Massachusetts passes legislation allowing appeals of auto insurance premium surcharges

For a while it looked as though the state insurance commission would take away the right of vehicle owners to appeal an insurer's decision to add a surcharge to their auto insurance. However, Governor Patrick has signed legislation reversing that decision.

Insurers may raise insurance rates if an insured has been at-fault in an accident.
The legislation amended Mass. Gen. Laws. ch. 175E § 1. It allows an insured who is aggrieved by a decision of the insurer with respect to a surcharge to file a written complaint with the Board of Appeals on Motor Vehcile Policies and Bonds within 30 days. Either side may appeal the decision to the Superior Court.

Big Insurance Brain

I introduced myself to someone recently. The guy greeted me with, "Oh, I know you. You're the guy with the big insurance brain. I read your blog."

I guess so. This July will be 30 years since I started in the insurance business. In that time I have been a student of the insurance business and of business. It has been a great career working in a great industry. I hope to stick around for another 30 years.

As a reminder, this blog has over 290 posts. My website www.insurance-coveragelaw.com has articles, definitions, ebooks, videos, checklists, and charts.

I know of no other website or blog that provides the amount of unbiased insurance information I do.

It's all available to anyone, for free, at any time. In the column to the right is a search box that searches this blog and my other websites to help you find what you want.

Of course, you can always hire my big insurance brain. Just call or email.

Scott Simmonds, CPCU, ARM, CMC
Guy With The Big Insurance Brain
Providing Insurance Assurance

NFIP extended through September 30, 2009

I wrote here that the National Flood Insurance Program was set to expire in March. As expected, the program has been extended by Congress through September 30, 2009.

It's an unavoidable fact of life: Life insurance premiums increase with age.

And then there's the matter of your health. If you develop certain medical conditions, life insurance suddenly becomes prohibitively expensive, if you can get it at all.

For good reason, then, people seek insurance that can be renewed regardless of any changes in health. That's where a renewable term life insurance policy can be a life-saver (for your survivors, at least).

The most important aspects of term life
Typically, when you buy a term insurance policy, you lock in a particular rate class that's based on your age, smoking habits, and health at the start of the term. When it comes time to renew a term policy, you can't do much about your age. You'll be older, so your rate will be higher. This much is entirely predictable and not worth worrying about or maneuvering to beat. That's where renew ability comes into play.
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Some "renewable" term policies just make it easy to renew, but require a medical exam, leaving you exposed to big problems should health issues surface later. What you want is guaranteed renewability without a medical exam. This is especially true if the policy term won't take you close to retirement age.

Besides that, there are three other key components to consider:

1. The policy term.
2. Guaranteed level premiums.
3. Ability to convert to a cash value policy.

The policy term
Term policies are either annually renewable (one-year term) or cover terms from five to 30 years (e.g., five, 10, 20, 30). Think of annually renewable term as the basic building block on which longer-term policies are built. If you pick a policy term beyond one year, you get two advantages:

* The total multiyear premium cost is spread out evenly over the policy term, rather than increasing each year, as you get older. For this reason, these policies are usually called "level term" policies.
* You can often get a better rate for longer terms, since the insurance company gets better odds that you won't switch policies during the term.

As with everything in life, though, there are trade-offs:

* When you buy a longer-term policy, it may look like you are paying a level premium, but you are really just over-paying in the early years to cover higher costs in later years. Therefore, if you decide to drop the policy before the term is over, you will have overpaid. For a 20-year term policy, for example, you will have grossly overpaid if you drop it after 10 years.
* If you have any outstanding questions about your life insurance needs, it's safer to buy a shorter-term policy until you get these questions squared away. It can be tough to accurately estimate how long you will need life insurance, especially if you expect to see a large inheritance, for example, or think you might be able to retire early.
* As you get older, your income replacement need gets smaller, as there are fewer and fewer years to cover before retirement. Buying shorter-term policies will allow you to reduce the death benefit of your policy accordingly, with each successive term renewal. Reduced death benefits mean reduced premiums.

