Insurer Chubb has been accused of “lowballing” offers in the settlement of an employee class action that the owner of a popular New England grocery chain was motivated to close out due to fears that further discovery might reveal damaging information related to internal management battles.
Demoulas Super Markets (DSM), the owner of Market Basket, alleges that Chubb has committed unfair practices in refusing to pay the limits of its $15 million policy towards the $17.5 million settlement.
DSM was insured under a Chubb policy providing fiduciary liability coverage of $15 million. DSM was also insured under a $10 million excess policy from National Union Fire Insurance Co. (AIG).
DSM sought coverage after employees brought an ERISA class action for alleged mismanagement of the company’s profit sharing plan. Market Basket operates about 90 grocery stores in New Hampshire, Massachusetts, Maine and Rhode Island.
The employees asserted that they could prove $90 million in damages and made a settlement demand of $45 million. An analysis by an expert hired by DSM, who was unaware of the potentially damaging other information, “conservatively” valued plaintiffs’ claims at $32.5 million.
The parties agreed on a mediated settlement of $17.5 million. DSM contends that Chubb knew that the settlement was about 50% lower than DSM’s own expert’s assessment of potential damages and that settling would avoid further discovery including from hostile directors who were involved in a highly-publicized internal corporate fight for control of DSM in 2014 and 2015.
DSM also maintains that Chubb knew that the expert’s analysis did not take into account additional documents that could potentially increase DSM’s exposure and knew that failure to settle would likely result in substantial defense costs that would erode the Chubb policy amounts.
Anxious to put the matter to rest, DSM accepted and paid the settlement offer even though it was uncertain about how much Chubb would ultimately contribute.
After the court made the settlement official, DSM says it continued to ask Chubb to pay $15 million towards the $17.5 million ERISA settlement.
Chubb eventually paid $7.8 million and, thereafter, according to DSM, when pressed to pay more, shifted its positions several times “in an attempt to lowball a settlement” with DSM.
According to DSM, Chubb “falsely asserted” that DSM counsel had early on assessed the fair settlement value of the case to be about $8.5 million, or 1% of the retirement plan’s assets. However, DSM says its counsel never made any such assessment, orally or in writing, but rather, DSM’s counsel suggested that “1% of total plan assets might constitute a reasonable starting position for negotiations.”
At one point, according to the complaint, Chubb offered an additional $2.35 million for a total of $10.15 million in exchange for a full release of all claims, an offer Chubb’s counsel characterized as a previous offer that was still on the table. “But that statement was merely an attempt to rewrite history as there was no such offer on the table at the time,” DSM says in its complaint.
Meanwhile, AIG agreed to pay $2 million towards the settlement agreement, an amount that constituted 80% of what DSM was entitled to under the excess policy.
But Chubb has refused to pay the balance of DSM’s claim or, DSM alleges, conduct a “reasonable investigation” based upon all available information. DSM contends that Chubb had and continues to have “no reasonable basis” for disregarding the mediator’s proposal nor for disregarding the expert’s analysis.
In addition, DSM alleges that Chubb threatened to refuse to pay any amounts if DSM continued to insist that it receive the Chubb policy limits amount.
“Chubb knew that liability was reasonably clear, knew that DSM’s exposure was likely substantially over the settlement amount, and knew that defense costs were likely to be substantial if the case did not settle,” the complaint states. Nevertheless, Chubb engaged in “intentional ‘lowballing’ of DSM” by extending settlement offers that were substantially less than the settlement agreement and even reducing its initial lowball settlement offer. Chubb also “exacerbated its lowballing by baselessly threatening to deny coverage altogether if DSM did not accept Chubb’s unreasonable offers,” the complaint continues.
The suit was filed in U.S. District Court for Massachusetts.
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