A September 14, 2015 decision of the Supreme Judicial Court (“SJC”), Boyle v. Zurich American Insurance Company (“Zurich”), affirmed a multi-million dollar judgment against the insurer Zurich resulting from bodily injury claim under a commercial auto policy with a $50,000 dollar limit of liability.
The Boyle case has decided important issues relating to insurance contract provisions regarding notice of suits and an insurer’s duties to defend and settle. While the case resulted in the payment of over $4,ooo,000 dollars in contract damages and interest, it did not involve any multiple damage award for any unfair claim practices. Rather, all of the over $4 million in total payments now owed on the $50,000 policy limit resulted from Zurich’s failure to defend, failure to offer its policy limit as well as the supplementary interest payment provisions of its policy.
Insured notified Zurich of the accident
Zurich’s insured, a truck repair shop named C&N Corporation (“C&N”), had a Massachusetts Business Auto policy for policy year 2006 with a $50,000 bodily injury limit.
In March 2006, Joseph Boyle, a friend of C&N’s owner, suffered a severely lacerating injury to his left forearm and hand when the tire of a truck exploded while being run at speed on C&N’s lift to test the vehicle’s transmission.
As a result of his injuries, Boyle underwent several surgeries, incurred medical bills of roughly $106,000, and suffered permanent scarring and partial loss of function in his left arm and hand. Mr. Boyle was unable to work for about a year, had to take less skilled and lower-paying jobs, and suffered a lost earning capacity of over $500,000.
Zurich investigates accident, determines liability, but closes claim file without ever contacting claimant or his attorney
The repair shop, C&N, notified its insurance agent, the Tarpey Insurance Group, of the accident and Mr. Boyles’ injuries. Tarpey duly notified Zurich within 12 days of the accident.
Upon receipt of the accident report from its agent, Zurich assigned a claim number and opened a claims file. Zurich received an “Acord Automobile Loss Notice” from Tarpey, accompanied by a Massachusetts Motor Vehicle Crash Operator Report completed by C&N’s owner.
Zurich soon learned that Mr. Boyle and his wife had retained an attorney and were planning to assert a bodily injury claim against C&N. The Boyles’ attorney corresponded with Zurich, but Zurich never responded to the attorney’s several inquiries to Zurich about the claim.
Three months after the accident, the Boyles’ attorney put C&N on written notice that the Boyles intended “to pursue a bodily injury claim.” C&N forwarded this letter to Tarpey Insurance, who forwarded the letter to Zurich. Zurich took no action to make contact with the Boyles’ attorney.
The only action that Zurich took to obtain additional information was, between November 2007 and January 2008, it made several unsuccessful efforts to obtain additional information relating to the accident through its agent, Tarpey Insurance.
In February 2008, Zurich closed its claim file and sent notices of the closing to its insured, C&N, and it agent, Tarpey Insurance, stating that the claim file had been closed.
Zurich’s closed claim file becomes repository of notices on insured’s default and $2.5 million default judgment
In August 2008, the Boyles filed suit against C&N, however, C&N, never forwarded a copy of the Summons and Amended Complaint to Zurich. Nor did C&N otherwise notify Zurich that a suit had been filed against it or provide Zurich with any other information concerning the suit. As a result, Zurich never appeared to defend the case and a default judgment was entered against C&N.
The Boyle’s attorney, however, did send Zurich a letter in September 2008 stating that an assessment of damage hearing had been scheduled in the Superior Court to determine the amount the Boyles should recover from C&N. The letter specified the docket number assigned to the Boyles’ complaint. This letter ended with the statement: “If you have any questions about this matter please feel free to contact me at the above address and telephone number. Thank you for your courtesy and cooperation.”
Zurich personnel apparently had no trouble identifying the claim file to which the Boyles’ lawyer’s letter belonged. The clerks involved, however, simply filed the notice from the Boyles’ attorney in the closed claim. Apparently, Zurich’s practice at that time was to simply file items received relating to a closed claim file, unless it was clear that specific action was required by Zurich. If an action was required in a case, the documents were sent to the adjuster assigned to the claim or to the supervisor, if the adjuster was no longer employed by Zurich. Because the September 9, 2009 letter simply provided information about a hearing in a suit that Zurich had never been notified of by C&N, and did not request that Zurich take action, it was scanned to the closed file without anyone in charge reviewing it to determine its legal significance.
