Schwartz v. Twin City Fire Ins. Co.
| Decision Date | 31 May 2007 |
| Docket Number | No. 05 Civ. 7943(PKC).,05 Civ. 7943(PKC). |
| Citation | 492 F.Supp.2d 308 |
| Parties | Bernard L. SCHWARTZ, Plaintiff, v. TWIN CITY FIRE INSURANCE CO., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Elkan Abramowitz, Edward M. Spiro, Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C., New York City, for Plaintiff.
Marc S. Voses, Edwards Angell Palmer & Dodge, LLP, New York City, David J. Margules, John M. Seaman, Bouchard Margules & Friedlander, P.A., Wilmington, DE, Kevin Joseph Windels, Robert Elihu Kushner, Stephen Frederick Willig, D'Amato & Lynch, New York City, for Defendants.
Alexis J. Rogoski, Boundas Skarzynski Walsh & Black, Rachel L. Simon, New York City, for Movant.
Joshua Lewis Dratel, Law Offices of Joshua L. Dratel, P.C., John M. Seaman, New York City, for Cross Claimant.
These are the Court's rulings on the post-trial motions in an action tried to verdict before a jury on a claim of an insured against his excess carriers under directors' and officers' liability policies. Bad faith cross-claims were asserted by the excess carriers against the settling primary carrier and they are also the subject of post-trial rulings.
Bernard L. Schwartz is a graduate of New York City's Townsend Harris High School and C.U.N.Y.'s Brooklyn College, a veteran of World War II and a public accountant. In 1972, he joined Loral Space & Communications Ltd. ("Loral") and later became its chief executive officer. In 2003, Loral filed for Chapter 11 protection as a result of its failed investment in a nascent satellite telephone business known as Globalstar. Schwartz also had served as chief executive officer of the Globalstar companies.
Schwartz became the sole defendant in a certified federal securities class action arising out of his service with Globalstar. In his capacity as an officer, he was an insured under a primary layer of insurance written by Twin City Fire Insurance Co. ("Twin City" or the "Primary Carrier"), an affiliate of The Hartford. The primary layer, together with the excess layers, provided a total of $50 million in coverage. While there is debate about the magnitude of Schwartz's damage exposure in the securities class action, it suffices to note that it was potentially in excess of the limits of insurance. Schwartz had accumulated a net worth of over $300 million, which, in whole or substantial part, was at risk in the securities class action.
Prior to the commencement of the trial of the securities class action, several unsuccessful settlement meetings were held with the assistance of a privately-retained mediator which included Schwartz's counsel, counsel for the class, counsel for Twin City and counsel for other carriers in the excess layers. At several points in the pre-trial settlement discussions, class counsel expressed a willingness to resolve the case for $15 million. As of commencement of the securities class action trial, Twin City had not tendered its limits of $10 million and, with the primary limits unexhausted, the excess carriers were unwilling to contribute meaningfully to a settlement.
After the close of the plaintiffs' case in the securities class action, this Court denied in part Schwartz's motion for judgment as a matter of law. With the trial drawing to a close and no further movement from the primary and excess insurers, Schwartz concluded, over a weekend break, that the most prudent course of action was to settle the case, lest his considerable wealth be exposed to a judgment in excess of all insurance. His counsel approached class counsel, who, by then, was no longer willing to accept $15 million in settlement. Schwartz's counsel learned on Saturday, July 16, that the case could be settled for $20 million. Schwartz's counsel sought consent to settle for that figure from each of the insurers, although there was a dispute at the insurance trial as to precisely when the settlement with class counsel was reached in relation to Schwartz's request for consent. It was undisputed that on Monday morning, July 18, 2005, Schwartz and class counsel announced in open court that they had reached an agreement-in-principle on a $20 million settlement. With no consent from any insurer having been received, Schwartz agreed to fund the settlement from his personal wealth. Had it not been settled, the case would have been submitted to the jury within two or three days.
The present action was commenced less than a month after Schwartz paid the $20 million settlement. Schwartz sued Twin City and the carriers on the relevant layers of excess coverage, namely, Royal Indemnity ("Royal"), Liberty Mutual Insurance Company ("Liberty") and North American Specialty Insurance Company ("North American"). Royal, Liberty and North American asserted bad faith cross-claims against co-defendant Twin City.
