Massachusetts Appeals Court Addresses Insurer’s Duty to Appeal and Right to Settle
Holding: Insurer’s Good Faith Settlement After Filing Notice Of Appeal Is Not A Defense to Policyholder’s Liability For Retrospective Premium.
Under a typical general liability policy the insurer has a duty to defend suits seeking covered damages, and the right to settle such suits at its discretion. In an unpublished decision, , 92 Mass. App. Ct. 1124 (Slip Op. 2018), the Massachusetts Appeals Court considered these policy term in the context of a policyholder’s argument that the insurer’s failure to pursue an appeal of a judgment against the policyholder relieved the policyholder of the obligation to pay retrospective premiums resulting from the payment.
Under Massachusetts law, an insurer’s duty to defend encompasses an obligation to appeal from an adverse judgment against the insured if there is a reasonable likelihood of success on appeal, and reasonable grounds to believe the insured’s interest might be served by an appeal. Here, both the policyholder’s own lawyer, and a second lawyer hired by the insurer to evaluate the potential appeal, agreed that the potential appeal, challenging the exclusion of evidence by the trial judge, would result in a new trial only if the trial judge abused his or her discretion and the policyholder was prejudiced by the error. Further, defense counsel believed the trial judge’s rulings would survive appellate review, and the attorney hired by the insurer to evaluate the appeal opined that the likelihood of the appellate court granting a new trial was less than ten percent. The Appeals Court concluded that the policyholder had not demonstrated that there was a reasonable likelihood of success on appeal.
Further, even if there had been a duty to pursue the appeal, the policy gave the insurer the right to settle the suit at its discretion. The Appeals Court observed that this discretion was limited by the insurer’s obligation to exercise it in good faith, requiring the insurer to exercise common prudence to discover the facts upon which an intelligent decision with respect to settlement might be based. The Court concluded that the insurer had met this standard, and affirmed the award of summary judgment in the insurer’s favor on its claim for the retrospective premiums.
It should be noted that the court emphasized the insurer’s reliance on an opinion of reputable counsel specifically engaged to assess the potential appeal. An insurer is well advised to consider retaining separate counsel to evaluate a potential appeal before foregoing an appeal, particularly if the insured wants the insurer to appeal.