Later that same month, the Boyles’ attorney informed Zurich that the assessment of damage hearing against its insured had been postponed until October, 2009. That letter also stated the amount of Joseph’s medical expenses and enclosed copies of his over $100,000 dollars in medical bills.
As before, the clerk receiving the document simply filed the letter without understanding 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.
Unsurprisingly, neither C&N nor Zurich attended the October, 2009 hearing on the Boyles’ damages. After the hearing, the judge awarded damages of $1,500,000 to Mr. Boyle for his bodily injuries and $750,000 to Mrs. Boyle for her loss of consortium. The final judgment entered against C&N, including interest and costs, totaled $2,648,715.80.
Superior Court judgment against Zurich for failure to defend or to settle claim against its insured
In 2011, The Boyles sued Zurich basing their claims on being judgment creditors of Zurich’s insured. In 2013, they amended their complaint to add breach of contract claims against Zurich as assignees of C&N’s rights under the commercial auto policy that applied to the Boyle’s loss.
Several days before the case was scheduled to be tried, 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.
On the assignment of rights claim, however, the trial judge ruled against Zurich after a two-day jury waived trial in Superior Court.
Zurich defended itself on the fact that the insured, C&N, had never complied with the policy provisions requiring, that as a condition of coverage, the insured notify Zurich of any suits and forward any legal papers to Zurich.
The trial judge did find that the insured had, in fact, breached the covenants in the insurance policy that required notice be given to Zurich of any suits. However, the trial court also specifically ruled that: “Zurich cannot evade its duty to defend C&N unless Zurich proves that it suffered actual prejudice as a result of C&N’s failure to notify Zurich of the lawsuit.”
In Massachusetts, in both statute and case law, an insured’s failure to provide its insurer with notice of an accident or of a resulting lawsuit does not bar coverage unless the insurer proves that it was actually prejudiced.
The Superior Court found that although C&N had already defaulted by September 2009, Zurich could still have provided C&N with an effective defense if it had taken steps to do so at that time. The Court ruled that if Zurich had paid any attention to the letters it received from the Boyles’ lawyer in September 2009 it would have quickly determined that C&N’s liability far exceeded Zurich’s $50,000 policy limit and tried to settle the lawsuit and obtain a release of all claims from the Boyles by offering the $50,000 policy limit.
The Court also found that if Zurich had reached out to the Boyles prior to the October 7, 2009, damages hearing, informed the Boyles that the policy limit was $50,000 and offered to pay that amount if the Boyles would dismiss their claims against C&N with prejudice and release those claims, then both Mr. Boyle and Ms. Boyle would have accepted C&N’s offer and dropped their claims against C&N in exchange for the $50,000 policy limit.
As a result of its rulings, the Superior Court found Zurich liable for the full amount of the default judgment against C&N less “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”.
Zurich appealed the Superior Court judgment and filed an application for direct appellate review with the Supreme Judicial Court. The Boyles cross-appealed over the Superior Court’s Judge’s ruling deducting the post-judgment interest paid by Zurich on their individual claims from the damages awarded them as assignees of C&N.
Supreme Judicial Court accepts case to answer whether an insured’s failure to give notice of suit to insurer precludes coverage
The Supreme Judicial Court accepted Zurich’s application for direct appellate review and issued a public announcement requesting that interested parties submit amicus curiae briefs. The questions that the Court sought amici to respond to were:
(1) whether the notice that is required to be given by an insured to its insurer under the terms of a policy (of a pending lawsuit against the insured) in order to trigger the insurer’s duty to defend, must come directly from the insured in compliance with the terms of the policy, and
(2) whether an insured’s failure to give any kind of notice under the policy precludes coverage, as the insurer contends, or, as the judge ruled, only precludes coverage when the absence of such notice actually prejudices the insurer.
Three trade associations involved in insurance contract and claim issues submitted amicus briefs for the Supreme Judicial Court to consider: The Massachusetts Academy of Trial Lawyers (Plaintiffs’ lawyers), The Massachusetts Defense Lawyers Association (Insurance defense lawyers), and the Complex Insurance Claims Litigation Association, (certain property and casualty insurance companies).
Zurich, for its part, argued before the Supreme Judicial Court that the Superior Court judgment finding that Zurich breached its duties to settle the claim and to defend its policyholder should not stand. Zurich rested its case on the policy’s explicit terms requiring the insured to “Immediately send us copies of any request, demand, order, notice, summons or legal paper received concerning the claim or ‘suit’” Zurich pointed out that there was no dispute that:
- its policyholder never notified Zurich of the existence of the Boyles suit,
- its policyholder never forwarded the Boyles’ suit papers to Zurich,
- its policyholder never forwarded other critical court documents and orders to Zurich, and
- its policyholder never even requested that Zurich provide a defense to the Boyles’ lawsuit.
