2019 Case Developments: Are Massachusetts Insurers Required To Be Perfect In An Imperfect World?
Can missteps in claim handling cause Massachusetts insurers to be held liable for bad faith? Do Massachusetts courts hold insurers to a standard of perfection? See how the 2019 cases answer these important questions.
November 15, 2019
“[E]very case has its twists and turns and an insurance carrier is not to be held to a duty of prescience.”1
In Massachusetts, General Laws Chapter 176D (“Ch. 176D”) prohibits insurance carriers from using unfair methods of competition or an “unfair or deceptive act or practice” in conducting its business, including claims settlement practices.2 The statute enumerates several different claims handling failures that, if proven, amount to unfair and deceptive conduct that may give rise to a claim for bad faith.3 But does this statute require perfection? The 2019 docket has added new cases to Massachusetts bad faith jurisprudence, continuing to clarify the type of conduct that gives rise to a finding of bad faith.
A. River Farm Realty v. Farm Family Casualty Insurance Company
On February 4, 2019, the United States District Court for the District of Massachusetts decided whether certain missteps in claim handling violated Ch. 176D.4
First, the adjuster’s mistaken interchange of the claim number caused a several-month delay in investigating and determining the scope of coverage. Once rectified, the insurer hired an independent adjuster who inspected the damage and prepared a loss estimate.5 During this process, the insurer again confused the claim with another, causing additional delay and confusion. The adjuster then performed a second inspection and estimate in response to the insureds’ staunch disagreement with the first estimate. The claim eventually went to appraisal after the insureds continued to dispute the insurer’s view of the amount of covered loss.
The court rejected the insureds’ argument that Farm Family violated certain tenets of Ch. 176D, namely requiring reasonably prompt communications, reasonable investigations, and a prompt and fair settlement where liability was reasonably clear.6 Considering the claim in the aggregate, the court held that Farm Family’s conduct, while not perfect, did not “descend to the level of an extreme or egregious business wrong that can give rise to liability [for bad faith],” even where delays were due to record-keeping mistakes, because the insurer ultimately communicated timely, appointed an independent adjuster in good faith, and participated in the appraisal.7
Likewise, the court held that neither the investigation nor the post-appraisal payment constituted bad faith.8 The investigation was found to be reasonable where Farm Family assigned an independent company to perform the field investigation and loss adjustment in the same month, conducted a second inspection after the insureds disagreed with the initial estimate, and agreed to appraisal when the dispute persisted. Under these facts, the court held that it was not bad faith for Farm Family to wait until it received the appraisal award to issue payment.9
B. Calandro v. Sedgwick Claims Management Services, Inc.
On March 18, 2019, the First Circuit Court of Appeals affirmed the Massachusetts federal court’s ruling that Sedgwick, a third-party administrator, did not commit unfair claims settlement practices.10 The case arose out of a wrongful death and conscious pain and suffering lawsuit that the claimant, Garrick Calandro, filed against a nursing home facility after his mother suffered a fall there and later died.11 Sedgwick was retained to investigate and handle the claims.12 The independent adjuster’s investigation into the cause of death proved difficult, because he was unable to obtain all of the documents requested and received conflicting information from witnesses. Based on his discoveries, the adjuster – and later, a medical expert – concluded that Ms. Calandro’s ongoing health issues, not the insured’s negligence, caused her death.13
The court held that Sedgwick did not engage in unfair and deceptive claims practices in its handling of the claim or in continuing to dispute that liability was reasonably clear through trial, given the factual support for contrasting position on causation.14 In its decision, the court rejected the claimant’s argument that liability was reasonably clear at various points in the claim, such as before the adjuster had completed its investigation or when the claimant submitted to the medical malpractice tribunal its offer of proof, which contained a mere outline of his expert’s opinion.15 In so holding, the court instructed that an insurer’s conduct should be evaluated based on the “totality of the circumstances in a given case” keeping in mind that “[p]erfection is not the standard that Ch. 176D imposes upon the handling of a claim.”16
In sum, while insurers are not required to be perfect, diligent monitoring of case law developments, such as those discussed above, can help insurers evaluate their own claims-handling practices and ensure every claim complies with the statutory and precedential standards imposed.
M.G.L. c. 176D Section 3.
Id. at Section 3(9).
River Farm Realty v. Farm Family Casualty Insurance Company, 360 F. Supp. 3d 31 (D. Mass. 2019) (discussing, but not deciding, whether insureds’ claim should be considered under Section 9 or 11 of G.L. c. 93A).
Id. at 42. The insureds also alleged that Farm Family failed to affirm or deny coverage within a reasonable time after proofs of loss were submitted.
Id. at 42-43 (Ch. 176D “prevents insurance companies from ignoring their clients but does not require the company to respond in a particular way”).
Id. at 43-44
Id. at 44, citing Bobick v. U.S. Fidelity and Guar. Co., 439 Mass. 652 (Mass. 2003).
Calandro, 919 F.3d at 31, n. 1 (the court “assume[d], without deciding, that Sedgwick is subject to the strictures of Ch. 176D”).
Id. This article discusses the wrongful death claim only and does not discuss the promptness of the settlement offers.
Id. at 31-32, 36.
Id. at 34.
Id. at 35-36.
Id. at. 36-37.
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