In Gore, Adminstratrix of the Estate of Angelina Dattilo v. Arbella Mutual Insurance Co., 77 Mass. App. Ct. 518 (2010), the Massachusetts Appeals Court affirmed a judgment obtained by Kreindler attorney Joseph P. Musacchio, who also handled the appeal. The court held that an insurer is liable to its insured when the insurer stymies settlement with a claimant by failing to promptly respond to the claimant's $20,000 policy limit demand. This failure to promptly respond caused the claimant to reject the insurer's eventual late tendering of the policy limits and to seek an excess judgment against the insured.
On August 30, 1998, Mrs. Dattillo was seriously injured in an automobile accident when her motor vehicle was struck by a motor vehicle driven by Mr. Caban in Jupiter, Florida. Two occupants of Caban's motor vehicle were also seriously injured. Arbella Mutual Insurance Company (Arbella) insured Mr. Caban under an automobile policy with limits of $20,000 per person and $40,000 per occurrence. Within one month after the accident, Mrs. Dattilo made a written demand upon Arbella to settle her claims for the $20,000 per person limit because liability was clear and her damages clearly exceeded the minimal policy limits. The demand to settle was included in a detailed demand package, including medical records and the police report. A 30-day time limit was placed on the demand.
Arbella delayed five months in responding to the demand to settle, never attempted to inform Mr. Caban of the settlement demand, and misrepresented to him that no demand had ever been received. On November 2, 1998, at the expiration of the 30 day deadline, Mrs. Dattilo commenced suit against Mr. Caban in a Florida Circuit Court. On April 21, 1999, seven months after the settlement demand, Arbella tendered the policy limits to Dattilo's counsel, Raymond Christian. The tender was rejected and Dattilo proceeded with her tort action against Caban. Discovery took place and a trial date was scheduled. On the advice of personal counsel, Mr. Caban entered into an assignment and settlement agreement with Mrs. Dattilo wherein he agreed to the entry of judgment against him and to assign his rights against Arbella to Mrs. Dattilo. In return, Dattilo agreed to release Caban from the excess judgment. A Consent Judgment was entered on November 6, 2000 in the amount of $450,000.00 in the tort case pending in the Florida Circuit Court.
The Appeals Court acknowledged that Arbella may have had a legitimate reason to refuse to tender the $20,000 per person policy limits because of the existence of two other claimants with serious injuries and the possibility that the meager policy limits could be used to effectuate a global settlement with all claimants. Nonetheless, the court held that Arbella acted in bad faith and harmed its insured, Mr. Caban, by refusing to respond to Dattilo's demand for five months. By refusing to respond, Arbella violated its statutory obligation to promptly respond to Dattilo's settlement demand which predictably led Dattilo to reject Arbella's late tender of the policy limits and to seek an excess judgment against Caban. The case establishes the rule that even if an insurer honestly believes that it has a legitimate reason not to settle a claim in response to a settlement demand, it must nonetheless promptly respond to the demand and communicate the basis of its refusal to settle. Arbella's failure to do so caused the claimant, Mrs. Dattilo, to reject the late tender and seek an excess judgment against Arbella's insured, Mr. Caban.
On appeal, Arbella argued that it had no obligation to respond to the demand because Attorney Christian's motivation for making a 30-day time limit demand was to manufacture or "set up" a bad faith insurance claim. The Appeals Court rejected this argument, holding that Dattilo's counsel had a legitimate motive for making his demand. It further held that the alleged improper motivation or tactic of claimant's counsel does not relieve an insurer of its obligation to promptly respond to a demand when liability is clear and damages clearly exceed the policy limits.
The Appeals Court further held that because Arbella's conduct was willful and knowing, the $450,000 consent judgment should have been doubled as punitive damages. On this issue, the Appeals Court reversed the trial court's ruling that the consent judgment could not be doubled because it was not a "litigated" judgment, but rather, part of a settlement agreement between Caban and Dattilo. Under Massachusetts General Laws c. 93A, § 9(3), the amount of actual damages subject to multiplication in a bad faith insurance action "shall be the amount of the judgment" on the underlying claim. On an issue of first impression in Massachusetts, attorney Musacchio argued that because Caban's liability for the accident and Dattilo's damages were established through evidence introduced during the trial of the bad faith action, Caban's liability was, in fact, litigated. The Appeals Court agreed, holding that because Arbella's bad faith and Caban's liability for the accident were determined in the same proceeding, the litigated judgment requirement was met. This required the doubling of the $450,000 consent judgment as part of Caban's actual damages.
The additional damages awarded by the court included $40,000 (double the amount of the underlying policy); $200,000 (double the amount of attorney's fees and costs); $313,728 in pre-judgment interest; and approximately $595,000 in post-judgment interest.
