Chapter 93A Demand Letter Impact on Insurer’s Duty to Defend


A recent holding from the United States Court of Appeals for the First Circuit addressed the impact of a demand letter pursuant to Massachusetts General Laws Chapter 93A, Section 9 ("Chapter 93A") on an insurer's duty to defend. The First Circuit Court determined that a Chapter 93A demand letter is not the functional equivalent of a "suit," and accordingly, did not trigger an insurer's duty to defend under the homeowner's policy at issue.

The case, Sanders v. The Phoenix Insurance Company and Travelers Indemnity Company of America, involved a provocative, and unfortunately tragic, set of underlying facts. (1st Cir. 2016). A lawyer, "John Doe," developed an intimate on-again/off-again relationship with a client whom he represented in a divorce proceeding. John Doe continued to represent his client, despite the intimate relationship, but began to distance himself romantically as time passed. Ultimately, one evening, John Doe broke a promise he made to his client that he would meet up with her at her apartment. As a result of this broken promise, the client wrote a suicide note and drank herself to death.

Harry Sanders, the decedent's husband, sent John Doe a demand letter pursuant to Chapter 93A. This statute, the Massachusetts Consumer Protection Law, provides a consumer with a private right of action against a business that employs unfair or deceptive practices. Violating the consumer protection law may have drastic consequences, including, double or treble damages, attorneys' fees and costs.

Upon receiving the Chapter 93A demand letter, John Doe notified The Phoenix Insurance Company ("Phoenix"), his homeowner's insurance carrier, based on the belief that coverage would apply since part of the intimate relationship occurred at his home. Phoenix looked into the matter and denied coverage because the client's death was not an "occurrence" covered by John Doe's homeowner's policy, and professional services were excluded from coverage.

Nevertheless, Sanders settled the matter with John Doe, and his firm, out of court. As part of the settlement, John Doe agreed that his personal liability to Sanders amounted to $500,000 and assigned all of his rights and interests under the homeowner's policy to Sanders for any claim he might have against Phoenix for failing to defend and/or indemnify him. Sanders proceeded to send a Chapter 93A demand letter to Phoenix, which ultimately refused the demand.

Sanders then filed a suit against Phoenix, which was dismissed for Failure to State a Claim. The issue on appeal of whether coverage was available under a standard form homeowner's insurance policy was reviewed de novo and affirmed.

The United States Court of Appeals for the First Circuit stated that the general rule that there is no duty to defend before the filing of a suit is not ironclad. Here, however, pursuant to the language of the homeowner's insurance contract, the Chapter 93A demand letter only triggered an option to investigate, as opposed to a duty to defend which applies to "suits" alone. It was held that Phoenix's duty to defend the underlying suit was never triggered because the case was settled through voluntary mediation, and Sanders never initiated a "suit" against John Doe.

Significantly, the Court stated that a Chapter 93A demand letter has no effect on the insured's underlying liability, and is therefore not considered a "suit." Rather, the Chapter 93A demand letter was deemed to be the functional equivalent to a standard personal-injury demand letter.

The core of the holding focuses on the terms of the insurance contract which will ultimately dictate whether an insurer has a duty to defend and/or investigate, or neither, when a Chapter 93A demand letter is received by the insured. An insurer's obligations can be determined by the specific agreement reached in the contract. This recent decision provides precedent defining the meaning of a "suit," and clarifies that it is not necessarily the equivalent to receiving a Chapter 93A demand letter.

Insurers are often uncertain about the application of Chapter 93A. Unlike a standard personal-injury demand letter, a Chapter 93A demand letter generally triggers a duty to make a reasonable response within 30 days. We have found that the response to a Chapter 93A demand letter can have a substantial impact on the success or failure of the claims being made. Thus, insurers should consider the benefit of taking advantage of participating in the response to the Chapter 93A demand letter, as the money spent and defense provided could well reduce the value of the claim in the long run.

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Governo Law Firm routinely handles complex insurance coverage issues and provides advice to insurers regarding their responsibilities when an insured receives a Chapter 93A demand letter. If you would like to speak with someone regarding your insurance coverage issues, please contact David Governo at [email protected].com or Alec Pine at [email protected].