First Circuit Reinstates Bad Faith Claim, Exposing Insurer to Treble Damages After a $2.65M Offer on a $7.5M Case

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A July 29, 2025, decision from the U.S. Court of Appeals for the First Circuit has sent a clear warning to insurers about the risks of delaying fair settlement offers once they have a clear picture of a claim’s value. In Appleton v. National Union Fire Insurance Company, the First Circuit reversed a lower court’s dismissal of an injured plaintiff’s bad faith claim, finding that a jury could conclude the insurer failed to effectuate a prompt and fair settlement in violation of G.L. c. 176D, § 3(9)(f).

The decision breathes new life into Paula Appleton’s suit alleging that National Union and its claims administrator, AIG Claims, Inc. (AIG), engaged in unfair settlement practices after she suffered catastrophic injuries in a 2015 car crash. While the appellate court affirmed the dismissal of a separate claim alleging an inadequate investigation under § 3(9)(d), its ruling on the failure-to-settle count is a critical development. The decision remands the case for trial, where the insurer now faces the specter of having the underlying $7.465 million jury verdict trebled as punitive damages under G.L. c. 93A. This article will break down the court’s reasoning and the significant implications for claims handling in Massachusetts.

A Catastrophic Accident and a Clear-Cut Claim

The case arose from a devastating crash on January 29, 2015. Paula Appleton, then 34, was a passenger in a car driven by her fiancé when a pickup truck, operated by an employee of Curtiss-Wright Corporation, struck their vehicle from behind at over 60 mph. The impact propelled their car underneath a tractor-trailer, nearly crushing it. Ms. Appleton had to be extricated from the wreckage and airlifted to a hospital. Her injuries were severe and life-altering, including a subarachnoid hemorrhage, a ruptured bladder, and numerous fractures to her pelvis, hip, and legs. She spent nearly three weeks in the hospital, followed by four months in inpatient rehabilitation facilities.

Curtiss-Wright was insured by a $1 million primary policy with Travelers and a $25 million excess policy with National Union, administered by AIG. AIG received notice of the claim in December 2015. After AIG’s defense counsel was retained, he quickly concluded that the insureds had no liability defense for the rear-end collision and advised AIG that it was a “damages-only” case.

In August 2016, Ms. Appleton’s attorney submitted an extensive demand package to AIG. The package detailed her injuries, included medical reports, a life care plan valuing future care at over $3.7 million, and a video depicting her daily struggles. It concluded with a formal settlement demand of $18 million to cover her past and future medical care, as well as her profound pain and suffering.

A Breakdown in Negotiations: Offers, Mediations, and Valuations

Despite the concession on fault, the path to settlement proved impossible. The parties engaged in three mediations over the next two years, but their positions remained far apart.

At the first mediation in March 2017, AIG offered $2 million in response to Ms. Appleton’s initial $18 million demand. Ms. Appleton rejected the offer, countered at $17 million, and the mediation was suspended to allow her to provide more medical information, particularly concerning a severe bladder injury.

Ahead of the second mediation in October 2017, Ms. Appleton’s counsel provided reports from urologists who confirmed she suffered from “severe incontinence” that would worsen over time. Despite this new evidence, AIG only increased its offer modestly to $2.65 million. Ms. Appleton rejected it and demanded $16 million.

Following this second failed mediation, AIG undertook a comprehensive effort to value the claim, which ultimately became the focal point of the First Circuit’s decision. Between October 2017 and January 4, 2018, AIG received three independent estimates of a potential jury award:

• Defense Counsel: Estimated a jury verdict between $6.5 million and $8.5 million.
• AIG Internal Review: A group of senior AIG claims professionals valued the claim at an average of $4.9 million. Following these first two estimates, AIG increased its claim reserve from $4 million to $7.5 million.
• External Jury Consultant: A mock trial simulation resulted in an average total damages award of $7.53 million.

By early January 2018, AIG was in possession of compelling data suggesting the claim’s value was in the $5 million to $8.5 million range, with its own reserve and an external consultant pointing to a $7.5 million figure. Yet, for nearly a full year, AIG did not increase its $2.65 million settlement offer. It was not until a third mediation in December 2018 that AIG raised its offer to $3.25 million, which was rejected. Finally, on the eve of trial in January 2019, AIG made a final offer of $5 million.

A jury, over the two weeks between March 11, 2019, and March 26, 2019, heard Ms. Appleton’s damage claim and AIG’s defense. On March 27, 2019, the jury awarded Ms. Appleton $7.465 million. After the deduction of a prior $600 thousand settlement and the addition of prejudgment interest, the final judgment entered for $8.65 million.

