García-Navarro v. Hogar La Bella Unión, Inc.

• Decision Date: 30 November 2020
• Docket Number: 3:17-cv-01271-JAW
• Parties: JACQUELINE GARCÍA-NAVARRO, Plaintiff, v. HOGAR LA BELLA UNIÓN, INC., et al. Defendants.
• Court: U.S. District Court — District of Puerto Rico

JACQUELINE GARCÍA-NAVARRO, Plaintiff, v. HOGAR LA BELLA UNIÓN, INC., et al. Defendants.

3:17-cv-01271-JAW

UNITED STATES DISTRICT COURT DISTRICT OF PUERTO RICO

November 30, 2020

ORDER ON PENDING MOTIONS

In this wrongful death action arising under Puerto Rico law, the Plaintiff seeks to recover damages against the tortfeasor's insurer. The tortfeasor entered into a settlement agreement with the defendant in late-October 2019. In that agreement, the tortfeasor (1) accepted all liability alleged in the Plaintiff's complaint, (2) waived apportionment of liability, and (3) assigned its crossclaims for bad faith against its insurer to the Plaintiff. The tortfeasor's insurer was not a party to this agreement. A trial between the Plaintiff and insurer followed on the issue of damages. The insurer did not participate. The jury found $950,000.00 in damages.

The Plaintiff also brought direct claims against the insurer in tort, and under Puerto Rico Law 247, which permits parties to bring bad faith claims directly against insurers. The Plaintiff and the insurer continue to litigate these claims, along with the crossclaims assigned to the Plaintiff in the settlement agreement. After trial, the Court asked the parties to submit memoranda of law about how the future litigation should be structured. Key issues include the number of trials, the parties' jury trial rights, whether the settlement agreement is valid, and if so, its effect on the remaining claims. This Order decides those questions of law.

I. PROCEDURAL HISTORY

On October 22, 2019, two of the parties in this dispute—Jacqueline García-Navarro and Universal Insurance Company (Universal)—filed a number of motions related to the upcoming jury trial. On October 25, 2019, the Court stayed most of these motions. Am. Order (ECF No. 327). On October 28, 2019, the Court bifurcated the tort claim from the Law 247 claim and stayed all filings related to the six motions concerning the Law 247 claim. See Order on Bifurcation at 7 (ECF No. 330).

After the stay order, on October 28, 2019, Ms. García-Navarro filed an informative motion, explaining that she and Hogar La Bella Unión, Inc. executed a settlement agreement on the liability portion of the tort claims in the pending lawsuit and asking the Court to try the tort and Law 247 claims together. Informative Mot. Regarding Settlement and Urgent Req. for Order (ECF No. 331). On the same day, the Court issued an order on the informative motion, denying Ms. García-Navarro's renewed request. Order re: Informative Mot. Regarding Settlement and Urgent Req. for Order (ECF No. 332). On October 29, 2019, Universal filed a motion requesting dismissal of the direct cause of action against it on the grounds that the settlement agreement was collusive or reconsideration of the Court's responsive order. Mot. Requesting Dismissal of Direct Cause of Action Against Universal Insurance on Ground of Collusion Between Claimant and Insured or, in Alternative, Req. forRecons. of Order at Docket No. 332 (ECF No. 349). Neither Ms. García-Navarro nor Hogar La Bella Unión, Inc. responded.

The Court proceeded to trial solely on the damages element of the tort claim and the jury issued a verdict on November 5, 2019, awarding Ms. García-Navarro $950,000.00 in damages. Jury Verdict Form (ECF No. 367). Two days later, on November 7, 2019, the Court held a status conference with counsel for all three parties. Min. Entry (ECF No. 371). The Court discussed a number of outstanding issues that must be resolved before the second phase of trial:

(1) the coverage action, including the impact of the settlement agreement, whether it should be a jury trial, and whether Universal can raise its collusion argument;

(2) the Law 247 claim, including whether it is ready for trial or not, whether Ms. García-Navarro is entitled to a jury trial on this claim, and whether Universal can raise its collusion argument on this claim;

(3) Puerto Rico law's handling of apportionment, both generally and in this situation, and whether this is a jury issue;

(4) the next steps, including how many trials there should be on the remaining issues and whether the Court should unite the coverage and apportionment issues; and

(5) Universal's collusion claim, including whether the settlement is void in part or in whole.

The Court asked Ms. García-Navarro and Universal to set a briefing schedule and file legal memoranda. Hogar La Bella Unión, Inc. reserved the right to reply. On December 31, 2019, Ms. García-Navarro filed her legal memorandum. Mem. of Law (ECF No. 382) (Pl.'s Mem.). Universal filed its legal memorandum on February 12, 2020. Universal Insurance's Mem. of Law (ECF No. 390) (Universal Opp'n). Ms. García-Navarro filed a reply to Universal's response on February 28, 2020. Reply to Mem. of L. Filed at Docket No. 390 (ECF No. 398) (Pl.'s Reply). Hogar La Bella Unión, Inc. did not file a reply.

