Quincy Mut. Fire Ins. Co. v. N.Y. Cent. Mut. Fire Ins. Co.

• Decision Date: 31 March 2014
• Docket Number: Civil Action No. 3:12–CV–1041 DEP.
• Citation: Quincy Mut. Fire Ins. Co. v. N.Y. Cent. Mut. Fire Ins. Co., 89 F.Supp.3d 291 (N.D. N.Y. 2014)
• Parties: QUINCY MUTUAL FIRE INSURANCE CO., Plaintiff, v. NEW YORK CENTRAL MUTUAL FIRE INSURANCE CO., Defendant.
• Court: U.S. District Court — Northern District of New York

89 F.Supp.3d 291

QUINCY MUTUAL FIRE INSURANCE CO., Plaintiff

v.NEW YORK CENTRAL MUTUAL FIRE INSURANCE CO., Defendant.

Civil Action No. 3:12–CV–1041 DEP.

United States District Court, N.D. New York.

Signed March 31, 2014.

Scott R. Jennette, Esq., William R. Leinen, Esq., Ward Greenberg Helly & Reidy LLP, Rochester, NY, for Plaintiff.

James Cosgriff, III., Esq., Petrone & Petrone, P.C., Williamsville, NY, for Defendant.

DECISION AND ORDER

DAVID E. PEEBLES, District Judge.

This is a bad faith insurance coverage action brought by plaintiffQuincy Mutual Fire Insurance Co.(“Quincy Mutual”), the issuer of an excess liability policy, against defendantNew York Central Mutual Fire Insurance Co.(“New York Central”), which in this instance serves in the role of the primary insurer.Plaintiff's claims present a minor variation on a common theme.In the typical bad faith case involving both primary and umbrella coverage, the excess carrier argues that the primary carrier could have settled the underlying dispute within the limits of its policy, thereby avoiding any exposure to the excess carrier, and that the failure to do so constituted bad faith and opened the insured to liability above the primary policy's limits.In this case, Quincy Mutual asserts that New York Central should have tendered the full extent of its primary coverage in the underlying personal injury action against the parties' insured, and that, had it done so, either the case would have settled for that amount or, at a minimum, Quincy Mutual could have supplemented that tender with payment of far less than the full extent of its excess coverage, which it ultimately paid due to New York Central's alleged bad faith negotiating posture.

This action was recently tried to the court.¹For the reasons set forth below, I find that New York Central acted in gross disregard for the interests of Quincy Mutual, the excess carrier, in its dealings with respect to the underlying action, and in particular in its negotiation strategy, and therefore find in plaintiff's favor.The following discussion embodies my findings of fact and conclusions of law, as required under Rule 52(a)(1) of the Federal Rules of Civil Procedure.

I.BACKGROUND

New York Central is an insurance corporation organized and existing under the laws of the State of New York and headquartered in Edmeston, New York.New York Central is licensed to conduct business in New York, and issues automobile and homeowner's insurance policies, as well as a small number of commercial insurance policies.

New York Central issued State of New York Personal Automobile Liability Insurance PolicyNo. 7104220, providing primary liability insurance coverage in the amount of $500,000 to Randolph Warden covering the period from August 11, 2000, to August 11, 2001.That policy included a provision stating, “In addition to our limits of liability, we will pay on behalf of an ‘insured ...’[i]nterest accruing after a judgment is entered in any suit we defend.”

Quincy Mutual is a corporation formed under the laws of the Commonwealth of Massachusetts, and is licensed to conduct insurance business in the State of New York.Its principal place of business is in Quincy, Massachusetts.Quincy Mutual issued to Warden State of New York Home Owner's PolicyNo. HP195802, which provided excess liability insurance coverage in the amount of $1,000,000 per occurrence, covering the period of July 29, 2000, through July 29, 2001.That policy contained the following provisions:

LIMIT OF LIABILITY

1.The limit of liability of this endorsement is one million dollars ($1,000,000) for any one occurrence.Our liability for damages resulting from one occurrence is only for that portion of the damages which exceeds the [primary policy]limit.

...

CONDITIONS OF THIS ENDORSEMENT

...

8.Other insurance.If a covered person has other collectible insurance that covers damages this endorsement also covers, this endorsement shall be excess to and will not contribute with such other insurance.This does not include insurance bought to apply in excess of the amount of deductible plus the limit of coverage of this endorsement.

The Quincy policy also contained the following provision:

COVERAGES

...

2. a. If it is claimed that a covered person is legally responsible for damages 1) which are not payable under any underlying insurance due to exhaustion of all underlying insurance, 2) which are covered under this endorsement except for the retained limit,we will:

...

