In 2017, Federal District Court Judge Timothy S. Hillman, sitting in Worcester, conducted an seven-day bench trial on an unfair claim practice suit against the Capitol Specialty Insurance Company (“Capitol”) of Madison, Wisconsin arising out a bodily injury claim brought by a former exotic dancer, Kailee Higgins (“Ms. Higgins”) against the Worcester strip club, Centerfolds II (“Centerfolds”), where she worked.
After hearing closing arguments on October 22, 2017, Judge Hillman did not issue his decision and judgment until March 25, 2019. His decision found Capitol had committed two violations of the unfair claim practice statute, G.L. c. 176D, and, therefore, violated § 2, of G.L. c. 93A. The judge awarded $1,800,000 in compensatory damages to Ms. Higgins for Capitol’s unfair claim practice violations, and after finding these violations were wilful and knowingly violations, awarded treble damages as allowed by § 9, of c. 93A, bringing the total award to $5,400,000. With prejudgment interest added, the judgment against Capitol in favor of Ms. Higgins totaled $8,408.000.
Ms. Higgins’ job dancing, pushing drinks, and her disastrous auto accident
On November 27, 2010, Kailee Higgins was a 20-year old who was by all accounts an attractive, intelligent, young woman. When Centerfolds hired her three months before her accident, she had to provide a driver’s license and birth certificate. Centerfolds understood she was not old enough to drink. As an exotic dancer at Centerfolds, she was not paid an hourly rate or salary but relied on tips from customers for her income.
Centerfolds advised Ms. Higgins upon hiring that she was to pressure customers to buy drinks. Most often, the same customers would buy her drinks which required Ms. Higgins to drink alcohol, even though she was underage. While working at Centerfolds the waitstaff or bartenders never refused to serve her a drink or asked for proof of her age. Centerfolds also maintained a “Champagne Room” which enabled the dancers to give private dances to a customer. The dancer would make significantly more money in tips in the Champagne Room than dancing on the stage. Drinks in the Champagne Room were served by “Shot Girls” who were present on the floor to enhance the opportunities for customers to purchase alcohol for themselves and the dancers.
On November 27, 2010, Ms. Higgins worked a shift at Centerfolds. Before starting her shift, she had three shots of Patron Tequila at Centerfolds. During her shift, she consumed at least twelve more shots of Tequila in the club and the Champagne Room, and she became heavily intoxicated. Ms. Higgins testified that personnel from Centerfolds never tried to prevent her from drinking.
Centerfolds had a stated policy of having a bouncer escort every dancer to their car at the end of their shift, or to call a cab to take a dancer (or customer) home who was intoxicated.
Ms. Higgins’ shift ended around 2:00 a.m. (on November 28) and she too was escorted to her car by a bouncer. The bouncer had to take her keys from her to open the car door and physically sit her into the driver’s seat. He then gave the keys back to her and watched as she started her car. Before Ms. Higgins drove away she texted a friend “he he maaad drunk lol.” Ms. Higgins was allowed to drive away in a heavily intoxicated condition.
Within minutes of leaving Centerfolds, Ms. Higgins’ car and the car of an off-duty Worcester police officer collided violently.
As a result of the accident, Ms. Higgins was in a coma for eighteen days and suffered serious and permanent injuries including traumatic brain injury, multiple facial bone fractures, a dislocation fracture of her left orbit socket, and a shattered nose. Her teeth were knocked out, a lip was ripped open, she sustained a large laceration on the left side of her face, and her left arm was permanently damaged.
She has had over a dozen surgeries to rebuild and reconstruct her face. The surgical repair of her left eyeball left her with a permanently damaged, mismatched left eye.
After leaving the hospital, she went to the Spaulding Rehabilitation Center for several weeks. Her medical expenses and lost wages were, at that time, over $375,000.00.
Insurance policy involved and claims investigation by Capitol
Centerfolds immediately reported Ms. Higgins accident to its insurance broker. The broker then put Centerfolds’ liability insurer, Capitol, on notice of a potential claim. The notice advised Capitol that Ms. Higgins, had sustained serious bodily injury in a car accident shortly after leaving work at Centerfolds and that she was underage.
Centerfolds’ Commercial General Liability policy (“CGL”) provided two distinct coverages.
