A discussion of a recent Appellate Division of the District Court ruling a little-used statute can potentially protect an insurance entity from a breach of contract for the payment of money
If an insurance company waited three years before paying an undisputed property loss claim, one would believe that a suit alleging unfair claim practices would have an excellent chance of success in the present litigation climate. However, Massachusetts has an unusual statute concerning the curing of breaches of contract. This statute allows a party that breaches a contract for the payment of money to turn the legal clock back and cure the breach through a statutory tender of the amount owed.
A recent case from the Appellate Division of the District Court highlights how the statute can protect an insurance company or, an agency, or any other legal entity, that has either intentionally, negligently, or incorrectly breached a contract for the payment of money.
Three-year delay in payment cured by statutory tender
In this case, Mary T. McClellan v. The Hanover Insurance Group, an insured waited three years before the payment of her undisputed supplementary property claim. After finally being paid after she had a lawyer send a demand letter, she sued, claiming, among other claims, breach of contract. Based on the Massachusetts tender statute, G.L. c. 232A, the Appellate Division Panel found that The Hanover’s payment to Ms. McLellan before she filed suit cured any breach of the policy.
The initial electrical surge claim paid, but the supplementary claim payment delayed
Ms. McClellan owned a condominium in Plymouth. On July 4, 2014, an electrical surge damaged several appliances located in her condominium. The Hanover provided coverage for Ms. McLellan’s condominium.
First payment for loss made in less than three months
Ms. McClellan timely notified The Hanover of her appliance losses, and it agreed that there was coverage for the appliance damages caused by the power surge. On September 24, 2014, The Hanover paid Ms. McClellan $848.00 for the damage to her appliances with a check that noted that the payment was for “HVAC Repairs less the $500.00 deductible.”
The second claim payment for supplementary damages languishes for three years
In November of the same year, 2014, Ms. McClellan’s daughter, acting on her mother’s behalf, contacted The Hanover, claiming further HVAC repairs caused by the electrical surge. The daughter sent The Hanover and the independent agency that had placed the policy documents and bills, evidencing that these supplementary unpaid damages totaled $4,209.86 in addition to what The Hanover had paid originally. Three years passed, and The Hanover still had not responded to Ms. McLellan’s supplementary claim submission.
Insured hires a lawyer and sends an unfair claim practice demand letter under G.L. c. 93A
In May of 2017, an attorney representing Ms. McClellan sent a demand letter under the provisions of G.L. c. 93A, alleging unfair claim practices violating G.L. c. 176D, § 3 (9).
The sending of a demand letter under G.L. c. 93A is a condition precedent required before a consumer can sue under that statute. The statute then allows the person receiving the demand letter 30 days to tender a reasonable settlement. If the party fails to make a tender, the consumer can then file suit and seek damages and for willful or knowing violations, up to three times their damages. Also, in any case, where the consumer prevails for any amount, they have the right to collect their reasonable attorney’s fees.
The Hanover pays $200.00 more than $4,209.86 claimed under the insurance contract
The 93A demand letter sought the $4,209.86 in unpaid contract benefits plus interest and the payment of Ms. McLellan’s attorney fees.
On June 28, 2017, The Hanover issued a check for $4,409.86 for payment under “COV A: Power Surge Damages.” Although The Hanover paid an additional $200.00 above the supplemental claim’s amount, The Hanover did not pay any interest or attorney fees.
Second demand letter under G.L. c. 93A alleging six violations of the unfair claim practice act
Four months after The Hanover paid Ms. McLellan her supplemental claim, Ms. McClellan’s attorney sent a second demand letter under Chapter 93A in October 2017 demanding the interest and attorney fees that The Hanover had declined to pay.
The second demand letter alleged that The Hanover’s delayed payment and refusal to pay interest or an attorney fee constituted six unfair claim practices prohibited by G.L. c. 176D, § 3(9). The Hanover’s violations were, according to Ms. McLellan’s attorney:
(b) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
(e) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed.
(f) Failing to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(g) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds.
(j) Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made; and,
(n) Failing to provide promptly a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
The Hanover’s response to Ms. McLellan’s statutory thirty-day demand letter under G.L. c. 93A denied Ms. McLellan any further relief.
Ms. McClellan files suit against The Hanover for contract breach and unfair claim practice
After The Hanover refused to make any further payment, Ms. McClellan filed a lawsuit in November 2017 in the Lawrence District Court. Her complaints sought recovery under three counts:
- Breach of the insurance contract
- Breach of the Covenant of Good Faith and Fair Dealing; and,
- Violations of the Unfair Claim Practice Act actionable under G.L. c. 93A.
In the District Court, both parties moved for summary judgment. The judge hearing the cross-motions denied Ms. McClellan’s summary judgment motion but allowed The Hanover’s motion, entering judgment on all three counts for The Hanover.
Appellate Division of the District Court applies the tender statute to breach-of-contract claim
Any appeal from the District Court goes first to the Appellate Division of the District Court, and, from there, a losing party can appeal to the Appeals Court and, if allowed, to the Supreme Judicial Court.
Ms. McClellan appealed from the Lawrence District Court’s decision against her, and a three-judge panel heard her appeal.
Based on the rules relating to summary judgment appeals, the Appellate Division reviewed the summary judgment decision “de novo.” This meant the judges ruled on the summary judgment record as though there had been no decision in the District Court.
The Appellate Division focused first on the breach-of-contract claim and cited the provision of a relatively obscure Massachusetts General Law, Chapter 232A.