The Supreme Judicial Court ruled, however, that Zurich’s policy language defense has “long has been rejected in Massachusetts, both by way of legislation and in our jurisprudence.” The Court noted that 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.”
The statutory provision the Court pointed out applies to motor vehicle insurance policies, like the one issued to C&N. The Court also noted that there was ample evidence based on the notices received by Zurich that Zurich had ultimately prejudiced itself by its own negligence and not by the failure of the insured to notify Zurich seasonably.
Correspondingly, the Supreme Judicial Court also affirmed that Zurich’s liability arose from its breach of contract and from its own negligence. Thus, the Court affirmed the Superior Court’s ruling that Zurich’s action had none of the indicia of an unfair claim practice that warranted liability under G.L. c. 93A. On September 28, 2015, Zurich filed a Petition for Rehearing with the Supreme Judicial Court that was still pending as of the date of this article.
Finally, the Supreme Judicial Court sustained the Boyles appeal and ruled that Zurich had no legal entitlement to the credit of $1,324,357 in post-judgment interest granted by the Superior Court. As a result, Zurich became liable for the full default judgment of $2,648,715.80, plus an undetermined amount of additional interest.
The Court affirmed the Superior Court judgment that Zurich had liability for its breach of the duty to defend and for its breach of its obligation “to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.”
Points from the Boyle case
Wrongfully refusing to defend makes an insurer liable for excess judgment: In Massachusetts, an insurer’s refusal to defend its insured against a suit can make the insurer liable for any judgment entered against its insured. As the Superior Court judge in the Boyle case put the rule.
- [T]o the extent that a liability insurer breaches its duty to defend the insured, and
- The insurer’s refusal to defend causes the judgment against its insured to be higher than it otherwise would have been,
- The insurer will be obligated to pay the portion of the excess judgment caused by its breach. An insurer’s liability for breaching a liability policy’s defense obligation can exceed the policy’s liability limit. In this case, Zurich had to pay breach of contract damages resulting from its failure to defend its insured that equaled approximately eighty times the policy’s underlying bodily injury liability limit.
Massachusetts law does not require an insured claiming a wrongful refusal to defend by a liability insurer to prove that the insurer’s denial involved any bad faith or unfair claim practice. The damages recoverable by the insured result simply from the insured proving a breach of the insurance contract’s duty to defend the insured against a suit of which the insurer has actual knowledge.
The Boyle case rule on prejudice applies to occurrence policies only, the rule for claims-made policies is different: The prejudice rule found in Massachusetts statutory law and case law only applies to “occurrence”-based liability insurance policies like the commercial auto policy in the Boyle case. However, the Supreme Judicial Court has applied a strict notice rule to “claims-made” policies with prejudice to the insurer being irrelevant. If the Boyle case had involved a claims-made policy the decision would almost certainly have been for the insurer under these facts.
Duty to settle even in absence of plaintiff demand: Liability insurers in practice usually ask for demands from personal injury claimants early on in the claim process. However, this practice many times runs afoul of Massachusetts law. In the Boyle case, the Superior Court affirmed this duty. As the court stated: “Since Zurich had already determined that C&N’s liability was reasonably clear, and it should have been obvious to Zurich that C&N’s exposure to the Boyles was far greater than the $50,000 policy limit, Zurich had a duty to try to settle the case for the policy limits even in the absence of a formal demand by the Boyles.”
Insurers and agents assisting insureds in the claim process should note that the rule in Massachusetts is that it is:
An insurer’s “duty to make a prompt and fair settlement offer does not depend on the willingness of a claimant to accept such an offer,” but instead includes the duty to “put a fair and reasonable offer on the table when liability and damages become clear.” Hopkins v. Liberty Mut. Ins. Co., 434 Mass. 556, 566-567 (2001).
In the Hopkins case the rule was stated as an insurers’ statutory duty under G.L, c. 176D, § 3(9)(f) “to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear”. However, in Boyle, the Superior Court concluded that the same principles apply in enforcing Zurich’s contractual obligation to act in good faith and without negligence in attempting to settle the Boyles’ claims.
Copies of SJC Decision
The decision of the SJC is available here: Boyle v. Zurich American Insurance Company.
