614 F.2d 301 (2nd Cir. 1979), 353, Slotkin v. Citizens Cas. Co. of New York

Docket Nº:353, Docket 78-7167.
Citation:614 F.2d 301
Party Name:Steven John SLOTKIN, an infant by his mother and natural guardian, Charlotte Slotkin, and Charlotte Slotkin, as Executrix of the Estate of Bert Slotkin, deceased, Appellants, v. CITIZENS CASUALTY CO. OF NEW YORK, Allstate Insurance Co., American MotoristsInsurance Co., American Mutual Insurance Co. of Boston, Employers MutualLiability Insurance Co.
Case Date:August 29, 1979
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 301

614 F.2d 301 (2nd Cir. 1979)

Steven John SLOTKIN, an infant by his mother and natural

guardian, Charlotte Slotkin, and Charlotte

Slotkin, as Executrix of the Estate of

Bert Slotkin, deceased, Appellants,

v.

CITIZENS CASUALTY CO. OF NEW YORK, Allstate Insurance Co.,

American MotoristsInsurance Co., American Mutual Insurance

Co. of Boston, Employers MutualLiability Insurance Co. of

Wisconsin, Guaranty Reinsurance Co., Urbaine FireInsurance

Co.,Grange League Insurance Co., National Casualty Co.,

Hardware Mutual CasualtyCo., Arkwright-Boston Manufacturers

Mutual Insurance Co., Paul Ratner, GeorgeBerkowitz,

Christopher McGrath, Jr., and John McGrath, Appellees.

No. 353, Docket 78-7167.

United States Court of Appeals, Second Circuit

August 29, 1979

Argued Jan. 17, 1979.

On Rehearing Nov. 27, 1979.

Rehearing and Rehearing En Banc Denied Jan. 31, 1980.

Page 302

[Copyrighted Material Omitted]

Page 303

Theodore H. Friedman, Arum, Friedman & Katz, New York City (Fred R. Profeta, Jr., Max Toberoff, New York City, of counsel), for appellants.

Seymour Lefkowitz, Tell, Cheser, Breitbar & Lefkowitz, New York City (Solomon M. Cheser, New York City, of counsel), for appellee Berkowitz.

Joseph A. Bergadano, Hart & Hume, New York City (Leslie F. Ruff, New York City, of counsel), for appellees McGrath.

David W. Silverman, Granik, Silverman, Sandberg & Nowicki, New York City, N.Y., for appellee Citizens Cas. Co. of New York.

Howard R. Cohen, Bower & Gardner, New York City, for appellee Guaranty Reinsurance Co.

Kenneth Sagat, D'Amato & Lynch, New York City (John P. Higgins, New York City, of counsel), for appellees Allstate Ins. Co., Urbaine Fire Ins. Co., Arkwright-Boston Manufacturers Mut. Ins. Co., Hardware Mut. Cas. Co., and National Cas. Co.

Daniel H. Mahoney, New York City (Kathryn D. Nealon, New York City, of counsel), for appellee American Mut. Ins. Co. of Boston.

Stuart A. Schlesinger, David Jaroslawicz, Julien, Schlesinger & Finz, P.C., New York City, for appellee Ratner.

Before OAKES, GURFEIN and VAN GRAAFEILAND, Circuit Judges.

OAKES, Circuit Judge:

Any personal injuries lawyer knows that the amount of a defendant's assets or insurance coverage is generally a factor to be weighed in evaluating a case for settlement. The instant diversity action is one for

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fraud, or its legal equivalent; but it arises from a state court malpractice case that the plaintiffs, a brain-damaged child and his mother, 1 settled on the record after trial commenced for $185,000, just under the so-called "policy limit." Slotkin v. Beth-El Hospital, No. 65-6253 (N.Y.Sup.Ct., Kings County, June 4, 1971) (order approving settlement of March 4, 1971). The Hospital defendant and its primary insurer represented that the policy limit was $200,000 when in fact there was an additional $1 million in excess coverage. Plaintiffs then brought this suit in the United States District Court for the Southern District of New York, Milton Pollack, Judge, under the court's diversity jurisdiction. The jury found certain of the defendant-appellees liable for misrepresenting the insurance coverage. Those defendant-appellees were Citizens Casualty Co. of New York (Citizens), the Hospital's primary insurer; Paul Ratner, Citizens' assistant vice president, who was present at the malpractice trial; Christopher McGrath, Jr., and John McGrath, partners in the firm of McGrath, Cohen & McGrath and nominal trial counsel for the Hospital but actually appearing for the insurers; and George Berkowitz, a Hospital trustee and an attorney. The complaint against the insurance companies that had reinsured Citizens' coverage were dismissed by Judge Pollack in the federal trial. The jury awarded damages in the amount of $680,000, representing the difference between the actual settlement in the state action and a likely settlement amount had there been no misrepresentation of the coverage. 2

Judge Pollack, however, granted judgment notwithstanding the verdict to appellees. Appellees had argued earlier in the proceedings that, as a matter of law, plaintiffs had waived any claim for fraud by affirming the malpractice settlement after discovering the misrepresentations. Judge Constance Baker Motley had denied appellees' motion to dismiss the complaint on this ground, holding that plaintiffs were entitled under New York law to retain the benefits of the settlement and nevertheless to proceed with the fraud action. Slotkin v. Brookdale Hospital Center, 357 F.Supp. 705 (S.D.N.Y.1972).