The first coverage provided a $1,000,000 limit for sums that Centerfolds became “legally liable to pay because of `bodily injury’ … to which this insurance applies.” However, this general liability coverage had a liquor liability exclusion, which eliminated coverage for bodily injuries resulting from an insured being liable for “The furnishing of alcoholic beverages to a person under the legal drinking age…”
The second coverage, contained in a “Liquor Liability Coverage Form,” provided up to $300,000 for losses sustained “by reason of the selling, serving or furnishing of any alcoholic beverage.”
The CGL also contained an endorsement limiting the amount of coverage available to the highest applicable limit if a claim triggered multiple policy coverages.
Capitol did not dispute that it was obligated to defend and indemnify Centerfolds under its policy’s liquor liability endorsement but did contend that this was the only coverage triggered by Ms. Higgins claim.
Capitol only paid $568.00 for an initial investigation before closing its file
On December 15, 2010, Capitol referred the claim to an independent adjusting company with instructions to do a “limited investigation” of Ms. Higgins’ accident.
Two weeks later, the adjuster sent a preliminary report of its investigation to Capitol stating that Centerfolds’ owner, the general manager, who was the brother of the owner and one bartender had denied that Ms. Higgins had been drinking at the club or that she appeared intoxicated when she drove away. The adjuster advised Capitol about its further scheduled investigations, but Capitol advised the adjuster to do nothing more, paid the adjuster’s $568.00 bill, closed its file and did nothing more to investigate the claim until three years later when Ms. Higgins filed suit.
On February 3, 2012, an attorney sent a letter of representation on behalf of Ms. Higgins alleging that Centerfolds had liability because it had served Ms. Higgins while she was underage to the point of intoxication and that despite accompanying her to her motor vehicle, it had allowed her to leave the premises while intoxicated. A little over a week later, without conducting any further investigation regarding the attorney’s allegations, Capitol responded in writing denying liability and again closing the Higgins file without further investigation.
The file remained closed until May 24, 2013, when Ms. Higgins filed a lawsuit for personal injuries against Centerfolds in the Worcester Superior Court. The lawsuit alleged that Centerfolds had encouraged Ms. Higgins to drink to the point of intoxication knowing she was under the legal age limit, and that “[Ms. Higgins]f was obviously intoxicated when an employee of [Centerfolds] escorted the Plaintiff from the building to her vehicle in the parking lot.”
Defense counsel finds facts on liability within a week
A week after this defense counsel’s assignment, on May 30, 2013, Capitol received its first report in which the defense counsel that Ms. Higgins had a .155 blood alcohol level which was twice the legal limit and that the Worcester police officer who was detailed to the club that evening stated that Ms. Higgins might have consumed alcohol in the Champagne Room. This defense counsel also advised Capitol that a bouncer had escorted Ms. Higgins to her vehicle at the end of the shift and that before Ms. Higgins left the premises, she had texted “he he maaaad drunk, lol” to a friend. The defense counsel concluded that there were “serious concerns about liability.”
The Court found it significant that defense counsel was able to obtain this information within one week of Ms. Higgins filing suit, while Capitol had not seemed to care about obtaining the same information when it had had the opportunity in 2010.
On June 19, 2013, defense counsel advised Capitol that after meeting with the owners of the club that “there is a real possibility that patrons bought drinks for the Plaintiff and the question to be (sic) whether we should have monitored that.” Defense counsel also advised Capitol that Centerfolds knew Ms. Higgins was underage.
On July 29, 2013 defense counsel provided a written report to Capitol summarizing meetings with some of the employees of Centerfolds. In that report, he opined that “it seems pretty likely that she did some drinking at the club.” In that memo, he also advised that the driver of the other car with which Ms. Higgins collided, was an off-duty Worcester police officer who “got a total pass” from the Worcester Police Department). He also advised that he learned that it was common for patrons to buy drinks for the dancers.
To the Court, the fact that Centerfolds encouraged patrons to buy drinks for dancers was an obvious fact, easily discovered, and that Capitol should have known in December of 2010 of this common industry practice. With this knowledge, Capitol would have realized that Centerfolds’ practices “were conducive and encouraging to over serving the dancers” including an underage dancer.
