So this stripper walks into a bar…

I remember talking to a reporter in 2010. A late night accident in Worcester, Massachusetts left a young lady in the hospital. A decade later the legal dust has finally settled, leaving a lesson about why Massachusetts could be the best state to buy insurance in.

I can tell it as an open-and-shut case. Late one night a driver going 22 miles per hour over the speed limit failed to yield right of way at an intersection. He pulled some strings to get out of an alcohol test.

There are two bad reasons he wasn’t charged and two good reasons it was at least an ambiguous situation.

The real reason he wasn’t charged was, he was an off duty cop. His department’s “investigation” was guaranteed to exonerate him no matter what. And the woman was a stripper. Of course legally that’s not relevant, but class still matters in America. A coworker told me about lying on the ground next to his motorcycle with his leg ripped open. Police on the scene were sure he had it coming until they took his address down and realized he lived in an expensive apartment building. Then he turned into a victim.

Having said that, a civilian might have come away equally lucky. I can also tell it as an open-and-shut case the other way. The woman was drunk and she was pulling out from the end of a road at an uncontrolled T intersection. The law says drivers have to yield to the right at a T intersection, meaning she had the right of way, but nobody really does. Traffic on the main street expects to be given priority. State regulations for insurance companies say they can assign fault to the driver who technically had right of way.

All that is background to the decade-long legal battle, which was not between the two drivers. She was fighting her employer’s insurance company.

She was on her way home from work when the accident happened. The nightclub she worked at had been serving her liquor even though employees knew she was underage. A bouncer put her in her car and handed her the keys even though she was clearly drunk. Under Massachusetts law the club shares responsibility for whatever happens next.

The injured woman’s lawyer made a claim covered by the club’s $300,000 alcohol-related liability insurance policy. The insurance company’s attitude was “Whatever. So sue me.”

Under Massachusetts law an insurance company can not refuse to pay a claim “without conducting a reasonable investigation.” An insurance company must promptly pay a claim if “liability has become reasonably clear.”

The insurance company should have known its insured was liable, and it did know the case was worth more than policy limits. Instead it waited three years before offering policy limits. That three year delay is actionable, and a violation of state consumer protection law subject to punitive damages.

What’s the value of a three year delay in getting your $300,000? I would have thought, the interest on $300,000. The real answer is, “whatever the judge says it is.” Plenty of insurance companies have faced seven figure liability for violations related to six figure policies. Capitol Specialty Insurance Corp. got to join that list.

A federal judge awarded $5.4 million for the delay in payment. Or rather, for the financial trouble and emotional distress caused by the delay in payment. But really, to teach the insurance company a lesson and help out a woman who is permanently disabled. That breaks down into $1.7 million compensatory damages and $3.4 million punitive damages. The insurance company appealed and lost. And now owes even more attorney’s fees on top of the rest.

There’s one more reason Massachusetts insurance companies are less likely to dare you to sue them. Judgments earn 12% interest retroactive to the filing of the suit if not earlier. The year the insurance company spent appealing the case cost it another $650,000.

If an insurance company denies a claim in good faith but loses at trial, it still owes 12% interest. As one lawyer put it, prejudgment interest can “motivate insurers to settle claims quickly and not clog up the courts.”

These laws may explain why I find insurance-related horror stories less common in Massachusetts than in some states.

The opinions expressed in this post belong to the author and do not necessarily represent those of the National Motorists Association or the NMA Foundation. This content is for informational purposes and is not intended as legal advice. No representations are made regarding the accuracy of this post or the included links.

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