Robertson Stephens, Inc. v. Chubb Corp.

Decision Date14 February 2007
Docket NumberC.A. No. 05-360 S.
Citation473 F.Supp.2d 265
PartiesROBERTSON STEPHENS, INC. and Bank of America Corp., as successor to Fleetboston Financial Corp., Plaintiffs, v. CHUBB CORP., Federal Insurance Co., Chubb & Son, Inc., and Bullfinch Indemnity Company, Ltd., as successor to FFG Insurance Co., Ltd., Defendants.
CourtU.S. District Court — District of Rhode Island

Howard A. Merten, Steven E. Snow, Partridge, Snow & Hahn, LLP, Providence, RI, for Plaintiffs.

Jonathan A. Constine, Hogan & Hartson L.L.P., Washington, DC, Stephen J. Reid, Jr., Blish & Cavanagh, LLP, Matthew F. Medeiros, Little, Medeiros, Kinder, Bulman & Whitney, Providence, RI Geoffrey J. Vitt, Vitt & Rattigan, PLC, Norwich, VT, for Defendants.

OPINION AND ORDER

SMITH, District Judge.

This diversity action raises several novel and interesting insurance law issues. It arises from an insured's allegation that Its insurer both failed to defend it from claims of breach and to indemnify it for a settlement within the policy's aggregate limit. The insured also has sued the insurer's claims administrator. The relationships of the parties gives the case the interesting twist: the insurer is a captive of the insured and the claims administrator is also one of the reinsurers under the policy. The claims administrator has moved to dismiss all counts against it (Counts IV through VI). The questions before the Court are whether an independent claims administrator can be liable, to an insured for bad faith claims handling (Count IV), tortious interference with contractual relations (Count V), or negligence (Count VI). For the reasons set forth below, the Court finds that the insured can maintain the bad faith and tortious interference claims, but not the negligence claim.

I. BACKGROUND

Under the familiar Fed.R.Civ.P. 12(b)(6) rubric, the Court accepts as true the factual allegations in the complaint and draws all reasonable inferences in the plaintiffs' favor. Educadores Puertorriquenos en Accion v. Hernandez, 367 F.3d, 61, 62 (1st Cir.2004). In deciding the motion, the Court may also consider documents (such as the contracts discussed below) integral to or explicitly relied upon in the complaint, whether or not those documents are attached to the complaint. Jorge v. Rumsfeld, 404 F.3d 556, 559 (1st Cir.2005); Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 17 (1st Cir.1998). The Court recites only those facts necessary to decide the present motion, beginning with a brief introduction of the parties.

Robertson Stephens, Inc. ("RSI") is an investment and securities firm that is wholly owned by Robertson Stephens Groups, Inc. ("RSGI"), a holding company. Bank of America Corporation is successorin-interest to FleetBoston Financial Corporation (collectively, "Fleet" or "Plaintiffs"), and wholly owns RSGI. FFG Insurance Co., Ltd. ("FFG") was,1 at all times relevant to this case, a captive insurance company ("captive") of Fleet.2 Federal Insurance Company ("Federal" or "Defendant") is FFG's claims administrator and, by a separate agreement, one of the reinsurers of coverage.3

Three documents define the relationships among the parties to this dispute. The first is the "Combined Risk Protection Program" (the "Policy"), which is a primary insurance policy FFG issued to its owner, Fleet. The Policy provides coverage to Fleet and its subsidiaries, including RSI, against certain losses. For example, § 6, entitled "Employment Practices Liability," requires FFG to "pay on behalf of the Insureds all Loss for which the Insured becomes legally obligated to pay on account of any Claim first made against the Insured during the Policy Period," (Policy § 6-1), and to "defend against any Claim covered by this Policy." (Id. § 6-6.) Coverage, however, was subject to a lengthy list of exclusions, (id. § 6-3), and required that "the Insureds shall, as a condition precedent to exercising their rights under this Policy, give to the Company written notice of any Claim made against any of them for a Wrongful Act after, any Insured determines it is reasonably possible that Loss on account of such Claim will meet or exceed $5,000,000." (Id. § 6-7.) The Policy maintains a $100 million aggregate limit, with a $10 million per-loss/claim retention amount.

The second is the "Claims Administration Agreement" ("Administration Agreement") between FFG and Federal. The Administration Agreement delegates to Federal the authority "to receive, review and evaluate any Claims" brought under the Policy, (Administration Agreement § 2(A)), and "to interpret [Policy] language, make [Policy] coverage decisions, and to settle covered Claims for any amount up to the [Policy] limits." (Id. § 2(C).) Although Federal's authority "to deny, negotiate, adjust or settle" " claims was contingent on FFG's express written permission, (id. § 2(A)), seemingly conflicting language indicates that "[a]ll decisions with respect to the ultimate disposition of a Claim . . . shall be made by [Federal]." (Id. § 2E.) In the end analysis, however, FFG is "solely liable for the payments of all Claim amounts." (Id. § 6(3).)

The third and final document is a "Certificate of Facultative Casualty Reinsurance" ("Reinsurance Agreement") that Federal entered into with FFG. Under the terms of the Reinsurance Agreement, Federal became (in addition to the claims administrator under the Administration Agreement) one of the reinsurers of coverage under the Policy, obligated to provide a quota share of 30% of the $100 million reinsurance limit of liability.4

The events that put these documents in play began in July 2002 when RSI announced that it would cease its broker-dealer operations and begin winding down. Eleven months later, several RSI executives served on Fleet a written demand, enclosing a draft civil complaint seeking damages, indemnity, and penalties arising from RSI and Fleet's alleged breach of their employment agreements, and a draft demand for arbitration of their claims. Shortly thereafter, Fleet filed a claim with FFG, requesting defense and indemnification for itself and RSI. Fleet also forwarded to FFG a copy of the demand letter, draft civil complaint, and draft arbitration demand.

