An insurer that mishandled a liquor liability claim resulting from a fight after a beer pong tournament has discovered the tab is considerably bigger than it first thought.
Hospitality Mutual Insurance Co. will have to pay $500,000 plus legal costs because it failed to conduct a fair claims investigation and make a reasonable settlement offer to a patron who suffered a skull fracture in a post-beer prong brawl in the parking lot of a bar it insured.
That comes on top of a $250,000 jury award in a dram shop liability case won by the same patron against the bar and two defendants.
A Massachusetts Court of Appeals (Norfolk) has agreed with a lower court that the insurer engaged in unfair and deceptive claim practices because it did not objectively assess all available evidence in the case but cherry-picked evidence in favor of its insured, Canton Junction Sports Pub. Also, the insurer’s pre-trial settlement offer to plaintiff William Terry was unreasonable even though Terry may have exaggerated his injuries.
Terry was attacked and injured after a beer pong tournament at the Canton Junction Sports Pub in 2011. After the pub’s insurer, Hospitality Mutual, declined to settle, Terry filed a lawsuit asserting dram shop negligence. Before the dram shop trial began, Terry continued his attempts to negotiate a settlement with Hospitality over Canton Junction’s liability, reducing his original $5 million demand to $1 million and then to $975,000, but Hospitality Mutual’s highest pretrial settlement offer was $25,000. The dram shop action proceeded to a jury trial, and Terry was awarded $250,000 in damages. The judgment was against Canton Junction and two intoxicated beer pong customers of the bar who attacked Terry in the parking lot.
After that dram shop judgment, Terry brought a consumer action against Hospitality Mutual for unfair and deceptive claim settlement practices, which was tried before Associate Justice Beverly J. Cannone of the Superior Court. The judge found that Terry had exaggerated his injuries but that, regardless, Hospitality Mutual had engaged in unfair and deceptive claim settlement practices by conducting an investigation that focused on disproving Canton Junction’s liability instead of objectively assessing all the evidence. The judge found that the insurer also failed to offer a fair and equitable settlement once Canton Junction’s liability became reasonably clear.
Judge Cannone concluded that Hospitality’s unfair and deceptive claim settlement practices were knowing or willful, and she awarded Terry double damages in the amount of $500,000, plus attorney’s fees and costs.
The insurer appealed the $500,000 ruling, arguing that judge applied an incorrect legal standard whereas the correct one would show that Hospitality did not engage in unfair claim settlement practices. It also argued that its settlement offer was fair because liability was uncertain at the time it was made.
Beer Pong Night
In the early evening of February 17, 2011, the two defendants, Michael Connors and Kilder Cardon, went to a bar in Boston where they participated in their first beer pong tournament of the evening. Video footage depicted them drinking, and the judge concluded that both appeared to be intoxicated.
They then drove to Canton Junction to participate in another beer pong tournament in which Terry and a friend of his were participating. Connors opened a tab at Canton Junction and ordered six beers for himself and two others, plus a pitcher of beer. While eyewitness accounts varied, multiple eyewitnesses stated at one point or another that both defendants were visibly intoxicated. Another testified that they became hostile and aggressive as they began losing and that Connors slapped one or more cups off the beer pong table, which prompted Terry to intervene. Connors took offense to this and needed to be calmed down. Connors and Cardona continued to be argumentative and a Canton Junction employee asked them to leave.
Shortly thereafter, Terry and a friend left the bar and went to the parking lot where they found Connors and Cardona near Terry’s car. A fight ensued and eyewitness accounts again varied over who started it. Terry wound up on the ground, where Connors and Cardona kicked him so hard that they left an imprint of a shoe on his face. According to medical records, Terry had abrasions to his knuckles and a right orbital fracture.
Before the police and emergency medical services arrived, the defendants fled the scene. Around 2 a.m., Connors flipped his truck and crashed into a tree. Connors was arrested for driving under the influence after failing multiple field sobriety tests. Booking photographs do not show any injuries to Connors’s face, despite Connors’s assertions that the fight began with Terry punching him. Connors pleaded guilty to driving under the influence.
Hospitality Mutual assigned adjuster Stephanie George to the claim. George began by reviewing a police report that included statements from witnesses including one from the beer pong sponsor who said Connors and Cardona were intoxicated and started the fight and one from Connors and Cardona who said they were not intoxicated and that Terry started the fight. After reviewing the police report, George made a notation in the claim file that referred to Connors’s and Cardona’s version of the events; George omitted any reference to the other significantly different version of the events.
Later George met with Canton Junction’s manager and bartender. They denied that Connors and Cardona were visibly intoxicated. While Canton Junction had 17 surveillance video cameras, George did not ask Canton Junction to provide her with the surveillance videotapes. At some point, the surveillance video footage was overwritten.
George made notations in the claim file that “there was no evidence that alcohol was a factor” and that none of the participants in the brawl were intoxicated.
Later, Hospitality reassigned the claim file to adjuster William Reynolds. Reynolds reviewed the deposition testimony taken for the dram shop action. Canton Junction’s manager and bartender both testified that Connors and Cardona were not visibly intoxicated. However, other testimony was to the contrary. Even Connors himself testified that there were “clear signs” that he was intoxicated. Reynolds said he did not put much stock in this testimony because Connors was not an expert on intoxication.
The bartender also testified that he was “TIPS certified,” meaning certified in the training and intervention procedures for servers of alcohol. However, as Hospitality later learned, the bartender did not become TIPS certified until after Terry was injured.
Reynolds noted that it appeared on video from the first beer pong site as though Connors and Cardona were “pretending to be intoxicated” and “posturing for the cameras.”
