NOTICE: All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports. If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557- 1030; [email protected]

SJC-12655 SJC-12656

COMMERCE INSURANCE COMPANY vs. JUSTINA M. SZAFAROWICZ, special representative,1 & others.2

JUSTINA M. SZAFAROWICZ, special representative,3 vs. MATTHEW S. PADOVANO & others.4

Worcester. March 7, 2019. - October 1, 2019.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

Motor Vehicle, Insurance. Insurance, Motor vehicle insurance, Insurer's obligation to defend, Interest. Practice, Civil, Wrongful death, Declaratory proceeding, Interest. Negligence, Wrongful death. Declaratory Relief. Interest. Escrow.

Civil action commenced in the Superior Court Department on January 21, 2014.

1 Of the estate of David M. Szafarowicz.

2 Matthew Padovano; Stephen Padovano; and Damion Szafarowicz and Alysha Szafarowicz, by their mother and next friend, Justina M. Szafarowicz.

3 Of the estate of David M. Szafarowicz.

4 Stephen Padovano and Kona Enterprises, Inc. 2

A motion to deposit money with the court or in an interest- bearing account was heard by Richard T. Tucker, J.

An application for leave to prosecute an interlocutory appeal was allowed by Ariane D. Vuono, J., in the Appeals Court, and the appeal was reported by her to a panel of that court. The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

Civil action commenced in the Superior Court Department on August 23, 2013.

Motions to stay were heard by David Ricciardone, J., and the case was heard by him.

The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

John P. Graceffa (Lawrence M. Slotnick also present) for Commerce Insurance Company. David R. Bikofsky & Michael K. Gillis (Joseph I. Rogers also present) for Justina M. Szafarowicz & others. Stephanie V. Corrao & Laura A. Foggan, of the District of Columbia, Richard J. Riley, & Peter C. Kober, for Complex Insurance Claims Litigation Association & another, amici curiae, submitted a brief. Kim V. Marrkand & Mathilda S. McGee-Tubb, for Massachusetts Insurance and Reinsurance Bar Association, amicus curiae, submitted a brief.

GANTS, C.J. These appeals present three issues that arise

where a motor vehicle insurer recognizes its duty to defend its

insureds in a wrongful death action, but does so under a

reservation of rights, and then brings a separate action seeking

a declaratory judgment that it owes no duty to indemnify its

insureds for damages arising from the wrongful death action

under the "Optional Bodily Injury To Others" provision of the

insurance policy. 3

As to these three issues, we conclude, first, that there

was no abuse of discretion in the judge's denial of the

insurer's motions to stay trial in the wrongful death action

until the question of coverage had been determined in the

declaratory judgment action.

Second, over the insurer's objection, the parties settled

the wrongful death action before trial through agreements in

which the defendants admitted to negligence, agreed that the

amount of damages would be determined through a damages

assessment hearing, and assigned all their rights under the

insurance policy to the plaintiff.5 In return, the plaintiff

agreed to release the defendants from liability and seek damages

only from the insurer. Because of the amount of damages

assessed (more than $5 million, plus prejudgment interest) and

because the policy obligated the insurer to pay postjudgment

interest, the insurer moved to deposit with the court the policy

limits and the accrued postjudgment interest under Mass. R. Civ.

P. 67,

(1974), in an attempt to prevent the

continued accrual of postjudgment interest pending resolution of

the declaratory judgment action and the insurer's appeal in the

wrongful death action. We conclude that the judge did not abuse

5 We refer to these agreements as "settlement/assignment agreements" throughout this opinion. 4

his discretion in denying the insurer's motion to deposit these

funds.

Third, we conclude that, where the insurer timely objected

to the settlement/assignment agreements, and where it is

obligated to pay the accrued postjudgment interest on the

wrongful death judgment, the insurer may be bound by the amount

of that judgment only where a judge determines that the

settlement/assignment agreements were reasonable under the

circumstances. Here, the settlements were executed with no

determination of reasonableness. We therefore vacate the

wrongful death judgment and remand the case to the Superior

Court for a hearing on the reasonableness of the

settlement/assignment agreements.6

Background. The relevant factual and procedural background

is not materially in dispute. On August 3, 2013, shortly after

a verbal altercation at a bar in Leominster, David M.

Szafarowicz was struck and killed by a vehicle operated by

Matthew Padovano, who later pleaded guilty to voluntary

manslaughter in connection with the fatal incident. The vehicle

was owned by Matthew's father, Stephen Padovano, who had

6 We acknowledge the amicus briefs submitted by the Complex Insurance Claims Litigation Association and the American Property Casualty Insurance Association, and by the Massachusetts Insurance and Reinsurance Bar Association. 5

purchased an automobile insurance policy from Commerce Insurance

Company (Commerce).7

Justina M. Szafarowicz, David's mother, in her capacity as

special representative of David's estate (estate), brought a

wrongful death action against the Padovanos in the Superior

Court, claiming that David's death was caused by Matthew's gross

negligence in operating a motor vehicle that was negligently

entrusted to him by Stephen.8 Under the Commerce insurance

policy, Stephen was covered for bodily injury to others by

compulsory insurance in the amount of $20,000 per person, and by

optional insurance in the additional amount of $480,000 per

person.

Commerce acknowledged its duty to defend the Padovanos in

the wrongful death action under its policy.9 See Metropolitan

7 We refer individually to members of the Padovano and Szafarowicz families by their first names to avoid confusion, but we refer collectively to the Padovanos.

