This is a very interesting tale about an unusual outcome that shouldn’t actually be all that unusual. I know – with that lead in, now you may be expecting some sort of Edgar Allan Poe tale, like “The Tell-Tale Blog,” or something similar.

But that’s not the type of tale I have for you today. Instead, I have an excellent article from Massachusetts Lawyers Weekly (subscription likely required, but you can find the case discussed in the article here) about a Massachusetts Appeals Court decision holding that an insurer did not engage in low ball settlement tactics, or violate Massachusetts’ consumer protection act or its unfair insurance claim practices act, when it only offered $15,000 in settlement on a case where a jury later returned a much larger verdict – $225,000 – against the insured. As the article makes clear, the Court reached that finding despite the disproportionate relationship between the offer and the eventual judgement because the insurer’s process in reaching that settlement offer was fair, reasonable and objectively appropriate.

The ruling is correct on that evidence, and this is exactly how the insurance settlement bad faith system, governed by Massachusetts’ Chapter 93A and Chapter 176D, is supposed to work. But here in the real world, the simple fact that an insurer’s offer turned out to be only a small percentage of an eventual jury verdict is often, for all intents and purposes, outcome determinative in bad faith settlement cases against insurers or, if not outcome determinative, is at least the most important fact in finding against an insurer on such a claim. As a result, there is an incentive in Massachusetts for insurers to not try the underlying case, or else to overvalue the settlement offer itself, simply to avoid the risk of that scenario occurring. We are all much better off, and insurance costs to all of us over time will be much lower, if insurers do not approach decisions about settlement, or about whether to try a case, from this perspective, and instead objectively make these determinations. But unless and until there are more rulings of this type at the appellate level reinforcing that insurers are safe from exposure under these statutes – regardless of the size of a particular jury verdict – so long as the original decision to try the action or the original settlement valuation was based on sound investigation and evaluation, insurers will likely not consider that the safest approach.

This is because, when a case against an insured is tried to verdict, the amount of that verdict can be doubled or trebled as bad faith damages if the Court believes there was a low ball settlement offer before trial. This makes it extremely risky for an insurer to try a case to verdict or to make a settlement offer that might later be seen, in hindsight and by comparison to an eventual jury verdict, as too low. If you take the example of the case I am discussing here, if the Court had concluded that the $15,000 settlement offer was too low to be reasonable or to satisfy the insurer’s obligations, the Court could have awarded double or treble the $225,000 jury verdict as damages against the insurer for bad faith settlement efforts by it. That’s a big hit simply for arguably getting a settlement valuation wrong, remembering, as most tort lawyers and claims people will tell you, that settlement valuation is an art, not a science.