Punitive Damages Part 3

A few weeks ago, in part two of our discussion concerning punitive damages, I referred to a case that was before the Massachusetts Supreme Court. The case is entitled Rhodes, et al v. AIG Domestic Claims, Inc., et al. Last week the court announced its decision. It stated that under the Massachusetts Consumer Protection laws, Chapters 93A and 176D, insurance companies are required to negotiate in good faith. It also held that if liability is reasonably clear insurance companies must make a reasonable offer of settlement in an attempt to settle the case, prior to litigation. The court then went on to explain the consequences to insurance companies for refusing to obey the Consumer Protection laws. If a jury returns a verdict for the plaintiffs there may be punishment damages awarded by the trial judge in addition to the jury’s award of compensatory damages. The judge may hold a separate hearing on whether the insurance company engaged in bad faith and unreasonably delayed the settlement of the case or refused to engage in a good faith negotiations. In the Rhodes case,  the Massachusetts Supreme Court decided, in clear and understandable language, that the insurance companies engaged in bad faith and that punitive damages were appropriate. The S.J.C. in Rhodes has done more to redress the economic disparity between the powerful and the weak, and the rich and the poor, than all the legislation passed in Massachusetts in the past 20 years. There was no dispute about liability. The car occupied by Mr. and Mrs. Rhodes was rear-ended by a truck. Mrs. Rhodes sustained severe injuries. The jury returned a verdict, with interest, of approximately $11,000,000. Under the Consumer Protection laws the award may be doubled or tripled as a punishment and as a deterrent. The state Supreme Court decided that 2x the jury award was an appropriate remedy for the many years of delay caused by the insurance companies. The punitive damage award was $22,000,000. I previously stated, in Part 2 of our punitive damages discussion, that money is the only sanction that gets the attention of an insurance company. At least in Massachusetts, insurance companies now have a clear motivation to do the right thing. It just became more expensive to ignore the law than to follow its requirements. The total amount of money that the insurance companies are required to pay  Mr. and Mrs. Rhodes is approximately $33,000,000. This case is particularly significant for the little guy who gets hurt once when injured and once again when they just string it out and hope to lowball and stonewall him. Prior to this ruling, the Massachusetts courts were looked upon as paper tigers on the issue of 93A and 176D. All this case does is to bring the courts back into line with what is fair and reasonable.

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