8 Justina, as special representative of her son's estate (estate), also claimed that Kona Enterprises, Inc. (Kona), which operated the bar where the incident took place, was negligent in failing to provide adequate supervision and security to David at its premises. The estate reached a settlement with Kona, and it is not a party to this appeal.

9 The Commerce Insurance Company (Commerce) motor vehicle policy at issue states:

"We [(Commerce)] have the right to defend any lawsuit brought against anyone covered under this policy for damages which might be payable under this policy. We also 6

Prop. & Cas. Ins. Co. v. Morrison,

(2011)

(Morrison), quoting Billings v. Commerce Ins. Co.,

(2010) ("An insurer has a duty to defend an insured

when the allegations in a complaint are reasonably susceptible

of an interpretation that states or roughly sketches a claim

covered by the policy terms").

As to its duty to indemnify for damages, Commerce

acknowledged its duty to pay the $20,000 in compulsory insurance

(and ultimately paid the estate this amount) but issued a

reservation of rights regarding the $480,000 in optional

insurance. By doing so, Commerce effectively reserved its right

to refuse to indemnify the Padovanos beyond $20,000 for damages

arising from the wrongful death action if it were determined

that David's death was caused by Matthew's intentional act, and

was therefore not an "accident" covered by the terms of the

policy.10 See Morrison,

, quoting A.W.

have a duty to defend any such lawsuit, even if it is without merit, but our duty to defend ends when we tender, or pay to any claimant or to a court of competent jurisdiction, with the court's permission, the maximum limits of coverage under this policy. We may end our duty to defend at any time during the course of the lawsuit, by tendering, or paying the maximum limits of coverage under the policy, without the need for a judgment or settlement of the lawsuit or a release by the claimant."

10Commerce also reserved its rights to refuse to indemnify on the ground that Matthew was not identified as a designated driver on the policy. 7

Chesterton Co. v. Massachusetts Insurers Insolvency Fund,

(2005) (duty to defend "is independent from, and

broader than, [the] duty to indemnify"); Three Sons, Inc. v.

Phoenix Ins. Co.,

(1970) ("A reservation of

rights . . . notifies the insured that the insurer's [defense]

is subject to the later right to disclaim liability").

On January 21, 2014, approximately five months after the

estate initiated the wrongful death action, Commerce brought a

separate declaratory judgment action against the Padovanos and

the estate, seeking a declaration from the court that Commerce

had no obligation under its optional insurance coverage to

indemnify the Padovanos for the damages arising from the fatal

incident. The wrongful death action and the declaratory

judgment action were consolidated for discovery purposes only.

On April 21, 2016, less than three weeks before the trial

in the wrongful death case was scheduled to begin, Commerce

filed an emergency motion to intervene and participate in that

case pursuant to Mass. R. Civ. P. 24,

(1974).

Commerce noted that, based on the summary of evidence proffered

by the prosecutor at Matthew's plea hearing, on the night of

David's death, Matthew and his girlfriend got into a dispute

with David at a bar and the staff asked the three to leave.

Matthew and his girlfriend went out the back door, where

Matthew's vehicle was parked, and David left through the front 8

door and walked into the bar's parking lot. Rather than depart,

Matthew returned in his vehicle to the bar's parking lot, where

he saw David and drove near him. David gestured toward Matthew,

who then accelerated his vehicle and ran over David, dragging

him for forty to fifty feet, killing him.

Commerce noted that, in the wrongful death action, the

estate's attorneys had presented a quite different description

of events that was consistent with their theory of negligence.

The estate's attorneys contend that when Matthew returned in his

vehicle to the bar's parking lot, he was frightened by unknown

persons who came from the bar with knives, and did not see David

when he ran over him.

Commerce argued that it should be permitted to intervene

because neither the estate nor the Padovanos had any incentive

to offer evidence tending to show that the incident was not an

accident, because all parties to the action "would prefer that

insurance coverage exist for this loss." Commerce wished to

ensure that, if a judgment were to issue in the wrongful death

action premised on the finding that David's death was caused by

Matthew's negligence rather than by his intentional conduct, it

would not be procedurally foreclosed in the declaratory judgment

action from litigating the dispositive issue whether David's

death arose from an accident. 9

The judge ordered that the wrongful death trial be

continued, and conducted a hearing on Commerce's motion to

intervene on May 4, 2016. In his decision denying the motion to

intervene, issued on August 22, 2016, the judge acknowledged

that Commerce had reason to be concerned about the risk of

"underlitigation" in the wrongful death suit -- which he

defined, quoting Pryor, W. Page Keeton Symposium on Tort Law,

The Stories We Tell: Intentional Harm and the Quest for

Insurance Funding,

, 1722 (1997), as "a

plaintiff's choice to plead and prove negligence rather than or

in addition to intentional tort theories when, absent insurance

considerations, the plaintiff would either frame the case solely

as an intentional tort claim or emphasize the intentional tort

claim." The judge noted the "legitimate interest" of a

liability insurer in preventing improper underlitigation of tort

claims, and recognized that it would be "patently unfair" to

require Commerce to be bound by a jury's negligence finding in

the wrongful death action if it were denied the means to

challenge the validity of that finding.

But the judge also recognized the need to balance the

rights of the insurer with those of the insured. He noted,

first, that the Padovanos would be "severely compromised" in

their ability to defend themselves if their insurer were

permitted to actively participate in the trial and offer 10

evidence that Matthew intentionally struck David. Second,

citing concerns raised in Goldstein v. Gontarz,

(1974), the judge noted that Commerce's participation would

alert the jury to the possible existence of insurance coverage

for the automobile that caused David's death, and to the

possibility that an insurer may therefore be responsible to pay

some or all of the damages if liability were found.

