Miller v. Risk Management Foundation of the Harvard Medical Institutions, Inc.

Citations: 36 Mass. App. Ct. 411; 632 N.E.2d 841Docket: No. 92-P-1127

Court: Massachusetts Appeals Court; April 29, 1994; Massachusetts; State Appellate Court

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Malcolm Miller, a patient at Beth Israel Hospital, sustained serious burns due to probable negligence by the hospital and possible negligence by a doctor and nurse during a surgical procedure. The Risk Management Foundation of Harvard Medical Institutions was involved in managing malpractice claims related to the hospital but failed to initiate a settlement for Miller's case over an extended period. Consequently, the Millers filed a malpractice lawsuit against the hospital, doctor, and nurse in Superior Court, achieving a favorable verdict against the hospital, which was subsequently reduced to a statutory maximum of $20,000 due to its charitable status. The Millers then pursued claims against Risk Management under the Consumer Protection Act and the statute concerning unfair practices in insurance, alleging a lack of reasonable settlement offers despite clear liability. A Superior Court judge awarded the Millers treble damages for the delay and granted attorney’s fees for their legal work, while dismissing the claims under the unfair practices statute. Risk Management appealed the decision, and the appellate court affirmed the judgments but required reevaluation of the damage award and attorney’s fees on remand. The incident leading to Miller's injuries involved the improper use of a heat lamp, resulting in severe burns that necessitated multiple surgeries and hospital stays. Risk Management was notified of the incident shortly after it occurred but delayed action on the claim, with minimal communication with the Millers' attorney until legal action was initiated. Demand letters were sent to Risk Management, threatening litigation under the Consumer Protection Act if a settlement was not reached.

On December 18, 1984, Doyle expressed difficulty in evaluating Miller's negligence claim due to Miller's prior medical condition and requested additional information regarding the liability. On April 10, 1985, Risk Management offered a $20,000 settlement for both plaintiffs' claims, which was rejected. A jury trial for the malpractice action occurred in June and July 1986, resulting in verdicts of $278,000 for Miller and $130,000 for his wife against the hospital; however, these amounts were reduced to $20,000 each under G. L. c. 231, § 85K, which caps tort recoveries against charitable institutions. Verdicts were returned in favor of Dr. Hanson and Cady, with no appeals filed against the July 10, 1986 judgments.

On February 15, 1985, Malcolm Miller initiated an action against Risk Management, later joined by his wife, claiming wrongful withholding of settlement despite clear liability. After a nonjury trial in April and May 1989, the judge ruled in favor of Risk Management on the c. 176D claim, determining it was not an insurance entity and thus not subject to a direct action under that statute. However, the court found Risk Management violated c. 93A due to its handling of the Millers' claims.

Subsequent rulings led to judgments for the Millers for treble interest on the $40,000 from July 1983 until July 1986, totaling $21,600, and attorney's fees deemed fair by the judge: $30,547.31 for the malpractice case (compared to $45,593.00 requested) and $70,000 for the c. 93A actions (versus $146,496.75 requested). The court examined whether Risk Management was subject to c. 93A, if c. 176D standards could apply, whether violations were properly identified, and if damages and attorney’s fees were correctly assessed. Risk Management contested its classification under c. 93A, but the judge's affirmative finding was upheld, considering factors such as the party's character, transaction nature, and business motivation. The record indicated that medical malpractice insurance for affiliated hospitals was provided by Controlled Risk Insurance Company (CRICO), while Risk Management, a Massachusetts charitable corporation, handled claims against the hospitals, negotiated settlements, and appointed trial attorneys for litigation.

CRICO and Risk Management are entities owned by Harvard University and its affiliated hospitals. The judge determined that Risk Management engages in claim facilitation to minimize CRICO's liability, a function characterized as commercial rather than personal. This activity is deemed part of trade or commerce under G. L. c. 93A, despite the absence of a direct contractual relationship with the Millers regarding their malpractice claim. Risk Management's charitable status does not exempt it from c. 93A, as it operates in a business context, contrasting with cases where services were incidental to primary charitable functions. The judge noted Risk Management's failure to settle the Millers' claims fairly and its refusal to conduct a reasonable investigation, drawing parallels to standards outlined in c. 176D regarding insurance practices. Risk Management's argument against applying c. 176D standards is dismissed as inappropriate, as it functions as a negotiator between CRICO and claimants, justifying the application of fair dealing standards from c. 176D to its operations. Courts often look to related statutes and common law for guidance on what constitutes unfair or deceptive practices under c. 93A.

