On August 27, 2016, Judge Mitchell Kaplan of the Massachusetts Superior Court for Suffolk County - Business Litigation Session, which handles only complex business litigation matters, issued a decision holding that an insured, before obligating an insurer to pursue an appeal, must at least identify a discrete appellate issue as to which there is a reasonable possibility of success. This decision illustrates the importance of an insurer obtaining a review of the merits of an appeal before making a decision on settlement. P. Gioioso & Sons, Inc. vs. Liberty Mutual Insurance Company, No. 123738BLS1, 2016 WL 5372570 (Mass. Super. Ct., Aug. 27, 2016).
In Gioioso, the plaintiff switched from a retrospective general liability policy to a high-deductible policy, both issued by Liberty Mutual. The terms of the high-deductible policy required the plaintiff to enter into a security agreement and provide a letter of credit to secure policy obligations.
In the underlying suit, a $354,000 verdict was entered against the plaintiff. Liberty retained an independent law firm to determine the likelihood of success on appeal, which the firm estimated to be 5-10%. Liberty then settled the claim and sought reimbursement for the premium increase from plaintiff ($112,997) under the retrospective policy. The plaintiff refused to pay, sued Liberty Mutual for breach of contract and claimed that Liberty’s requirement for the letter of credit was too high. Liberty counterclaimed, alleging breach of contract for failure to pay the increased premium.
Judge Kaplan granted Liberty's motion for summary judgment, dismissed the plaintiff’s claims and ruled in Liberty's favor on its counterclaims. The court found, among other things, that Liberty not only had full discretion under the policy to settle the claim, but also, once liability was reasonably clear, had an obligation to do so under the state's bad faith insurance statute. Although the plaintiff argued that Liberty must pursue an appeal at all costs, the court determined that the 5-10% likelihood of success was not sufficient to obligate Liberty to do so, noting: “Summary judgment cannot be avoided by simply arguing that 'any likelihood whatsoever' of success requires that an appeal be pursued.”
Looking beyond Massachusetts, this case could help litigants articulate the extent of an insurer's duty to appeal when a jurisdiction has not already decided upon one.