("Exposing juries to [evidence of insurance coverage] is

condemned because it is not itself probative of any relevant

proposition and is taken to lead to undeserved verdicts for

plaintiffs and exaggerated awards which jurors will readily load

on faceless insurance companies supposedly paid for taking the

risk").

Seeking to balance these considerations, the judge chose to

adopt a "carefully balanced procedural solution" crafted by the

Court of Appeals of Maryland in Allstate Ins. Co. v. Atwood,

(1990) (Atwood). The Atwood court concluded that, where

there is a risk of underlitigation, it is not appropriate to

allow the "insurer to intervene in the trial of the tort suit

against its insured,"

, but leaving an insurer with no

legal avenue to challenge a potentially collusive damages award

would be contrary to "considerations of public policy and

fairness."

. Therefore, the court ruled that "the

insurer should be able to bring a post-tort trial declaratory 11

judgment action" where the judge "would first determine, as a

legal matter, whether the issue, which was resolved in the tort

trial and which determines insurance coverage, was fairly

litigated in the tort trial."

If the judge were to

determine that it was fairly litigated, then there would be no

relitigation of the issue in the declaratory judgment action.

However, if the judge were to determine that it was not fairly

litigated, "then the insurer should be permitted to relitigate

the matter in the declaratory judgment action."

The motion

judge declared that this procedure would be consistent with our

holding in Blais v. Quincy Mut. Fire Ins. Co.,

, 70-

71 (1972) -- that an insurer is bound by an underlying judgment

as to insurance coverage, so long as there is no "fraud or

collusion" -- with the declaratory judgment action determining

whether the tort action was indeed tainted by fraud or

collusion.11

After the denial of its motion to intervene, Commerce moved

to stay the wrongful death trial until after the question of

insurance coverage was resolved in the declaratory judgment

action. Another judge denied the motion.12

11Commerce does not appeal from the denial of its motion to intervene in the wrongful death action.

12Commerce filed another emergency motion on December 13, 2016, to stay proceedings of the wrongful death action until the 12

Shortly before the wrongful death trial was scheduled to

begin, the estate and the Padovanos entered into agreements to

settle the wrongful death suit. Under the agreements, Matthew

agreed that he "grossly negligently" caused David's injuries,

and Stephen admitted liability for negligent entrustment of the

vehicle. The parties agreed that damages would be determined in

a jury-waived proceeding. The estate agreed that it would not

seek to collect or enforce any judgment against the Padovanos

beyond the amount payable under their insurance policy, and the

Padovanos agreed both to assign to the estate all their rights

with respect to insurance coverage and to cooperate with the

estate in litigation related to insurance coverage.

Commerce timely objected in writing to the proposed

settlements, arguing that this type of settlement/assignment

agreement should not be permitted. Among the objections it

lodged were objections to the assignment of rights by its

insureds against the insurer; to consent to judgment in excess

of policy limits; and to the court's role in assessing damages,

if the estate were to request that a judgment enter as to the

amount assessed. Commerce also renewed its objection to the

denial of its motions to stay the wrongful death case until the

declaratory judgment action was tried.

declaratory judgment action had been fully litigated. That motion was also denied. 13

The same judge who had denied Commerce's motions to stay

overruled Commerce's objections to the settlement and to the

assessment of damages hearing, and conducted a hearing to assess

the amount of damages in the wrongful death action. On December

28, 2016, the judge ordered that judgment enter in favor of the

estate in the amount of $5,617,510. The judge later agreed to

reduce the judgment by $150,000, to reflect the $150,000

received in settlement from Kona Enterprises, Inc. (see note 8,

supra), and judgment ultimately entered, nunc pro tunc to

December 28, in the amount of $7,669,254.41 (damages in the

amount of $5,467,510 plus prejudgment interest in the amount of

$2,201,744.41).

Commerce filed a notice of appeal on January 26, 2017,

challenging the denial of its motions to stay the wrongful death

action so that the declaratory judgment action could be

adjudicated first, and the overruling of its objections to the

settlement.

On February 15, 2017, Commerce paid the estate $20,000, the

limit of its compulsory bodily injury coverage. On April 21,

2017, in an attempt to stop the accrual of postjudgment interest

on the wrongful death judgment during the pendency of the

declaratory judgment action and its appeal from the wrongful

death judgment, Commerce filed a motion asking the court's

permission to deposit with the court -- or, in the alternative, 14

to deposit in an interest bearing account -- the policy limit of

its optional bodily injury coverage ($480,000), plus already

accrued postjudgment interest, pursuant to Mass. R. Civ. P. 67.

Rule 67 provides in relevant part:

"In an action in which any part of the relief sought is a judgment for a sum of money or the disposition of a sum of money or the disposition of any other thing capable of delivery, a party, upon notice to every other party, and by leave of court, may deposit with the court all or any part of such sum or thing."

Commerce's obligation to pay postjudgment interest derives

from the provision in the policy where the insurer agrees:

"We will pay, in addition to the limits shown for Compulsory and Optional Bodily Injury to Others . . . [i]nterest that accrues after judgment is entered in any suit we defend. We will not pay interest that accrues after we have offered to pay up to the limits you selected."13

Given the amount of the wrongful death judgment, Commerce

alleges that, unless allowed to deposit these funds, it would be

obliged to pay postjudgment interest, at the twelve percent

annual rate of interest established by statute, see G. L.

c. 231, § 6B, accruing at a rate of over $920,000 per year from

the date of the judgment.