When neither Federal nor FFG responded to their claim, Plaintiffs began to negotiate a settlement with the aggrieved RSI executives in September 2003. Negotiations continued into December 2003, when Federal, mistakenly relying on a scrivener's error in the Policy, informed Fleet orally that its claims were not covered. Soon thereafter, Plaintiffs reached a settlement within the aggregate limit of the Policy, telling FFG on January 9, 2004. Federal finally responded in writing to Fleet's claim on February 24, 2004, acknowledging apologetically that the executives' claims were covered and asserting that it would further investigate the claims and possible defenses. However, because FFG did not reimburse Plaintiffs for defense costs or the settlement payment, Plaintiffs filed this action. Federal then moved to dismiss, pursuant to Rule 12(b)(6).

II. STANDARD OF REVIEW

If the allegations in the complaint, under any theory, are sufficient to state a cause of action, this Court must deny the motion to dismiss. Vartanian v. Monsanto Co., 14 F.3d 697, 700 (1st Cir.1994). Nevertheless, "minimal requirements are not tantamount to nonexistent requirements. The threshold may be low, but it is real." Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir.1988). In order to survive dismissal, a plaintiff is "required to set forth factual allegations, either direct or inferential, respecting each material element necessary, to sustain recovery under some actionable legal theory." Id. at 515.

III. CHOICE OF LAW

Before the viability of Plaintiffs' claims may be addressed, the Court must first resolve the parties' choice-of-law dispute. Federal makes a pitch for the application of California law, arguing that "the alleged `injury' to RSI and/or Fleet resulting from Federal's alleged conduct occurred either in California, where RSI is located, or Rhode Island, where Fleet is located." More to the point, Federal claims that the application of California law is dispositive because California courts do not recognize Plaintiffs causes of action. Rhode Island courts have not addressed these questions, so Federal wishes, quite understandably, to avoid its uncertain waters. However, because Federal believes that the ultimate resolution of the case would be identical under the law of either state, Federal contends that the Court need not determine which law applies. See Fratus v. Republic W. Ins. Co., 147 F.3d 25, 28 (1st Cir.1998) ("A federal court sitting in diversity need not make a finding regarding which state's law is to be applied where the case's resolution would be identical under either state's law."). Without commenting on Federal's interpretation of California law, Plaintiffs argue that Rhode Island law clearly applies.

As a preliminary matter, Federal's suggestion that this Court should bypass the choice-of-law question must be rejected. The principle that a court may eschew a choice of law is grounded in the pragmatic notion that federal courts, sitting in diversity, should do no more than is necessary to decide a case. See, e.g., Pediatricians, Inc. v. Provident Life & Accident Ins. Co., 965 F.2d 1164, 1168 (1st Cir.1992). The prototypical example in this context is when there is no material conflict between the definitive law of the competing forums. in terms of resolving the claims at issue, see Fashion House, Inc. v. K mart Corp., 892 F.2d 1076, 1092 (1st Cir.1989); but the principle is equally applicable to situations in which the highest courts of the competing forums, though both silent on the issue, likely would reach the same result. See Hart Eng'g Co. v. FMC Corp., 593 F.Supp. 1471, 1477 n. 5, 1481 (D.R.I.1984) (refusing to choose the applicable law because all three competing states had not addressed the question). The present...

To continue reading

Request your trial
20 cases
  • Keodalah v. Allstate Ins. Co.
    • United States
    • Washington Supreme Court
    • October 3, 2019
    ...company) assumes primary control over handling a claim, thus stepping into the shoes of the insurer. Robertson Stephens, Inc. v. Chubb Corp. , 473 F. Supp. 2d 265, 274-75 (D.R.I. 2007) (applying Rhode Island law) ; Riccatone v. Colo. Choice Health Plans , 2013 COA 133, ¶¶ 17-18, 315 P.3d 20......
  • Emhart Industries, Inc. v. Home Ins. Co., C.A. No. 02-53 S.
    • United States
    • U.S. District Court — District of Rhode Island
    • September 26, 2007
    ...it may be to predict Conanicut's fate, the issue in this case can be resolved without taking that step. In Robertson Stephens, Inc. v. Chubb Corp., 473 F.Supp.2d 265 (D.R.I.2007), an insured asked this Court to apply a state holding that would have allowed it to proceed against its insurer'......
  • Shire Corp., Inc. v. Rhode Island Department of Tranportation
    • United States
    • Rhode Island Superior Court
    • March 2, 2012
    ...are not sufficiently separate for RIDOT to be outside of the agreements that RIDOT in fact was integral in effectuating. See Robertson Stephens, 473 F.Supp.2d at 275 ("well-settled that a party cannot tortiously with its own contract"). Therefore, this Court grants Defendants' motion for su......
  • Lodholtz v. York Risk Servs. Grp., Inc.
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • February 11, 2015
    ...at 917 (same); Hamill v. Pawtucket Mut. Ins. Co., 179 Vt. 250, 892 A.2d 226, 230 (2005) (same); see also Robertson Stephens, Inc. v. Chubb Corp., 473 F.Supp.2d 265, 280 (D.R.I.2007) (holding that claims adjuster did not owe a duty of reasonable care to insured under Rhode Island law). But s......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT