Whether A Self-Insured Company Not In The Insurance Business Can Be Sued For Unfair Claim Settlement Practices
While shopping in a Toys “R” Us store in Kingston, Massachusetts, plaintiff Susan Morrison was injured by a falling sign. Morrison sued Toys “R” Us, and the store’s claims department tried to settle with Morrison. Toys “R” Us made its highest offer of $45,000, but Morrison rejected the offer and demanded $250,000. At trial, the jury awarded Morrison $1.2 million, which the court remitted to $250,000, plus interest. Morrison then sued Toys “R” Us for unfair claim settlement practices in violation of chapters 93A and 176D (the Unfair Insurance Practices Act), for “[f]ailing to effectuate prompt, fair, and equitable settlements of claims in which liability ha[d] become reasonably clear.” G.L. c. 176D, § 3(9)(f). The Superior Court dismissed the complaint, holding that Toys “R” Us is not “in the business of insurance” within the meaning of G.L. c. 176D, and therefore is not subject to the unfair insurance claim settlement prohibitions in G.L. c. 176D, § 3(9). The Superior Court also held that c. 93A does not create a separate right of action against a non-insurance company for unfair claims settlement practices. Morrison appealed, and the Appeals Court reversed the Superior Court. The Appeals Court held that Toys “R” can be liable under chapter 93A for unfair claim settlement practices even though it is not an insurance company.
The Supreme Judicial Court took the case for further appellate review. NELF filed an amicus brief on behalf of Toys “R” Us, arguing that exposing Toys “R” Us to liability under G.L. c. 93A for its claim settlement practices contravenes the express intent of the Legislature, in c. 176D, to restrict such liability to entities that are “engaged in the business of insurance.” NELF also argued that c. 93A does not create liability for defendants who are not in the insurance business. NELF noted that courts from many other jurisdictions have refused to apply the statutory settlement duties of insurance companies to other businesses simply because they are self-insured. These jurisdictions recognize that insurance claim settlement duties are a narrow legislative exception to the adversarial norm of litigation, in which a party has the right to negotiate and litigate disputes zealously, without the fear of incurring liability. NELF argued that the Legislature has carved out a narrow exception to this adversarial rule for insurance companies, because liability insurers are in the business of defending third-party insureds. Policies typically vest insurers with the exclusive right and duty to control litigation and settlement of claims. This unique contractual relationship gives rise to the potential for abuse and for conflicts of interest. These concerns are absent when a company defends itself in litigation, because it is not carrying out a contractual duty to defend a third party.
The Supreme Judicial Court agreed with NELF’s position and held that companies not in the insurance business cannot be sued under c. 93A for their claim settlement practices. The Court explained that c. 93A was not designed to “expose ordinary defendants (even large corporations) to the risk of liability for multiple damages and attorney's fees for choosing to go to court rather than settling a dispute. . . . As an ordinary defendant, Toys had no affirmative duty to settle the plaintiff’s claim.”
While shopping in a Toys “R” Us store in Kingston, Massachusetts, plaintiff Susan Morrison was injured by a falling sign. Morrison sued Toys “R” Us, and the store’s claims department tried to settle with Morrison. Toys “R” Us made its highest offer of $45,000, but Morrison rejected the offer and demanded $250,000. At trial, the jury awarded Morrison $1.2 million, which the court remitted to $250,000, plus interest. Morrison then sued Toys “R” Us for unfair claim settlement practices in violation of chapters 93A and 176D (the Unfair Insurance Practices Act), for “[f]ailing to effectuate prompt, fair, and equitable settlements of claims in which liability ha[d] become reasonably clear.” G.L. c. 176D, § 3(9)(f). The Superior Court dismissed the complaint, holding that Toys “R” Us is not “in the business of insurance” within the meaning of G.L. c. 176D, and therefore is not subject to the unfair insurance claim settlement prohibitions in G.L. c. 176D, § 3(9). The Superior Court also held that c. 93A does not create a separate right of action against a non-insurance company for unfair claims settlement practices. Morrison appealed, and the Appeals Court reversed the Superior Court. The Appeals Court held that Toys “R” can be liable under chapter 93A for unfair claim settlement practices even though it is not an insurance company.
The Supreme Judicial Court took the case for further appellate review. NELF filed an amicus brief on behalf of Toys “R” Us, arguing that exposing Toys “R” Us to liability under G.L. c. 93A for its claim settlement practices contravenes the express intent of the Legislature, in c. 176D, to restrict such liability to entities that are “engaged in the business of insurance.” NELF also argued that c. 93A does not create liability for defendants who are not in the insurance business. NELF noted that courts from many other jurisdictions have refused to apply the statutory settlement duties of insurance companies to other businesses simply because they are self-insured. These jurisdictions recognize that insurance claim settlement duties are a narrow legislative exception to the adversarial norm of litigation, in which a party has the right to negotiate and litigate disputes zealously, without the fear of incurring liability. NELF argued that the Legislature has carved out a narrow exception to this adversarial rule for insurance companies, because liability insurers are in the business of defending third-party insureds. Policies typically vest insurers with the exclusive right and duty to control litigation and settlement of claims. This unique contractual relationship gives rise to the potential for abuse and for conflicts of interest. These concerns are absent when a company defends itself in litigation, because it is not carrying out a contractual duty to defend a third party.
The Supreme Judicial Court agreed with NELF’s position and held that companies not in the insurance business cannot be sued under c. 93A for their claim settlement practices. The Court explained that c. 93A was not designed to “expose ordinary defendants (even large corporations) to the risk of liability for multiple damages and attorney's fees for choosing to go to court rather than settling a dispute. . . . As an ordinary defendant, Toys had no affirmative duty to settle the plaintiff’s claim.”
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