Pavia v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 26 October 1992
• Citation: Pavia v. State Farm Mut. Auto. Ins. Co., 589 N.Y.S.2d 510, 183 A.D.2d 189 (N.Y. App. Div. 1992)
• Parties: Frank PAVIA, Respondent, et al., Plaintiffs, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 510

589 N.Y.S.2d 510

183 A.D.2d 189

Frank PAVIA, Respondent, et al., Plaintiffs, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant.

Supreme Court, Appellate Division Second Department.

Oct. 26, 1992.

Rivkin, Radler, Bayh, Hart & Kremer, Uniondale (Edward J. Hart, Evan H. Krinick, Matthew Jay Weiss, and John M. Denby, of counsel), for appellant.

Schapiro & Reich, Lindenhurst (Steven M. Schapiro and Perry S. Reich, of counsel), for respondent.

Before THOMPSON, J.P., and MILLER, COPERTINO and PIZZUTO, JJ.

THOMPSON, Justice Presiding.

The principal question before us is whether the evidence adduced at the trial established that the defendant insurance carrier acted in "bad faith" by allegedly failing to act within a reasonable time upon a settlement offer made by the plaintiff Frank Pavia's attorney in the underlying personal injury action. For the reasons that follow, we conclude that the jury could properly have found that the carrier acted in bad faith, and accordingly, affirm the judgment appealed from.

I

During the evening hours of April 19, 1985, then 16-year-old Carmine Rosato was operating a 1978 Pontiac Grand Prix owned by his mother Joanne Rosato and insured by the defendant State Farm Mutual Automobile Insurance Company. Carmine Rosato, who had only a learner's permit which did not authorize night driving, picked up 19-year-old Frank Pavia and a second youth, and began "driving around" the Bensonhurst section of Brooklyn.

At approximately 10:15 P.M., Rosato made a right turn from Stillwell Avenue onto 23rd Avenue, where he encountered a double-parked car, which apparently caused him to lose control of his vehicle. Rosato's car spun out of control towards the opposite side of 23rd Avenue, where it struck a parked car and then fishtailed toward the nearby intersection of 23rd Avenue and 79th Street. A second violent impact occurred when Rosato's car swerved into the northbound lane of oncoming traffic on 23rd Avenue and collided with a vehicle operated by Joseph Amerosa.

As a result of the collision, Frank Pavia, who had been a passenger in the rear of the Rosato vehicle, sustained serious injuries, including permanent brain damage, and remained in a coma for approximately three weeks after the accident occurred. Although Pavia ultimately regained consciousness, he was rendered a hemiplegic, suffering permanent paralysis of the right side of his body. In 1985 authorizations for Pavia's medical records had been given to the Rosatos' carrier, the defendant State Farm Mutual Automobile Insurance Company (hereinafter State Farm), in connection with Pavia's "no fault" application. By early 1986, State Farm's $50,000 no-fault coverage had been exhausted in the payment of Pavia's medical bills.

II

In October 1985 Pavia commenced an action against Carmine Rosato, Joanne Rosato, and Joseph Amerosa, to recover damages for personal injuries. John F. Picciano was retained by State Farm to represent the Rosatos. At a discovery conference held in March 1987 the parties were directed to exchange medical information and Pavia's attorney, Richard Sgarlato, was ordered to make Pavia available for medical examination by the defendants in the personal injury action. Earlier, in August 1986, Mr. Sgarlato had provided State Farm claims personnel assigned to the case with medical reports written by two of Pavia's treating physicians. These reports stated, inter alia, that Pavia had "sustained permanent loss of the use of his entire right upper and lower extremities * * * and permanent loss of his ability to speak and to stand up * * * the results of severe brain damage sustained in the accident". Two physicians retained by State Farm and Amerosa's carrier--GEICO--subsequently examined Pavia in April 1987 and filed reports which essentially confirmed the serious and permanent nature of Pavia's injuries.

III

In June 1986, State Farm assigned the Pavia matter to John A. Pellegrino, the claims representative who was to be primarily responsible for handling the case on a day-to-day basis. Prior thereto, the case had been handled by a so-called "line unit" representative, whose duty it was to conduct an initial investigation of the claim. In August 1985 Carmine Rosato had given the "line unit" representative a statement indicating that he had lost control of his vehicle just as he turned onto 23rd Avenue and encountered a double-parked car. Rosato further stated that he was travelling at "around thirty-five" miles per hour in a 30-mile-per-hour zone.