13 The policy language at issue is found in the standard Massachusetts automobile insurance policy, which is "prescribed by statute and controlled by the Division of Insurance." Ramirez v. Commerce Ins. Co.,

, 147 (2017). As discussed infra, this provision of the standard policy was later amended, but the amendment has no effect on these cases. 15

Another judge denied Commerce's motion to deposit these

funds. The judge noted that in Davis v. Allstate Ins. Co.,

(2001), we held that, to stop the accrual of

postjudgment interest, the insurer must make an unconditional

offer of payment of the full policy limit, plus the accrued

postjudgment interest. Here, the offer of payment of the

optional bodily injury coverage limit was not unconditional;

Commerce would seek its return if it prevailed in the

declaratory judgment action. The judge, while acknowledging our

observation in Davis that an insurer "may be able to control its

postjudgment interest obligations by paying the policy limits

(with accrued interest) into court,"

at 187 n.13, concluded

that accepting a deposit reflecting a conditional offer to pay

would be inconsistent with the requirement that Commerce first

make an unconditional offer to pay the policy limits.

Commerce petitioned for relief from the judge's

interlocutory order pursuant to G. L. c. 231, § 118. A single

justice of the Appeals Court allowed Commerce's petition,

concluding that the issue "presents extraordinary circumstances

warranting an interlocutory appeal." We transferred both

appeals to this court on our own motion.

On February 21, 2019, during the pendency of these appeals,

another Superior Court judge resolved the declaratory judgment

action. After a jury-waived trial, the judge ruled that 16

Commerce has no duty to indemnify the Padovanos for any claims

arising from the optional bodily injury coverage of its

automobile policy because Matthew "decided to hit the

accelerator of the vehicle knowing to a substantial certainty

that the vehicle would strike David," and therefore David's

"injuries and death did not arise out of an accident under the

policy."14 As a result of that declaratory judgment, Commerce

has no obligation to pay any amount of the $7.7 million judgment

in the wrongful death action beyond the $20,000 it already paid

under its compulsory bodily injury coverage. But under the

terms of the policy, Commerce still has an obligation to pay

postjudgment interest on the judgment. The focus of these

appeals is now on the scope of that obligation -- that is, how

much in postjudgment interest Commerce must pay under the

policy.

Discussion. We address Commerce's three claims of error on

appeal.

1. Motions to stay. Commerce claims that the judge abused

his discretion in denying its motions to stay the proceedings of

the wrongful death suit action until its parallel declaratory

14The judge also ruled that Steven did not provide false information on his application for insurance by failing to list Matthew as a "customary operator." Because the judge found that David's death did not arise from an "accident," this ruling did not affect the grant of declaratory judgment to Commerce as to the issue of coverage for the events at issue. 17

judgment action could be tried and the issue of coverage

resolved. See Travenol Lab., Inc. v. Zotal, Ltd.,

(1985) ("a motion to stay proceedings is ordinarily a matter

addressed to the sound discretion of the trial judge"). We

conclude that the judge did not abuse his discretion in denying

the stay.

"Where there is uncertainty as to whether an insurer owes a

duty to defend, the insurer has the option of providing the

insured with a defense under a reservation of rights, filing a

declaratory judgment action to resolve whether it owes a duty to

defend or to indemnify, moving to stay the underlying action

until a declaratory judgment enters, and withdrawing from the

defense if it obtains a declaration that it owes no duty to the

insured." Morrison,

. An insurer who

provides its insured with a defense under a reservation of

rights is not entitled as a matter of law to a stay of the

underlying action so that the issue of coverage can be resolved

first in a declaratory judgment action. See 16 L.R. Russ & T.F.

Segalla, Couch on Insurance 3d § 232:65, at 232-90 (2005)

(Couch) ("An insurer suing for a declaratory judgment to

determine its obligation to defend a suit pending against the

insured does not, however, have the right to obtain a stay of

the pending suit"). 18

A judge deciding an insurer's motion to stay may properly

consider, among other matters, whether a stay will delay the

final resolution of the underlying tort action, initially by

proceeding first with the trial in the declaratory judgment

action and then, if the insurer were to prevail, by the need for

the insured to retain its own counsel if the insurer were then

to withdraw its defense. See Parking Concepts, Inc. v. Tenney,

(2004) (en banc) (fundamentally unfair to

claimant to "be compelled to await the outcome of satellite

coverage litigation before seeking redress for his [or her]

injuries").15

It is also proper to consider whether disposition of the

tort action may be expedited, rather than delayed, by first

resolving whether an insurer would be responsible for paying all

or part of any settlement or judgment. See O'Bannon v.

Friedman's, Inc.,

(D. Md. 2006) (prompt

resolution of coverage issue in declaratory judgment action can

15It may also be relevant whether all parties to the underlying action are also parties to the declaratory judgment action and thus able to adequately represent their interests. See G. L. c. 231A, § 8 ("When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding"); 16 L.R. Russ & T.F. Segalla, Couch on Insurance 3d § 232:67, at 232-93 (2005) (observing that "concerns for stepping on the factual issues in the underlying action are, of course, lessened when all the parties to that action are parties to the declaratory judgment and able to litigate the point"). 19

"dispel doubt among the parties, . . . allow[] them to move

forward with settlement talks," and may, at times, "expedite the

resolution of the underlying complaint").

