In an unusual decision, the Appeals Court has ordered the Superior Court to enter, on remand, punitive damages of not less than $4.5 million nor more than $9 million against Liberty Mutual. This order arises in an unfair claim practice suit under G.L. c. 93A against the insurer that awarded the claimant only $25.00 in nominal damages.
Mr. Chiulli alleged that Liberty Mutual had violated General Laws Chapter 176D and Chapter 93A by willfully and knowingly violating Section 2 of Chapter 93A because it had failed to make a “reasonable offer of settlement when its liability became reasonably clear.
The plaintiff, Robert Chiulli, alleged Liberty Mutual violated the unfair claim practice act, G.L. c. 176D, § 3 (9) (f) because it had failed to make a “reasonable offer of settlement when its liability became reasonably clear” in a bodily injury suit tried in Federal Court.
In the Federal suit, Mr. Chiulli received a verdict against a bar and restaurant insured by Liberty Mutual as the result of severe head injuries received in a fight outside the bar. The fight resulted from a dispute over a barstool that began inside the bar. The bar’s employees watched the progress of the altercation even though the City of Boston and Alcoholic Beverage Control Commission regulations required them to protect these patrons from themselves.
In defending the bar, Liberty Mutual made no settlement offer until the middle of the trial against its insureds when it made a $150,000 offer that Mr. Chiulli rejected. The jury awarded $4.5 million. After the excess insurer paid the judgment, Mr. Chiulli filed his unfair claim practice suit.
Following an eight-day trial in 2017, a Superior Court judge found that Liberty Mutual had indeed violated c. 93A and 176D, but found that Liberty Mutual’s violation had not been knowing or willful, and therefore Mr. Chiulli was only entitled to the statutory minimum damages allowed under Chapter 93A § 9 of $25.00. However, the finding of violation required the judge also to allow Mr. Chiulli reasonable attorney’s fees and costs of the litigation. The Court awarded attorney fees of $536,000 and costs of $57,000.
Both Mr. Chiulli and Liberty Mutual appealed. The Appeals Court denied the arguments put forth by Liberty Mutual but found that the judge’s findings did not warrant the conclusion that the violations had not been willful or knowing. The appellate judges ordered findings to enter in the Superior Court that Liberty Mutual’s actions were willful and knowing.
Because of a specific provision of c. 93A, §9, the finding that Liberty Mutual acted willfully and knowingly will mandate, in this case, that the Superior Court enter punitive damages of at least double and up to treble times based on the underlying $4.5 million bodily injury judgment.
Mr. Chiulli’s underlying bodily injury claim against Liberty Mutual’s insured
On June 20, 2008, Mr. Chiulli was 42 years old and was visiting the Sonsie Restaurant on Newbury Street in Boston managed by the Lyons Group (hereafter for both as “insured or Liberty Mutual’s insured”). After an intoxicated patron took Mr. Chiulli’s seat at the bar and would not move, a verbal altercation started between them. Friends of each joined in the verbal name-calling back and forth, which continued for some time.
The restaurant’s bartenders and managers witnessed these exchanges between the two groups but did not remove nor separate the parties from the bar. The employees later testified they suspected a fight would occur between the parties when they left the bar, but they took no action to prevent it. They had no training on any of the safety rules related to a liquor licensee protecting intoxicated patrons.
When the anticipated fight eventually occurred outside the bar, Mr. Chiulli was knocked to the pavement and fractured his skull. He was in a coma for approximately three months with a traumatic brain injury. His medical expenses were $661,920.00. He claimed his injuries cost him a future lost earning capacity totaling $1,589,949, and future medical bills of $1,442,666, plus his conscious pain and suffering.
$4.5 million jury verdict after Liberty Mutual assessed up to an eighty-percent chance of a defense verdict
Mr. Chiulli filed suit in the Superior Court against the bar that Liberty Mutual insured and three individuals involved in the altercation. Liberty Mutual acknowledged its $1 million in coverage, appointed defense counsel, and removed the suit to the Federal Court in Boston.
During the litigation in Federal Court, Liberty Mutual maintained the position through defense counsel and its claims adjuster that liability was not reasonably clear and that its insured had a seventy to eighty percent chance of prevailing on the suit brought by Mr. Chiulli.
At all times, Liberty Mutual’s position was that Mr. Chiulli had started the fight, and therefore his comparative negligence was greater than any negligence of its insured. Liberty Mutual gave little credence to Mr. Chiulli’s position under the rules applicable to alcoholic beverage licensees, it did not matter who started the fight since such licensees had an independent duty to protect their patrons who might be intoxicated and even belligerent.