It's tough to balance all these factors and make a recommendation that fits most individuals. It will always depend on who you are and what you need. In general, though, shorter terms provide more flexibility and the potential for cutting costs at renewal, while longer terms offer a better price for a given level of insurance over a given term, as well as greater predictability in price.

Guaranteed level premiums
Before you purchase a multiyear term policy, be sure that the premium is guaranteed to be level over the entire term. A surprising number of "level term" policies guarantee this for just a portion of the term. After this partial term is over, premiums might increase, although these increases are usually subject to some guaranteed maximum.

Ability to convert to a cash value policy
Getting a "convertible" term policy is generally a good idea. These are priced competitively with similar policies that don't include this provision, so you really have nothing to lose. This feature allows you to convert the policy to an equivalent cash value policy from the same company, without a medical exam, should there be a fundamental change in your health or retirement plans during the policy term.

Life insurance is about your legacy, not your death

Written by Nolan Baker Mark Clair

I still remember the day it happened. I was up in Grand Rapids, Mich., studying to take the securities exam when I got the call. It was one of my dad’s friends. I was a bit confused as she told me, “It’s about your dad. We have a problem.” Thursday nights were always Dad’s night out for golfing and having fun with “The Boys.” At first, I thought he was in an accident.

It took awhile to sink in that Dad was gone; he had a heart attack and died that night in the garage. My brother Chris tried to save him by performing CPR in the driveway. The ambulance was called but was delayed by a road closed on the way to our house. We cried and cried, but Dad was still gone. It wasn’t until late that night that I stepped outside and saw one bright, shining star and realized my calling in life was to help others. Help them protect what they love and help them live for today while planning for tomorrow.

When someone thinks about life insurance, the first reaction might be, “Yuck!” or “I’ll look at that down the road.” Many times the thoughts of life insurance are negative for a variety of reasons. But we will all die. Set those ideas aside for a moment and consider the idea of life insurance being a powerful tool in the planning toolbox.

The power of insurance is the fact that it allows a policy owner the power to leverage dollars to ensure dreams and goals. Everyone’s wishes are different and unique. For Dad, his wish was that his children had enough money to go to college and provide for his family. For others, it could be family protection, as well as helping a church or a charity.

That’s the power of life insurance: It can ensure that dreams come true in the event of a premature death.

So what’s in it for you? Many would say that if I’m gone who cares, they get what’s left over. Many people plan on spending every dollar, and if the last check bounces, that is the perfect retirement. There is nothing wrong with that. But today, there are opportunities to build a tax-free retirement, provide a tax-free death benefit, and some policies include disability and long-term care insurance.

Imagine never having to worry about long-term care cost or being able to tap into a portion of your money and not worry about taxes. These features, along with many others, can provide substantial living benefits for the policy owner. Yep, all done through life insurance planning.

It was a blessing that Dad planned ahead. Dad, we did it. Rest assured, I have planned for my kids Andrew and Carter and my wife Karen. I have taken the advice of my colleague Mark and implemented a legal plan that matches my financial plan. Thanks, Dad, for thinking about me and helping me get a jumpstart in life. The loss still hurts, but the planning you did has made the journey a little easier.

Take time this week to review what’s important to you. Run a life insurance capital-needs analysis and make sure the numbers match. You may be surprised at the cost savings that is available today or how much additional coverage you can get for the same premium.

What if you’re not healthy enough to qualify? Many people can qualify, even though they think it is out of the question. Different insurance companies specialize in different risks. Some life insurance companies will issue policies on two people if one of them is reasonably healthy. So, if a legacy plan is your goal, it still may be possible to implement a plan.

Taking the Anxiety Out of Life Insurance Planning

By Kimberly Palmer


Michael Bonevento, a senior financial advisor at Ameriprise Financial Services, Inc.,warns that most Americans are vastly underinsured, which means if disaster strikes, their loved one would be left in financial disarray. He recently spoke with U.S. News about the benefits of taking an unemotional, mathematical approach to help avoid some of the paralysis people tend to feel when talking about life insurance. Excerpts:

What mistakes do people tend to make when it comes to insurance?