A judge may also consider whether trying the tort action

first might render the declaratory judgment action moot if the

insured were to prevail. See, e.g., Guaranty Nat'l Ins. Co. v.

Beeline Stores, Inc.,

(M.D. Ala. 1996)

(where insured "could prevail in the underlying lawsuit . . .

the issue of whether [insurer] must indemnify [insured] would be

moot"; "[t]he time and effort the court and the parties would

have put toward resolving the issue would be wasted"); LabMD,

Inc. v. Admiral Ins. Co.,

(2013) ("a

declaratory judgment action regarding an insurer's duty to

defend can be rendered moot where the underlying liability

lawsuit has proceeded to judgment").

In addition, a judge may consider whether the insurer would

be unfairly prejudiced in the adjudication of the declaratory

judgment action if it were to be bound by a finding made in the

adjudication of the underlying tort case. See North Star Mut.

Ins. Co. v. Kneen,

(S.D. 1992).

Here, the judge who denied Commerce's motion to intervene

protected Commerce from the risk that it would be unfairly

prejudiced by a finding of negligence in the wrongful death

action by allowing Commerce to ask a court for a determination 20

whether that issue was fairly litigated in the wrongful death

action. And, in fact, we know now that Commerce was not

prejudiced in the declaratory judgment action by the parties'

stipulation to negligence because the judge in that action

independently determined that David's injuries and death were

caused by Matthew's intentional conduct, not an accident,

without making any mention of the stipulation in the settlement

or giving any apparent weight to it. Where Commerce was

protected from prejudice and where a stay would have delayed a

wrongful death trial that had already been continued because of

Commerce's emergency motion to intervene, the judge did not

abuse his discretion by denying the motions to stay.

2. Motion to deposit funds. A motion to deposit a sum of

money with the court pursuant to Mass. R. Civ. P. 67 is

generally left to the sound discretion of the judge. See

Augustine v. Rogers,

(1999). Where

Commerce's offer to deposit its policy limit for optional bodily

injury coverage was conditional, that is, Commerce wanted

$480,000 of the deposit returned if it prevailed in the

declaratory judgment action, we conclude that the judge did not

abuse his discretion in denying Commerce's motion to deposit

these funds with the court (or, in the alternative, to deposit

them in an interest-bearing account) for the purpose of stopping

the accrual of postjudgment interest. 21

In Davis,

, 178 n.7, the vehicle that

struck and injured the plaintiff was insured by Allstate

Insurance Company (Allstate) under the standard Massachusetts

automobile insurance policy, which contained the same provision

as the Commerce policy regarding the payment of postjudgment

interest. Allstate defended its insured at trial in accordance

with its duty to defend under the policy.

. Before

trial, Allstate offered the plaintiff payment of the $25,000

policy limits in exchange for a release of its insured from all

liability relating to the accident.

The plaintiff

declined.

After a jury trial, judgment entered against the

insured in an amount slightly greater than $400,000 on October

18, 1990, well in excess of the $25,000 policy limit for bodily

injury to another person.

.

On July 1, 1996, after the Appeals Court affirmed the

judgment and Allstate did not seek further appellate review,

Allstate made an unconditional payment to the plaintiff of the

$25,000 policy limits.

. The plaintiff claimed

that Allstate was liable under the policy for postjudgment

interest accrued from the date of judgment to the date that

Allstate tendered the unconditional payment of the policy

limits.

. Allstate claimed that it was not required

to pay any postjudgment interest because it had offered its

policy limits before trial, albeit on the condition that the 22

plaintiff release its insured from all liability.

at 177-

178.

We held that, under the postjudgment interest provision of

the policy, where Allstate owed its insured a duty to defend him

in the lawsuit, Allstate was required to pay the interest that

accrued after judgment was entered until it "offered to pay" the

policy limits.

. Interpreting the insurance policy

at issue "according to the 'fair meaning of the language used,

as applied to the subject matter,'"

, quoting Bilodeau

v. Lumbermens Mut. Cas. Co.,

(1984), we

concluded that "offered to pay" did not mean "offered to settle"

. Rather, "Allstate was required to make an

unconditional offer to pay the policy limits in order to

terminate its express obligation to pay postjudgment interest."

Where it made only a conditional offer until it

unconditionally paid the policy limits on July 1, 1996, we held

that Allstate was required to pay postjudgment interest from the

date of judgment through that date.

.

In Davis, we observed that "[t]he clear majority of courts,

interpreting a standard interest clause in a motor vehicle

liability insurance policy, have held insurers liable for

postjudgment interest on the entire amount of the judgment,

notwithstanding the fact that the policy limits may cover only a

portion of the judgment."

. We explained that this 23

rule serves to protect injured plaintiffs from unreasonable

delays by insurers or, where delay arises from an appeal, to

compensate the plaintiffs for that delay.

. And we

further observed that, while interpreting the policy in

accordance with its plain language imposes a burden on insurers,

it is not an "unfair burden," where the insurer "remain[s] in

control of both the tolling of interest and the litigation" and

can toll the accrual of interest at any time by offering to pay

the policy limit.

quoting Fratus v. Republic W. Ins. Co.,

(1st Cir. 1998).

Citing the dissenting opinion in Davis, Commerce argues

that we should revisit Davis to the extent that it unfairly

penalizes an insurer for pursuing a meritorious appeal on behalf

of the insured, where "the interest that mounts on the judgment

during an appeal will soon eclipse the policy limit."

