Highlands Ins. Co. v. National Union Fire Ins. Co. of Pittsburgh, 92-2933
| Citation | 27 F.3d 1027 |
| Decision Date | 21 July 1994 |
| Docket Number | No. 92-2933,92-2933 |
| Parties | HIGHLANDS INSURANCE COMPANY, Plaintiff-Appellee, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, et al., Defendant-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Mike Bennett, Charles T. Frazier, Jr., Julia F. Pendery, Cowles & Thompson, Dallas, TX, for defendants-appellants.
Jo Chris G. Lopez, Stephen E. Walraven, Linda S. McDonald, Shaddox, Compere, Walraven
& Good, P.C., San Antonio, TX, for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before GOLDBERG, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.
This is an appeal from a judgment in favor of an excess insurance carrier and against the primary carrier for failure to disclose the full extent of its primary coverage for an automobile accident. Victims of a car accident sued a construction company and the City of New York. National Union carried the primary coverage for both defendants. Highlands, the excess carrier for the construction company, contributed $1,100,000 to a settlement. Highlands later sued National Union and two of its affiliated agents, claiming that not disclosing that National Union insured the City led Highlands to contribute too much to the settlement. The trial court found the defendants liable under New York law and entered judgment for Highlands. We hold that New York law does not support the trial court's award of attorney fees for common law fraud. We affirm the judgment in all other respects.
In 1985, a Jeep carrying four young men collided with construction debris left on a New York City bridge by Naclerio Contracting Company. Two of the men suffered severe injuries and a third died. The two men and the estate of the third sued Naclerio and the City of New York for damages in early 1986.
Naclerio was insured by a general liability policy issued by National Union, with a policy limit of $1,000,000, and an excess liability policy issued by Highlands, with a policy limit of $5,000,000. National Union had also issued an Owners' and Contractors' Protective policy to the City of New York. The City's policy insured its vicarious liability for the acts of Naclerio, and also against liability arising from its negligent supervision of the construction activity.
The tort suit against Naclerio and the City settled in 1989 before the jury's verdict on liability was returned. National Union contributed its Naclerio policy limits of $1,000,000 while Highlands contributed $1,100,000. The driver's automobile insurer contributed its policy limits of $60,000.
In 1990, Highlands sued National Union and two of its affiliated agents, American International Group and American International Adjustment Company, alleging that they withheld the existence of the OCP policy from Highlands during settlement negotiations. 1 As a result, Highlands argued, it paid funds from its excess policy in settling the Naclerio litigation that National Union should have paid from primary coverage. A jury returned a verdict for Highlands in 1992 for $1,100,000, finding that Highlands had proven fraud, negligent misrepresentation, and breach of fiduciary duty under New York law.
National Union argues that no reasonable jury could have found 2 that Highlands justifiably relied on any fraudulent or negligent misrepresentation because Highlands had notice of the OCP policy. On April 10, 1986, National Union's broker sent a letter to National Union, on which the broker copied Highlands, saying to "[b]e aware Nat'l Union also insured the City of N.Y. under OCP Policy # GLA169666." The broker copied Highlands again on May 27, 1986 with a second letter containing a similar warning. At some point, Highlands also received copies of the City's letter notifying National Union of the auto accident and National Union's reply, which both referenced the OCP policy.
Highlands counters by focusing on the context in which it sought information. With days to go before trial, a law firm that worked exclusively for National Union took over as the City's trial counsel from the City's in-house counsel. 3 Highlands' claims supervisor and Highlands' attorney called National Union to find out why this change occurred. They spoke to National Union's Naclerio file manager and his supervisor but neither called back with the requested information. 4 Highlands' supervisor also spoke to the new City counsel, who said he believed he was on the case because the City was an additional insured on the Naclerio policy. 5 In the absence of contrary indication from National Union, and wanting to act before the jury returned its verdict, Highlands settled the case on the assumption that Naclerio's policy was the only primary coverage available.