Liberty Mutual made no offer on the case, and the case went to trial before a jury in November 2012. Although Mr. Chiulli had damages that were clearly in the multi-million-dollar range and presented a strong case on Liberty Mutual’s insured having an independent duty to protect patrons, Liberty Mutual only made one $150,000.00 offer during the trial that Mr. Chiulli rejected.
On November 19, 2012, the jury found Liberty Mutual’s insured ninety percent liable, and Mr. Chiulli and the other participant in the fight each five percent liable. The damage award in favor of Mr. Chiulli against Liberty Mutual’s insured totaled $4,494,665.83 before prejudgment interest applied.
Follow up unfair claims practice suit under G.L. c. 93A, and c. 176D
At the end of December 2012, Liberty Mutual tendered its policy limit to its insured’s excess carrier, after that carrier had sent a 93A letter demanding that Liberty Mutual tender its policy limit plus interest. Liberty Mutual tendered the policy limit the next day, and the excess carrier settled Mr. Chiulli’s judgment for a little over $5.5 million
The settlement agreement expressly excluded “any and all claims” under G. L. c. 93A or G. L. c. 176D.
After settling with the excess carrier, Mr. Chiulli filed an unfair claims practice suit in the Superior Court. His suit alleged that Liberty Mutual by “[f]ailing to effectuate [a] prompt, fair and equitable settlement of [his claim after] liability has become reasonably clear” had willfully and knowingly violated the unfair claim practice act, G.L. c. 176D.
The unfair claim practice statute, G.L. c. 176D, § 3(9) designates acts or omissions that, if committed by an insurer, constitute violations of law.
Massachusetts Courts have stated that this statute benefits both the claimants and insureds because it “encourage[s] the settlement of insurance claims … and discourage insurers from forcing claimants into unnecessary litigation to obtain relief.”
Under G. L. c. 93A, any claimant or insured who claims an injury caused by an insurer employing claim practices prohibited by G. L. c. 176D can recover, besides any actual damages, punitive damages, and attorney fees. Thus, according to the courts, the statute “penalize insurers who unreasonably and unfairly force claimants into litigation by wrongfully withholding insurance proceeds.”
Because §9, of c.93A has a minimum damage provision providing that for any finding of liability that recovery “shall be in the amount of actual damages or twenty-five dollars, whichever is greater.” This nominal damage requirement can trigger the statute’s provision for mandatory punitive damage awards. This provision provides for the multiplication of the damages found “up to three but not less than two times such amount if the court finds that the use or employment of the act or practice was a willful or knowing violation.”
However, this minimal damage provision increases an insurer’s risk in pushing a plaintiff to a jury verdict, as here, once there has been a jury verdict on a liability suit defended by an insurer, the judgment becomes the measure of punitive damages under G.L. c. 93A. Section 9(3) of c. 93A mandates that:
“For the purposes of this chapter, the amount of actual damages to be multiplied by the Court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence.“
This means even a finding of $25.00 in nominal damages in an unfair claim practice suit under 93A can, as here, trigger a multiplication of the damage award in an underlying bodily injury or property damage judgment.
Superior Court awards $25.00 in nominal 93A damages but $536,000 for attorney’s fees
Mr. Chiulli’s unfair claim practice suit involved an eight-day trial. After hearing the evidence, a Superior Court judge entered findings of fact and conclusions of law finding that Liberty Mutual had indeed violated 176D 3 (9) (f) by failing to make a settlement offer when liability was reasonably clear. However, the Court found that these violations were not willful and knowing.
The failure of the Superior Court to find a willful or knowing violation by Liberty Mutual limited Mr. Chiulli’s award to the statutory minimum damages of $25 along with attorneys’ fees and costs in the amount of $536,925.00 and $57,032.00, respectively.
In concluding that Liberty Mutual’s violation was not willful or knowing, the trial judge observed, “There was good reason at the outset for Liberty Mutual’s skepticism about [its insured’s] liability at least up and until all the evidence at the trial had closed.”
The trial judge, however, concluded that liability became reasonably clear after closing arguments in the Federal court case. Before then, the judge ruled, Liberty Mutual had legitimate questions about Mr. Chiulli’s culpability in possibly starting the fight and [Liberty Mutual’s insured’s] duties as the trial date in the Federal court case approached.
The judge found though that Mr. Chiulli had prepared and presented a credible case that, because of negligent security practices, Liberty Mutual’s insureds were liable regardless of who threw the first punch.
The judge’s decision concluded that “after the last words had been spoken in closing arguments, Liberty [Mutual] knew at that moment all it needed to know,” and that “a reasonable insurer could make an objective review of all the evidence as it actually unfolded during the course of the trial and conclude that liability and damages had become reasonably clear.”
