1st Circuit revives crash victim’s suit over unfair settlement practices

Listen to this article

A car accident victim who secured a $7.5 million jury verdict in state court was entitled to a jury trial on her subsequent federal court claim that the defendant’s insurer violated Chapters 93A and 176D by failing to effectuate a prompt and fair settlement offer, the 1st U.S. Circuit Court of Appeals has found.

Plaintiff Paula Appleton was severely injured in 2015 when her vehicle was rear-ended by a pickup truck.

Defendant AIG Claims, which administered Appleton’s claim for the tort defendant’s insurer, defendant National Union Fire Insurance Co., held to a $2.6 million settlement offer until right before trial in early 2019, despite AIG having apparently received multiple independent estimates nearly a year earlier that Appleton’s damages were between $5 million and $8.9 million.

After a state court jury awarded Appleton $7.5 million in March 2019, the plaintiff sued AIG and National Union in U.S. District Court alleging that they violated Chapters 93A and 176D by failing to promptly extend a fair settlement offer after liability and damages were reasonably clear.

The judge granted summary judgment to the defendants, finding that the facts never established that liability was reasonably clear and thus AIG’s duty to extend a prompt and fair settlement offer was never triggered.

But the 1st Circuit reversed, finding a triable issue on whether damages were reasonably clear by early 2018.

“[T]he defendants contend that damages were not reasonably clear by early 2018 because the parties continued to disagree about ‘the nature of [Appleton’s] damages, particularly her noneconomic damages … [for] her conscious pain and suffering,’” Judge Julie Rikelman wrote for the panel. “But, as we have explained, disputes regarding the exact dollar amount of damages do not prevent damages from becoming reasonably clear under Massachusetts law.”

The 29-page decision is Appleton v. National Union Fire Insurance Company of Pittsburgh, et al., Lawyers Weekly No. 01-162-25.

Open season?

Neither Kathy Jo Cook of Boston, who represented the plaintiff, nor defense counsel William A. Schneider of Boston could be reached for comment prior to deadline.

But J. Michael Conley of Braintree, who handles insurance disputes, said the case shows the risks insurers face when they do their due diligence but then ignore the information that comes with it.

“Recognizing that this is a summary judgment record, so everything in there is in the best view for the plaintiffs, the idea that the insurance company asked its own lawyers and senior adjusters, and then asked an outside firm to figure out what the damages were, and didn’t act on it is mystifying,” he said.

Praven Shenoy of South Easton said the ruling reaffirms that damages can be “reasonably clear” even if the exact dollar amount is not known or disputed and settlement demands far exceed the jury verdict.

“While the insurer’s offer of $5 million on the eve of trial was closer to the jury’s verdict than the $17.5 million demand was, this did not equate to damages not being reasonably clear,” Shenoy said. “Instead, the plaintiff will be able to use on remand the District Court evidence that, over one year before trial, the insurer set its reserves at $7.5 million, that insurer’s counsel estimated a verdict of $6.5 million to $8.5 million, and that the insurer’s jury consultant reported that 500 simulated juries awarded an average of $7.53 million.”

On the other hand, Boston attorney Alexander G. Henlin, who represents insurers, said that while he sympathized with the plaintiff, the case was not to compensate her for her injuries, which occurred when the jury rendered its verdict.

Rather, he said, the case was a punitive action and the court’s indulgence of the plaintiff’s legal theories over the District Court’s summary judgment holding signals “open season” on the insurance industry in a historically evenhanded jurisdiction.

“My sense is that the 1st Circuit was offended by the fact that the mediation offers were so substantially below all of the valuations that the carrier had received or conducted internally, and wants to send a message that it’s going to make the process the punishment — and still mete out punishment after the fact,” he said.

Henlin said he also suspected that the ruling would embolden the plaintiffs’ bar to hold out for higher payments even if a case may not be worth it.

Unfair settlement practices?

In January 2015, Appleton sustained life-altering injuries when a pickup truck rear-ended the vehicle she was riding in, propelling her vehicle underneath a tractor-trailer in front of her vehicle, nearly flattening it.