The first sentence of the initial section of this law states that:
The payment or tender of payment of the whole amount due on a contract for the payment of money after it is due and payable and before action is commenced shall, if pleaded, have the same effect as if made at the time provided in the contract.
While this statute is little used, its potential legal effect is far-reaching in the right circumstances.
The statute allows a person who has, either intentionally or negligently, breached a contract for the payment of money to cure the breach.
Here, the Court noted that it was undisputed that Hanover had paid all the amounts due under the policy before Ms. McClellan filed suit.
It was also undisputed that Ms. McLellan had sent The Hanover documentation to establish her supplementary claim for $4,209.86 in November 2014 and that The Hanover had not paid the money due.. The Appellate Division noted that it was not until May 2017, when her attorney sent a formal demand, that Hanover then paid the amount due in full by check on June 28, 2017.
However, the Appellate Division took the undisputed fact that The Hanover tendered full payment of the money due under the insurance contract on June 28, 2017, as a tender payment under G.L. c. 232A, § 1. Ms. McClellan did not reject this tender but accepted the tender by cashing the check. Therefore, the Appellate Division ruled that § 1 of c. 232A’s terms barred her from successfully bringing a breach-of-contract claim against The Hanover.
The Hanover’s tender may have been three years late. However, based on the statute’s provision that such a tender for the full amount owed shall have “the same effect as if made at the time provided in the contract,” any actionable delay against The Hanover was cured as a matter of law.
No unfair claim practices found in delayed payment without more
The Court noted that, in Massachusetts, the duty of fair dealing in insurance settlement negotiations is statutory under G.L. c. 176D, § 3 (9). This statute lists twelve specific violations for an insurer that amount to unfair claim practices or breach of the duty of the covenant of good faith and fair dealing, involving payments due under an insurance contract. Ms. McLellan claimed that The Hanover had violated six of the twelve proscribed practices.
The unfair claim practice statute, G.L. c. 176D, does not have any private right of action except through the statutory remedy under G.L. c. 93A. Under G.L. c. 93A, an insured or claimant can recover actual damages, double or treble punitive damages, and attorney’s fees for violations of c. 176D’s unfair claim practice section.
In this case, the Court treated Ms. McLellan’s two counts alleging the breach of the covenant of good faith and fair dealing and G.L. c. 93A as one cause of action.
The Court noted that the only facts that Ms. McClellan asserted to support her unfair claim practice allegations were that:
- The Hanover took three years to respond to her November 2014 supplemental claim information.
- The Hanover responded only after she engaged an attorney and had sent her first 93A demand letter.
The Court found, however, that under Massachusetts law the failure to respond to a letter in 2014 until the receipt of a second letter was not in and of itself a violation defined in G.L. c. 176D.
Ms. McLellan had failed to produce any evidence that The Hanover’s delayed response “was the result of bad faith or ulterior motives.” Also, absent such evidence, “the inadvertent failure to pay amounts due as the result of ‘oversight’ would not constitute a violation of G.L. c. 93A.”
As to Ms. McLellan’s claim about what The Hanover “should have done,” the Appellate Division held that expert opinion was required to establish the applicable standard for good faith insurance practices and to demonstrate a breach of such standard.
No interest without a policy provision or a successful breach-of-contract claim
Finally, the Court addressed the second 93A demand letter where Ms. McClellan’s attorney had demanded interested and attorney’s fees.
The judges noted that Ms. McClellan had cited no provision in The Hanover’s insurance policy that would provide her with an award of interest on a delayed payment by The Hanover.
Under Massachusetts law, Ms. McClellan would receive twelve percent interest on the amount awarded if she won a damage award. However, any claim she had for statutory prejudgment interest could only be calculated from the date of The Hanover’s breach if, and when, she received an award of damages. Since she received no award because The Hanover’s tender had cured any payment breach, the Appellate Division ruled she could not recover any statutory prejudgment interest.
No attorney fees awardable without policy provision or violation of G.L. c. 93A
Finally, in her demand for attorney’s fees, the Appellate Division again noted that the contract had no provision that would allow for attorney’s fees.
Under G.L. c. 93A, an award of attorney fees is mandatory if the Court finds a violation of the unfair claim practice statute or the commission of any other unfair and deceptive business practice by the defendant. However, since the Appellate Division found that Ms. McLellan had offered no proof sufficient to establish a violation of the unfair claim practice statute, G.L. c. 176D, or an independent violation of Chapter 93A, she had no legal basis to recover attorney fees in prosecuting her suit.
The Usefulness of the Tender Statute to insurers and other businesses
While not applicable to this case, G.L. c. 232A does not require that the tender must occur before any suit is filed. The statute also allows a person or business sued for breach of contract to cure their breach of contract if they tender the amount due under the contract to the person suing or their attorney four days before their answer to a complaint is due. This second part of § 1 of G.L. c. 232A states:
Such payment or tender may also be made after action has been commenced if made at least four days prior to the date by which the answer must be filed, with costs to the time of payment or tender. The tender last mentioned may be made to the plaintiff or to his attorney in the action, and, if not accepted, the defendant may avail himself of the tender in defense in like manner as if made before the commencement of the action, bringing into Court the amount so tendered.
I have seen contract disputes in my career where the wiser course of action would have been for the party sued to recognize there was a likely contract breach and to have tendered the amount due under this statute, to cure the breach, and avoid attorney’s fees, which, in some cases dwarfed the amount in controversy.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of his legal 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.
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