In a recent case, Caira v Zurich American Ins. Co., Docket No. 16-P-927 (April 21, 2017), the Massachusetts Appeals Court reaffirmed the principle that an insurance carrier that has issued a primary policy is not required to pay out its policy limit, even if liability is reasonably clear and the damages clearly exceed the primary policy limit, unless and until it obtains a release of all claims against its insureds. The court held that this rule applies even if there is substantial excess insurance available to a plaintiff, leaving plaintiff with the option of accepting a potentially inadequate recovery under the primary policy or taking the entire matter to trial to pursue a larger recovery commensurate with plaintiff’s actual damages.

Massachusetts law protects insureds from unfair and deceptive acts and practices by insurance carriers, including unfair insurance claim settlement practices. Specifically, G.L. c. 176D, §3(9)(f) and G.L. c. 93A, §9, “require an insurer such as (Zurich) promptly to put a fair and reasonable offer on the table when liability and damages become clear, either within the thirty-day period set forth in G.L. c. 93A, §9(3), or as soon thereafter as liability and damages make themselves apparent.” Caira, slip op. at 13.

In Caira, while driving a vehicle rented for work purposes, an employee got into a serious automobile accident. His passenger, Caira, was badly injured and sued. The rental car was covered by the employer’s $1 million primary policy, which was issued by Zurich, and two excess policies which were issued by other carriers, with a total of $10 million of additional coverage. Zurich readily conceded that liability was reasonably clear and that the damages likely exceeded the $1 million primary policy limit. It promptly tendered the policy limit to Caira. However, Zurich conditioned its offer to pay the policy limit on the receipt of a release of its insureds. Caira rejected this position, asserting that he had a right to preserve his ability to proceed against the excess policies.

Massachusetts Appeals Court precedent held at one time that where liability was reasonably clear and a claimant’s damages exceeded the policy limit, an insurer who demanded a release of claims before paying out the policy limit committed an unfair claims settlement practice. See Thaler v. American Ins. Co., 34 Mass. App. Ct. 639 (1993). However, in Lazaris v. Metropolitan Property & Cas. Ins. Co., 428 Mass. 502 (1998), the Supreme Judicial Court overruled Thaler, holding that “a claim is settled within the meaning of §3(9)(f) only when it is fully disposed of, which means that the claimant has released all claims against the insured.” Id. at 504. Where the damages clearly exceeded the available coverage, the SJC found that “[t]he best the insurer can do to effectuate a settlement is to offer the policy limit in exchange for a release, given that payment without a release is not a settlement. The claimant can then decide whether to accept the offer or to decline the offer and proceed to trial.” Caira, at 16-17 (citing Lazaris, at 506).

However, Lazaris did not address a situation in which there is excess insurance available to cover claimed damages. Nonetheless, the Appeals Court found that the reasoning of Lazaris fully applied in the Caira case, notwithstanding the fact that there was excess coverage available. To do otherwise would put a carrier in the untenable position of “either being sued for unfair settlement practices by a claimant who is disgruntled by an insurer’s failure to pay, or being sued by an insured who is disgruntled by the insurer’s payment of the policy limit without obtaining a release of that insured.” Finding that the presence of excess coverage did not alter this dynamic, the Caira court upheld the grant of summary judgment in favor of Zurich, finding that it had not committed an unfair insurance claim settlement practice.