Appleton’s injuries included a hemorrhage, pelvic fracture, hip fracture, leg fractures and a ruptured bladder and necessitated three weeks of hospitalization followed by four months of inpatient rehabilitation.

She eventually filed an insurance claim against the at-fault driver, who was apparently operating the vehicle within the scope of his employment, as well as his employer, which had a liability policy with National Union that was administered by AIG.

In August 2016, Appleton made a formal demand of $18 million to cover her medical lien, nearly $4 million in future medical costs, and $13 million for past and future pain and suffering.

The demand package included medical reports, a life care plan, an economic analysis, and a day-in-the-life video showing her experience living with her injuries.

AIG’s adjuster retained defense counsel for the company and, in December 2016, approved hiring a medical expert and life care planner to review the claim.

In February 2017, Appleton filed a tort suit in state court against the pickup truck driver and his employer. AIG’s defense counsel apparently reiterated to the adjuster that there was no liability defense, just a damages defense.

Over nearly the next two years, until January 2019, Appleton and AIG exchanged settlement offers and expert reports and participated in three mediations but were unable to settle the case.

In response to Appleton’s initial $18 million demand, AIG initially offered $750,000 and raised its offer to $2 million during mediation.

A few days before the second mediation, in October 2017, Appleton’s attorney shared reports from two urologists that Appleton suffered severe incontinence that would worsen over time due to the bladder injury from the crash.

Yet, AIG allegedly only increased its offer from $2 million to $2.65 million.

After an unsuccessful second mediation, AIG began soliciting estimates of a potential jury award, receiving three independent estimates between October 2017 and January 2018.

First, defense counsel estimated a verdict of between $6.5 million and $8.5 million.

Next, a group of senior AIG claims professionals valued the claim at an average of $4.9 million.

After that, an external jury consulting firm conducted a mock trial of the case, simulated the results of 500 juries, and reported an average total damages award of $7.53 million.

Nonetheless, AIG reportedly did not increase its settlement offer until mid-December 2018, at the third mediation, increasing its offer to $3.25 million despite Appleton’s counsel requesting a $6 million offer in advance of the mediation to ensure it would be productive for the plaintiff.

Appleton rejected the $3.25 million offer and made a $15.5 million counteroffer.

Two weeks later, on the eve of trial, AIG increased its offer to $5 million.

Appleton responded with a Chapter 93A demand letter alleging unfair settlement practices and seeking $17.5 million.

AIG denied the claims, reiterating its $5 million offer and adding $25 for the 93A claims.

The tort case went to trial in March 2019, with the jury awarding nearly $7.5 million in damages. With interest and a small offset for settlement money received from the pickup truck driver’s insurer, the judgment totaled $8.65 million.

In August 2021, Appleton sued AIG and National Union in U.S. District Court alleging violations of 93A and 176D.

Judge Margaret R. Guzman granted summary judgment on both counts and the plaintiff appealed.

Judgment reversed

The 1st Circuit reversed summary judgment on the unfair settlement practices claim.

“Viewing the record in the light most favorable to [Appleton], we conclude that a reasonable jury could find that AIG’s failure to increase its settlement offer of $2.65 million for almost a year after it received multiple estimates placing likely damages at about $7.5 million was unreasonable,” Rikelman wrote.

In response to the defendants’ argument that damages were not reasonably clear, Rikelman pointed out that AIG’s own evaluation of Appleton’s claim supported assertions that they were reasonably clear by January 2018.

Meanwhile, she said, the fact that the parties continued to disagree about the nature of Appleton’s damages — particularly her conscious pain and suffering — did not prevent damages from being reasonably clear.

“A reasonable jury could conclude that AIG’s decision to stick with [its $2.65 million] offer for nearly a year after damages of about $7.5 million became reasonably clear was neither fair nor equitable, even when considering Appleton’s $16 million demand ‘as part of the over-all circumstances,’” the judge said, quoting the Supreme Judicial Court’s 2003 Bobick v. U.S. Fidelity & Guar. Co. decision.