An insurer with enough notice of a claim had to pay the full damage
even though the policy holder never turned over suit papers
– because the insurer didn’t really suffer prejudice
the top Massachusetts court ruled in a recent case.
FACTS C&N ran a car repair shop and carried General Liability insurance with $50k limits of coverage. Boyle was badly hurt when a tire exploded in the shop. He lost a year of work, had permanent hand limitations and incurred $100k in medical bills.
C&N reported the incident to its insurer Zurich, who opened an investigation and learned of the injuries. Boyle’s lawyer wrote to Zurich demanding to know the policy limits – which insurers must disclose by law in Massachusetts and which Zurich failed to do. Boyle sued C&N who didn’t turn the papers over to Zurich.
Zurich determined this was a covered loss and that liability was clear; then… Zurich closed its file. (?!)
When no answer was filed by C&N, it was defaulted. Boyle’s lawyer sent Zurich notice of the default and copies of the medical bills. Zurich had the bills scanned to the closed file but took no other action. Judgment entered against C&N for $2.25M.
Boyle sued Zurich saying they were 3rd party beneficiaries meant to benefit from the insurance agreement between C&N and Zurich. Boyle also got C&N to assign its rights against its insurer Zurich, to Boyle.
The case based on C&N’s assigned rights against Zurich went to trial. The judge decided Zurich had a duty to defend its policy holder and should have tried to settle for the policy limits. Boyle’s lawyer said he’d have accepted the $50k and not pressed on if it had been offered.
ISSUE Since its insured didn’t forward suit papers, did Zurich have any duty to defend?
HOLDING Zurich had a duty to defend C&N.
REASONS The duty to settle promptly arises when liability becomes clear. Zurich was on notice this claim was coming and suffered no prejudice from the failure of the insured to give over suit papers.
COBB COMMENT Courts want to force insurers to act and to punish those who don’t; this insurer had enough notice to prompt a response. Unresponsive insurers drag out cases that should be resolved.