Excelsior Ins. Co. v. Pennsbury Pain Center

• Decision Date: 13 November 1996
• Docket Number: Civil Action No. 94-2279(CSF).
• Citation: 975 F.Supp. 342
• Parties: EXCELSIOR INSURANCE COMPANY, Plaintiff, v. PENNSBURY PAIN CENTER, Defendant/Third Party Plaintiff, v. AMERICAN RELIANCE INSURANCE COMPANY and Vik Brothers Insurance Company as successor to American Reliance Insurance Company, Third Party Defendants.
• Court: U.S. District Court — District of New Jersey

975 F.Supp. 342

EXCELSIOR INSURANCE COMPANY, Plaintiff, v. PENNSBURY PAIN CENTER, Defendant/Third Party Plaintiff, v. AMERICAN RELIANCE INSURANCE COMPANY and Vik Brothers Insurance Company as successor to American Reliance Insurance Company, Third Party Defendants.

Civil Action No. 94-2279(CSF).

United States District Court, D. New Jersey.

November 13, 1996.

COPYRIGHT MATERIAL OMITTED

Vincent R. McGuinness, Jr., Cozen & O'Connor, Westmont, NJ, for Excelsior Ins. Co.

Arthur S. Alexion, West Collingswood, NJ, for Pennsbury Pain Center.

Michael Marone, McElroy, Deutsch & Mulvaney, Morristown, NJ, for American Reliance, Vik Bros. Ins. Co. as successor to American Reliance Ins. Co.

MEMORANDUM

WOLFSON, United States Magistrate Judge.

Presently before the Court is the motion by third party defendants, American Reliance ("American Reliance") and Vik Brothers Insurance Company ("Vik Brothers") as successor to American Reliance Insurance Company, (hereinafter jointly referred to as "American Reliance"), to set aside a settlement that was reached between Excelsior Insurance Company ("Excelsior") and Pennsbury Pain Center ("Pennsbury"). Pursuant to 28 U.S.C. 634(c), the parties have consented to this Court's jurisdiction to decide this dispositive motion. The Court has considered the moving, opposition, and reply papers submitted by the parties, supplemental certifications and briefs, and heard oral argument from counsel on September 30, 1996. For the following reasons, plaintiff's motion to set aside the settlement agreement is denied.

Background

This case stems from a fire that occurred on October 25, 1992, in a multi-tenant commercial office building, located at 168 Franklin Corner Road in Lawrenceville, New Jersey, where Kaylor Chiropractic ("Kaylor") and Pennsbury were tenants. No one disputes that the fire originated in the utility room of an office suite leased to Pennsbury, and further, that as a result of this fire, the neighboring offices occupied by Kaylor suffered fire-related property damage.

Kaylor submitted a claim for $723,885 to its insurance company, Excelsior, for property damage and business interruption loss. Excelsior compromised Kaylor's claim by paying $572,767.78. Subsequently, Excelsior, as subrogee of Kaylor, filed the instant action against Pennsbury to recover its payment of Kaylor's claim.

Pennsbury requested that American Reliance, its insurer, defend and indemnify Pennsbury in this matter. (Tr. (November 17, 1995) at 4-12 to 5-6 and Corresponding Supplemental Submissions at 1 and 2). On August 18, 1994, American Reliance denied coverage and advised Pennsbury that it would not appoint counsel to defend Pennsbury. (Tr. (November 17, 1995) at 4-12 to 5-6; Excelsior Brief at 3). Thus, Pennsbury retained its own attorney, Arthur S. Alexion, Esq., to defend the claims. (Tr. (November 17, 1996) at 4-12 to 5-6 and Corresponding Supplemental Submissions at 2 and 3). On August 24, 1994, Pennsbury requested American Reliance reconsider its denial and further notified American Reliance that Pennsbury was considering a settlement with Excelsior as permitted by Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163 (1982). (Tr. (November 17, 1995) at 5-4 to 5-6 and Corresponding Supplemental Submission at 3; Alexion Certification (September 4, 1996) at 2). American Reliance, however, maintained that it had no obligation to defend. (Alexion Certification (September 4, 1996) at 2). Thereafter, on September 29, 1994, Pennsbury filed a third party declaratory judgment action against American Reliance and Vik Brothers, as successor to American Reliance, seeking a determination that the third party defendants have a duty to defend and indemnify Pennsbury for Excelsior's claim.

Between October 3, 1994 and August 28, 1995, Excelsior and Pennsbury engaged in settlement negotiations, which are evidenced by the correspondence between the parties. (Excelsior Brief at 3 and Corresponding Exhibits A-C; Alexion Certification (September 4, 1956) at 1 and 34). Specifically, Excelsior claims that negotiations began on October 3, 1994, when it raised the issue of settlement as required by F.R.C.P. 26(f)¹. (Excelsior Brief at 3). During the Rule 16 Initial Scheduling Conference on December 8, 1994, this Court was informed by Excelsior and Pennsbury that a settlement agreement, with terms consistent with Griggs, was being negotiated.

