On April 21, 2017, the Appeals Court issued decision, Michael Caira vs. Zurich American Insurance Co. (“Zurich”) affirming that an insurer did not commit any unfair claim settlement practice when it conditioned the payment of its primary insurance policy’s $770,000 available limit on a release of all claims against its insureds even though the insureds had available excess insurance limits of $10 million; liability was clear; and the claimant had serious injuries with damages exceeding $1 million.
Serious one-car accident
Shortly after midnight on September 14, 2013, Daniel Mr. Madigan-Fried was driving a rental car in Swampscott when he was involved in a one-vehicle accident. The plaintiff, Michael Caira (“Mr. Caira”), who was a passenger in the front seat, suffered life-threatening injuries, and the two passengers in the back seat sustained serious injuries. A few weeks before the accident, Mr. Madigan-Fried had rented the vehicle in his capacity as an employee of Groom Construction Co., Inc. (Groom).
Liable Employee and Employer with $11 million in liability coverage
Zurich had issued to Groom the primary commercial automobile insurance policy that was in place at the time of the accident. The bodily injury coverage under the policy was $1 million. In addition, Groom had two excess insurance policies issued by Starr Indemnity & Liability Company (Starr Indemnity) and Navigators Insurance Company (collectively, excess insurers) that provided coverage of $5 million each.
Superior Court proceedings
On October 29, 2013, Mr. Caira filed a complaint in the Superior Court against Mr. Madigan-Fried and Groom, alleging negligence. Mr. Caira claimed that excessive speed caused Mr. Madigan-Fried to lose control of the vehicle and to crash into a granite wall. Zurich undertook the defense of Mr. Madigan-Fried and Groom.
The other two back seat passengers sued Mr. Madigan-Fried and Groom. In May, 2015, Zurich settled the claims of the back seat passengers for a total of $230,000, thereby reducing Zurich’s $1 million policy limit to $770,000. The back seat passengers executed general releases of Mr. Madigan-Fried and Groom
Mr. Caira with liability reasonably clear demands settlement without a release
Between December 23, 2014, and July 15, 2015, thirteen letters were exchanged between Mr. Caira and Zurich regarding the settlement of Mr. Caira’s negligence claims against Mr. Madigan-Fried and Groom. In his demand letter dated December 23, 2014, written pursuant to the unfair claim practices statute, Mr. Caira asserted that it was reasonably clear that Mr. Madigan-Fried was liable for both the accident (Mr. Madigan-Fried had pleaded guilty to negligent operation of a motor vehicle for the accident), and the resulting damages that purportedly exceeded $1 million, and that Zurich had an obligation to tender a settlement to Mr. Caira. The letter stated that in exchange for the $1 million insurance policy limit, Mr. Caira would release Zurich from further claims of any kind.
Mr. Caira proposed, however, that if Zurich met his demand for the $1 million policy limit, he would not release Mr. Madigan-Fried and Groom from liability but would instead enter into an agreement with them to only seek recovery of any future judgments from one or both of the excess insurers.
Zurich refuses to pay available policy limit without a general release of its insured
As to Mr. Caira proposed settlement agreement without a release of Zurich’s insured, Zurich responded that paying the policy limit without receiving a release could expose Zurich to a claim of bad faith by its insureds (Mr. Madigan-Fried and Groom), and could jeopardize any excess insurance coverage to which Mr. Madigan-Fried and Groom might be entitled if Zurich’s policy limit was exhausted.
Refusal of Zurich to budge on release of its insureds results in unfair claim practices suit
On April 8, 2015, Mr. Caira demanded a settlement from Zurich and the two excess insurers in the amount of $3.9 million. Mr. Caira asserted that Mr. Madigan-Fried’s liability for the motor vehicle accident was clear.
Zurich responded that notwithstanding the additional excess policy limits available, pursuant to Massachusetts caselaw, it could properly condition the payment of its policy limit on the receipt of a release of its insureds.
In Zurich’s view, its rights to demand a release of its insureds as a condition of settlement were not affected by the existence or nonexistence of excess insurance. Zurich conceded that liability was reasonably clear and that Mr. Caira’s damages exceeded the $1 million policy limit, but stated that it would still only entertain settlement proposals that provided for a release of Mr. Madigan-Fried and Groom.
