Multiple Damages Awarded Due to Insurer's Failure to Conduct Objective Investigation

By Jennifer C. Sheehan, Esq.

The Massachusetts Appeals Court recently ordered an insurance company to pay multiple damages to a plaintiff who was injured in a fight outside of bar. In Terry v. Hospitality Mutual Insurance Co., 101 Mass. App. Ct. 597 (2022), the Court found that defendant Hospitality Mutual Insurance Co. knowingly or willfully engaged in unfair and deceptive claim settlement practices under M.G.L. c. 176D and c. 93A, awarding the plaintiff double damages, plus attorney fees and costs.

Plaintiff William Terry was severely injured in the early morning hours of February 18, 2011 when he was attacked in the parking lot of the Canton Junction Sports Bar in Canton, MA.  Terry’s assailants, Michael Connors and Kilder Cardona, had participated in a beer pong tournament at Canton Junction prior to the attack, and before Canton Junction, they had been at a different bar.  Terry suffered a traumatic brain injury as a result of the attack and Connors and Cardona later pleaded guilty to criminal charges.

On July 30, 2013 Terry sent a letter to Hospitality, Canton Junction’s liquor liability insurer.  Terry claimed that Canton Junction was liable for serving alcohol to Connors and Cardona when they were visibly intoxicated, and for failing to provide adequate security. He demanded $5 million to settle, but Hospitality declined it.  The matter proceeded to trial, and in the time leading up to the trial, Terry reduced his demand to $1 million, then to $975,000.  Hospitality’s highest pre-trial offer was $25,000, which was based on its valuation of Terry’s injuries at $75,000, and its assessment that Canton Junction was 25% at fault.  However, Hospitality’s assessment of the claim also acknowledged that there was a chance that the jury would valuate Terry’s damages at $400,000.  The matter ultimately went to trial, where the jury found in favor of Terry and awarded him $250,000.

Following the trial, Terry brought an action against Hospitality under c. 176D/c. 93A.  Terry claimed that Hospitality had engaged in unfair and deceptive claim settlement practices by conducting an investigation that focused on disproving Canton Junction’s liability instead of objectively assessing all the evidence, and for failing to offer a fair and equitable settlement once Canton Junction’s liability became reasonably clear. 

The trial judge found in Terry’s favor and awarded him double damages of $500,000.  Hospitality appealed, arguing that it had conducted a “prompt and reasonable investigation that revealed good faith disagreements on all aspects of Canton Junction’s liability.”  However, the Massachusetts Appeals Court found that Hospitality’s investigation relied on selective facts that favored Canton Junction, and that it had not fulfilled its duty to conduct a prompt and reasonable investigation.  Such an investigation required Hospitality to take “basic steps toward obtaining an independent or neutral assessment of…potential fault.”  Terry, 101 Mass. App. Ct. at 605, citing McLaughlin v, American States Ins. Co., 90 Mass. App. Ct. 22 (2016).  The Court found that Hospitality “engaged in a results-oriented treatment of the evidence related to the claim, rather than a considered appraisal of it, based upon all available information…”  Terry at 606 (internal quotations omitted).  Specifically, Hospitality’s $25,000 offer was found to be unreasonable because Hospitality had an obligation to make a reasonable settlement offer based on what the uncontroverted objective evidence showed Terry’s damages to be.  Id. at 611.

What this ruling means for insurers

This ruling highlights the importance of conducting a prompt, reasonable, and objective investigation of the case as a whole, including a neutral assessment of evidence that is potentially favorable and unfavorable to the insured.  In addition, insurers must document the file and their investigations to protect and defend themselves from potential c.176D/c.93A claims. 


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