Bradley Corp. v. Zurich Ins. Co.

• Decision Date: 05 November 1997
• Docket Number: No. 96-C-737.,96-C-737.
• Citation: 984 F.Supp. 1193
• Parties: BRADLEY CORPORATION, Plaintiff, v. ZURICH INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

984 F.Supp. 1193

BRADLEY CORPORATION, Plaintiff, v. ZURICH INSURANCE COMPANY, Defendant.

No. 96-C-737.

United States District Court, E.D. Wisconsin.

November 5, 1997.

COPYRIGHT MATERIAL OMITTED

Mary K. Braza, Foley & Lardner, Milwaukee, WI, for Plaintiff.

Paul J. Pytlik, Otjen, Van Ert, Stangle, Lieb & Weir, Milwaukee, WI, for Defendant.

DECISION AND ORDER

WARREN, District Judge.

In this diversity jurisdiction case, Bradley Corporation sues its insurer, Zurich Insurance Company, for failure to defend Bradley in a previous lawsuit tried before this Court.

Bradley, a Wisconsin corporation located in Menomonee Falls, Wisconsin, manufactures plumbing fixtures and fittings. With the assistance of its insurance broker, Rollins Hudig Hall of Wisconsin, Inc., Bradley purchased comprehensive general liability insurance from Zurich, an Illinois corporation with its principal place of business in Schaumburg, Illinois, and a satellite office in Waukesha, Wisconsin. The insurance was issued through a string of policies, each effective for a one-year period beginning and ending February 1. The policies at issue in this case were effective from February 1, 1990, through February 1, 1995.

In December 1990, Bradley hired Edna Sarafolean to work at its Menomonee Falls office. Ms. Sarafolean was a credit analyst-collector; her duties included collecting Bradley's accounts receivable and approving the shipment of orders for Bradley's fixture division. In July 1 994, Ms. Sarafolean filed a Notice of Charge of Discrimination with the Equal Employment Opportunity Commission.¹ On September 30, 1994, Ms. Sarafolean sued Bradley in federal court in this District, alleging that from December 1990 onward Bradley had unlawfully discriminated against her on the basis of sex in violation of the Equal Pay Act, 29 U.S.C. § 206(d), and Title VII of the Civil Rights Act, 42 U.S.C. § 2000e, et seq. Her case, Sarafolean v. Bradley Corp., No. 94-C-1099, originally was assigned to the Honorable John W. Reynolds.

Ms. Sarafolean's complaint was served on Bradley on October 4, 1994. Bradley quickly hired as defense counsel the firm of Foley & Lardner, with whom Bradley had a long working relationship. Bradley answered the complaint on October 21, 1994.

Judge Reynolds conducted a scheduling conference on December 2, 1994, following which he issued a scheduling order. Ms. Sarafolean had to disclose expert witness information by March 15, 1995, Bradley had to disclose expert witness information two months later, all discovery was to be completed by June 23, 1995, and all dispositive motions were to be filed by June 30, 1995. Judge Reynolds set a pretrial conference date of September 20, 1995, and a trial date of October 3, 1995. On December 8, 1994, the Sarafolean case was reassigned to this Court, which initially kept in place all of the scheduling dates set by Judge Reynolds. On August 3, 1995, however, this Court reset the pretrial conference and trial dates to late November 1995.

Early in the litigation Bradley took the position that Ms. Sarafolean's claims were meritless. Bradley had a well publicized sexual harassment policy of which it was very proud, and because it thought the lawsuit maligned its reputation for sensitivity on sexual harassment matters, Bradley sought to clear its name by defending the case vigorously. As a result, Bradley decided not to concede to Ms. Sarafolean's demands by paying her a substantial settlement.²

Bradley determined during discovery that Ms. Sarafolean had extensive psychological problems. The company and its attorneys made a strategic decision to attack Ms. Sarafolean's version of events as well as her claimed damages, which required hiring private investigators to check her veracity on various matters and monitor her activities. Bradley also decided it had to expose Ms. Sarafolean's mental illness as the cause of her fabricated stories about sexual harassment, which required hiring an expert psychologist and psychiatrist, who diagnosed her as suffering from Pseudologia Fantastica, a personality disorder marked by compulsive lying. Bradley also deposed two of Ms. Sarafolean's psychiatrists, two of her therapists, and her physician, all of whom she named as experts, as well as members of Ms. Sarafolean's family.