Reynolds also had access to a report prepared by James Staples, an expert listed on Hospitality’s own website as approved to train insureds on the safe service of alcohol. Staples reviewed the video footage and wrote a report stating that Connors and Cardona appeared intoxicated, Hospitality did not use the report and removed Staples from its website.
Following Reynolds’s review of all this testimony, he made a notation in the claim file that “no” witness supported that Connors or Cardona appeared intoxicated at Canton Junction.” He also wrote that “[a]ll testimony thus far has been that Terry was the aggressor.”
The claim file was closed due to lack of pursuit by Terry but subsequently reopened when Terry sent his demand letter. By then, Connors and Cardona had been indicted, and had pleaded guilty to assault and battery and other crimes arising from the incident.
Hospitality also put significant resources into a medical investigation that raised questions about Terry’s claim that he suffered a traumatic brain injury and hired an investigator to conduct surveillance on Terry that showed he continued to engage in everyday activities.
The court noted that state law requires insurance companies to investigate insurance claims promptly and reasonably. The law further makes it unlawful for insurance companies to “fail to effectuate prompt, fair and equitable settlement of claims in which liability has become reasonably clear.”
Hospitality claims that it conducted a prompt and reasonable investigation that revealed good faith disagreements on all aspects of Canton Junction’s liability, including whether Connors and Cardona were visibly intoxicated, whether they — versus Terry– were the aggressors, and the extent of Terry’s injuries. Thus, Hospitality asserts that, notwithstanding the fact that a jury awarded Terry ten times the amount of Hospitality’s $25,000 settlement offer, that settlement offer was reasonable.
The appeals court bluntly disagreed. “In short, the record is replete with examples of Hospitality’s failure to assess the evidence objectively.”
The court said Hospitality was obligated to take “basic steps toward obtaining an independent or neutral assessment of . . . potential fault” but it violated this obligation by “cherry- picking” facts that “supported the position it staked out from the beginning –- that the insured’s liability was doubtful –- and discarded, or at least diminished the significance of, the considerable amount of contrary information.” As the Superior Court judge put it, Hospitality “engaged in a results-oriented treatment of the evidence related to the claim, rather than a considered appraisal” of it based upon all available information.
At one point the court dismissed an assertion by the insurer that assault and battery guilty pleas by the two defendants were not “conclusive” with the comment that “this argument is symptomatic of the problematic way in which Hospitality reviewed Terry’s claims from the start. Instead of assessing the evidence objectively, Hospitality continues to find reasons to disregard unfavorable evidence.”
While Hospitality consistently found reasons to disregard unfavorable evidence, the insurer did “not apply the same exacting scrutiny to favorable evidence.”
From the start of Hospitality’s investigation, George focused on the favorable information in the police report and, shortly thereafter, concluded that “there [was] no evidence that alcohol was a factor.” This was an inaccurate statement given other, unfavorable, information in the police report. Reynolds similarly concluded that “no” witness supported that Connors and Cardona appeared intoxicated when they were served alcohol at Canton Junction. This, too, was inaccurate.
Hospitality ignored the fact that the bartender falsely testified that he was certified in the training and intervention procedures for servers of alcohol at the time of the incident.
On January 16, 2015, Hospitality extended its offer of $25,000. That offer was based on Reynolds’s assessment that Canton Junction was 25% at fault for Terry’s injuries, which Reynolds described as an orbital bone fracture and mild concussion worth $75,000, but there was also a 5% chance that a jury would find that Terry suffered a traumatic brain injury worth $400,000.
Terry did not accept that offer, and over a year later on February 26, 2016, he made a $975,000 counteroffer, which also was rejected. The dram shop trial in which Terry was awarded $250,000 occurred shortly hereafter.
Regarding the settlement offer, Hospitality argued that liability was unclear in January 2015 when it made its offer. But the judge determined that, by then, it was “reasonably clear” that Connors and Cardona were visibly intoxicated when they were served alcohol at Canton Junction and that they started the fight. The judge also found that Terry’s accounts of his injuries were inconsistent and that, despite Terry’s assertions to the contrary, he continued to engage in everyday activities. Regardless, the judge found that the objective medical records showed that Terry sustained a right orbital fracture that had not fully healed three years later. The judge described this as a “lasting, serious injury.” Accordingly, the judge determined that, by January 2015, no reasonable insurer would have failed to offer at least $75,000, which was the amount that Reynolds himself estimated Terry’s injuries to be worth.
Hospitality defended its offer by arguing that since Terry’s dram shop claim presented triable issues of fact, liability could not have been reasonably clear. Hospitality asserted, for example, that a reasonable fact finder could have concluded that Connors and Cardona were pretending to be intoxicated in the beer pong video footage. However, the court responded that the existence of triable issues of fact does not necessarily mean that liability is not reasonably clear. It added that Terry’s lack of credibility did not absolve Hospitality from making a reasonable settlement offer based on what the uncontroverted objective evidence showed.
Hospitality also argued that Terry should not have prevailed without presenting credible expert testimony that Hospitality’s claim settlement practices fell below the industry standard of care. First, Terry did present expert testimony on this point, although the judge gave it little weight. In any event, the appeals court stated, expert testimony is not required in all cases alleging unfair and deceptive claim settlement practices. “Here, where Hospitality plainly failed to objectively assess the evidence or to extend a reasonable settlement offer once liability became reasonably clear, no expert testimony was needed, the court wrote.
Hospitality Insurance Group, based in Southborough, Massachusetts, provides liquor liability insurance and other coverages for restaurants in Massachusetts, Connecticut, New Hampshire, North Carolina, Pennsylvania, Rhode Island and Vermont. The company was created in 2008 when Massachusetts agreed to convert the state-run liquor liability joint underwriting authority to a private entity.