Massachusetts Appeals Court Reinforces Insurers’ Contractual Rights to Settle Claims

A recent Massachusetts Appeals Court decision, based upon New Hampshire law, found that a professional liability insurer did not breach the implied covenant of good faith and fair dealing by settling a New Hampshire medical malpractice suit – even though the settlement was against the wishes of the insured party.

The insurer, Proselect Insurance Company (“Proselect”), defended the malpractice suit brought against its insured, a doctor who was accused of negligently failing to diagnose a stroke. The suit went to trial and resulted in a jury verdict against the doctor in the amount of $4.05 million. Rather than filing any post-trial motions or an appeal, Proselect chose to negotiate a settlement, which ended up being $3.75 million. The insured doctor took issue with Proselect’s decision to settle, notwithstanding the fact that the settlement released the doctor from all financial liability and was within her insurance policy’s $4 million limit. The doctor then sued Proselect alleging negligence, breach of contract, and breach of the implied covenant of good faith and fair dealing, on the grounds that Proselect’s settlement would destroy her reputation.

In the doctor’s suit against Proselect, Proselect’s motion for summary judgment was granted based upon the fact that the insurance policy explicitly granted Proselect the right to settle claims without the insured’s consent. On appeal, the doctor argued that Proselect, despite its right to settle without her consent, had breached the implied covenant of good faith and fair dealing by choosing not to appeal or file any post-trial motions. The doctor argued that Proselect should have appealed or filed post-trial motions in order to serve the doctor’s “substantial and compelling interest,” and that because Proselect had negligently entered into the settlement agreement, the doctor’s professional reputation and future career prospects were harmed, and she was caused emotional distress.

The Appeals Court held that New Hampshire law did not recognize a claim for breach of the implied covenant of good faith and fair dealing where the alleged claim arises from a party merely exercising a right expressly granted by contract, and further, New Hampshire law does not require an insurer to forego settlement within a policy’s limits to pursue an appeal for an excess judgment.

This decision confirms the view many states take that an insurer does not have to give up express rights where an insured protests to a settlement, so long as the settlement is within the policy’s limits. The decision further stresses the importance of reading insurance policies cover to cover, including the fine print, so as to be informed of all rights and obligations of the parties involved.