Bad Faith Conduct and Foreseeable Damages in Massachusetts

Massachusetts has adopted a version of the model Unfair Claims Settlement Practices Act and recognizes a cause of action for bad faith against a first-party insurer.¹ Mass. Gen. Laws Ch. 93A § 9 establishes a statutory cause of action for any person who has been injured by another person’s use or employment of any method, act, or practice declared to be unlawful by Mass. Gen. Laws Ch. 176D § 3(9), a violation of which may give rise to civil liability under 93A § 9.² While each state generally has their own specific bad faith statute outlining what constitutes a “unfair” or “deceptive” act by an insurer, Massachusetts law includes conduct typically found throughout the country.

Ch. 176D § 3(9) identifies the following specific unfair methods and deceptive acts:

(1) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;

(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;

(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;

(4) Refusing to pay claims without conducting a reasonable investigation based upon all available information;

(5) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

(6) Failing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;

(7) 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;

(8) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;

(9) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;

(10) Making claims payments to insured or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made;

(11) Making known to insured or claimants a policy of appealing from arbitration awards in favor of insured or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;

(12) Delaying the investigation or payments of claims by requiring that an insured or claimant, or the physician of either, submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;

(13) Failing to settle claims promptly, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; or

(14) 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.³

To make out a claim against an insurer under Mass. Gen. Laws Ch. 93A §9 and Mass. Gen. Laws Ch. 176D, an insured must establish: (1) that an unfair trade practice occurred; and (2) that the unfair practice resulted in a loss to the insured.⁴ Any person whose rights are affected by another person’s unfair settlement practices may bring an action in the Superior Court for damages and such equitable relief as the court deems to be necessary and proper.⁵

Another topic of inquiry that arose recently was whether an insured is entitled to the foreseeable damages caused by an insurer’s failure to timely pay benefits. There are multiple cases in Massachusetts that establish a viable theory of recovering the foreseeable compensatory damages based off a violation of Ch. 176D § 3(9):

Consequential damages are available for a plaintiff where the consequences of an insurer’s actions are foreseeable.⁶ Further, foreseeable losses stemming from bad faith are also recoverable.⁷ Actual damages under 93A § 9, also include “all losses which were the foreseeable consequences of the defendant’s unfair or deceptive act or practice.”⁸ The claimants must establish a causal connection between the insurer’s wrongful conduct and the injury sustained.⁹

Whether located in Massachusetts or another state, the unfair methods and deceptive acts outlined in Ch. 176D § 3(9) are generally prohibited across the United States. Any insured that believe their insurance company has violated any of those unfair methods or deceptive acts should promptly seek the advice of an attorney experienced in this area of law, such as those here at Merlin Law Group.
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¹ See, e.g., Green v. Blue Cross and Blue Shield, 713 N.E.2d 992 (Mass. App. Ct).
² Hopkins v. Liberty Mut. Ins. Co., 750 N.E.2d 943, 949-50 (Mass. 2001).
³ Ch. 176D § 3(9)(1-14).
⁴ Ferrara & DiMercurio, Inc. v. St. Paul Mercury Ins. Co., 169 F.3d 43, 57 (1st Cir. 1999); Mass. Gen. Laws Ch. 93A §11; Mass. Gen. Laws Ch. 176D § 3(9)(f).
⁵ Ciampa v. USAA Prop. & Cas. Ins. Co., 74 Mass. App. Ct. 1129, 2009 WL 2432301, at *6 (Mass. App. Ct. [Unpub.] Aug. 11, 2009) citing G. L. c. 93A, § 9, as amended by St. 1979, c. 406, § 1.
⁶ DiMarzo v. Am. Mut. Ins. Co., 449 N.E.2d 1189, 1200 (Mass. 1983).
⁷ Clegg v. Butler, 676 N.E. 2d 1134 (Mass. 1997).
⁸ DiMarzo v. American Mut. Ins. Co., 389 Mass. 85, 101, 449 N.E.2d 1189 (1983); Accord Hopkins v. Liberty Mut. Ins. Co., 434 Mass. 556, 566-567, 750 N.E.2d 943 (2001); Yeagle v. Aetna Cas. & Sur. Co., 42 Mass. App. Ct. 650, 654, 679 N.E.2d 248 (1997).
⁹ Rivera v. Com. Ins. Co., 84 Mass. App. Ct. 146, 149, 993 N.E.2d 1208, 1210 (2013).