The Massachusetts Supreme Judicial Court has ruled that post-judgment interest in a bad faith case against an insurance company should not be included in the amount that is doubled or trebled under Massachusetts law.

The Case

Odin Anderson, his wife, and his daughter filed a personal injury action in a Massachusetts state court seeking to recover for the injuries Mr. Anderson suffered after being struck by a bus owned by Partners Healthcare Systems, Inc., that was being driven by one of its employees.

The Andersons also filed a separate action against Partner's insurers and claims representatives; proceedings in that action were stayed pending resolution of the underlying personal injury claims.

After a trial, a jury awarded Mr. Anderson $2,961,000 in damages in the personal injury action and awarded his wife and daughter $110,000 each.

At a subsequent, jury-waived trial, a different judge found that the insurers and claims representatives had violated Massachusetts law by their "egregious," "deliberate or callously indifferent" actions, "designed to conceal the truth, improperly skew the legal system and deprive the Andersons of fair compensation for their injuries for almost a decade."

Based on these findings, the judge concluded that the insurers' and claims representatives' "misconduct" warranted the "maximum available sanction … , both as punishment for what transpired and as a deterrent to similar conduct in the future."

The judge awarded the Andersons treble damages, using as the "amount of the judgment" to be multiplied the combined amount of the underlying personal injury judgment and the accrued post-judgment interest on that judgment.

An intermediate appellate court affirmed the judgment of liability and the Supreme Judicial Court of Massachusetts agreed to decide whether post-judgment interest was properly included in the "amount of the judgment" to be multiplied under the law.

What Massachusetts law says

According to the Massachusetts insurance law, an insurance company commits an unfair claim settlement practice if it "[f]ail[s] to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear."

The law also says that where an insurer's action was willful or knowing, the court must award multiple damages of up to three but not less than two times the actual damages in the underlying action. The statute further provides that:

For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence.

Massachusetts Supreme Judicial Court's decision

The court held that in a case in which the amount of actual damages to be multiplied due to a willful or knowing violation of the law must be based on the amount of the underlying judgment, that amount did not include post-judgment interest.

In its decision, the court explained that the phrase "the amount of the judgment" did not provide "any express guidance as to whether the 'judgment' to be multiplied" for willful or knowing misconduct encompassed post-judgment interest.

It then reasoned that post-judgment interest was "not an element of compensatory damages" but, rather, served to provide compensation to the prevailing party for delay in payment after a non-prevailing party's underlying obligation had been established.

Put differently, the court continued, post-judgment interest was "borne by the judgment" and was "separate and distinct from it." That a judgment "bears" interest, the court said, suggested that interest was "not an inherent part of the judgment itself but, rather, something accrued in addition."

Finally, the court concluded, it would not "read into the statute an additional measure of punishment" that the legislature did not set forth "explicitly."

The case is Anderson v. National Union Fire Ins. Co. of Pittsburgh, Pa.

Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry's only comprehensive digital resource designed for insurance coverage law. Click here to subscribe.

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