(3) pay all our expenses; pay all court costs a covered person is charged; pay all interest accruing after a judgment is entered until we pay, tender or deposit in court that part of the judgment this policy covers.

Under that policy, Quincy Mutual's defense and indemnification obligations in a matter covered by Warden's primary policy with New York Central would become operative only upon tender or exhaustion of defendant's policy limits.

On November 21, 2000, Warden was involved in a serious motor vehicle accident in the Town of Ulysses caused by his failure to yield the right-of-way at an intersection controlled by a stop sign.As a result of that accident, Peggy Horton, the driver of the vehicle struck by Warden, sustained serious personal injuries.Following the accident, Warden was cited for failing to yield the right-of-way at a stop sign, in violation of New York Vehicle and Traffic Law § 1142(a), and ultimately entered a guilty plea to an amended charge of failing to obey a traffic control device, as prohibited under New York Vehicle and Traffic Law § 1110(a).

Timely notice of the accident and potential resulting claim was provided by Warden's insurance agent to both New York Central and Quincy Mutual.Following that notice, New York Central accepted coverage and assigned the claim to David Monahan, a Senior Casualty Examiner, who worked under the supervision of Diane Wildey, a Casualty Manager and Assistant Vice President.Monahan handled the Horton claim from inception to conclusion.Upon Quincy Mutual's receipt of notice of the Horton claim, it also accepted coverage and assigned the matter to James Hardy, a Senior Litigation Examiner.Hardy monitored the claim through its resolution under the supervision of Ray Congdon, General Liability and Litigation Manager, and Lisa Grealish, Executive Counsel and Vice President of Claims.

From 2001 up through 2009, New York Central did not have any formal written policies, practices, or procedures in place to guide adjusters like Monahan concerning settlement practices.As a casualty examiner, Monahan was given blanket authority by New York Central to settle cases and establish reserves in a matter, up to $75,000.²To exceed that amount, Monahan would have to either obtain authority from Wildey or, alternatively, present the matter to the company's Liability Committee, which met weekly.³In November 2001, New York Central and Quincy Mutual set aside reserves in the amounts of $5,000 and $2,500, respectively, concerning the Horton claim.

On October 18, 2001, Horton commenced a personal injury action against Warden in New York State Supreme Court, Schuyler County(hereafter referred to as “the Horton matter” or “the underlying litigation”), arising from the November 21, 2000 motor vehicle accident.In her complaint, Horton alleged that Warden negligently caused the accident, which resulted in her suffering from serious physical injuries, and sought damages in the amount of $1 million.Horton was represented in the action by Christopher D'Amato, Esq., of the firm of Cellino & Barnes, P.C. New York Central retained Frank Losurdo, Esq., of the firm of Brown and Michaels, P.C., to represent and defend Warden in the action, and it controlled the defense of the action from its inception until in or about January 2008.By conceding coverage and assuming control of the defense, New York Central, as the primary insurer, acknowledged its duty to promptly investigate the claim; effectuate a prompt, fair and equitable settlement; settle the claim within policy limits; continually assess and reassess the value of the case during its pendency; keep Quincy Mutual, as the excess carrier, advised concerning settlement developments; and place Quincy Mutual's interests on equal footing with those of New York Central.

On December 4, 2001, Hardy, Quincy Mutual's Litigation Supervisor handling the claim, wrote to Monahan at New York Central informing him of the excess coverage and requesting confirmation of the New York Central $500,000 primary coverage.Monahan responded on December 27, 2001, providing a copy of the declaration page issued by New York Central to Warden, and adding “[a]t this time, we feel we do have adequate coverage for damages [Horton] has sustained.”

At the time of her accident, Horton was a thirty-seven year old married mother of three children and had been employed as a licensed practical nurse earning $12.36 per hour.Horton did not work either as a nurse or in any other employment position, following the accident, and ultimately was found qualified to receive Social Security disability benefits.

As a direct result of injuries suffered in the motor vehicle accident, Horton has undergone six separate surgeries.She initially underwent spinal fusion /cage surgery at the L4–L5 level on October 11, 2001.A second surgical procedure was performed on August 29, 2002, involving the insertion of a percutaneous pedicle screw instrumentation at the L4–L5 level, due to lumbar instability at the fusion site caused by a non-union of the L4 and L5 vertebral bone segments.Horton underwent a third operation on October 28, 2002, to repair an incarcerated incisional hernia of the left lower abdomen along the scar line associated with the incision from the prior L4–L5 fusion surgery.

A fourth surgical intervention was performed on November 29, 2004, to remove the pedicle screw instrumentation at the L4–L5 level.That was followed, on December 17, 2007, with disc fusion surgery at the L5–S1...