Dr. Johnson then filed a lawsuit against Proselect for negligence and breach of contract, asserting that it should not have settled the medical malpractice case against her without her consent. Although the settlement struck by Proselect inured to Dr. Johnson's immediate financial benefit in that it released her from liability for the amount of the verdict in excess of Proselect's available coverage, she nonetheless claimed that the settlement harmed her professional reputation and her future career prospects, and caused her emotional distress.

Dr. Johnson contended that notwithstanding the terms of her policy authorizing Proselect to settle a post-verdict claim without her consent, it did not have an absolute right to settle where Proselect's pursuit of post-trial motions and an appeal “would have served the substantial and compelling interest of [Dr. Johnson].”

The trial court granted summary judgment in favor of Proselect. The trial court decided that, under applicable New Hampshire law, Dr. Johnson's negligent defense claim failed because the duty of reasonable care in the control of the defense imposed on insurers applied only where the insurer's misconduct exposed an insured to personal liability. Because the settlement extinguished Dr. Johnson's personal liability for the amount of damages in excess of the policy limits, the trial court concluded that Proselect had fulfilled its duty of reasonable care.

The trial court also ruled that there was no viable claim for breach of the duty of good faith and fair dealing implied in the insurance contract because the policy language gave Proselect the right to settle the case post-verdict without Dr. Johnson's consent. Thus, the trial court reasoned, the “decision to invoke an express contractual right to settle cannot constitute a breach of the implied covenant of good faith and fair dealing.”

Dr. Johnson appealed.

The Proselect Policy

The Proselect policy provided that Proselect:

shall not be obligated to obtain [a practitioner's] consent to settle . . . [a]fter a jury verdict, judgment or any other ruling . . . establishing [the practitioner's] liability regardless of whether such verdict, judgment or ruling is subject to appeal or further judicial review. 

The appellate court affirmed.

In its decision, the appellate court explained that although New Hampshire recognized an implied covenant of good faith and fair dealing in all contracts, including insurance policies, it had not recognized a breach of the implied covenant where a party merely exercised a right expressly granted under an enforceable contract. The implied covenant, the appellate court continued, could not create a duty of care “beyond the express terms of the contract.”

The appellate court added that the duty of good faith and fair dealing also did not require an insurer to pursue an appeal of an excess verdict, forgoing a settlement within the policy limits. Although New Hampshire recognized a duty of good faith and fair dealing independent of the insurance contract in cases where the insurer was “in a position to . . . injure the insured by virtue of its exclusive control over the defense of a case,” it had “not recognized a breach of that duty absent insurer conduct exposing its insured to personal liability for a verdict in excess of the policy limits.”

Accordingly, the appellate court upheld the trial court's decision granting summary judgment for Proselect.

The case is Johnson v. Proselect Ins. Co., No. 17-P-109 (Mass. Ct.App. Dec. 12, 2017).