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.
The insurance company maintained the position that since liability was clear, and since the passenger’s damages exceeded the insurance policy limit, the company would only consider proposals for settlement that released its insureds.
After he amended his complaint to include unfair claim settlement practices, the insurance company moved for summary judgment. They argued that they had offered their policy limit to the claimant, with the condition of a release of claims against the insureds. The judge looked at Lazaris and found that the insurer had reasonably conditioned payment of the policy limit on the receipt of a release. The insured, according to the judge, had also responded to the claimant’s demands in a timely manner and had not dragged out settlement discussions. The claimant then appealed.
The Court stated that Massachusetts law requires insurance companies to place a fair and reasonable offer on the table when liability and damages are clear. This is to be done promptly, within the 30-day period set forth by law or as soon as the issues of liability and damages have been made clear.
Whether an insurer appropriately responded to a demand for relief requires assessing whether the insurance company’s offer was reasonable. Determining liability requires looking at whether there was an absence of good faith.
In this case, there was no dispute about liability. The insurer assumed that the driver’s liability was clear and that the plaintiff’s damages exceeded the limit of the insurance policy. The insurer did condition its willingness to tender its policy limit on the receipt of a release of its insureds.
The plaintiff argued that the judge erred by granting summary judgment in favor of the insurance company.
The judge had relied on a case in which liability was clear, and the damages exceeded the coverage within the insured’s policy. An insurer, according to the court in that case, would not violate the law by insisting on a release of its insured as a condition of paying its policy limit.
To fully release a claim, according to Massachusetts law, the claimant must release all claims against the insured. In cases in which liability is clear, and in which there is an amount that is “substantially” over the policy limit, the insurance company cannot truly settle the claim because the claimant will not be fully compensated. Instead, offering the policy limit in exchange for a release is the best that an insurance company can do. The Court stated that this is not a settlement, since payment without a release is not a true settlement.
The Court also stated the rule that insurance companies must promptly respond to demands by claimants and make prompt settlements. They are also required to protect their insureds against bad faith claims. In turning to precedent, the court stated that when an insurance company protects its insured from further liability, it will not be found to have committed an unfair settlement practice.
In this case, the claimant wanted to receive the limit of the policy but would not release the insureds. In response, the insurance company conditioned payment of the limit on the release of all claims against insureds. The Court stated that this position was reasonable, and to pay without a release would not be a settlement.
The Court found that summary judgment was properly granted in favor of the insurance company.
After a car accident, victims have the right to pursue compensation from an at-fault party. At the Law Office of Michael O. Smith, we help individuals seek monetary damages for harm caused by a motor vehicle accident. Contact our office to set up a free consultation with a skilled Boston car accident attorney. Call us at (617) 263-0060 or complete our online form.
More Blog Posts:
Massachusetts Court Holds Plaintiff Recovering Property Damage Following Collision Must Prove all Damages, Boston Car Accident Attorney News, March 22, 2017
Calculation of Punitive Damages Against Car Insurer Does Not Include Post-Judgment Interest for Accident Victim and Family, According to Massachusetts Appellate Court, Boston Car Accident Attorney News, February 16, 2017