(Sosman, J., concurring in part and dissenting in

part). We decline to revisit the Davis court's interpretation

of the language of the standard automobile policy regarding

postjudgment interest. Although "[t]he principle of stare

decisis is not absolute . . . adhering to precedent is our

'preferred course because it promotes the evenhanded,

predictable, and consistent development of legal principles,

fosters reliance on judicial decisions, and contributes to the

actual and perceived integrity of the judicial process.'" Shiel 24

v. Rowell,

(2018), quoting Payne v.

Tennessee,

(1991).

The principle of adhering to long-standing precedent is

particularly pronounced where "the Legislature has declined to

exercise its authority to overturn the court's interpretation of

a statute." Commonwealth v. Rivera,

(2005).

In 2016, the standard Massachusetts automobile insurance policy,

which is prescribed by statute, was amended to reduce the scope

of postjudgment interest that an insurer is required to pay. It

now provides that interest will accrue only "on that part of a

judgment or arbitration award that is within [the insurer's]

limits of liability which accrues after the judgment or award in

any matter [it] defend[s]." Notably, the Legislature did

nothing to change the provision stating that the insurer "will

not pay interest that accrues after [it has] offered to pay up

to the limits" of the policy. Specifically, it did not amend

"offered to pay" to read "offered to settle," and therefore

implicitly left intact our interpretation of "offered to pay" as

an unconditional offer.

Commerce claims that the motion judge's ruling was an abuse

of discretion because we noted in a footnote in Davis,

n.13, that an insurer "may be able to control its

postjudgment interest obligations by paying the policy limits

(with accrued interest) into court." We disagree. First, this 25

was not a holding of the court; we "[left] the availability of

this procedure for another day because it [was] not involved in

[that] case."

Second, under our holding in Davis, the rule

67 deposit offered by Commerce, even if accepted by the court,

would not stop the accrual of postjudgment interest because it

was not an unconditional offer to pay the full policy limits.16

. Lastly, unlike some other jurisdictions, rule 67 in

Massachusetts does not expressly provide for abatement of

postjudgment interest when money is deposited with the court.

Compare JTX Tax, Inc. v. Flowers,

(2011) (Georgia equivalent to rule 67 provides that "[w]here the

thing deposited is money, interest thereupon shall abate"

[citation omitted]). Where the proffered rule 67 deposit was

not mandated by Davis and would not have stopped the accrual of

postjudgment interest, the motion judge did not abuse his

discretion in denying Commerce's rule 67 motion.

3. Settlement/assignment agreements. Having concluded

that Commerce remains obligated to pay accrued postjudgment

interest, the next issue we must confront is whether Commerce

16In contrast, it might be an abuse of discretion for a judge to decline to accept a rule 67 deposit to stop the accrual of postjudgment interest where the deposit was an unconditional offer to pay the policy limits, and the plaintiff refused to accept payment directly, causing postjudgment interest to continue to accrue. We need not decide the issue because those are not the facts present before us in these appeals. 26

may challenge the validity or amount of that judgment, where its

objection to the settlement agreement was overruled and where

there was a substantial risk of underlitigation in the

negotiation of that agreement.

Commerce, supported by the amici, claims that it is not

bound by the settlement because of the provision in the policy

that states, "If any person covered under this policy settles a

claim without our consent, we will not be bound by that

settlement." Where an insurer acknowledges its duty to

indemnify the insured for damages arising from a claim, and

thereby agrees to pay a judgment arising from a settlement

within the policy limits, the insurer will not be bound by a

settlement entered into without its consent where material,

actual prejudice is shown. See Augat, Inc. v. Liberty Mut. Ins.

Co.,

(1991) (recognizing that "consent-to-

settlement . . . and cooperation provisions . . . give an

insurer the opportunity to protect its interests," and where

insured commits breach of one of these provisions, insurer may

disclaim liability where it proves actual prejudice from

breach); MacInnis v. Aetna Life & Cas. Co.,

(1988) ("an insurer must prove material prejudice resulting from

its policyholder's violation of a consent-to-settlement

provision in order to rely on that violation as an affirmative 27

defense to a claim for underinsured motorist coverage

benefits").

But where, as here, the insurer agrees to pay for the

defense of a claim against an insured under a reservation of

rights, and thereby reserves its right to seek a declaration

from a court that it owes no obligation to indemnify the insured

for damages arising from the claim, the insurer has no right to

control the defense with respect to the settlement of the claim.

See Three Sons, Inc. v. Phoenix Ins. Co.,

(1970). See also Herbert A. Sullivan, Inc. v. Utica Mut. Ins.

Co.,

(2003) (recognizing that insurer may not

"reserve its rights to disclaim liability while also insisting

on retaining control of the insured's defense"); Travelers

Indem. Co. v. Dingwell,

, 639 (1st Cir. 1989)

("well-established policy that an insurer who reserves the right

to deny coverage cannot control the defense of a lawsuit brought

against its insured by an injured party").

Where an insurer reserves its right to indemnify, the

insured faces the risk that he or she alone will be responsible

to pay the judgment. The insured is entitled to mitigate that

risk by entering into a settlement that will either protect him

or her from liability or diminish the amount of a judgment that

he or she might be obligated to pay. See Three Sons, Inc.,

("If liability is established, or a settlement 28

reached, and the insurer has a valid ground for disclaimer, the

insured is left with a liability which, had he been able to

defend or settle on other terms, might never have existed").