The trial of the present action began on January 8, 2007. Several days prior to commencement of trial, Twin City and Royal settled with Schwartz agreeing, among other things, to pay to him 100% of their layers of insurance.
Schwartz's breach of contract claim against Liberty and North American (collectively, the "Excess Carriers") proceeded to verdict and the jury awarded Schwartz $5 million against Liberty and $4,085,723.11 against North American. The same jury returned verdicts in favor of Liberty in the amount of $2 million and North American in the amount of $3 million on their bad faith cross-claim against Twin City. Judgment was entered on January 29, 2007.
Following the entry of judgment, Schwartz moved, pursuant to Rule 59(e), Fed.R.Civ.P., to amend the judgment to provide pre-judgment interest on the damage award in favor of plaintiff. North American, Liberty and Twin City moved for judgment as a matter of law, pursuant to Rule 50(b), Fed.R.Civ.P., or, alternatively, for a new trial pursuant to Rule 59, Fed.R.Civ.P.
The Court concludes that the policies of insurance do not provide a basis for judgment as a matter of law in favor of Liberty or North American and that there was ample evidence to support the jury's verdict. There is no basis to grant the alternative relief of a new trial. Schwartz is entitled to pre judgment interest from the date he made the $20 million payment to class counsel.
New York's requirement that "gross disregard" be proven on the part of the party assertedly acting in bad faith applies to the bad faith cross-claims of North American and Liberty. Because the jury concluded that Twin City did not act with "gross disregard" of the rights of North American and Liberty, Twin City's motion for judgment as a matter of law is granted.
To a great extent, the trial of the insurance case presented a trial within a trial. Liberty and North American argued, among other things, that the settlement of the securities class action for $20 million was unreasonable in amount, and, in order for the jury in the insurance trial to evaluate this defense, they needed to understand the claims that had been presented to the jury in the securities trial.
The evidence in the insurance trial established that in the early 1990s, Schwartz and others formed a number of related communications companies, including Globalstar L.P., Globalstar Telecommunications Ltd. ("GTL"), and Globalstar Capital Corp. (collectively, "Globalstar"). Globalstar's satellite phone business failed, and Globalstar's shareholders initiated a class action, (the "Globalstar Class Action"), suing Schwartz and others for allegedly making false statements relating to Globalstar's financial position in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder and Sections 11, 12(2)(a) and 15 of the Securities Act of 1933 (the "1933 Act"). In re Globalstar Securities Litigation, 01 Civ. 1748(PKC).1
On December 15, 2003, a motion to dismiss the securities class action complaint was denied. (PX 18). The action proceeded through the discovery process and, on November 12, 2004, the trial judge (who happened to be the undersigned) set a trial date of July 6, 2005.2 (Docket Entry # 77; see also PX 29 at 3) The class was certified on December 1, 2004. (PX 29)
Schwartz, the chief executive officer of Globalstar L.P. and chairman and chief executive officer of GTL, was an insured under a claims-made directors and officers liability policy issued by Twin City to GTL, affording $10 million in aggregate primary coverage, including claims expenses. (PX 1) Sitting above the primary layer was a tower of $40 million in excess coverage with several different carriers. Royal held the first excess layer of $5 million (PX 2), followed by North American (PX 3) and then Liberty (PX 4) each at $5 million. Star Excess Liability Insurance Co., Great American E & S Insurance Co. ("Greenwich") and Greenwich Ins. Co. held the remaining layers of coverage which are not implicated in this action. (PX 5-7)
The carriers monitored the progress of pretrial proceedings and Schwartz's lawyer kept them advised of material developments. For example, on July 30, 2004, Schwartz's counsel transmitted a letter report which, among other things, reviewed and updated estimates, calculations and predictions of potential damage awards in the class action. (PX 23) He noted that NERA, the damage consultants retained by Schwartz, had calculated "Plaintiffs' Style Damages," i.e. the damages that a class counsel could be predicted to seek before a jury, to be in range of $2.6 to $3.1 billion. Along with other damage calculations, Schwartz's counsel also reported a low damage estimate for a shortened class period of $91 million.
The Court suggested to the parties that they retain a private mediator. The parties agreed and hired Jonathan Marks, Esq. A first session was held in August 2004 and representatives of Twin City, Royal, Liberty and North American were in...
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