What Mr. Caira could not do, in Zurich’s opinion, was “settle” with Zurich for $770,000, refuse to proffer a release to Zurich’s insureds, and continue to litigate his claims. Zurich reiterated that its settlement position was consistent with Massachusetts caselaw.
Mr. Caira responded by adding an unfair claim practice claim against Zurich in his lawsuit against Mr. Madigan-Fried and Groom.
Settlement with release but unfair claim suit against Zurich
On November 11, 2015, Starr Indemnity, one of the excess carriers, settled Mr. Caira’s claims against Mr. Madigan-Fried for $900,000. The settlement was funded by Zurich’s remaining policy limit of $770,000, and by $130,000 from Starr Indemnity.
Mr. Caira executed a general release of Mr. Madigan-Fried, Groom, and the excess insurers. The release explicitly excluded Mr. Caira’s claim against Zurich for unfair claim settlement practices.
Demand for release as a condition of paying primary policy not an unfair claim practice
As the only remaining defendant in Mr. Caira suit, Zurich moved for summary judgment, arguing that Mr. Caira could not satisfy his burden of proof under the unfair claim practices statute, where Zurich had offered its policy limit on multiple occasions, conditioned only on Mr. Caira’s release of his claims against Mr. Madigan-Fried and Groom.
The Superior Court judge hearing Zurich’s motion for summary judgment found:
- Zurich’s settlement position consistently was based on its reading of Massachusetts caselaw, to the effect that Zurich was not obligated to pay its available policy limit without a concomitant release of its insureds by Mr. Caira.
- There was no evidence suggesting an absence of good faith or the presence of extortionate tactics by Zurich.
- Zurich had responded to Mr. Caira’s various demands in a timely manner.
- Zurich did not drag out settlement discussions, and Mr. Caira had made strategic choices that largely determined the pace of the litigation.
The judge stated that, based on his reading of the applicable precedent, it was reasonable for Zurich to condition its payment of the available policy limit on the receipt of a general release of Mr. Madigan-Fried and Groom, irrespective of the availability of excess insurance. Accordingly, the judge concluded that Zurich did not engage in unfair claim settlement practices in violation of the unfair claim practices statute and, therefore, was entitled to judgment as a matter of law.
Mr. Caira disagreed and appealed to the Appeals Court..
Appeals Court affirms Zurich’s right to demand release of insureds as a condition precedent of settling
As an initial matter, the Appeals Court noted there was no real dispute regarding liability. Zurich had always assumed, for purposes of responding to Mr. Caira’s demand under the unfair claim practices statute, that Mr. Madigan-Fried’s liability was reasonably clear, and that Mr. Caira’s damages exceeded the $1 million limit of Zurich’s insurance policy.
Instead, Zurich’s willingness to tender its available policy limit was always conditioned on receipt of a release of its insureds.
The Appeals Court acknowledged that where liability is reasonably clear and the damages equal an amount that is substantially more than the policy limit, an insurer cannot effectuate a fair and equitable settlement because payment of the policy limit in exchange for a release will not fully compensate the claimant for the damages sustained.
The best that the insurer can do to effectuate a settlement is to offer the policy limit in exchange for a release, given that payment without a release is not a settlement. The claimant then can decide whether to accept the offer or to decline the offer and proceed to trial.
However, Massachusetts law does not construe the unfair claim practices statute, according to the Appeals Court, as placing an insurer in the position of either being sued for unfair claim settlement practices by a claimant who is disgruntled by the insurer’s failure to pay, or being sued by an insured who is disgruntled by the insurer’s payment of the policy limit without obtaining a release of the insured.
Rather, the Appeals Court concluded that, even where the claimant’s damages exceed the policy limit, an insurer can insist on a release of all claims against its insured before tendering the policy limit, without running afoul of the unfair claim practices statute. The Appeals Court held that:
“An insurer need not forsake its demand for a release in order to enable a claimant to collect additional damages, either from the insureds themselves or from an excess insurance policy.”
Simply put the Appeals Court said for an insurer: “to pay without a release is not a settlement” and that is without regard to the availability of excess insurance as: “the availability of such excess insurance was not material to Zurich’s legally sound settlement position.”
Accordingly, the Court concluded that Zurich did not engage in unfair claim settlement practices in violation of Massachusetts law and denied Mr. Caira’s appeal.
