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Brochstein v. Nationwide Mutual Insurance Co.

decided: September 21, 1971.

NATHAN BROCHSTEIN AND MANUEL BROCHSTEIN, *FN* DOING BUSINESS AS CHURCH AVENUE POULTRY, PLAINTIFFS-APPELLANTS,
v.
NATIONWIDE MUTUAL INSURANCE COMPANY, DEFENDANT-APPELLEE



Moore, Feinberg and Mansfield, Circuit Judges. Moore, Circuit Judge (dissenting).

Author: Feinberg

FEINBERG, Circuit Judge:

In the prior appeal in this case, Brockstein v. Nationwide Mutual Insurance Co., 417 F.2d 703 (2d Cir. 1969), with which familiarity will be assumed, we remanded to the district court to determine again whether the Brochsteins, plaintiffs-insureds, were entitled to recover damages from their insurer because of its failure to settle an action brought against plaintiffs by the administratrix of John F. Kiely (Kiely). As a result of that mistake in judgment, Kiely recovered $95,000 against the Brochsteins, $45,000 more than the amount of the policy provided by defendant. The Brochsteins' excess liability to Kiely was ultimately settled for $25,000, for which they sued defendant-insurer. In our earlier decision, we held, among other things, that the bad faith of an insurer in refusing to settle a claim against the insured

may be evidenced by the failure of the insurer even to mention to the insured his opportunity to make a relatively small contribution to avoid a large exposure.

417 F.2d at 709. We sought further findings as to

(1) precisely what the Brocksteins were told or knew regarding the amount needed to settle the Kiely action, the amount the insurer was willing to contribute, and what their potential personal liability was, and (2) what they were then willing to contribute themselves. [Footnote omitted.]

and directed the trial court again to

decide upon the entire record whether Nationwide acted in bad faith under the principles set forth herein.

On remand, Judge Dooling made extensive further findings of fact, including the key finding that:

The inference of constructive bad faith that might be drawn in some circumstances from the failure of the insurer to mention to the insured his opportunity to make a contribution to the settlement in order to avert the risk of a verdict in excess of the policy limit is insufficient on the facts of the present case to establish bad faith in fact.

The judge again found for defendant-insurer, and this appeal followed.

Appellants claim that the judge did not follow our directions and that defendant acted in bad faith as a matter of law. As to the former contention, Judge Dooling reopened the record, as our opinion authorized, heard testimony from five witnesses, including one of the plaintiffs and the lawyer who defended the Kiely action against them, and carefully reconsidered the question of the insurer's bad faith in refusing to settle that action. There is no doubt at all in our minds that the judge attempted to and did comply with our directions in all respects.

Appellants' alternative argument is that, in any event, the findings of the judge on remand required a conclusion as a matter of law that the insurer acted in bad faith. Appellants base their claim principally on the findings that plaintiffs had cash on hand sufficient to make a contribution to the settlement of even $10,000, but were not requested to do so and were not told that a relatively small contribution on their part would avoid a large exposure or that such a course was possible.

The judge did make the findings to which plaintiffs refer. But he also characterized as "necessarily hypothetical and not adequate as the basis for a finding" the testimony of one of the plaintiffs that he would have contributed from $5,000 to $12,500 to a settlement if defendant had advised him he could. The judge also found that O'Neill (trial counsel for the Brochsteins and the insurer) did advise the Brochsteins that the outcome was not predictable, that the verdict could be in excess of the policy limits, what the "posture of the settlement discussions [were] as they progressed during trial, from which the difference between offer and demand was evident," and what amount the insurer was willing to offer. The judge also found that the Brochsteins "understood that [if a verdict were rendered in excess of the policy limit] in such case the liability would be their firm's." Finally, the judge pointed out that if there had been a negotiation between the Brochsteins, the insurer and the Kiely interests, all ...


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