The Supreme Judicial Court of Massachusetts recently considered whether an insured could pursue a claim against an insurer which had breached its duty to defend for unfair or deceptive acts or practices under G.L. c. 93A, § 11, notwithstanding the insurer’s full reimbursement of the insured’s expenses, plus interest. The court determined that the insured was neither required to demonstrate uncompensated loss, nor obtain a judgment establishing contract damages, in order to proceed. The case is Auto Flat Car Crushers, Inc. v. Hanover Insurance Co., No. SJC-11477 (Mass. 2014), available here.

In Auto Flat Car Crushers, the insured, a vehicle-crushing enterprise, sought coverage under a garage insurance policy in connection with a pollution dispute involving the Massachusetts Department of Environmental Protection (DEP). The insurer initially denied coverage for the claim and refused to defend the insured. The insured subsequently filed a four-count complaint against the insurer in which it asserted contract and declaratory judgment claims. After a trial court judge ruled that the insurer had breached its duty to defend because the policy provided coverage for the allegations asserted by the DEP, the insured amended its complaint to add a count alleging that the insurer’s failure to defend the claim constituted a violation of G.L. c. 93A, § 11. Thereafter, the insurer agreed to reimburse the insured for all of its expenses. It reimbursed the legal fees and cleanup costs incurred by the insured in connection with the DEP matter, plus 12% interest per annum.

The issue before the Supreme Judicial Court was whether the insured could pursue its claim under G.L. c. 93A after accepting the insurer’s reimbursement payments for expenses incurred in connection with the DEP matter. The insurer took the position that the insured’s claim under G.L. c. 93A, § 11 failed as a matter of law because the insured could not demonstrate uncompensated loss, and because no prior judgment establishing contract damages had been entered. The insured argued that G.L. c. 93A, § 11 does not require a showing of uncompensated loss, and that a judgment establishing the amount of damages is not a prerequisite to recovery under the statute.

The court first found that where a plaintiff can demonstrate that it has suffered “actual damages,” i.e., a concrete loss of money or property, § 11 does not impose a further requirement that the plaintiff establish that such loss remains outstanding. The court determined that to the extent that a plaintiff already has received compensation for its underlying loss prior to the resolution of its G.L. c. 93A claim, such compensation is treated as an offset against any damages ultimately awarded, rather than as a bar to recovery.

The court next found that the absence of a judgment in the insured’s favor establishing the amount of damages incurred did not limit recovery under G. L. c. 93A. In so finding, the court determined that where no prior judgment has entered, a plaintiff's “actual damages,” i.e., all foreseeable and consequential damages arising out of conduct that violates the statute, form the basis of recovery. The court found that where the conduct alleged to violate G. L. c. 93A is a breach of the duty to defend, a breaching insurer will be liable for all “natural consequences of [the breach] that places its insured in a worse position,” including possibly a settlement payment (if such was the natural and foreseeable result of the insurer’s breach of its duty to defend) as well as other out-of-pocket expenses incurred by the insured, as well as interest. The court held that if the insured demonstrates that the insurer’s breach of the duty to defend constituted a willful or knowing statutory violation, the amount of actual damages proven to flow from that breach will form the basis for the multiplication of damages pursuant to the statute. The court further determined that any award of damages will be reduced by the amount that the insured already has accepted from the insurer, with such offset applied after multiplying the insured’s damages, if appropriate.

Auto Flat Car Crushers presents an important example of the breadth with which G.L. c. 93A is interpreted by Massachusetts courts. As this case illustrates, an insurer may be liable for multiple damages under the statute even in circumstances where it has fully reimbursed the insured for the insured’s actual underlying losses. Under G.L. c. 93A, § 11, a defendant may limit its liability to single damages if it tenders a reasonable, written offer of settlement with its answer. In this case, however, the insurer did not do so; to the contrary, it waited six years after the insured first made a claim for insurance coverage before it agreed to provide reimbursement. The Auto Flat Car Crushers Court found that if insurers were free to engage in dilatory conduct with the knowledge that statutory liability could be avoided so long as they ultimately reimbursed claimants for their resulting expenses, G.L. c. 93A, § 11 would lose its force.