Where the insurer has not agreed to pay a judgment, it

cannot prevent its insured from protecting his or her financial

interests through a settlement. See United Servs. Auto. Ass'n

v. Morris,

(1987) (en banc) (Morris) ("[a]n

insurer that performs the duty to defend but reserves the right

to deny the duty to pay should not be allowed to control the

conditions of payment"; insured must not be left without

recourse "to take reasonable measures to protect himself [or

herself] against the danger of personal liability"). See also

Miller v. Shugart,

(Minn. 1982) ("insurer

who is disputing coverage [may not] compel the insureds to

[forgo] a settlement which is in their best interests").

Therefore, an insured does not commit a breach of this provision

of its policy by settling a case without the insurer's consent

where the insurer is defending the claim under a reservation of

rights.

Such a settlement, if enforceable, would certainly bind the

parties to the settlement; it is quite a separate issue whether

it would bind the insurer where the insurer is not a party to

the settlement and did not consent to it. Commerce contends

that it should not in any way be bound by the 29

settlement/assignment agreements executed by the estate and the

Padovanos, which provided that

 the insured defendants agreed to admit liability for

negligence, to have the amount of damages determined by the

judge at an assessment of damages hearing, and to assign

all rights arising from their insurance coverage to the

plaintiff; and

 the plaintiff agreed to release the defendants from all

liability arising from the incident.

Here, Commerce was not bound by the parties' stipulation of

negligence; the judge who granted Commerce declaratory judgment

made a de novo determination that Stephen's death arose from

Matthew's intentional act and was not an accident. See 14

Couch, supra at § 199:48, at 199-93, citing Morris,

("upon entry of a settlement agreement between the

claimant and [insureds] who were being defended under a

reservation of rights . . . , the liability insurer was not

bound by the settlement stipulations that the actions giving

rise to the claim were either negligent or intentional, and the

insurer could litigate the issue of intentional acts"). Nor

will it be bound, under its optional bodily injury coverage, to

pay the damages determined at the assessment hearing, because it

obtained a declaratory judgment that it was not obligated to pay

these damages. 30

But where Commerce recognized its duty to defend, and paid

the compulsory bodily injury coverage of $20,000, it does owe a

duty under its policy to pay "[i]nterest that accrues after

judgment." Therefore, the issue we confront is whether it is

bound to pay such interest on the judgment arising from the

settlement. If so, its liability to pay postjudgment interest

would well exceed $2 million, far more than the $480,000 limit

of liability for optional bodily injury coverage under the

policy, which it has no obligation to pay following the

declaratory judgment.

We have yet to decide whether the amount of a prejudgment

settlement/assignment agreement is enforceable against the

insurer. We have recognized that, where an insured tortfeasor

defendant enters into a prejudgment settlement with an injured

plaintiff in which the defendant assigns his or her rights to

the plaintiff in return for a release from personal liability,

there is the risk that "collusion may exist between the injured

party and the tortfeasor." Campione v. Wilson,

(1996). This is because, as a result of such a settlement,

"the insured . . . loses the incentive to contest his liability

or the extent of the injured party's damages either in

negotiations or at trial."

, quoting Freeman v.

Schmidt Real Estate & Ins., Inc.,

(8th Cir.

1985). See Spellman v. Shawmut Woodworking & Supply, Inc., 445

, 681 (2006) (where there is agreement for judgment,

assignment of rights, and covenant in assignment not to pursue

satisfaction of agreement against defendant, "we do not overlook

the possibility of collusion or fraud").

But we do not join the minority of States that, because of

the risk of collusion, declare such settlement/assignment

agreements to be unenforceable where an insurer has honored its

duty to defend. See, e.g., Associated Wholesale Grocers, Inc.

v. Americold Corp.,

(1997) ("an insurance

company should not be required to settle a claim when there is a

good faith question as to whether there is coverage under its

insurance policy"); State Farm Fire & Cas. Co. v. Gandy,

(Tex. 1996) (concluding that prejudgment

settlement/assignment agreement "confuse[s] and distort[s]"

positions of parties, and prohibiting such agreements under

certain circumstances where defendant's insurer has made good

faith effort to adjudicate coverage issues prior to adjudication

of plaintiff's claim). See also State Farm Mut. Auto. Ins. Co.

v. Freyer,

(stipulated settlement that

relieves insured of any financial stake in outcome of case gives

insured "little incentive to minimize the settlement amount"

and, if permitted, "would allow insureds to unilaterally inflate

policy limits anytime an insurer tests coverage through a

declaratory action"). 32

If we were to declare such settlement/assignment agreements

always to be unenforceable, we would effectively prevent

defendants whose insurer has offered a defense under a

reservation of rights from being able to protect themselves from

the risk that they will be held personally responsible to pay a

judgment that they could ill afford. See Morris,

(insured party, if prohibited from entering into settlement

while defended under reservation of rights, "risk[s] financial

catastrophe"). Moreover, the risk of collusion must be balanced

against policy considerations that encourage settlement

agreements, and "by settled law that most contract claims are

assignable" and that "contracts not to sue . . . are usually

valid." Spellman, 445 Mass. at 681-682.

Balancing these risks and benefits, we conclude that an

insurer who defends a claim under a reservation of rights is

bound by the amount of a judgment arising from a prejudgment

settlement/assignment agreement where (1) the insurer is given

notice of the settlement/assignment agreement and an opportunity

to be heard by the court before judgment enters; (2) the insurer

contests the judgment; and (3) the insured, after hearing, meets

his or her burden of showing that the settlement is reasonable

in amount. See Patrons Oxford Ins. Co. v. Harris,

, quoting Morris,

(settlement/assignment

agreements are valid where "the insured or claimant can show 33

that the settlement was reasonable and prudent"); Miller,

("The burden of proof is on the claimant . . . to

show that the settlement is reasonable and prudent").