Following the verdict, Ms. Appleton served a supplemental  93A demand letter on AIG and National Union demanding multiple damages and attorney fees for their alleged unfair claim practices under G.L. c. 176D, § 3(9) by “fail[ing] to investigate Mrs. Appleton’s claim” and “fail[ing] to make a reasonable offer of settlement in the underlying case, and… in response to Mrs. Appleton’s [Chapter] 93A Demand Letter.”

Not receiving any acceptable response to her 93A supplemental demand letter, Ms Appleton sued AIG and National Union in the federal court in Boston.

The First Circuit’s Reversal: Why Liability Became “Reasonably Clear”

The legal framework for this case rests on the interplay between G.L. c. 176D, which defines unfair insurance practices, and G.L. c. 93A, which provides a private right of action for consumers. A violation of c. 176D, § 3(9), that lists unfair insurance claim practice acts, is, by definition, a violation of c. 93A, § 2, exposing an insurer to multiple damages and the mandatory payment of the claimant’s attorney’s fees.

The district court granted summary judgment to AIG, concluding that Ms. Appleton’s damages were always contested and thus liability never became “reasonably clear,” meaning AIG’s duty to settle under § 3(9)(f) was never triggered. The First Circuit soundly rejected this reasoning.

The appellate court focused its analysis on a simple question: viewing the evidence in the light most favorable to Ms. Appleton, could a reasonable jury find that liability became “reasonably clear” at some point before trial? The court noted that “liability” under the statute encompasses both fault and damages. Since fault was conceded, the inquiry turned on when the value of the damages became reasonably clear.

The court found that the three independent valuations AIG received by January 2018 provided strong evidence that the damages had, in fact, become reasonably clear by that date. The First Circuit panel noted that the estimates converged on an average of around $7.5 million. The court held that this convergence, particularly AIG’s own actions of increasing its reserve to $7.5 million and the external consultant’s matching valuation, created a triable issue of fact for a jury.

Having established that a jury could find liability was reasonably clear, the court turned to the second step: whether AIG made a “prompt, fair, and equitable” offer thereafter. Here, the court found AIG’s conduct lacking. It highlighted that “for almost a year after receiving the three jury award estimates…, AIG did not increase its previous settlement offer of $2.65 million”. This delay, the court reasoned, could be found by a jury to be neither prompt nor fair, especially when the offer on the table was less than half of what AIG’s own data suggested the case was worth.

The High Stakes of a 93A Violation: Potential Damages

With the case remanded for trial, the financial stakes for National Union have skyrocketed under G.L. c. 93A, § 9, if a court finds that the insurer’s unfair practice was a “willful or knowing” violation, it must award double or treble the claimant’s “actual damages”.

This is the critical takeaway for Massachusetts insurers. The Supreme Judicial Court has held that in failure-to-settle cases, the underlying judgment obtained by the claimant can serve as the measure of “actual damages” for multiplication purposes. In this case, the jury in the state court trial awarded Ms. Appleton $7.465 million. If a federal jury now finds AIG’s failure to settle was a willful and knowing violation of the law, the judge could be required to double or treble that verdict, leading to a punitive award between $14.93 million and $22.395 million. On top of that, a victorious c. 93A plaintiff is entitled to a mandatory award of reasonable attorney’s fees and costs.

Key Takeaways for Massachusetts Insurers

The Appleton decision offers several crucial lessons for claims professionals handling significant bodily injury claims in Massachusetts:

• The Valuation Trigger: An insurer’s own internal and external data is not just a tool for setting reserves; it can be used as a sword by a plaintiff to prove the exact moment liability became “reasonably clear.” When multiple valuations converge, the duty to make a fair offer is likely triggered.
• Promptness is Paramount: Possessing clear valuation data is not enough. An insurer cannot sit on that information. The First Circuit found that a delay of nearly a year in making a meaningful increase to an existing offer after the claim’s value crystallized was sufficient to send a bad faith claim to a jury.
• Offers Must Reflect Reality: An offer that represents a fraction of an insurer’s own well-researched valuation of a claim is a significant gamble. The court made clear that an insurer has a duty “to put a fair and reasonable offer on the table” regardless of the claimant’s demands, which may be perceived as excessive.
• The Peril of Punitive Damages: The financial consequences of misjudging the duty to settle are immense. A failure to adhere to G.L. c. 176D can transform a liability for an underlying verdict into a potential liability of two or three times that verdict, plus years of accumulated interest and the claimant’s substantial legal fees. What was a $7.5 million case has now become a potential $20 million-plus exposure for the insurer.

Editorial Note:
This article summarizes and comments on public court records. All quotations and descriptions are drawn from official filings and rulings. Any commentary reflects the author’s analysis for informational purposes only.