if at all, at Canadian's door, not Key and Schering's. The same can be said regarding plaintiffs' complaint that Carol Moody, the attorney hand-picked by Canadian to defend the Hyde case, waited too long to prepare an evaluation of the merits of the case. See Deposition of William J. O'Brien, June 8, 1993, at 76, 79.
To be sure, there did come a point -- sometime in January, 1991 -- when, owing to Canadian's financial incapacity, defendants assumed control of the defense in the Hyde litigation. But plaintiffs have presented no evidence that, after assuming control of the defense, defendants failed to keep plaintiffs informed of developments in the case. Their claim that defendants withheld from them the mediator's suggestion that the Hyde case could be settled for $ 1.5 million is flatly contradicted by the deposition testimony of their own attorney, William O'Brien. See Deposition of William J. O'Brien, June 8, 1993, at 180-83. In fact, the only impediment to plaintiffs' "taking . . . actions . . . to protect their rights under the policy of insurance," Pls.' Mem. in Support at 24, seems to have come from O'Brien himself, who, in light of the need to study the issues raised by Canadian's insolvency, decided not to exercise the authority granted him by MMO in early December, 1991, to conduct his own evaluation of Hyde's claims. See Deposition of William J. O'Brien, June 8, 1993, at 138-141.
For all of the foregoing reasons, the Court grants defendants' motion for summary judgment as it relates to plaintiffs' claim under Paragraph 19 of the Employers policy.
iii. Paragraph 24: When Employers' Obligation Attaches
Plaintiffs next claim that defendants breached Paragraph 24 of the Employers policy by insisting that Employers might have to "drop down" and fund Canadian's underlying layer of coverage after Canadian became insolvent. See Pls.' Mem. in Support at 24, 49-50. In plaintiffs' view, Paragraph 24 makes clear that Employer's obligation to tender its layer of coverage attaches only upon the occurrence of certain carefully defined events, and that the insolvency of the primary carrier is not one of those events.
There is no doubt that, in the several months leading up to the Hyde trial, defendants made inquiries into whether Employers would "drop down" and cover the gap in coverage left by Canadian's insolvency, and that they refused to acknowledge that there was no "drop down" obligation when requested to do so by plaintiffs. See Letter from William J. O'Brien to Carol L. Moody, December 29, 1990, at 2; Letter from John G. Bergmann to William J. O'Brien, January 15, 1991. It is also clear that plaintiffs' argument from the language of Paragraph 24 has merit. In 1992, the New York Court of Appeals held that policy language that was more ambiguous than the language of Paragraph 24 did not require an insured's second excess carrier to "drop down" and fill in for the first excess carrier, which had become insolvent. See Ambassador Assocs. v. Corcoran, 79 N.Y.2d 871, 589 N.E.2d 1258, 581 N.Y.S.2d 276 (N.Y. 1992) (4-3 decision), aff'g mem. 562 N.Y.S.2d 507 (1st Dept. 1990), aff'g 541 N.Y.S.2d 715 (Sup. Ct. N.Y. Cty. 1989).
In this case, of course, there is no issue of "drop down" per se which must be resolved, since Key, the insured, ultimately filled the gap in its coverage itself when it and Schering tendered the first $ 2 million in settlement to Hyde in March, 1991. What remains to be resolved, and what we understand plaintiffs to be emphasizing, is the question of whether defendants exhibited bad faith when they insisted that Employers might have to "drop down" and fund Canadian's layer of coverage in spite of the policy language contained in Paragraph 24.
Plaintiffs are correct in noting that every contract has an implied covenant of good faith and fair dealing. Gordon v. Nationwide Mut. Ins. Co., 30 N.Y.2d 427, 285 N.E.2d 849, 854, 334 N.Y.S.2d 601 (N.Y. 1972) (quoting Kirke La Shelle Co. v. Armstrong Co., 263 N.Y. 79, 188 N.E. 163, 167 (N.Y. 1933)), cert. denied, 410 U.S. 931 (1973). Under New York law, this implied covenant requires insurance companies to negotiate settlements in good faith and to give the interests of their insureds "at least equal consideration in evaluating the propriety of a settlement." Brown v. United States Fidelity & Guaranty Co., 314 F.2d 675, 678 (2d Cir. 1963); see also Young, 416 F.2d at 910.