Excelsior then drafted a "Proposed Judgment Note and Settlement Agreement" which was sent to Pennsbury on December 28, 1994. (Excelsior Brief at 3 and Corresponding Exhibit A; Alexion Certification (September 4, 1996) at 3). The substance of the agreement was that Excelsior would release Pennsbury from all liability resulting from the fire in exchange for the assignment of Pennsbury's rights against its insurer, American Reliance. In response, on January 8, 1995, Mr. Alexion informed Excelsior's counsel that Pennsbury could not enter into a settlement agreement without first reviewing plaintiff's disclosure materials, pursuant to F.R.C.P. 26, and plaintiffs Experts' Reports. (Excelsior Brief at 3 and Corresponding Exhibit B; Alexion Certification (September 4, 1996) at 3). Excelsior complied with these requests for documents on January 11, 1995. (Excelsior Brief at 3; Alexion Certification (September 4, 1996) at 3). Subsequently, on January 31, 1995, Pennsbury responded to Excelsior's "Proposed Judgment Note and Settlement Agreement", indicating that it was agreeable to the settlement subject to three minor concerns. (Excelsior Brief at 3 and Corresponding Exhibit C; Alexion Certification (September 4, 1996) at 3).

Despite being notified that Pennsbury was contemplating a Griggs settlement in August of 1994, American Reliance did not object to the possibility of a settlement until March 15, 1995. (Alexion Certification (September 4, 1996) at 2; Tr. (November 17, 1996) at 5-4 to 5-6 and Corresponding Supplemental Submission at 5). However, Pennsbury maintained its right under Griggs to enter into a settlement. (Alexion Certification (September 4, 1996) at 2; Tr. (November 7, 1996) at 5-4 to 5-6 and Corresponding Supplemental Submission at 6). Shortly thereafter, on April 21, 1995, Excelsior claims that the agreement was modified to include Pennsbury's changes, finalized, signed by Excelsior and sent to Pennsbury for its ratification. (Excelsior Brief at 4). Both Pennsbury and Excelsior contend that the settlement agreement was formed as of April 21, 1995, although it was not yet formally signed by Pennsbury or approved by the court, as required by Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163 (1982). (McGuinness Certification (September 25, 1996) at 2, ¶ 3; Alexion Certification (September 4, 1996) at 3).

Mr. Alexion, counsel for Pennsbury, and Mr. McGuinness, counsel for Excelsior, have further certified that, from April 21, 1995 until the settlement hearing, there were no changes or discussions regarding the substance of the agreement. (McGuinness Certification at 2, ¶ 4; Alexion Certification (September 25, 1996) at 1, ¶ 2). The only discussions that the parties engaged in during this period concerned the timing of the hearing. (McGuinness Certification at 2, ¶¶ 4 and 5; Alexion Certification (September 25, 1996) at 1, ¶ 2). Specifically, Mr. Alexion and Mr. McGuinness discussed scheduling the settlement approval hearings, for the convenience of all the parties and the Court, to coincide with the Final Pretrial Conference² which was originally scheduled for September 7, 1995. (McGuinness Certification at 2, ¶ 5, Alexion Certification at 1, ¶ 2). The Final Pretrial Conference, however, was rescheduled three times. Prior to the October 20, 1996 rescheduled date, in a letter dated October 9, 1995, Excelsior informed this Court of the settlement and that the agreement required Court approval in accordance with the parameters established in Griggs v. Bertram.³ This Court then scheduled the hearing to be held on November 17, 1995, the date of the Final Pretrial Conference. At that time, the parties believed that the hearings would be completed in a half day.

In accordance with Griggs v. Bertram, this Court commenced the settlement hearing on November 17, 1995. Counsel for all parties, including American Reliance, participated. Before the start of the hearing, Eli Eytan, Esq., attorney for American Reliance, indicated his intent to reserve his right to object to the reasonableness of the settlement after reviewing the appropriate materials. (Tr. (November 17, 1995) at 3-17 to 3-23). Thus, the Court agreed to limit the hearings on that date to the witnesses being presented by Pennsbury. (Id. at 3-24 to 4-2). The right of Mr. McGuinness, attorney for Excelsior, to present witnesses, and Mr. Eytan to cross examine those witnesses and present his own, was preserved. (Id. at 4-2 to 4-11). A continued date of January 22, 1996 was set for those proceedings. Id.

On November 17, 1995, Pennsbury offered the testimony of Irvin Reiss, C.E.O. of Pennsbury, on the issue of the reasonableness and the bona fides of the settlement. (Tr. (November 17, 1995) at 5-19 to 20-1). Mr. Reiss confirmed that Pennsbury considered several factors in deciding to enter into a settlement agreement with Excelsior. Among these factors were: Pennsbury's desire to achieve finality on the claims, (Id. at 9-8 to 9-13); the cause/origin assessments in the various fire reports which pointed to Pennsbury's office suites as the origin of the fire, (Id. at 12-9 to 12-23); American Reliance refused to defend, leaving Pennsbury to retain its own attorney and pay for its own defense, (Id. at 7-13 to 7-14 and 9-14 to 9-19); the possibility that Kaylor might prevail, (Id. at 9-23 to 9-25 and 13-9 to 14-2); and that there were other sizeable claims being asserted against it, (Id. at 10-15 to 12-8). Reiss further testified that he made no attempts to compromise Excelsior's claim because he understood that the claim was for an amount...