On Friday, the Massachusetts Appeals Court handed down its decision in Rivera v. Commerce Insurance Company, No. 12-P-483 (Aug. 16, 2013).  The insurance industry should take note of this unfair claim settlement practices case because the court determined that Commerce Insurance Company was liable for the plaintiffs’ tort-related litigation expenses following what was determined to be a bad-faith and unreasonable settlement offer, and proceeded to note precisely what constituted “tort-related litigation expenses.”  A copy of the decision is available through the court’s website.

The case arose out of an August 2003 automobile accident, in which a dump truck operated by Commerce’s insured collided head-on with Efrain Martinez Rivera’s vehicle.  The opinion notes that, within nine days of the accident, Commerce had concluded that the accident was solely its insured’s fault.  Following the accident, Mr. Rivera underwent a multi-year medical course that involved various surgeries, procedures, and therapies.  Mr. Rivera retained counsel, who regularly provided Commerce with updated information about Mr. Rivera’s status, his inability to work, and copies of his mounting medical bills.  To avoid the statute of limitations, Mr. Rivera, together with his wife and his three minor children, commenced suit in August 2006; they offered to settle with Commerce for its full policy limits of $1 million that December.

In response to the plaintiffs’ demand letter under Chapter 93A in June 2007, Commerce made what the trial judge ultimately determined to be a bad faith, unreasonable settlement offer of $340,000.  The plaintiffs’ tort claims ultimately settled for the full policy limits in May 2008, on the eve of trial.  The Chapter 93A claim, however, proceeded, which ultimately resulted in a judgment against Commerce for $55,000 (which the judge trebled), plus attorneys’ fees and costs.  The $55,000 figure represented eleven months’ interest on the $1 million policy limits, at an annualized rate of 6% (which the trial court concluded was reasonable) running from the June 2007 refusal to make a reasonable settlement offer.

On appeal, the plaintiffs argued that the trial judge had erred by categorically denying their request for certain litigation expenses incurred during the tort phase of the case – a total of $27,810.81 in litigation expenses incurred between the June 2007 demand under Chapter 93A and the settlement of the tort claims in May 2008. Those expenses included “fees for the certification of medical records, preparation of trial exhibits, and a videotaped deposition of an expert witness,” which the contingent fee agreement with their attorney required the plaintiffs to bear.   (It should be noted that these expenses did not include the plaintiffs’ attorneys’ fees for the tort phase of the lawsuit, because the plaintiffs’ counsel took those claims on contingency.  Presumably, the plaintiffs incurred that cost prior to their June 2007 demand under Chapter 93A.  Had plaintiffs’ counsel taken the case under an hourly-fee arrangement, there could have been an argument that fees incurred after June 2007 should similarly have been recoverable as litigation expenses vis-à-vis the tort claim.)

Citing to the Supreme Judicial Court’s prior decision in DiMarzo v. American Mutual Insurance Company, 389 Mass. 85 (1983), and the Appeals Court’s prior decision in Miller v. Risk Management Foundation of the Harvard Medical Institutes, Inc., 36 Mass. App. Ct. 411 (1994), the Appeals Court concluded that the plaintiffs’ actual damages under Chapter 93A included “all losses which were the foreseeable consequences of the defendant’s unfair or deceptive act or practice,” and that the expenses of trying a tort action are a foreseeable consequence of the carrier’s protracted delay in settling the tort case.  The Appeals Court ruled, therefore, that the plaintiffs should have had the opportunity to show that there was a causal connection between the insurer’s bad-faith delay in settling the case for policy limits and the foregoing tort-related expenses and disbursements that the plaintiffs had to bear.  Accordingly, the Appeals Court remanded the case to the Superior Court for an evidentiary hearing.

The decision is a useful addition to the body of case law because it identifies the kinds of expenses that are likely recoverable under Chapter 93A as “tort-related.”