Moreover, we shall assume, for the sake of argument only, that this duty to give the insured's interests equal consideration applies just as fully to policyholders that step into the shoes of their primary carriers as it does to the carriers themselves, and, further, that defendants acted in bad faith when they insisted on exploring the issue of plaintiffs' obligation to "drop down."
Nonetheless, an insurer is liable for the amount of a settlement in excess of its coverage responsibilities only if the insured or excess carrier can show that, as a result of the insurer's bad faith, an actual opportunity to settle within its coverage limits was lost. United States Fidelity & Guar. Co. v. Copfer, 48 N.Y.2d 871, 400 N.E.2d 298, 298-99, 424 N.Y.S.2d 356 (N.Y. 1979). No "actual opportunity to settle" is deemed to have existed if the insurer can show, by some affirmative evidence, that there was no realistic possibility of settlement within its policy limits, and, further, that the insured would not have contributed to whatever settlement figure could have been obtained. Young, 416 F.2d at 911; see also Rova, 323 A.2d at 507 (citing Young).
For the reasons given supra Part II(C)(i), we believe that the summary judgment record contains affirmative evidence showing that there never was a realistic possibility of settling the Hyde case within Key's (self-insured) coverage limit of $ 2 million, or even for $ 3 million or $ 4 million, prior to the actual settlement. There are positive, and unrebutted, indications in the record that, had they sought to do so, defendants would not have succeeded in negotiating the settlement price downward from Hyde's policy limits demand.
Because an essential element of plaintiffs' "bad faith" claim is without foundation in the record, we grant defendants' motion for summary judgment as to plaintiffs' claim under Paragraph 24 of the Employers policy.
iv. Paragraph 16: "Approval of the Company "
Plaintiffs' final claim under the Employers policy is that defendants breached the second part of Paragraph 16 by failing to seek or obtain plaintiffs' approval of the ultimate settlement concluded with Hyde. Defendants respond that, prior to the settlement, plaintiffs had disclaimed their contractual obligations under the Employers insurance contract, thus waiving their right of approval under Paragraph 16.
In the 1992 opinion, we found that although plaintiffs disclaimed responsibility for the Hyde claims prior to the effectuation of the settlement, they believed that defendants' breach of the Employers contract had relieved them of their own contractual obligations. Employers Mutual Casualty Co., et al., 1992 WL 8712, at *11. Because material facts concerning this alleged breach by defendants remained in dispute, we declined at that time to grant defendants' motion for summary judgment on this issue.
Since the issuance of the 1992 opinion, discovery in this case has been completed. At this stage of the litigation, we can say two things. First, it is now clear to us that plaintiffs' disclaimer of their obligations under the Employers contract was total and unqualified. MMO attorney William O'Brien advised Key and Schering on March 6, 1991, that their mishandling of the Hyde litigation "has terminated any obligation Employers may have had to Key. . . . You have no choice but to act as a prudent uninsured . . . ." Letter from William J. O'Brien to Jean-Pierre Gamier, Attorney for Schering, March 6, 1991, at 2, 3. On its face, this language amounts to a repudiation by plaintiffs of the Employers contract; and nothing that the parties have produced in discovery qualifies that repudiation in any way.
Second, plaintiffs' repudiation of the Employers' policy is clearly inconsistent with their position that defendants ought to have acted as if the policy continued in effect and consulted plaintiffs on settlement. There is no doubt but that, in advising defendants to proceed as a "prudent uninsured," plaintiffs waived their rights under the Employers contract to be consulted as to the terms of the Hyde settlement. