October 10, 2019 Massachusetts’ top Court laid out the process for insurers to show they should not have to pay for a voluntary settlement reached by parties covered by insurance. With personal injury insurance you get a legal defense paid for by the carrier as long as covered claims are asserted and you get indemnity. This Massachusetts case describes what happens when some claims are covered but some are excluded, when the carrier reserves its right to challenge coverage but then the parties settle without the insurer. Commerce Insurance Co. v. Szafarowicz (SJC 2019) FACTS Son drove his father’s well-insured car right into someone, killing them. Son plead to the crime of manslaughter. Victim’s family sued for tort compensation claiming the driver was grossly negligent. Insurers have to defend negligence allegations but this insurer opened another case claiming the act was intentional and therefore not covered by insurance. As civil case against the driver went forward the insurer asked a judge to decide the coverage matter first but the Court declined. The civil case settled with an “admission” of negligence by the driver, a finding of big damages (>$5M) and an assignment of the rights of the driver against the insurer for the proceeds of the big policy. Interest piled up on the unpaid judgment while the coverage case went on. The insurer objected to this settlement. Meanwhile, the judge in the coverage case held a hearing and determined the conduct was intentional and not covered. ISSUE How should Court treat a voluntary settlement opposed by the insurer which agreement seemed aimed at reaching coverage? HOLDING Court has to look into whether the settlement was legitimate or simply structured to grab insurance proceeds. REASONS Settlement of a case arising from what may have been an intentional act, needs to be examined so insurers don’t get stuck paying for conduct that is not insurable. Massachusetts top Court said trial judges need to make sure the case wasn’t underlitigagted just to reach coverage. Courts reviewing questioned settlements need to make sure they are reasonable. If your insurer issues a “reservation of rights” you should call a lawyer who understands insurance.