Judge Pollack's original charge to the jury also stated that as a matter of law plaintiffs had not waived their right to sue for fraud. Nevertheless, subsequent to the verdict he reversed his previous holding and also ruled contrary to Judge Motley. He granted judgment to defendants notwithstanding the verdict on the ground that plaintiffs' failure to rescind the settlement and retry the case in state court when given the opportunity to do so constituted a waiver of the fraud action.

We reverse this grant of judgment to appellees notwithstanding the verdict except as to appellee Berkowitz. We also reverse the alternative holding that appellees are entitled to a new trial because the jury improperly allocated the damage award after it returned a verdict of liability and in response to a request of the court for clarification of the verdict. Additionally, we reverse the lower court's finding of insufficient evidence to support the verdict against defendant John McGrath and its

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dismissal of the complaint against the reinsurers of Citizens. Because such a result does not permit a single appropriate judgment our mandate is expressed in the alternative.

I. THE FACTS

  1. Introduction

    Appellants here are Steven John Slotkin and his mother, Charlotte Slotkin. Mrs. Slotkin, a diabetic, gave birth to Steven at Brookdale Hospital Center, then Beth-El Hospital, on November 16, 1963. Steven sustained brain damage at birth which his doctors diagnosed as congenital cerebral palsy. As a result of the brain damage, he is paralyzed, confined to a wheelchair, and will require constant care for the rest of his life. Plaintiffs claimed, and the jury in the action below subsequently found, that the Hospital's failure properly to administer insulin to Mrs. Slotkin during the period immediately preceding delivery had caused Steven's brain damage.

  2. The State Court Proceedings

    In order to understand the issue of waiver, the principal issue that all appellees raise, it is necessary to detail what happened in the state court proceedings. Appellant Steven and his father, Bert Slotkin, since deceased, commenced the state court action against Beth-El Hospital. Citizens had $200,000 of primary liability insurance coverage but was undergoing liquidation and rehabilitation by the State of New York. Ten companies, here called the reinsurers, 3 reinsured $150,000 of this coverage. Subscribing underwriters at Lloyd's of London underwrote $1 million worth of excess insurance.

    On February 22, 1971, at the jury selection, Christopher McGrath, the attorney for Citizens who was representing the defendant Hospital, told Max Toberoff, plaintiffs' attorney, that the Hospital had only $200,000 worth of insurance coverage. McGrath also stated that he had not told the Hospital's own counsel that the case was on trial, and he refused Toberoff's request that he notify the Hospital's attorney. Toberoff, concerned about the collectibility of plaintiffs' likely judgment, then notified the Hospital administrator by telephone, letter, and telegram that the case was on trial and that the Hospital faced possible exposure to liability for a verdict in excess of $1 million. In response to the Administrator's telephone call, appellee George Berkowitz, an attorney and trustee of the Hospital, appeared at the courthouse on behalf of the Hospital. Berkowitz told Toberoff at that time that the insurance coverage was $200,000. According to Berkowitz's testimony in his deposition taken shortly before the trial below, he had learned about the policy limit from Christopher McGrath, John McGrath, also trial counsel for Citizens, and Paul Ratner, assistant vice-president and claims manager of Citizens.

    On February 25, 1971, New York State Supreme Court Justice Oliver D. Williams, the trial judge, held a conference for the parties. According to Toberoff's testimony in the court below, both Berkowitz and Christopher McGrath affirmed to the judge that the total insurance coverage was $200,000, although as we have noted, Berkowitz stated that the McGraths and Ratner were

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    the source of his information. 4 Toberoff stated that both he and Justice Williams found it difficult to believe that the Hospital's coverage was so low. Despite the very low "policy limit" and the plaintiffs' willingness to settle within the limit, the parties reached no agreement; and the case went to trial.

    The state court trial proceeded to plaintiffs' advantage. Dr. Gerald Bernstein, an internist and assistant professor at Albert Einstein College of Medicine and acknowledged specialist in diabetes, testified that Mrs. Slotkin's doctor had ordered fractional urine specimens to be examined for sugar and acetone q.i.d. (four times a day); his orders hence required a test before each meal and at bedtime. Based upon the results of these tests, insulin should have been administered as necessary to avoid acetonuria. 5 Dr. Nicholas Olninc, a neurosurgeon who participated in a National Institutes of Health study introduced at the trial, corroborated Dr. Bernstein's testimony. The health study demonstrated the relationship between acetonuria in diabetic mothers and neuropsychological defects in their...

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