A Massachusetts court recently held that an automobile insurance company had not engaged in unfair claim settlement practices, in violation of state law, when it conditioned a payment of its policy limit on a release of all claims against its insureds. Following a one-vehicle accident in Swampscott, an injured passenger brought negligence claims against the driver and his employer, since the vehicle had been rented in the driver’s capacity as an employee. An automobile insurance company defended both the driver and the company against allegations of negligence, specifically arguing that excessive speed caused the driver to crash into a wall after losing control of the vehicle.
In attempting to settle the claimant’s negligence claims, the insurance company rejected an offer by the passenger/claimant to release the insurer from further claims in exchange for the $1 million insurance policy limit. The insurer contended that paying the limit without a release of their insureds could potentially expose them to bad faith claims.
The claimant then alleged that by failing to investigate and make an equitable settlement offer, the insurer was making a willful and knowing violation of Massachusetts law. The insurance company relied upon case law and specifically Lazaris v. Metropolitan Property & Cas. Ins. Co., 428 Mass. 502 (1998), to make clear that it could condition paying the policy limit on receiving a release of its insureds.