On July 7, 2020, to bring the docket in this case up to date, the Court dismissed without prejudice five stayed motions (ECF Nos. 313, 314, 317, 318, and 320) and Universal's motion for dismissal of the cause of action (ECF No. 349) as the substance of those motions may be subsumed by the parties' memoranda of law and the issues may be decided in this Order.

II. THE PARTIES' POSITIONS

A. The Settlement Agreement

1. Jacqueline García-Navarro's Memorandum

In her memorandum, Ms. García-Navarro first asserts that the Settlement Agreement she executed with Hogar Bella Unión is valid. Pl.'s Mem at 2. Citing Safeco Insurance Co. of America v. Parks, 170 Cal. App. 4th Supp. 1013-14 (2d Dist. 2009), she claims "[i]t is an unremarkable, well-settled principle that when an insurer dishonors its duty to defend, the insured 'is free to make the best settlement possible with the third-party claimant, including a stipulated judgment with a covenant notto execute'". Id. Ms. García-Navarro explains that Puerto Rico is one of several jurisdictions that permit direct suits for damages against an alleged tortfeasor's insurer. Id. at 3-4 (citing P.R. LAWS ANN., tit. 26, § 2003 (L.P.R.A.)). She cites Ruiz-Rodgríguez v. Litton Industries Leasing Corp., 574 F.2d 44 (1st Cir. 1978), stating "the direct-action statute 'merely permits an injured party to maintain directly against the insurer the same claim it would have pursued against the insured.'" Id. at 5 (quoting Ruiz-Rodgríguez, 574 F.2d at 45-46).

Ms. García-Navarro then discusses an insurer's duty to defend its insured, writing "[t]he duty to defend is king among the obligations of the insurer." Id. at 5 (citing Pagán Caraballo v. Silva, 122 D.P.R. 105, 111-12, 22 P.R. Offic. Trans. 96 (1988)). Without providing case support she continues that the "obligation and consequences of [abridging the duty to defend] are unaltered by the Puerto Rico direct-action statute." Id. In a footnote, she quotes Hogar La Bella Unión's insurance policy with Universal and she maintains that the policy establishes Universal's duty to defend. See id. at 5, n.4 (citing Pl.'s Mem, Attach. 1, at 19 (ECF No. 382) (Ins. Policy) ("Universal's Insurance policy spells out in unequivocal terms the obligation to defend Hogar Bella Unión: 'We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance apply. We will have the right and duty to defend the insured against any suit seeking those damages'"). Ms. García-Navarro also notes that when an insurer breaches its duty to defend, the insurer may be liable for "coverage payment of attorney's fees and costs plus, in certain circumstances, coverage of ajudgment that exceeds the policy limits." Id. at 5 (citing cases). However, she states that Puerto Rico caselaw does not establish what remedy is appropriate when an insured settles a claim after its insurer breaches the duty to defend. Id. at 5-6.

Looking outside Puerto Rico, Ms. García-Navarro surveys caselaw from across the United States, observing that jurisdictions "are divided on whether the insurer is automatically bound to cover the settlement amount." Id. at 6. She indicates that some jurisdictions remedy breach of the duty to defend by estopping the insurer from contesting coverage and obligating the insurer to "pay any reasonable settlement amount agreed upon by the insured without collusion or fraud." See id. at 6-7 (citing Marks v. Houston Cas Co., 881 N.W.2d 309, 332 (Wis. 2016); Flannery v. Allstate Ins. Co., 49 F. Supp. 2d 1223, 1227-28 (D. Colo. 1999); Black v. Goodwin, Loomis & Britton, Inc., 681 A.2d 293, 302 (Conn. 1996); Ames v. Cont'l Cas. Co., 340 S.E.2d 479, 485 (N.C. Ct. App. 1986)).

According to Ms. García-Navarro, "other jurisdictions are more lenient to the insurer and allow coverage to be contested." Id. at 7 (citing Andrew v. Century Sur. Co., 134 F. Supp. 3d 1249, 1260-61 (D. Nev. 2015)). However, she claims that "[w]here this rule is the norm, the insurer can contest coverage based on policy exclusions; yet, it is invariably bound by the stipulations and admissions contained in a settlement or in a stipulated judgment." Id. (citing Enserch Corp. v. Shand Marahan & Co., 952 F.2d 1485, 1493-95 (5th Cir. 1992); Andrew v. Century Sur. Co., 134 F. Supp. 3d at 1261-64; Exterovich v. City of Kellogg, 80 P.3d 1040, 1042-43 (Idaho 2003)). The Plaintiff cites several cases to support her argument that when an insurer breachesits duty to defend and the insured settles with a stipulation of liability, the insurer may litigate whether it is liable under the insurance contract but not whether the alleged tortfeasor was truly liable as a matter of tort law. See id. at 7-8 (citing Ariz. Prop. & Cas. Ins. Guar. Fund v. Martin, 113 P.3d 701, 704 (Ariz. Ct. App. 2005); Assoc.'d Aviation Underwriters v. Wood, 98 P.3d 572 (Ariz. Ct. App. 2004); McCraney v. Fire & Casualty Ins. Co., 357 S.E.2d 327, 328 (Ga. Ct. App. 1987)).

After explaining the relevant legal standard, Ms. García-Navarro applies that standard...