Recently, the Massachusetts Appeals Court ruled in favor of plaintiffs in two significant M.G.L. c. 93A cases, but followed divergent damages analyses.
In the first case, Gore v. Arbella Mutual Insurance
Company, 77 Mass. App. Ct. 518 (2010), the court found a
stipulated judgment to have the same weight as a court-entered
judgment, and it applied the clear language of M.G.L. c. 93A, §
9(3), which provides that "the amount of actual damages to be
multiplied by the court shall be the amount of the judgment on all
claims arising out of the same and underlying transaction or
occurrence, regardless of the existence or nonexistence of
insurance coverage available in payment of the claim."
In the other recent decision, Rhodes v. AIG Domestic Claims,
Inc., 78 Mass. Ap. Ct 299 (2010), despite the existence of an
underlying judgment, the court chose a different method of
Gore v. Arbella
Gore arose out of an automobile accident where the plaintiff (Dattilo) was seriously injured, but the defendant, insured by Arbella Mutual Insurance Company, had insurance limits of only $20,000 per person/$40,000 per accident. Despite her significant injuries, Dattilo proposed to settle for the $20,000 policy limit with a full release. Arbella did not respond to the proposal for a full five months, and also failed to communicate the demand to its insured.
Taking the silence as a rejection of the proposal, Dattilo filed
suit and sent demands to Arbella pursuant to c. 93A and c. 176D.
The personal injury action was resolved by a stipulated judgment of
$450,000. Although Arbella paid its $20,000, Dattilo took an
assignment of the defendant's 93A/176D claims against Arbella, and
filed suit on both her own 93A/176D claims and those assigned by
The rulings by the Superior Court at the jury-waived trial were
largely favorable to the plaintiff. The court found that the
stipulated judgment was not collusive; that Arbella had violated
93A and 176D with regard to the demands made by Dattilo; that
Arbella had violated 93A and 176D when it failed to notify its
insured about the settlement demand for the policy limits and to
settle within those limits; and that the violations of 93A and 176D
by Arbella were willful and knowing.
The court awarded damages of over $1 million, which were
calculated by adding $40,000 for the amount Arbella delayed
offering ($20,000 as compensatory damages for the direct claim,
doubled); $430,000 (the $450,000 judgment amount minus the $20,000
insurance limit, as compensatory damages for the assigned claim,
not doubled); $200,000 in attorney's fees, doubled; over $300,000
in prejudgment interest, not doubled; plus over $23,000 in costs.
Both parties appealed.
The Appeals Court affirmed the lower court in all of its rulings,
except its damage award on the assigned claim, where it agreed with
the plaintiff that the $430,000 award was subject to
multiplication. More specifically, the Appeals Court found that the
stipulated judgment reached in the underlying matter was a judgment
for the purposes of G.L. c. 93A, § 9(3).
Accordingly, the court found that the $450,000 stipulated judgment
should be considered the multiplicand in calculating damages on the
assigned claim and remanded the matter for further proceedings to
determine whether that amount should be doubled or tripled. On Dec.
23, 2010, the Supreme Judicial Court denied further appellate
Rhodes v. AIG
Just a few months after the Appeals Court issued its decision in Gore, a different Appeals Court panel took a deviating view of damages in a similar 93A case that was arguably even stronger for the plaintiff. The Rhodes case arose from an extremely serious motor vehicle accident where Marcia Rhodes, the plaintiff, was rear-ended by a tractor-trailer, left paraplegic and had documented past and future special damages of nearly $3 million. Rhodes, along with her husband and daughter, filed suit in July 2002.
By August 2003, plaintiffs' counsel had fully documented the
damages, provided a day-in-the-life videotape, and made a $16.5
million demand for settlement. The demand was forwarded to Zurich
American Insurance Company, which provided the primary layer of $2
million in liability insurance to the trucking company, and to the
AIG affiliate, AIGDC, which provided an additional $50 million of
Despite the fact that the third-party administrator retained by
the defendant found clear liability and estimated the damages as
likely exceeding $5 million, no offers of settlement were
forthcoming until August 2004, which was a year after the demand
had been issued and just weeks before trial, when the parties met
at mediation. Then, the combined offer of settlement was only $3.5
million, and was rejected.
