First Circuit Affirms Ruling That Third-Party Administrator Responded Reasonably To Settlement Offers Within Policy Limits


By: Bill Buechner

We recently posted a blog (see here) concerning an appeal to the First Circuit Court of Appeals from a Massachusetts district court decision finding that a third-party administrator (Sedgwick) did not violate the Massachusetts Consumer Protection Statute, Chapter 93A, or the Insurance Practices Statute, Chapter 176D, even though it did not make any offer to settle a wrongful death claim before trial and did not accept settlement offers within the policy limit for a negligence claim for pain and suffering. Our previous blog noted that the “insurance coverage bar will be paying close attention when the First Circuit issues its decision.” The First Circuit very recently issued its decision affirming the district court’s judgment in favor of Sedgwick. Calandro v. Sedgwick Claims Mgmt. Servs., ___ F.3d ____, 2019 U.S. App. LEXIS 7913, 2019 WL 1236927 (1st Cir. March 18, 2019). Notably, former Supreme Court Justice Souter was on the panel.
In the underlying case, Genevieve Calandro fell from her wheelchair at a nursing home (Radius Danvers) and subsequently died in August 2008 at a hospice facility after being taken to the hospital. The estate filed suit for wrongful death and negligence against Radius and later added as a defendant Radius’s medical director, who was also Calandro’s attending physician. While the underlying case was pending, the estate made settlement offers for $500,000 on October 12, 2011 and November 12, 2013 and for $1 million in April 2014 and July 3, 2014, which was the policy limit for the nursing home’s policy. The most that Sedgwick offered before trial was $300,000, which the estate declined.  The underlying case went to trial in July 2014, and the jury awarded $1,425,000 in compensatory damages and $12,514,605 in punitive damages. The estate then sued Sedgwick to recover these amounts and more. The district court, after a bench trial, concluded that liability was never “reasonably clear” on the wrongful death claim as required by the statute, and that Sedgwick made timely and reasonable offers on the negligence claim for pain and suffering.
Rejecting the estate’s appeal, the First Circuit held that the district court did not clearly err in finding that liability on the wrongful death claim was never “reasonably clear” before trial on the wrongful death claim. The First Circuit noted that an independent adjuster hired by Sedgwick stated in its initial report in October 2011 that the cause of death seemed to be related to ongoing medical conditions and not necessarily Radius’s negligence, but that there were missing documents and witnesses he had not yet been able to locate and interview. Under these circumstances, the First Circuit concluded that it was reasonable for Sedgwick to continue to investigate (which it did) “rather than roll over and concede that Radius’s negligence was the cause of death.” Id. at *13.   The estate argued that liability on the wrongful death claim became reasonably clear in May 2013 when the estate’s expert presented his opinion as to causation. The district court credited the testimony of Radius’s defense counsel, who was retained by Sedgwick, that only an outline of the estate’s expert’s anticipated testimony was provided in May 2013, and that the estate’s expert’s full report explaining his reasoning as to the cause of death was not provided until late April 2014. The First Circuit also emphasized that Sedgwick received a report from its own expert in May 2014 that reached materially different conclusions on the causation issue than the estate’s expert did. Id. at *15. In addition, the First Circuit noted that the verdict form included a question as to causation, which indicated that Sedgwick never conceded the causation issue, and internal Sedgwick correspondence shortly before trial stating that, in light of comorbidity issues often affecting elderly and infirm people like Calandro, “we have a strong argument for causation.” Id. at *16 n.5.
As to the negligence claim for pain and suffering, the First Circuit held that that the evidence supported the district court’s conclusion that Sedgwick conducted a good faith investigation, and noted that Sedgwick retained a qualified investigator almost immediately after it learned of the claim. Id. at *18-19. Furthermore, the First Circuit upheld the district court’s findings that the settlement offers were reasonable and prompt after liability on this claim became reasonably clear in February 2014. On February 6, 2014, in response to the estate’s $500,000 offer made on November 12, 2013, the defendants made a joint settlement offer of $275,000 and indicated that they had “some room to move.” Id. at *5, 20. A day later, defense counsel wrote a report to Sedgwick in which he predicted a verdict against the defendants in the range of $300,000 to $500,000.  Id. at *5. The First Circuit explained that, “especially given the difficulties inherent in placing a dollar value on intangibles such as pain and suffering,” the district court did not clearly err in finding this settlement offer reasonable.  Id. at *20. The First Circuit also noted that the defendants made an offer of $300,000 in May 2014 after the estate increased its settlement demand to $1 million in April 2014, and that Sedgwick made an offer of $250,000 on behalf of Radius a few days before trial.  Id. at *20-21.
Calandro construed a state statute that differs from the common law bad faith failure to settle claim recognized in most jurisdictions,  and it applied a very deferential clear-error review to the factual findings of the district court after a bench trial. Nevertheless, Calandro provides some helpful reminders to claims professionals and attorneys responding to settlement demands within policy limits and defending bad faith failure to settle claims. First, while the facts themselves of course are critical, the procedural steps taken by a claims professional may often be significant as well.  In this case, the First Circuit emphasized the fact that Sedgwick retained a qualified and independent investigator almost immediately after receiving notice of the claim, that the investigator provided his initial report within two weeks raising the causation issue, and that Sedgwick continued to investigate the claim throughout the case. Second, courts will not expect insurers and claims professionals to “roll over” if there is a reasonable defense to liability at the time a settlement offer within policy limits is made or if the evidence available at that time is not sufficiently developed to make a reasonable assessment as to liability. Third, sensitive information such as internal correspondence or emails and reports from defense counsel may become critical evidence in defending a bad faith failure to settle claim. In finding that liability for the wrongful death claim was not reasonably clear, the First Circuit in Calandro cited internal Sedgwick correspondence within a week of trial expressing confidence in the causation defense. The conclusion that Sedgwick’s settlement offers on the pain and suffering claim were reasonable was supported by the fact that its settlement offers were close to or within the verdict range predicted by defense counsel in his report to Sedgwick.
Nevertheless, insurers and claims professionals should recognize that the actions of the third-party administrator in Calandro likely received much more thorough and sympathetic consideration from the district judge who served as the fact-finder than most juries may have provided.
If you have any questions or would like more information, please contact Bill Buechner at