What I've come to realize is that the biggest mistake folks make with regard to risk management is that they don't even address the topic. It's very emotional and forces you think about your own mortality and what would happen to your family if something tragic were to occur. Many advisors don't want to approach this topic because they don't want to be labeled an insurance salesperson. Advisors have a fear of wearing that label. And finally, folks don't address it because they realize they haven't done as good a job of insulating their families from tragedy.

How widespread is that problem?

It's an epidemic. I've been in the industry for 15 years and have conducted hundreds of risk management audits. It's extremely rare that I find a client or prospective client who has an adequate amount of insurance. Then, when tragedy strikes, they face financial problems on top of everything else. When September 11 occurred, I was heavily involved as a financial professional. Many folks were grossly underinsured. Had it not been for the steps that the federal government took—returning tax dollars that were previously paid and using the victims' compensation fund—I can tell you the financial position of many of these families would have been very different. It would have been dire.

How can a person figure out how much life insurance he needs?

There are two proven mathematical methodologies that we use. First, human life value. It's the economic loss that a family realizes in the event that the breadwinner were to pass away. Say I make $100,000 a year and I'm 40 and plan to work until I’m 60. Twenty times $100,000 per year is $2 million. I subtract from that taxes and add all of the other benefits that I'm paid, such as contributions to my 401(k) plan, health insurance, vision plans, etc. Then, since any individual has a 3 percent chance of being unemployed, I shrink the amount by 3 percent, and also shrink it by the amount I would consume myself, around 8 percent. Then I calculate the present value of that amount.

The second approach is needs-based. I ask my client, if something were to happen, what would you like to see happen? He might say, "I'd like my mortgage paid off, I want to make sure there's a cash reserve for my family, and I want to make sure college education has been addressed." So we run a present value calculation of the future cost of college.

Typically the human-value number is higher than the needs-based number. I tell my clients, "I don't care where you fall, I just want you to be between those two numbers." Then I know if tragedy strikes their family, they would be well-insulated.

Are those standard calculations that have been around for awhile?

The standard that people usually use is what I think of as an inappropriate rule. That rule of thumb is "six times my earnings." But if you're married and have five small kids, that's probably not enough. If you have no children, then that's probably too much. So I think it should be done unemotionally and mathematically. When you talk to folks about life insurance, they immediately shut down, so I talk to them about "risk management."

Do only married people and people with kids need life insurance?

It's more important to those folks who are married and married with children, or married with children with special needs who may never be able to fend for themselves. However, there are instances where single individuals have insurance, too. One of our clients, a man who was adopted at age 38 by a family without much has insurance so if something happened to him, they would have assets. Another young man, his stepfather is disabled and mother doesn't have a good employee skill set, and he has two younger step-brothers, so he's heavily insured. He wants to make sure they'd be okay financially. So there are instances where single people will have life insurance. If you're single in a high tax bracket, then you could use permanent life insurance to accrue wealth on a tax-deferred basis. But it's very important to people who are married with children.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.

U.S. Court of Appeals defines "temporary worker" exception to leased worker exclusion

In Scottsdale Ins. Co. v. Torres, a recent decision of the United States Court of Appeals for the First Circuit, the court considered the "leased worker" exclusion to a CGL policy. Like most CGL policies, the policy at issue excluded personal injury claims of employees of the insured (because employees are covered by the worker's compensation law). The policy defines employees as including "leased workers."

Pursuant to an exception to the exclusion, "temporary workers" are not considered "leased workers." The policy defines temporary workers as workers "furnished to [the insured] . . . to meet seasonal or short-term workload conditions."

The court held that the actual length of time the worker ends up working for the insured is irrelevant to that definition; what matters is whether, at the time that the worker was originally furnished to the insured, the intent was that the worker fulfill short-term workload conditions.

The court also held that a placement that was for an indefinite period of time is not necessarily incompatible with the possibility that the worker was furnished to address a short-term workload condition. The court denied summary judgment to both sides, and remanded the case for resolution of the question of how the injured worker's placement fit within the insured's ordinary course of business and the nature of its workflow.

