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Massachusetts Supreme Judicial Court Issues Instructions for Reviewing a Tort Settlement When a Liability Insurer Objects to the Terms

The vast majority of Cape Cod car accident lawsuits are settled out of court. In most cases, the parties’ respective automobile accident liability insurance companies are part of the settlement process and, consequently, are bound by the terms of the settlement.

Sometimes, however, instances arise in which an insurance company may not be part of the settlement negotiations in a personal injury or wrongful death lawsuit arising from an automobile accident. A recent case explored such a situation and gave instructions for how such matters are to be handled in similar circumstances in the future.

The case at bar differed from the “typical” case in one important respect: one of the primary issues in the underlying litigation was whether the incident giving rise to the suit was an accident or whether it was the result of an intentional act. Importantly, the insurer was not obligated to make certain payments for an intentional act but was obligated to pay for damages arising from an act of negligence.

Facts of the Case

A recent case under consideration by the Massachusetts Supreme Judicial Court arose out of a 2013 incident in which a man was struck by a vehicle outside a bar. There was a dispute as to whether the man was intentionally struck and killed due to a dispute that had taken place inside the bar earlier in the evening between the driver and the victim or whether the incident was merely due to the driver’s negligence. The driver was insured by a motor vehicle liability policy taken out by his parents. The insurance company paid the $20,000 compulsory insurance limits of the policy but issued a reservation of rights as to the remaining $480,000 in optional coverage, effectively arguing that it had no obligation to indemnify the driver or his parents if it was determined that the victim’s death was caused by the driver’s intentional (rather than negligent) actions.

Multiple lawsuits were filed as a result of the incident, one of which was a wrongful death action brought by the victim’s mother against the driver and his parents. The parents’ insurance company sought to intervene in the action, urging the court that the matter was likely to be “underlitigated” without its participation. The trial court ruled that the insurer could bring a post-trial declaratory judgment action but could not intervene in the wrongful death lawsuit. The driver, his parents, and the victim’s estate eventually reached a settlement to the effect that the victim’s death was caused by the driver’s gross negligence and that the parents had negligently entrusted the insured vehicle to the driver. Over the insurer’s objection, a hearing was held on the issue of damages, with the court ultimately entering judgment for the victim’s estate in the amount of $5.5 million-plus prejudgment interest in the amount of $2.2 million. The Massachusetts Supreme Judicial Court transferred the case from the intermediate appeals court on its own initiative.

Decision of the Court

The Massachusetts Supreme Judicial Court ruled that there was no abuse of discretion in the trial court’s denial of the insurer’s motion to stay trial in the wrongful death action until the question of coverage had been determined in the declaratory judgment action, that there was no abuse of discretion in the denial of the insurer’s motion to deposit certain funds with the court, and that, where an insurer timely objected to a settlement/assignment agreement and was obligated to pay post-judgment interest on a wrongful death judgment, the insurer was only bound by the amount of the judgment if a judge determined that the settlement/assignment agreements were reasonable under the circumstances. Because the settlement at issue was executed with no determination of reasonableness, the court vacated the wrongful death judgment and remanded the case to the trial court for a hearing on the reasonableness of the settlement/assignment agreement.

In so holding, the court acknowledged that the procedure would be different for similar cases in the future. Going forward, where an insurer successfully challenges a settlement/assignment agreement before judgment is entered, a judge who decides that the amount set forth in the settlement/assignment agreement is not reasonable may decline to enter a judgment in that amount and may invite the parties to renegotiate an agreement that might prove reasonable in amount.

Get Help With Your Cape Cod Injury Case

The Law Offices of John C. Manoog III, handles Cape Cod car accident and other personal injury cases, including wrongful death claims, injuries caused by defective products, and incidents of medical malpractice. To schedule a free case evaluation, please contact us at 888-262-6664. Please be mindful that claims not filed within the Massachusetts statute of limitations are subject to dismissal, so it is important to seek legal advice in a timely fashion if you believe that someone in your family has died due to another’s negligence.