Highlands also points out that its file contained other information about National Union's coverage of the City. A report prepared by Naclerio's attorney indicated that the City was self-insured. The file also contained a November 17, 1987 letter from a National Union litigation manager indicating that "we do not insure the City of New York." 6 While conceding that it did not review its file before settling the case, Highlands argues that it would still have needed clarification had it done so.
These facts provide an adequate foundation on which to uphold the jury verdict. National Union correctly states that a line of New York cases holds that a plaintiff's reliance is not justifiable when it has the means to find the truth on its own, 7 as Highlands did here for some time before trial. 8 Those cases, however, involved arms' length transactions between plaintiff and defendant. 9 The key is that here, as a primary carrier, National Union owed Highlands the same fiduciary obligation it owed its insureds. 10 Under these circumstances, having told the defendants of its confusion and its need for a quick answer, Highlands could justifiably rely on them to clarify the situation. 11
National Union urges that Rotanelli v. Madden 12 defines the insurer-insured relationship differently. Rotanelli dismissed a claim against a representative of an insurance company for negligently representing there was coverage, reasoning that an insured is presumed to have read its policy. 13 We read Rotanelli as applying the presumption that a person understands the contracts he executes. 14 That presumption does not extend to contracts executed by others and does not control this case.
The same analysis holds for negligent misrepresentation. As this court has recently noted, it is not clear that justifiable reliance is an element of negligent misrepresentation under New York law. 15 Whether it is, or whether New York employs a more flexible analysis focusing on the relationship between the parties, the standard is not more demanding than that for fraud, so our finding on the fraud issue disposes of this one as well. 16
National Union next attacks the jury's finding of a breach of fiduciary duty, arguing that no causal link connected any act by National Union to the money Highlands paid. We note initially that National Union enjoyed the benefit of an incorrect standard for causation. The jury was told that the measure of damages for breach of fiduciary duty was the difference between the amount Highlands paid in settlement and the amount they "would have paid" absent a breach of fiduciary duty. Under New York law, however, the question is not whether the plaintiff has shown but for causation, 17 but whether the plaintiff has satisfied a less demanding "substantial factor" standard. 18
Regardless, there is sufficient evidence to sustain the verdict under either standard. When the case settled, the bifurcated trial had just finished the liability phase. The jury had announced but not returned its verdict on liability. Highlands' representative testified that if he had known about the OCP policy at this point, he would have let the jury come back instead of settling. The argument continues that the risk of verdict would have been quite different with a second primary carrier at risk. If the City's share was large enough, Highlands' excess policy would be reached only at higher verdict levels or perhaps not at all. There is little question but that the jury could have found the City liable, and for the City's own negligence. That is, Highlands argues its exposure was much less than it thought--as a result of defendants' failure to disclose.
National Union also argues that if it had disclosed before settlement, Highlands would still have paid the same amount of money because Naclerio, Highlands' insured, had a contractual obligation to indemnify the City for the City's losses. The evidence showed that Naclerio's obligation was limited to indemnifying the City for its vicarious liability for Naclerio's torts. Ample testimony addressed the distinction between vicarious liability and liability for the City's own negligence in supervising Naclerio, which fell outside Naclerio's indemnity obligation.
National Union next makes several challenges to the jury charge for the first time on appeal. In the context of Federal Rule of Criminal Procedure 52(b), the Supreme Court has recently announced that for an appellant in a criminal case to prevail with a new argument on appeal, he must show (1) that an error occurred; (2) that the error was plain, which means clear or obvious; (3) the plain error must affect substantial rights; and (4) not correcting the error would "seriously affect the fairness, integrity or public reputation of judicial proceedings." 19 Federal Rule of Civil Procedure 51 20 is even more restrictive than Criminal Rule 52(b); 21 indeed, one circuit holds that it allows no new attacks on instructions on appeal. 22 We thus agree with the Sixth Circuit that "[t]he principles and decision enunciated in Olano apply a fortiori in the...
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