The police report filed in connection with the accident mentioned three possible witnesses, but State Farm ultimately ascertained in early 1986 that two of these individuals had not actually observed the accident. The third witness whom State Farm contacted indicated that she would not cooperate with any investigation, but did state "off the record" that Rosato was "flying" prior to the accident, that he took the turn "too fast", causing him to lose control, and that he was traveling at a speed of about 50 miles per hour. The police report similarly quotes an unnamed witness as stating that Rosato's vehicle was "travelling at a high rate of speed". In March 1986 the "line unit" representative authored a report which concluded that the Rosatos' liability was 100%, an assessment "basically concurr[ed]" in by the representative supervisor at the time.

On June 9, 1987, Carmine Rosato was deposed. In his deposition, Rosato stated for the first time that the automobile which he claimed to have encountered upon turning onto 23rd Avenue was "backing up" and that he had maneuvered in order to avoid it prior to losing control of his car. By letter dated June 10, 1987, the Rosatos' attorney, Mr. Picciano, who had attended the deposition, informed State Farm, inter alia, that Pavia appeared to be in "extremely bad shape" and that liability also appeared to be "extremely unfavorable". Counsel further advised that "[i]f plaintiff's [Pavia's] claims are accurate, I would recommend reserving $100,000.00 to avoid a potential bad faith claim".

IV

On June 26, 1987, Pavia's attorney, Mr. Sgarlato, sent State Farm a so-called "demand letter" indicating that he was willing to settle the case provided that the carrier tender the full amount of its policy, i.e., $100,000. The letter, which also listed Mr. Picciano's name as an addressee, contained a provision stating, in relevant part that, "[t]his offer to settle for the full amount of the policy ($100,000) shall expire thirty (30) days from the date of receipt of this letter". An identical letter was sent to GEICO--codefendant Joseph Amerosa's carrier--demanding tender of its full $10,000 policy amount. The demand letters did not contain the file numbers or the names of the claims representatives who had been assigned to the case by the respective carriers. It is undisputed, however, that State Farm received its letter on June 29, 1987, and that the Mr. Pellegrino ultimately received it on July 9, 1987.

Although Mr. Pellegrino stated that an offer to settle within the $100,000 policy limits would be a "significant" development in a potential multimillion dollar case where both liability and the insured's potential exposure appeared substantial, neither he nor anyone else from State Farm responded to the timed settlement offer. According to Mr. Picciano's testimony, State Farm claims personnel never informed him that the demand letter had been received or attempted to discuss with him the implications of the settlement overture. Mr. Picciano apparently first learned that the settlement offer had been made in early January 1988 when Pavia's attorney showed him a copy of the demand letter at a court conference. The Rosatos were never informed by State Farm that an offer to settle the action within the policy limits had been made.

After receipt of the demand letter, a period of several months elapsed before State Farm ultimately convened a so-called "claim committee" meeting of senior personnel to consider the Pavia lawsuit. Immediately prior to this meeting, which took place on December 1, 1987, Mr. Pellegrino had completed a handwritten "rough draft" outlining his assessment of the case for the claim committee. The claim committee included at least two "claim superintendents", among them Linda Cooper, and a "divisional claim superintendent", Vincent Rizzo, who had the power to authorize settlement of the case up to the policy amount. At the meeting, which lasted approximately 35 minutes, it was determined that Mr. Picciano would be authorized to offer up to the full $100,000 policy amount. A subsequent, "finished" claim committee report dated December 16, 1987, recommended that State Farm make the "best settlement to $100,000 [for] our share * * * at trial". The report further concluded that the "insured appeared to be at least 80% culpable". Another month elapsed, however, before the offer was orally communicated to an associate of Pavia's counsel at a court conference which took place on January 7, 1988. Counsel rejected the offer a few days later, stating, inter alia, that State Farm's failure to timely respond to his settlement offer was a principal reason underlying his decision.

At the trial, evidence was introduced establishing that the State Farm claims manual in effect at the time the demand letter was received required claims personnel who receive a demand letter with a time limit to consult "immediately" with the divisional claim superintendent. Mr. Rizzo testified at trial that in his capacity as divisional claim superintendent, he had orally rescinded this portion of the manual due to the large number of demand letters received in the New York area. Mr. Rizzo further testified, however, that no written document memorializing this modification of the claims manual existed. The relevant portion of the claims manual concerning demand letters with a time limit stated that "[w]hen such a time limit demand...