At trial, liability was stipulated. Prior to the verdict, AIGDC
raised the combined offer to $6 million, which was also rejected.
The jury found in favor of the plaintiffs in the amount of $9.412
million, which, with interest, exceeded $11 million. AIGDC
While the appeal was pending, the plaintiffs sent Zurich and AIGDC
a 93A letter demanding a reasonable settlement within 30 days. In
response, Zurich paid its entire policy limits plus a share of the
pre-trial interest, but AIGDC failed to act until the plaintiffs
actually filed their 93A action. At that point, AIGDC paid nearly
$9 million to settle the personal injury claim. The plaintiffs did
not release AIGDC from the 93A and 176D claims as part of the
In the trial of the 93A case, the Superior Court judge found that
AIGDC had committed knowing and willful violations of 93A and 176D
by failing to effectuate prompt settlement once liability became
However, he also found that the pre-trial settlement offer of $3.5
million was within the reasonable offer range, albeit at the low
end, and that the plaintiffs would have rejected any offer less
than $8 million, thus, as he ruled, the plaintiffs suffered no
actual damages as a result of AIGDC's pre-trial misconduct. The
judge further found that AIGDC's post-verdict offer of $7 million
was insulting and unreasonable, thus violating 93A/176D. The judge
then awarded the plaintiffs only loss of use damages from the date
of the judgment until the matter was ultimately settled, which
amount was doubled for AIGDC's
willful and knowing misconduct. Both parties appealed.
The Appeals Court affirmed the lower court's finding of pre- and
post-trial misconduct by AIGDC, reversed the trial judge's denial
of damages for AIGDC's pre-trial misconduct, and held that even
where a plaintiff testifies that he would have rejected an offer
within the range of reasonable offers, such evidence would not
alleviate the insurer's obligation to make a reasonable settlement
However, the Appeals Court determined that the plaintiffs' damages
should not simply be measured by the judgment obtained in the
underlying action, as the plaintiffs urged. Rather, the proper
measure of damages in a case such as this where the plaintiffs did
reject a reasonable settlement offer should be the loss of use of
the proceeds between the time the insurer breached its duty to make
a reasonable settlement offer and the date a reasonable settlement
offer was made but rejected. Moreover, the Appeals Court held that
such amount is subject to multiplication, if the insurer's delay is
willful and knowing as AIGDC's was.
Justice Janice M. Berry dissented in part, disagreeing with the
analysis of the majority that the August 2004 offer was reasonable
and on how damages should be calculated. To the latter point, she
agreed with the plaintiffs and opined that the jury's verdict
should have formed the basis of the calculation of the c. 93A
damages, not loss of use principles.
As of this writing, the plaintiffs' petition for further appellate
review in Rhodes is pending before the Supreme Judicial
Questions and concerns raised by the decisions
Despite a record of years of bad faith claims handling, the majority inRhodes framed a damage calculation that was limited to just a few months in the pre-trial period, and for the eight-month post-trial period.
Arguably, the court ignored both the statutory mandate in G.L. c.
93A, § 9(3) requiring that the damages be based upon the judgment
amount, and case precedent supporting damages based upon the
judgment amount such as Gore
and R.W. Granger &
Sons, Inc. v. J & S Insulation, Inc.
, 435 Mass. 66
(2001), where the Supreme Judicial Court affirmed damages against
an insurer that were a multiple of the underlying judgment against
its insured. The SJC should grant the FAR in Rhodes
clarify whether that decision can be harmonized with Gore
If the damage analysis in Rhodes
is not overturned, then
one of the concerns created by the decision is whether insurers
will now perceive a new way to minimize bad faith damages. Under
the Appeals Court ruling in Rhodes
, an insurer needs only
to make a marginally good faith offer just before trial, no matter
how long its bad faith has been ongoing and no matter how
outrageous its conduct, and its damages will be limited to the loss
of the use of the money on the lowball offer. Under this scenario,
the purposes of our strong consumer protection statutes may be