Covering Volunteers Under Workers Compensation

A friend contacted me asking how a nonprofit can cover volunteers on a workers' compensation policy.

Volunteers and workers' comp are usually mutually exclusive - employees are covered, volunteers are not.

I'm not sure why you would want to cover anyone extra on a work comp policy. The coverage isnt that great (lost wages coverage is pretty low for many workers) and any losses would cause the premiums to be higher in future years.

Issues of injury due to negligence should be taken care of using the general liability and auto policy - not to mention the umbrella. Most liability policies do not exclude injuries to volunteers. (If yours does get a new policy.)

Medical payments may provide coverage to injuries on premises. However, policies that exclude volunteers for med pay are more common.

If you are really concerned, from a feeling of obligation to your volunteers, you can buy an accident insurance policy to provide some small level of coverage. The cost is usually lower and its easier to administer.


Scott Simmonds, CPCU, ARM, CMC
The Insurance Assurance Consultant

Vacant Building Insurance Issues

Insurance companies do not like vacant buildings.

First, what is a vacant building? Here is a common definition used in the ISO property insurance policy:

When this policy is issued to a tenant, and with respect to that tenant’s interest in Covered Property, building means the unit or suite rented or leased to the tenant. Such building is vacant when it does not contain enough business personal property to conduct customary operations.

When this policy is issued to the owner or general lessee of a building, building means the entire building. Such building is vacant unless at least 31% of its total square footage
is: (i) Rented to a lessee or sub-lessee and used by the lessee or sublessee to conduct its customary operations; and/or (ii) Used by the building owner to conduct customary operations.

Buildings under construction or renovation are not considered vacant.

Now, how are vacant buildings covered? Not well.

First, after the building has been vacant for 60 consecutive days there is no coverage for vandalism, sprinkler leakage (unless you have protected the system from freezing), building glass breakage, theft or attempted theft.

Second, any loss that is paid will be reduced by 15%.

Special coverage is available. Talk with your insurance advisor about how your coverage works and what your options are.

Scott Simmonds, CPCU, ARM, CMC
The Insurance Assurance Consultant

U.S. District Court discusses loss of use damages

In Vicor Corp. v. Vigilant Ins. Co., a decision handed down last month by the United States District Court for the District of Massachusetts, the court turned to California case law for the parameters of loss of use damages.

The court held that the trial judge had correctly instructed the jury that loss of use damages include, but are not limited to, the rental value of a replacement; they also include "those reasonably understood emergency response costs to get the system up and running." Loss of use damages do not include increased maintenance and operating costs.

Progressive Bank Program to Change

Many of my readers are bankers who manage their bank insurance program...

The American Bankers Association and Progressive Insurance announced major changes to their bank insurance program.

In short, Progressive's share of the program is being bought out. It seems that all current staff and operations will stay the same. Coverage forms and the program structure will apparently stay the same.

Here is the press release - http://banks.progressive.com/Main/ABPFIC_announcement.asp.

Scott Simmonds, CPCU, ARM, CMC
The Insurance Assurance Consultant

Restaurant Insurance Issues

Here are some key insurance issues for restaurants to consider:

-Review your business interruption insurance. Restaurants with large seasonal fluctuations in sales will want to be sure they have coverage that will go beyond 12 months if the loss happens at the wrong time.

-Check the adequacy of your extra expense coverage.

-Consider mechanical breakdown coverage for your refrigeration equipment. Include food spoilage coverage.

-Check your employee dishonest insurance. Limits of $100,000 are a minimum for employee dishonesty.

-Check your coverage for cash on premises.

-Ask your agent how your insurance responds to a power failure or loss of your water supply.

-Review your liquor liability insurance including coverage in your umbrella.

-Check your systems for workers' comp loss prevention and claim management.

-Understand how coverage works for vandalism damage to your plate glass windows.

-Blanket property coverage with agreed amount to remove any coinsurance penalty.

-Check to be sure you have adequate property coverage. Tell your agent to remove coinsurance penalties.

