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By: David Slocum
Earlier this month, the Massachusetts Supreme Judicial Court (the SJC), the state’s highest court, heard oral argument in a case which presents the question whether consent-to-settle clauses typical to most professional malpractice insurance policies should be deemed unenforceable as against public policy.
The case, Rawan v. Continental Casualty Co., places before the SJC an important issue of first impression in Massachusetts, the outcome of which will have significant implications for professional liability insurers and their insureds throughout the state.
The case arises out of an underlying engineering malpractice lawsuit in which plaintiff homeowners alleged the defendant professional engineer negligently designed their home. The engineer was insured by Continental Casualty Co. (CNA) under a professional liability policy, which contained a standard consent-to-settle clause providing: “We [CNA] will not settle any claim without the informed consent of the first Named Insured.”
Consistent with its insured’s wishes, CNA made no settlement offer during the underlying engineering malpractice litigation. At trial, the jury found the engineer was negligent and awarded $400,000 in damages.
Thereafter, in a separate follow-on lawsuit against CNA, the plaintiff homeowners alleged CNA had violated Massachusetts’ unfair settlement practices statute, Chapter 176D §3(9)(f), which requires insurers to effectuate a prompt, fair and equitable settlement when an insured’s liability has become reasonably clear. Plaintiffs alleged CNA had failed to properly investigate and settle the plaintiffs’ claims against the engineer during the underlying litigation.
CNA moved for, and was granted, summary judgment in its favor on the grounds that its insured had not consented to settlement of the claims. Thus, CNA argues, it was contractually bound under the consent-to-settle clause of the policy not to effectuate a settlement of the plaintiffs’ claims against the insured, irrespective of whether the insured’s liability had become reasonably clear.
In asking the SJC to overturn the trial court’s grant of summary judgment in CNA’s favor, the plaintiffs argue that such consent-to-settle clauses undermine the purpose of Chapter 176D by ceding settlement authority to insureds who potentially may unreasonably refuse to settle valid claims against them. Plaintiffs contend that such clauses therefore should be deemed unenforceable as against public policy in Massachusetts.
CNA and a number of bar and professional associations, which have filed amicus briefs in its support, argue the grant of summary judgment in CNA’s favor should be affirmed because consent-to-settle clauses in noncompulsory professional liability insurance policies are compatible with insurers’ obligations under Chapter 176D. They contend Chapter 176D’s purpose of preventing insurance company overreach is not implicated in such situations, and a professional insured’s important reputational interest also supports the enforceability of consent-to-settle clauses.
The SJC is expected to issue its decision in this important and closely-watched case later this term.
If you have any questions or would like more information, please contact David Slocum at email@example.com.