On August 23, 2013 defense counsel sent Capitol his “Initial Analysis Report” on liability and damage.
Among other points, counsel advised Capitol that Ms. Higgins medical expenses were going to be more than $293,000.00 and her lost wages were claimed to be $58,000.00. He also opined that “there is clearly a seven-figure potential” on her claim, and the full value could be as high as two to three million dollars.
Some months after receiving defense counsel’s report, Capitol had an email sent on December 19, 2013, to Ms. Higgins attorney offering the $300,000 liquor liability policy limit less Capitol’s defense costs. Ms. Higgins’ attorney did not receive the email through human error. Capitol did not re-communicate the settlement offer or verify that Ms. Higgin’s counsel had received it.
Declaratory judgment by Capitol on coverage brings unfair claim practice counterclaim
In January 2014, Capitol learned that Ms. Higgins claim included not only the statutory claim that Centerfolds had illegally served her alcohol knowing she was a minor but also a general liability claim. Ms. Higgins’ attorneys’ claimed that she had a negligence claim against Centerfolds for its bouncer escorting Ms. Higgins to her vehicle, putting her into the driver’s seat and letting her drive off instead of putting her in a cab as per Centerfolds’ house rules.
On June 23, 2014, Capitol sued its insured, Centerfolds, and Ms. Higgins seeking a declaratory judgment that under the terms of its policy only the liquor liability endorsement limit of $300,000, applied to the loss. Capitol relied upon the provision of the policy against stacking limits and the liquor liability exclusion in the general liability portion of the CGL policy.
While denying Capitol’s position on coverage, Ms. Higgins’s attorneys also filed a counterclaim of her behalf alleging that Capitol had engaged in unfair claim practices including:
- Violating G.L. c. 176D, §3(9)(d) in “refusing to pay claims without conducting a reasonable investigation based upon all available information.”
- Violating G.L. C 176D §3(9)(f) by failing to effectuate settlement after liability has become reasonably clear.
On September 1, 2015, Judge Hillman issued an order granting Capitol’s motion for summary judgment and denying Higgins’s cross-motion on the declaratory judgment claim, finding that the liquor liability exclusion precluded coverage under the CGL Form.
Finally, on September 16, 2015, Capitol tendered a check to Ms. Higgins for the remainder of its eroded insurance policy limit totaling $267,170.88, which was the remaining policy proceeds available under the policy’s liquor liability endorsement after deducting the costs of investigation and defense.
After the judge denied Capitol’s motion for summary judgment on Ms. Higgins unfair claim practice counterclaim by ruling there were material questions of fact as to the adequacy of Capitol’s initial investigation and as to when liability was reasonably clear, he set a trial date.
The unfair claim practice case spanned eight trial days including the last day of final arguments on October 22, 2017. The judge issued his 16-page decision on March 25, 2019.
A ruling that Capitol engaged in unfair claim practices by failing to adequately investigate or settle when liability was reasonably clear
The judge found that Capitol violated General Laws C. 176 D § 3(9)(d) and General Laws C. 93A § 9, by failing to adopt and follow reasonable standards for the prompt investigation of Ms. Higgins’ claim which resulted in serious and significant adverse consequences to her. He further found that Capitol violated G.L. c. 176 D § 3(9)(d) and (f) and, therefore, G.L. c. 93A § 9. In the judge’s opinion, Capitol failed to adequately investigate Ms. Higgins’ claim before denying it and failed to effectuate prompt, fair and equitable settlement of Ms. Higgins’ claims when liability became reasonably clear, thus, causing serious, and significant and adverse consequences to Ms. Higgins.
In the judge’s opinion, had Capitol put forth a minimal effort and expense and allowed the adjuster initially hired to track down and interview witnesses, and collect the relevant facts immediately following the accident this case would have followed a far different path. The judge concluded such a good faith effort would have had the following results.
- It would have revealed at a minimum the names and addresses of the employees, including dancers, working at the club on the evening of the accident.
- They would have learned that Ms. Higgins and every other dancer that worked at Centerfolds was required to encourage patrons to buy them drinks.
- They would have also learned that the bartender who claimed not to have served alcohol to Ms. Higgins, was an alcoholic who was terminated for drinking on the job.
