The Massachusetts Supreme Judicial Court has once again emphasized the high stakes, under the state’s consumer-protection statute, for an insurer who delays in settling a clear-liability case and allows the matter to go to trial.

In its February 10, 2025 decision in Rhodes v. AIG Domestic Claims, Inc., the Court awarded $22.6 million in punitive damages—plus attorneys’ fees, on top of the $11.8 million already recovered by the plaintiffs—against an insurance claims service, AIGDC,¹ for unfairly and willfully delaying settlement of a clear-liability automobile-accident case. The Court applied language of the Massachusetts consumer-protection statute, Chapter 93A, and made the $22.6 million award despite acknowledging that the figure bore no relationship to any identifiable harm caused by AIGDC’s settlement delay.

The case arose from a 2002 accident in which a tractor-trailer rear-ended a car driven by 46-year-old Marcia Rhodes, who had been stopped by a police officer directing traffic around a tree-service crew. Marcia was instantly paralyzed in the accident. Along with her husband and daughter, she brought a lawsuit against the driver of the truck (who pleaded guilty to criminal charges stemming from the accident), the building-materials company that had contracted for his services, and other defendants.

In the summer of 2003, a year into the case, the family made a settlement demand of $16.5 million. The defendants’ insurers did not respond. In January 2004, the automobile insurer for the truck, Zurich, tendered its $2 million primary policy to AIGDC, while continuing to provide a defense under the policy. This placed the decision-making about settlement squarely with AIGDC, which administered a $50 million excess policy for the building-materials company. By March 2004, AIGDC had obtained data indicating an average settlement value for similar cases of some $6.6 million, and an average jury verdict of $9.6 million. Nonetheless, AIGDC delayed offering anything from its policy until a mediation in August 2004, shortly before the scheduled start of trial, when it offered $1.5 million on top of Zurich’s policy limits.

Plaintiffs rejected the offer, and after a trial in which the defendants stipulated to liability, a jury returned a verdict for the plaintiffs and judgment was entered for $11.3 million.

AIGDC continued to delay, and did not agree to pay its share of the judgment until nine months later. The plaintiffs brought an action against AIGDC for violation of the Massachusetts insurance-practices and consumer-protection statutes. After a sixteen-day bench trial, the trial judge (now an SJC justice) found that AIGDC’s statutory duty to begin settlement negotiations with the plaintiffs was triggered in May 2004;² at that point, AIGDC should at least have offered the $3.5 million (including Zurich’s $2 million) it offered at the August 2004 mediation. AIGDC’s failure to make such an offer—and its failure after trial to pay what it owed on the judgment—were, the trial judge found, willful and knowing violations of its statutory settlement duty, entitling the plaintiffs to double damages under Chapter 93A. However, the damages resulting from AIGDC’s delay (and thus the basis for punitive doubling under the statute) were limited to plaintiffs’ loss of use of the proceeds. Damages were also limited to a six-month period after trial, since, the judge found, the plaintiffs would not have accepted the offer AIGDC should have made before trial, and thus the pre-trial settlement delay caused no actual harm.

The Appeals Court largely agreed with the trial judge’s approach to damages, except it thought the plaintiffs were entitled to loss-of-use damages for AIGDC’s three month pre-trial delay in making an offer, whether or not the plaintiffs would have accepted an earlier offer if one had been made.

The SJC, however, took a dramatically different view. It focused on a clause in Chapter 93A providing that in a case where multiple damages are appropriate, the basis for the multiplication “shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence.” In a 2001 decision,³ the Court had interpreted this language to mean that where an insurer willfully breaches its statutory duty to make a reasonable settlement offer, and the underlying claim is tried to a judgment, the potential punishment for the settlement delay under Chapter 93A is two or three times the judgment on the underlying claim. As the parties and the lower courts recognized, applying that rule in this case would require AIGDC to pay $22.6 million in punitive damages—double the amount of the judgment in the automobile-accident case. The plaintiffs urged the SJC to impose just such a punishment on AIGDC.

AIGDC contended that such a result could not serve a rational statutory purpose. Chapter 93A requires a causal connection between the conduct to be punished and damages suffered by a plaintiff, and AIGDC’s settlement delay, however egregious and unfair, had nothing whatsoever to do with the size of the jury’s verdict for the plaintiffs. But the SJC disagreed. Chapter 93A, it held, does not require a causal connection between a defendant’s unfair conduct and the punishment to be imposed; the statute merely requires that the defendant’s conduct have caused the plaintiff some injury. AIGDC’s delay, the Court held, had caused the plaintiffs the loss of use of the funds to which they were entitled. On a similar basis, the Court rejected AIGDC’s argument that the result was inconsistent with recent United States Supreme Court decisions on the due-process requirement of proportionality between punitive and actual damages.

The reasoning of the SJC’s decision is in places open to doubt. For example, while it is true that AIGDC’s settlement delay injured the plaintiffs by depriving them of the use of funds to which they were entitled, this was an injury for which they were separately and fully compensated: they received pre- and post-judgment interest on the jury verdict at Massachusetts’s generous 12% statutory rate. Likewise, the Court’s analysis largely ignores the dual arbitrariness problem presented by the result: first, the absence of any rational connection between the size of the punishment and the harm caused by the conduct being punished, and second, the fact that an insurer’s potential punishment for failing to settle a case that is tried to a judgment is astronomically greater than the available punishment for an insurer who delays just as willfully and for just as long, but then settles the underlying case just before a verdict. For this reason, insurers will watch with interest to see whether AIGDC seeks to pursue its federal constitutional objection via a petition for certiorari.

For more information, please contact William L. Boesch or your attorney contact at SRBC.

This Alert was prepared for the clients and friends of Sugarman, Rogers, Barshak & Cohen, P.C. It is provided for educational and informational purposes only and is not a substitute for professional advice on your specific legal situation.

¹ Although the case involved a claims administrator rather than an insurer, the decision has equal significance for companies in either aspect of the business of insurance.

² The Massachusetts insurance-practices statute requires a liability insurer to take reasonable steps to effectuate settlement of a claim once an insured’s liability (including fault, causation and damages) has become “reasonably clear.”

³ R.W. Granger & Sons, Inc. v. J&S Insulation, Inc., 435 Mass. 66 (2001).

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William L. Boesch

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