The judge appropriately referenced the standards of c. 176D to interpret c. 93A but could have reached the same conclusion based on the ethical obligation to avoid delaying settlement when liability is evident. The findings revealed that Risk Management, aware of the accident in April 1983, recognized the malpractice claim as having reasonably clear liability by July 1983. However, the company failed to respond to the Millers’ June 1984 demand letter for six months and only made a $20,000 settlement offer in April 1985, two years post-notice and months after liability was clear. The judge deemed this offer unreasonable and indicated that Risk Management should have proposed at least $40,000 at the time it became aware of its obligation to settle fairly.

Risk Management contended that its actions only amounted to negligence, but the judge determined that the company's indifference constituted a violation of c. 93A, warranting damages under § 9(1) and potential trebling of damages under § 9(3) for bad faith withholding of relief. The judge awarded interest on the wrongfully withheld $40,000 from July 1983 to July 1986, while noting the need to deduct prejudgment interest already awarded in the malpractice action to prevent double recovery. Attorney’s fees incurred in the malpractice case were deemed recoverable under c. 93A due to the foreseeability of those expenses resulting from Risk Management’s delay, although the judge's interpretation of c. 93A § 9(4) raised questions since it typically allows fees only related to the c. 93A action, not other actions.

The Millers hired an attorney on a contingency fee basis, agreeing to pay one third of any gross recovery plus reasonable expenses. They incurred additional expenses due to the litigation of malpractice and loss of consortium claims instead of settling early. At the time the c. 93A action was initiated, the malpractice case had not yet been tried, and both the doctor and nurse were potential targets for malpractice claims. A jury ultimately found them not negligent. In the c. 93A trial, the Millers argued that Risk Management should have recognized the negligence of the doctor and nurse earlier and offered a reasonable settlement. This argument was rejected by the trial judge, who noted that the Millers’ claim against Risk Management lacked merit, particularly since the pursuit of the c. 93A claim related to the doctor and nurse was seen as unrealistic. The potential damages from the c. 93A action were estimated to be $40,000 for delay, plus other expenses from the malpractice case. The judge affirmed the judgments but remanded specific issues for recomputation or reconsideration, allowing for additional evidence and arguments. Risk Management attempted to settle the entire case for $35,000, which was countered by the Millers' attorney but ultimately rejected. Additionally, there was a suggestion that Risk Management, viewed as a 'charity,' might not be liable for damages exceeding $20,000 under G. L. c. 231, § 85K, which limits liability for torts committed in the course of charitable activities.

General Laws c. 176D, § 3 outlines unfair claim settlement practices, including the refusal to pay claims without a reasonable investigation and the failure to promptly settle claims where liability is clear. Under General Laws c. 93A, § 9(1), individuals affected by violations of § 3(9) can bring actions for damages and equitable relief in superior court. Prior to the 1979 amendment to c. 93A, actions against insurers for violating c. 176D were already permissible under its general provisions. If the court finds in favor of a petitioner under c. 93A, § 9(3), damages awarded can be either the actual damages or $25, whichever is greater, and may be multiplied for willful or bad faith violations.

Regarding the hospital's liability, Risk Management claims that the $20,000 limit of G. L. c. 231, § 85K applies to both of Millers’ claims from the same incident, a position deemed meritless since the statute refers to limits per "cause of action." The consortium claim is considered an "independent tort." The 1989 amendment to c. 93A, § 9(3) states that the amount for multiplying damages shall be the judgment amount from all related claims, though this amendment applies only prospectively. There is potential for awarding full attorney’s fees in specific instances, particularly under c. 93A, but not in the malpractice action at hand.

On cross appeal, the Millers argue that Risk Management should have offered $140,000 to settle, which presupposes clear malpractice liability for the doctor and nurse. The judge found liability only clear for the hospital, and the outcome of the malpractice action against the individuals supports this conclusion.