In Boyle v. Zurich American Insurance Company, 472 Mass. 649 (2015), decided on September 14, 2015, the Massachusetts Supreme Judicial Court (the “SJC”) indicated, to the dismay of the insurance defense bar, that the right to a defense under a liability insurance policy is not merely contractual, but rather tantamount to constitutional, rendering that right virtually impossible to waive. Fortunately, though, the SJC also reaffirmed that insurers do not expose themselves to multiple damages under Massachusetts General Laws Chapter 93A by making merely negligent coverage and settlement decisions.
In Boyle, the insured under a business auto insurance policy failed to notify the insurer that it had been sued by a patron for injuries he suffered following an explosion on its premises, as well as by the patron’s wife for her loss of consortium. The insurer, however, had previously been notified by the insured of the accident causing the patron’s injuries and had even assigned an investigator to interview the insured. The insurer also had received two letters from counsel for the claimants that they intended to pursue claims against the insured.
The insurer, relying on the absence of notice of the lawsuit and a request by the insured for a defense, never hired defense counsel and allowed the suit against the insured to proceed to a default judgment of $2,250,000. Following an assignment by the insured of its claims against the insurer for breach of its duty to defend to the claimants, the insurer then attempted to settle with the claimants by offering its policy limit of $50,000, plus interest, notwithstanding the existence of the $2,250,000 default judgment which the claimants held. Fortunately, for the insurer, the trial judge found that the insurer did not make this offer in bad faith or based on any ulterior motive, but rather based on a misreading of its own insurance policy.
On appeal, the SJC, following the well-established notice-prejudice rule in Massachusetts, ruled that an insurer relying on a breach of condition by the insured to avoid its duty to defend must identify the precise manner in which its interests have suffered, such as by showing that the insured’s breach of a notice requirement resulted in the loss of critical evidence or testimony which the insurer can no longer duplicate. In Boyle, the insurer could not carry this burden because of both the pre-suit notice, which it had received from the insured, as well as notices it received from counsel for the claimants prior to the entry of the default judgment against the insured. Fortunately, however, the SJC then went on to reiterate other prior Massachusetts case holdings that mere negligence ordinarily does not represent an unfair or deceptive act allowing an insured (or its assignee) to recover multiple damages under General Laws Chapter 93A against an insurer.
For insurers handling claims in Massachusetts involving a duty to defend, the Boyle decision is both a curse and a blessing. The first lesson to be learned from Boyle is that it is almost impossible for facts to exist which will support a denial of a defense to a defendant who is indisputably an insured. The second lesson from Boyle is that even under Chapter 93A, “to err is human.” So long as coverage and claims handling decisions are merely negligent (and not unfair or deceptive, as well), an insurer should not face the specter of an award of multiple damages and attorney’s fees under that statute. A copy of the Boyle decision can be found here.