actual damages is
warranted if such unfair or deceptive acts or practices were
"willful or knowing." G. L. c. 93A, § 11. See Auto Flat Car
Crushers, Inc. v. Hanover Ins. Co., 469 Mass. 813, 830 (2014);
Polaroid, supra at 754.
The Boyles contend that Zurich engaged in unfair or
deceptive acts by failing to defend C&N against the Boyles'
suit; and, much later, by failing to settle the suit brought by
the Boyles as C&N's assignees. The judge found that neither
episode amounted to an unfair or deceptive act. "[W]hether a
particular set of acts, in their factual setting, is unfair or
deceptive is a question of fact," which we review for clear
error. See Klairmont v. Gainsboro Restaurant, Inc., 465 Mass.
165, 171 (2013), quoting Casavant v. Norwegian Cruise Line Ltd.,
460 Mass. 500, 503 (2011).
Zurich's failure to defend C&N against the Boyles' suit
was, the judge found, "inadvertent" and "negligent." It stemmed
largely from the unfortunate decision of a Zurich clerk to take
no action upon receiving the letters informing Zurich of the
Boyles' damages hearing. Mere negligence ordinarily does not
23
represent an unfair or deceptive act. See Darviris v. Petros,
442 Mass. 274, 278, 279 n.2 (2004), and cases cited.
Zurich made an error of a different nature in failing, more
recently, to settle the Boyles' lawsuit as C&N's assignees. By
the eve of the trial against it, Zurich apparently was not
averse to settlement, having agreed to resolve the Boyles'
individual claims for a sum of $1,324,357. The final offer made
by Zurich to settle the Boyles' claims as C&N's assignees was
the policy limit of $50,000, plus interest. The judge found
that "Zurich did not make this offer in bad faith or based on
any ulterior motive," but rather, "did so based on its reading
of its insurance policy." The judge stated also, quoting Boston
Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass.
7, 15 (1989), that the position taken by Zurich was "a
plausible, although ultimately incorrect, interpretation of
[the] policy."
In view of our long-standing jurisprudence, described
supra, we do not share the view that Zurich's position was
"plausible." Even so, the judge's finding that Zurich's conduct
was neither "unfair" nor "deceptive" was not clearly erroneous.
"While G. L. c. 93A is a statute of 'broad impact,' the limits
of which are not precisely defined, a violation of G. L. c. 93A
requires, at the very least, more than a finding of mere
negligence." Darviris v. Petros, 442 Mass. at 278, quoting
24
Greenfield Country Estates Tenants Ass'n v. Deep, 423 Mass. 81,
88 (1996), and citing Mechanics Nat'l Bank v. Killeen, 377 Mass.
100, 109 (1979). The judge found, in essence, that although
Zurich blundered badly in its reading of the legal landscape,
its unsuccessful efforts to settle the Boyles' claims as C&N's
assignees represented a negligent miscalculation, rather than
"conduct involving dishonesty, fraud, deceit or
misrepresentation." Darviris v. Petros, supra, quoting Poly v.
Moylan, 423 Mass. 141, 151 (1996), cert. denied, 519 U.S. 1114(1997). Similarly, the judge's finding that Zurich's settlement
efforts, while misguided, were made in good faith, entails the
conclusion that Zurich's conduct was not "willful or knowing" in
the sense necessary to warrant an award of multiple damages.
See Cruz Mgt. Co. v. Thomas, 417 Mass. 782, 791 (1994); VMark
Software, Inc. v. EMC Corp., 37 Mass. App. Ct. 610, 623 (1994).
Nothing in the record compels conclusions to the contrary.
d. Deduction of settlement payment. As noted, the judge
reduced the damages awarded to the Boyles as C&N's assignees by
$1,324,357, the amount for which the Boyles had settled their
individual claims against Zurich. We agree with the Boyles that
this was error.
The judge's concern was evidently that the Boyles not
recover twice for the same injury. See Selmark Assocs., Inc. v.
Ehrlich, 467 Mass. 525, 544 (2014), citing Blake v. Commissioner
25
of Correction, 403 Mass. 764, 767 (1989) ("double recovery for
same injury or loss is impermissible"). This concern appeared
to the judge warranted since, at Zurich's urging, the judge
characterized the payment of $1,324,357 as "post-judgment
interest that [Zurich] has already agreed to pay."16 But the
parties' own agreement concerning their settlement, in the form
of the written release signed by the Boyles (the validity of
which is not contested), dispels the notion that the payment
agreed upon overlaps with any subsequent award granted to the
Boyles as C&N's assignees.
According to that release, the settlement payment was
granted to the Boyles specifically in conjunction with the
"claims, demands, causes of action . . . which the Boyles have
or could have brought directly and in their individual
capacities." The crux of the Boyles' individual claims was that
Zurich had wronged them as third-party beneficiaries of C&N's
policy, by failing to settle the Boyles' suit when liability had
become reasonably clear. This wrong, which had the potential to
result in multiple damages, attorney's fees, and costs (even if
C&N's claim under G. L. c. 93A proved unsuccessful), is
16
The suggestion that the payment should be so
characterized was based on the fact that, according to the
parties' joint statement of facts, the amount of postjudgment
interest that had accrued as of May, 2014, on the judgment by
default against C&N also was $1,324,357.
26
analytically independent of the wrong that supported C&N's claim
against Zurich (assigned to the Boyles) -- i.e., that Zurich did
not provide C&N with a defense. The release made in connection
with the settlement of the Boyles' individual claims against
Zurich acknowledged as much, stating that it "specifically
excludes . . . the rights of the Boyles as assignees of [C&N] to
pursue the full amount of the judgment entered in [the Boyles'
suit against C&N], with interest" (second emphasis added).
In short, the parties made clear that the payment settling
the Boyles' individual claims against Zurich would not come at
the expense of any portion of Zurich's liability toward C&N,
including (as stated explicitly) interest. The judgment should
not have been reduced, therefore, by the amount of the
settlement payment.
3. Conclusion. The result of our analysis is that
Zurich's failure to defend on a $50,000 policy will culminate in
an award of damages that is, "in the circumstances,
extraordinarily large." See DiMarzo, 389 Mass. at 108(Hennessey, C.J., concurring). This result flows from findings
of fact "warranted on the evidence," with "[t]he law, step by
step, . . . correctly applied." Id. "The crucial principles
are . . . established . . . by construction of . . . statute[s],
or by common law, in prior cases." Id. Those "crucial
principles" are intended, in part, to ensure that an insurer
27
remains "responsive to its duty to act in good faith toward an
insured." Jenkins v. General Acc. Fire & Life Assur. Corp., 349
Mass. 699, 702 (1965). We are presented with no reason to
abandon those principles.
The judgment is vacated and set aside, and the matter is
remanded to the Superior Court for entry of a modified judgment
consistent with this opinion.
So ordered.