-Watch for coverage limitations on computer equipment.

-Consider a $5,000 or $10,000 property deductible to control your premium. You take care of the small stuff. Let your insurance company take care of the big stuff.

The above is typical of the information in my new Business Insurance Toolkit. Go to my bookstore for info. Pre-publication pricing and free shipping too.

A modest investment to assure that you have the right insurance.

Scott Simmonds, CPCU, ARM, CMC
The Insurance Assurance Consultant

Boiler and Machinery Insurance

A reader recently asked me to post on boiler and machinery coverage. I was amazed that I had not done so in the past. I thought I had posted on every policy out there. Nope! This will fix that.



The property insurance policy excludes damage from a pressure vessel, artificial electrical currents, or mechanical breakdown - unless fire ensues. In the "olden days" the big coverage exposure was from steam boiler explosions. Over the last twenty years or so, more and more insurers started offering coverage for mechanical breakdown and other "perils of motion and power."



Here are some of the events not covered by most property insurance policies that are covered by machinery policies or by policies that include the peril of mechanical breakdown:



-Boiler loses its water and cracks.



-Boiler explosion



-Lightning strikes down the power line, travels to your building and blows out your power panel.



-A part breaks on a motor causing a compressor failure and "down-stream" damage to your equipment.



-A gearing system fails destroying a conveyor system.



Here is some of the equipment covered by machinery insurance:



-Pressure vessels

-Refrigeration systems

-Pumps and compressors

-Heating and air conditioning systems

-Turbines

-Electronic data processing systems

-Telephone and alarm systems

-Elevator systems

-Engines that utilize electrical or mechanical energy or are under steam pressure



Insurers often provide inspection services along with the insurance coverage. Sophisticated tests can be run to alert you to future failures. Many policies also include coverage for the loss of business income that results from the accident.



Product spoilage can also be included.

Welcome to the Massachusetts Reinsurance Bar Association

A group of prominent reinsurance attorneys has recently formed the Massachusetts Reinsurance Bar Association. (Reinsurance is purchased by insurers against the risk that they have to pay more than a chosen amount on policies they issue.) President Bill Erickson of Robins Kaplan Miller & Ciresi invited me to their meeting this week. The meeting included a very interesting discussion led by Jim Harrington, also of Robins Kaplan Miller & Ciresi, about the unique issues faced by reinsurance litigants in the arbitration process, and the pros and cons of early mediation.

MReba is planning a symposium in the fall. Stay tuned.

Recession Increasing Insurance Fraud

Interesting article from Insurance Journal...

Insurance fraud is a huge problem for my industry. I'm no longer surprised at the ingenuity of people in the schemes to steal.

Scott Simmonds, CPCU, ARM, CMC
Providing Insurance Assurance

Small Property Insurance Policies

My own business insurance policy is tiny. It's just me here with my computer, my books and some furniture.

The renewal of my policy just came up. My insurance company decided to increase their policy minimum premium. I was going to pay more for the same coverage.

As I was paying the premium anyway, I asked the agent to increase my property coverage to "use up" the minimum premium.

I thought I had enough coverage before. Now I am sure.

Scott Simmonds, CPCU, ARM, CMC
Providing Insurance Assurance

Proactive Insurance Management

I just got off the phone with a reporter. We were talking about business insurance renewals.

Major Point:

It is best to start working on your renewal about 5 months before expiration. In that way you can move deliberately and proactively rather than re-actively.

Scott Simmonds, CPCU, ARM, CMC
Providing Insurance Assurance

MEMIC Gets Better Best Rating

(Note, I try to keep this blog universal in appeal. However, many of my readers are from Maine. So...)

Congratulations to Maine Employers Mutual on the award of a rating of A from A-.

I have long been a fan of the leadership of MEMIC. It is, overall, a fine insurer who innovates and leads in the market.

Insurance Journal article here.

Scott Simmonds, CPCU, ARM, CMC
Providing Insurance Assurance

Privilege Underwriters Reciprocal Exchange

A client called me yesterday asking about home insurance in Florida. His agent has suggested Privilege Underwriters Reciprocal Exchange, PURE for short.