The trial judge further found that after the jury returned its verdict, Liberty Mutual, by its own assessment, knew that success on appeal or in any post-trial motions was unlikely. The judge found that Liberty Mutual had information that Mr. Chiulli “was in dire need of cash,” and that Liberty Mutual decided that threatening an appeal “might take the wind out of [his] sails.”
The judge found that after liability had become reasonably clear, using Mr. Chiulli’s financial condition “as a negotiating lever,” Liberty Mutual “made Mr. Chiulli continue to wait over Thanksgiving [and] Christmas,” refused to negotiate, and “hoped that the plaintiff’s deteriorated financial condition would lead to more favorable settlement terms.”
After the Superior Court decision entered, both parties appealed. Liberty Mutual’s appeal claimed the judge erred in finding that its actions constituted an unfair claim practice. Mr. Chiulli, on the other hand, claimed that the judge committed error in not finding that Liberty Mutual’s acted willfully and knowingly in refusing to settle.
Appeals Court focuses on Superior Court findings to conclude Liberty Mutual committed a knowing and willful violation
On appeal, the Appeals Court accepted the facts found by the Superior Court judge, but based on these facts reached the opposite conclusion to that reached by the Superior Court
The Appeals Court found that, in their opinion, the Superior Court’s findings compelled the conclusion that Liberty Mutual had, contrary to the lower court judge’s conclusion, acted in a willful or knowing manner. The Appeals Court justices based their conclusion on the trial judge’s findings that as of the conclusion of the Federal bodily injury suit:
- Liberty Mutual knew it had little chance of success on appeal.
- Liberty Mutual also knew that Mr. Chiulli owed money for his medical bills and was “in dire need of cash.”
- Although faced with a $4.5 million verdict, instead of making a reasonable offer to settle, Liberty Mutual decided to take advantage of Mr. Chiulli’s vulnerable financial condition “in an attempt to leverage a better settlement” for itself: and,
- That after liability had become reasonably clear, “Liberty made Mr. Chiulli continue to wait… forcing him to continue to litigate and to fight to recover his verdict.”
Reversing the Superior Court finding, the Appeals Court ruled that Liberty Mutual’s conduct, as found by the judge, fell squarely within conduct that was “intentionally gainful.”
Liberty Mutual, according to the justices, had an obligation to effectuate a prompt, fair, and equitable settlement, but instead made the deliberate choice to “exploit Mr. Chiulli’s financial distress for its own gain.” In the Appeals Court’s opinion, “Nothing about this conduct could be described as anything short of willful or knowing.”
The Appeals Court’s final ruling orders the entry of a finding of a knowing and willful and knowing violation
As a result, the Court entered a final order stating:
“Conclusion. So much of the November 8, 2017, amended judgment as determined that Liberty Mutual’s violation of G. L. c. 93A was not willful or knowing is vacated, and the case is remanded to the Superior Court for entry of a finding that Liberty Mutual’s violation was willful or knowing, and for a determination whether the amount of the judgment on all claims arising out of this case and the underlying occurrence shall be doubled or tripled under G. L. c. 93A, § 9 (3). In all other respects, the amended judgment of the Superior Court is affirmed. (Emphasis added).“
The doubling or trebling of the $25.00 judgment in the present appeal is of little consequence, however, the doubling or trebling of the underlying $4.5 million involved in the Federal lawsuit, is matter of some consequence. Accordingly, Liberty Mutual will almost certainly seek further appellate relief.
Liberty Mutual has twenty days from June 1, 2020, to apply for further appellate review
Ordinarily under court rule, Liberty Mutual would have twenty days to file for further appellate review from the Appeals Court decision of April 2, 2020, with the Supreme Judicial Court. Under an interim order addressing the Coronavirus Pandemic issued April 27, 2020, by the Supreme Judicial Court, all time periods for filing pleadings within the court system have a stay until June 1, 2020. Thus, Liberty Mutual will have until June 24, 2020, to file for further appellate review with the Supreme Judicial Court.
Agency Checklists will keep you posted
An application for further appellate review is a certainty unless Liberty Mutual settles the case. Agency Checklists will monitor this application and update this article.
Co-Founder & Publisher Agency Checklists
Owen is an experienced insurance litigator as well as a certified mediator and arbitrator who specializes in insurance industry disputes. His interest and affinity for insurance began at a young age working the counter at his father’s assigned risk agency in Roxbury.
Over the course of his career, Owen has argued a number of cases in the Massachusetts Supreme Judicial Court and has helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.