On July 19, 1995, more than 10 months after Bradley was served with the Sarafolean complaint, Zurich received, from Rollins Hudig Hall, the insurance company's first notice of the lawsuit and a copy of the complaint. The next day Bradley received a facsimile from Zurich acknowledging receipt of the notice, but the transmission did not indicate whether Zurich would accept responsibility for coverage. On August 2, 1995, Attorney John R. Heitkamp of Foley & Lardner sent Zurich a second notice of the Sarafolean lawsuit, and instructed Zurich's claim representative to contact Foley & Lardner Attorney Susan R. Maisa for further information.

Zurich did not thereafter contact Ms. Maisa about the Sarafolean case. Instead, on August 23, 1995, it sent Bradley a letter denying coverage of any defense or indemnification related to the Sarafolean lawsuit on the grounds that the notice was untimely and that Ms. Sarafolean's claims were not covered by the policy. Rollins Hudig Hall followed up with Zurich on at least three occasions trying to convince Zurich to assume coverage or defense of the lawsuit. Zurich did not change its position.

At the time Zurich received notice of the Sarafolean complaint, trial was still scheduled for October 3, 1995. But although the discovery deadline had passed, the parties by mutual agreement conducted 14 depositions after the deadline, and discovery continued into November. After two postponements by this Court, the case was tried to a jury from December 11-20, 1995. Bradley's strategy worked. The jury returned a verdict for Bradley on all counts.

Bradley's costs for defense of the Sarafolean lawsuit totaled $299,638.17. The invoices dated after the July 19, 1995, notice to Zurich totaled $232,498.55. The high cost of defending the Sarafolean case was largely attributable to the battle of the experts concerning the cause of Ms. Sarafolean's problems and the intense factual investigation necessary to uncover the lies Ms. Sarafolean had made over the years. To Bradley, the experts and investigators were invaluable at trial in exposing Ms. Sarafolean's fabrications.

After the successful defense of the Sarafolean lawsuit, Attorney Heitkamp again wrote to Zurich, requesting that it reimburse Bradley for defense costs. Zurich again denied any responsibility. Thereafter, on June 21, 1996, Bradley sued Zurich in this Court for breach of the insurance contracts and for a declaration of the rights and obligations of the parties under the insurance policies. Bradley and Zurich filed cross-motions for summary judgment, which are the cause of this Decision and Order.

Applicable Law

As is well known, summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Because the parties in this case have filed cross-motions for summary judgment, it is clear that most facts are not contested. When no genuine issue of material fact exists, the sole question is whether the moving party is entitled to judgment as a matter of law. Logan v. Commercial Union Ins. Co., 96 F.3d 971, 978 (7th Cir.1996).

Although much of this case involves uncontested language from a contract and complaint, at least one matter could involve a question of material fact. In that regard, the Court construes the evidence in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986). Nevertheless, to defeat a properly supported motion for summary judgment, the opposing party must present specific and sufficient evidence that, if believed by a jury, would support a verdict in its favor. Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 249, 106 S.Ct. at 2510-11. As the Supreme Court has stated and the Seventh Circuit recently reiterated, a district court resolves factual issues of controversy in favor of the nonmoving party

... only in the sense that, where the facts specifically averred by that party contradict facts specifically averred by the movant, the motion must be denied. That is a world apart from "assuming" that general averments embrace the "specific facts" needed to sustain the complaint.... The object of [Rule 56(e)] is not to replace conclusory allegations of the complaint or answer with conclusory allegations of an affidavit.

Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 3188, 111 L.Ed.2d 695 (1990); Weeks v. Samsung Heavy Ind. Co., 126 F.3d 926, 934-35 (7th Cir.1997). "Self-serving assertions without factual support in the record will not defeat a motion for summary judgment." Weeks, 126 F.3d at 934.

As to substantive law, in a diversity jurisdiction case a federal court must apply the law of the state in which it sits. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938); Doe v. Roe No. 1, 52 F.3d 151, 154 (7th Cir.1995). In Wisconsin, in the absence of a choice of law provision in an insurance contract, a court is to use the "grouping-of-contacts" approach for resolving conflict of law questions. The approach includes looking at the place of contracting, negotiation, and performance of the contract, the location of the insured risk, and the domicile of the parties to the agreement. Utica Mut. Ins. Co. v. Klein & Son, Inc., 157 Wis.2d 552, 556-58, 460 N.W.2d 763 (Ct.App.1990). The location of the insured risk—meaning the principal location of the...