In deciding whether a settlement/assignment agreement is

reasonable, a judge, examining the totality of the circumstances

at a reasonableness hearing, should determine whether the amount

of the settlement is reasonable in light of "the facts bearing

on the liability and damage aspects of plaintiff's claim, as

well as the risks of going to trial." Miller,

. See Patrons Oxford Ins. Co.,

(in

determining reasonableness of settlement, judge should consider

"the possibility of the insured's liability, risk of an adverse

verdict, and the damages portion of the claimant's case").

Because the consequence of a settlement/assignment agreement is

that the plaintiff may collect damages only from the insurer,

having released the insured defendants from personal liability,

a reasonable settlement amount may not exceed the limits of the

insured's potential insurance coverage, because the plaintiff

may recover in damages no more than that from the insurer. See

Kelly v. Iowa Mut. Ins. Co.,

, 644-645 & n.6 (Iowa

2000) (noting that insurer has "no obligation" to pay settlement

amount "in excess of its [policy] limits"). See also Babcock &

Wilcox Co. v. American Nuclear Insurers,

, 30 n.18

(2015) (unless insurer acts in bad faith, reasonable settlement 34

"confined to the previously contracted policy limits"). And

where optional bodily injury coverage, as here, requires a

finding that the plaintiff's injuries were caused by an accident

rather than by intentional conduct, the probability of such a

finding may also be considered in determining the amount of a

reasonable settlement. See

(highlighting

importance of considering risk of adverse verdict); Patrons

Oxford Ins. Co., supra (same).

Binding an insurer to the amount in a settlement/assignment

agreement that meets a reasonableness test is consistent with

the approach of the majority of courts, which allow such

agreements if they meet certain conditions. See Great Divide

Ins. Co. v. Carpenter,

(Alaska 2003) (approach

declaring settlement/assignment agreements void as against

public policy contrary to Alaska case law and "contrary to the

decisions of most of the other states whose courts have ruled on

the validity" of such agreements); Harris, Judicial Approaches

to Stipulated Judgments, Assignments of Rights, and Covenants

not to Execute in Insurance Litigation,

,

859 & n.31 (1999) (collecting cases where "[m]ost courts" have

permitted settlement/assignment agreements). The majority

approach allows unauthorized settlements with stipulated

liability to be enforced "so long as such agreements are made

fairly, with notice to the insurer, and without fraud or 35

collusion on the insurer, and the settlement is reasonable and

prudent" (footnote omitted). 14 Couch, supra at § 199:48, at

199-92.

We focus only on reasonableness, rather than "collusion,"

because every settlement/assignment agreement risks being

characterized as "collusive" simply because the parties have

negotiated a settlement where only the insurer is at risk of

paying the plaintiff's damages and the defendant will be

released from liability. But if this is enough to defeat a

settlement/assignment agreement, then all judgments arising from

such agreements will be deemed unenforceable against the

insurer, regardless of the amount. Where the insurer expresses

concern that the plaintiff and the insured defendant have

colluded to improperly inflate the judgment, that concern may be

considered in evaluating the reasonableness of the settlement

amount.

In the wrongful death action, Commerce objected on the

record to the settlement/assignment agreements between the

estate and the Padovanos. We conclude that, in doing so, it

preserved its right to be heard on the question whether the

amount of the settlement was reasonable in the manner we have

now described. The settlement/assignment agreements here are

not immune from a reasonableness review simply because the

parties elected to have the amount of damages determined by a 36

judge at an assessment of damages hearing. For all practical

purposes, by agreeing that damages will be so calculated, the

parties essentially agreed that the settlement amount is the

amount of damages that would have been awarded had liability

been found at a bench trial, without any compromise of the

amount based on the risk of a finding that the defendants were

not negligent.

Because no reasonableness review was conducted, we vacate

the judgment and remand the case to the Superior Court for a

hearing on the reasonableness of the settlement/assignment

agreements. Where the amount of the judgment arising from the

settlement/assignment agreements was greater than $500,000, the

limits of the insured's combined mandatory and optional bodily

injury coverage, we conclude that the amount obtained through

the settlement is per se unreasonable. But a reasonableness

hearing is needed to allow the judge to determine what would

have been a reasonable settlement amount under the

circumstances, and a new judgment in that amount shall enter.

Postjudgment interest will accrue nunc pro tunc from the date of

the original judgment, December 29, 2016, on the judgment amount

that the court deems reasonable.

We note that the procedure we direct on remand is different

from what we expect to happen in the future where an insurer

successfully challenges a settlement/assignment agreement before 37

judgment. Where the challenge is made before judgment enters, a

judge who decides that the amount set forth in (or determined

by) the settlement/assignment agreement is not reasonable may

decline to enter a judgment in that amount, and invite the

parties to renegotiate an agreement that might prove reasonable

in amount. Here, where so much time has passed since the

judgment entered, we do not believe that to be a reasonable

alternative under the circumstances. We therefore direct the

judge instead to make his or her own determination of a

reasonable settlement amount so that postjudgment interest may

be paid on that amount.

Conclusion. The orders denying Commerce's motions to stay

the wrongful death action and denying Commerce's rule 67 motion

are affirmed. The entry of judgment in the wrongful death

action is vacated, and the matter is remanded for a

reasonableness hearing to be conducted in a manner consistent

with this opinion.

So ordered.