Insurers, take note: the First Circuit just revived a lawsuit against AIG and National Union Fire Insurance Company, questioning their approach to settling a catastrophic auto liability claim.
On July 29, 2025, the United States Court of Appeals for the First Circuit issued a decision that could have ripple effects across the insurance industry. The case centers on Paula Appleton, who suffered life-changing injuries in January 2015 when a pickup truck rear-ended the car she was riding in, forcing it beneath a tractor-trailer. Emergency crews had to extricate Appleton, who was then hospitalized for nearly three weeks and spent four more months in rehabilitation. Her injuries included a hemorrhage, pelvic and hip fractures, leg fractures, and a ruptured bladder.
Appleton filed an insurance claim against the pickup driver and his employer. Their liability policy was with National Union Fire Insurance Company, administered by AIG Claims, Inc. In August 2016, Appleton’s attorney sent AIG a formal demand package, seeking $18 million for medical costs, future care, and pain and suffering. AIG responded by hiring defense counsel and medical experts, but the two sides failed to reach an agreement despite three mediations between March 2017 and December 2018. AIG’s offers increased from $750,000 to $3.25 million, while Appleton’s demands dropped only slightly.
Between October 2017 and January 2018, AIG received three independent estimates of a potential jury award. Defense counsel estimated a verdict between $6.5 million and $8.5 million. A group of senior AIG claims professionals valued the claim at an average of $4.9 million, prompting an increase in reserves to $7.5 million. An external jury consulting firm, after conducting mock trials, reported an average total damages award of $7.53 million. Despite these estimates, AIG did not increase its $2.65 million settlement offer for nearly a year, raising it to $3.25 million in December 2018 and to $5 million just before trial.
The case went to trial in March 2019. A Massachusetts state court jury awarded Appleton $7.465 million in damages, including $655,000 for past medical expenses, $3.2 million for future medical expenses, $210,000 for lost earnings, $1.5 million for past pain and suffering, and $1.9 million for future pain and suffering. After accounting for prior settlements and pre-judgment interest, the final judgment totaled $8.65 million.
Following the verdict, Appleton sued AIG and National Union in federal court, alleging they violated Massachusetts laws requiring insurers to conduct reasonable investigations and to make prompt, fair settlement offers when liability becomes clear. The district court granted summary judgment for the insurers, finding their investigation reasonable and concluding that the duty to make a prompt, fair offer was not triggered because damages were not “reasonably clear.”
The First Circuit, however, vacated the summary judgment on the settlement practices claim and remanded for trial, holding that a reasonable jury could find that damages became clear by January 2018 and that AIG’s failure to increase its offer for almost a year could violate its statutory duty to make a fair and equitable settlement offer. The court affirmed summary judgment on the investigation claim.
No insurance policy clauses were discussed in the decision; the dispute focused on statutory duties rather than contract terms. The case now returns to trial, with the spotlight on whether the insurers’ settlement practices met legal standards once damages became reasonably clear.
For insurance professionals, the message is clear: when your own numbers point to a claim’s value, it pays to act promptly and fairly. The First Circuit’s decision is a timely reminder that compliance isn’t just about ticking boxes - it’s about meeting the expectations of the law and the industry.