I had not heard of the company. Initially I thought it was a FL pooling arrangement due to insurers backing off the FL market.

No, it is a true reciprocal exchange. I reviewed the website and what I found was very interesting. They specialize in high valued homes and are apparently very selective.

I was not impressed by their financial statement. However AM Best gave them an A-. More eye opening is the Weiss/TheStreet rating of B-. Weiss is not an easy rater.

This strikes me as a very entrepreneurial company formed to fill a real market need. I wish them well.

First Circuit distinguishes policy condition regarding knowledge of existing claim from known loss doctrine

In my last post I discussed the recent First Circuit decision in Employers Reinsurance Corp. v. Globe Newspaper Co, Inc., which held that a likely loss is not a known loss.

Although the court found that coverage for the Globe was not barred by the known loss doctrine, it went on to state in dicta that coverage may be barred by a condition of the prior acts endorsement of the policy. That condition required that the Globe not have had, prior to the new policy, "notice or knowledge" of the claim in question or of "circumstances that would give rise to such claim." The court distinguished that condition from the known loss doctrine, stating that the condition "bars insurance not for a known loss but merely where there is notice on the insured's part, not conveyed to the insurer, of 'circumstances which would give rise to such claim.'"

NonProfit Dangers

I'm starting to hear rumblings that some not-for-profits are letting their directors and officers insurance expire to save money.

Many are working on misinformation. Here are facts:

-D&O policies pay for wrongful acts - bad decisions.

-D&O policies exclude bodily injury, property damage, and usually personal injury.

-The commercial liability policy covers bodily injury, property damage, and usually personal injury.

-There are no overlap in coverage between D&O and the general liability policy.

-The homeowners policy and the personal umbrella are no substitute for D&O - both provide bodily injury and property damage coverage - not coverage for bad decisions.

-While many states have volunteer immunity laws that offer protection, the acts do not provide a prohibition against a lawsuit. Directors can still spend thousands on defense costs. (Thanks Texican.) Such immunity laws also provide no protection for lawsuits brought based on federal law.

-True D&O insurance only covers individuals (no entity coverage). Some policies extend to pick up the entity, usually in regards to employment practices liability coverage.

-No two D&O policies are the same. Detailed analysis is required of any policy proposed as each has different terms, definitions, and exclusions.

I personally would never serve on a nonprofit board without D&O insurance. There is just too much at risk. Directors are personally liable for their actions on a board.

Scott Simmonds, CPCU, ARM, CMC
Providing Insurance Assurance

Tag Line

I have struggled for 9 years with different tag lines for my marketing. Here is the newest. This one will stick.

Providing Insurance Assurance

Instant Insurance Premium Savings!

Much of the premiums paid by a business are determined by payroll and sales. Specifically, If your sales go up, your general liability premium goes up. Same with payroll and workers compensation (and some liability policies).

Call your agent and find out what sales and payroll numbers are being used to rate your policies. If you estimate lower numbers than what is on your policy, have your agent make the change. You should see an instant reduction in your premiums.

Scott Simmonds, CPCU, ARM, CMC
Protecting Profits By Fixing Broken Insurance

First Circuit holds that "likely loss" is not a "known loss"

In Employers Reinsurance Corp. v. Globe Newspaper Co., Inc., the United States Court of Appeals for the First Circuit held last month that the known loss doctrine, which I discussed here, here, and here, does not bar coverage for a libel claim against a newspaper that knew a loss was "likely" at the time that it purchased insurance, but not that the loss was "substantially certain."

The Boston Globe ran an article in March 1995 which wrongly stated that Dr. Ayash had countersigned a medicine dosage order that resulted in two patients receiving overdoses. An attorney contacted the Globe on behalf of Dr. Ayash. The Globe printed a correction. Dr. Ayash did not withdraw her demand for damages.

