Even when an insurer receives very belated notice of a suit
against its insured, it can face harsh consequences if it does not
take action to provide a defense.
Despite a policy limit of only $50,000 and notice of suit
received by the insurer only after an entry of default against the
insured in the underlying tort action, the Massachusetts Supreme
Judicial Court (SJC) recently upheld a $3,574,357 judgment against
an insurer for breaching its duty to defend.
In Boyle, a tire exploded inside a garage owned by
C&N, severely injuring plaintiff. C&N notified its
insurer of the accident, but did not notify the insurer when
plaintiff later filed the lawsuit because C&N had ceased
operations. Therefore, the insurer did not defend the
underlying suit, the court entered a default, and awarded a $2.25
million judgment by default after a damages hearing. Prior to
the hearing, plaintiff's lawyer sent notice to the insurer
about the hearing, but the insurer did not intervene.