- They would have learned that the bartender had misrepresented to the adjuster that she was the only person serving drinks when, in fact, there were several “Shot Girls” on the floor and alcohol also being served in the Champagne Room.
The Court concluded: “Had the investigation been completed by the adjuster, all of these facts would have shown without question that the two theories of recovery relied upon by Ms. Higgins would have been eminently provable, and that liability was reasonably clear.”
Instead, the judge found that Capitol’s actions or lack of action caused her adverse consequences including:
- depriving her of the opportunity to engage in a timely settlement process,
- delaying for a period of years her obtaining the Centerfolds’ policy proceeds,
- needlessly forcing her to litigate her tort claims against Centerfolds,
- causing her to be unable to pay her significant unpaid medical expenses for a period of years,
- causing her physical and mental anguish and emotional distress, in addition to the severe physical, mental, and emotional injuries that she sustained in the motor vehicle accident, and also,
- by diminishing the available policy limits by almost $33,000.00 in litigation costs deductions from the original limit once she had to make a claim.[pullquote]Quite simply, Capitol’s conduct in handling this claim was exactly the type of conduct that G.L. c. 176D and c. 93A proscribes.” Judge Hilman.[pullquote]
While not detailed in the judges’ decision, Ms. Higgins’ attorneys in describing the actual damages she had suffered from Capitol’s unfair claim practice violations stated that “the admitted exhibits and testimony presented during the seven-day bench trial” showed that:
From the Spring of 2011 until Capitol finally tendered its remaining…policy limits in September 2015, Ms. Higgins was compelled to live in disability housing in Fitchburg because she didn’t have the money to pay rent at a private apartment because she could not work…While being forced to live in government subsidized, disability housing in Fitchburg because she had not received her settlement proceeds, Ms. Higgins was repeatedly raped, robbed, and tormented by the individuals she was surrounded by in this housing complex. During that time, she couldn’t leave her apartment without getting lost and frequently suffered and starved because she had no money to support herself.
Upon finally receiving Capitol’s payment of its remaining policy limits in September 2015, Ms. Higgins was able to move to her own private apartment in Lunenburg.”
In finding that Capitol’s violations of G.L. C176D § 3(9)(d) & (f) were willful, knowing, and in bad faith, the judge found that.
- Capitol twice closed its file without doing even a cursory investigation at best demonstrates willful blindness, and worse a deliberate and intentional act to avoid their statutory responsibilities.
- Once defense counsel began handling the claim, Centerfolds’ liability became reasonably clear within weeks.
- Despite defense counsel’s “blunt assessment that he couldn’t win the case at trial, Capitol continued to prevaricate and string [Ms. Higgins] along.”
The Court ended by finding: “Quite simply, Capitol’s conduct in handling this claim was exactly the type of conduct that G.L. c. 176D and c. 93A proscribes.”
Post-trial motions before Capitol can file an appeal
Although a judgment has entered, Capitol cannot appeal while various post-trial motions are pending.
Since the March 25th judgment Ms. Higgins’ attorneys have filed a motion for the Court to allow Ms. Higgins’ her attorney fees as additional compensation for a successful unfair claim practice lawsuit.
Also, both parties have filed motions, as allowed by federal procedural rules, to have the trial judge to amend his findings. Once the Court decides those motions and enters an award for Ms. Higgins’ attorney fees, the parties will have thirty days to appeal the judge’s rulings, to the First Circuit Court of Appeals.
While Agency Checklists would not hazard a guess on the judge’s likely rulings on these motions, one amendment does appear possible, if not likely. The March 25, 2019 $8,408,000 judgment consisted in $1,800,000 in actual damages, $3,600,000 in punitive damages, and $3,080,000 in prejudgment interest. Capitol has asked as part of its motion for the judge to amend the interest calculation. According to Capitol’s motion, the prejudgment interest awarded included such interest for both the actual damages of $1,800,000 and the punitive damages of $3,600,000.
If so, Massachusetts law does not allow prejudgment interest on punitive damages, and the Court will likely reduce interest awarded from $3,081,000 to $1,027,000.
Agency Checklists will monitor this case
If upheld on appeal the Higgins decision will become a major decision on the application of the unfair claim practice statute and the duties of insurance claim departments. Agency Checklists will keep its readers informed of the progress of this case in the federal court system.