That was the state of affairs when the Globe applied for insurance. In its insurance application the Globe listed past and present litigation but did not list the dispute with Dr. Ayash. The Globe stated in its application that it received many threats from people seeking to have the Globe print more favorable information about them, and that it was difficult to separate the inconsequential threats from the serious ones.

Dr. Ayash subsequently sued the Globe and was awarded more that $2 million in damages.

The United States Court of Appeals held that coverage for the Globe was not barred by the known loss doctrine, stating, "The loss here may have been likely, but it was not substantially certain or known by the Globe to be so when the policy was obtained."

Claim Check - Work Comp Experience Mod

Check Loss Reserves at the Policy Five-Month Point

Your workers' compensation experience modification is calculated based on three years of experience (payrolls and losses). Your modification for 2009 is based upon payrolls and losses in 2005, 2006, and 2007.

The calculation is based on losses at, approximately, the halfway (six month) point in the policy.

Losses include what has been paid and any reserves on an open claim. (Recall that reserves are an amount the insurer expects to pay during the life of the claim.)

Insurance carriers report loss information to the rating authority, The National Council On Compensation Insurance (NCCI).

If you can reduce reserves prior to when loss valuations are reported, you can reduce the impact of the losses that go into your experience mod calculation. This reduces your mod and therefore, your premium.

More on Sterlin and 93A damages

This is my fourth and final post on Sterlin v. Commerce Ins. Co.

In my last post I discussed the 93A damages awarded by the judge, correctly based on the lost interest resulting from the delay in settlement.

Pierre took out a loan against the settlement. He sought 93A damages for the loss of the payment of $4,855 in loan origination fees and interest through the time the offer of settlement was made. The court denied this claim on the grounds that he had failed to prove his damages--Pierre testified about the loan, but did not support his testimony with documentary evidence.

By leaving open the possibility of paying such damages if proven, the judge has widened the scope of 93A/176D damages beyond lost interest on a settlement, to all damages resulting from the inconvenience of not having funds available. Should Pierre receive 93A damages for extra medical costs he personally incurred as a result of not being able to pay for health insurance? What if the bank had foreclosed on his house because he couldn't pay his mortgage?

Superior Court correctly awards 93A damages based only on lost interest

Update: See this post for a clarification.

In my last two posts I have discussed the recent Superior Court decision in Sterlin v. Commerce Insurance Company. As I noted, Commerce was slapped with 93A damages for ignoring overwhelming evidence that a car accident was the fault of its insured driver.

The plaintiffs' damages in that case were enough to make even a cold-hearted over-analytical lawyer like myself feel a twinge of sympathy. The car that was hit had three occupants. The woman who spent two weeks in a body cast was not the worst-injured. Rather that was Pierre, who suffered a degloving injury to his dominant right hand, and various fractures of his hand, fingers, and wrist. He was hospitalized for 16 days and had a total of four operations. His thumb was amputated. Eventually his pinky was amputated and reattached in his former thumb's position.

In addition, because he could not work he lost his job and his medical insurance. His wife also lost her job. After maxxing out help from charities, friends, family, and credit cards, he received a loan against the expected proceeds of the lawsuit.

With a $500,000 policy limit to be divided among Pierre and two other occupants of the car, he received $275,000 in settlement of the underlying claim.

The court held that the 93A damages would start to run from a month after the insurer received complete medical records, and would be cut off at the time that it finally made a reasonable offer of settlement, a period of about five months.

The court noted that unjust delay in reaching a settlement subjects a claimant to costs and frustrations that are encountered when litigation must be instituted. It continued, "Moreover, when an insurer wrongfully withholds funds from a claimant, it is depriving that claimant of the use of those funds." The court held that the loss of use of money constitutes actual damages, consisting of the interest that would have been earned on that money at a rate of five percent. Therefore, the judge held, the actual damages were $5,733.75. He trebled that amount pursuant to the punitive damages provision of 93A, to $17,201.25.

The judge correctly calculated the 93A damages. This case is a good reminder that no matter how egregious an insurer's actions are, damages are based on lost interest, not the amount of the settlement or verdict.

The judge also awarded costs and attorney's fees, to be determined at a later hearing.