Punitive damages are a deterrent, and a punishment, for an
insurance company's bad faith and its unfair and deceptive claims
settlement practices. These public policy decisions by the
Massachusetts Legislature were discussed in the recent
Massachusetts Supreme Judicial Court decision Rhodes, et al. v.
AIG Domestic Claims, Inc., et al., 461 Mass. 486 (2012). The
court found violations of the Consumer Protection statute. Pursuant
to the statute, the court ordered the jury award doubled.
Since the case involved a truck rear-ending a car, there was no
issue concerning liability. The passenger was severely injured. The
jury awarded damages for her lifelong care in the amount of $9.5
million, and, with interest, it amounted to $11.3 million. In
deciding that the amount should be doubled, the SJC stated that
"[we] recognize that $22,000,000 in c.93A damages is an enormous
sum, but the language and history of the 1989 amendment to c.93A
leave no option but to calculate the double damages award against
AIGDC based upon the amount of the underlying tort judgment."
The court went on to say that "[t]he Legislature may wish to
include more than a single, but less than double, damages; or
developing a special measure of punitive damages to be applied in
unfair claim settlement practice cases brought under c.176D,
section 3(9), and c.93A that is different from the measure used in
other types of 93A actions."
It is as if the SJC was apologizing or embarrassed by its
decision. This impression is unfortunate. It undermines the very
public policy principles that gave rise to consumer protection
statutes. The Legislature understood the unequal bargaining power
between a multinational insurance company and an individual
claimant. The statute encompassed the rightly held view that
monetary sanctions are the only way to change the unlawful behavior
of an insurance company.
As to the appropriate amount of punitive damages to be awarded,
the $22 million in the Rhodes v. AIG case is not typical.
It should not be used as the criteria or as an example of a fair
punitive sanction. Rhodes is a catastrophic injury case
with lifelong medical care and lost earning capacity. The more
typical cases are those that are the bread and butter of personal
injury practice. The parties are usually negotiating cases that are
between $100,000 and $500,000. These types of cases are the ones
that cumulatively save insurance companies millions of dollars each
year when they refuse to settle them, even though liability has
become reasonably clear.
If one obtained a jury verdict for $100,000, the doubling of the
jury award would amount to a punitive damage award of $200,000. If
one obtained a jury award of $250,000, and it was doubled in
punitive damages, the award for unfair and deceptive claims
settlement practices would be $500,000. These are hardly "enormous"
or "shocking figures." They reflect a more realistic likelihood for
future punitive damage awards consistent with the Rhodes
These punitive awards have just enough bite that insurers will
realize it has become more expensive to ignore the law in
Massachusetts than to obey it. If one multiplies these medium-size
cases over the course of a year or five years, the insurers will
lose too much money. They will be exposed to too many potential
punitive damage awards for them to maintain a "stonewalling"
The public policy behind c.93A and 176D has just become
effective. Neither the Court nor the Legislature should now
eviscerate the law's ability to protect consumers. As a result of
the Rhodes decision, Massachusetts courts are no longer
paper tigers when asked to enforce the state's consumer protection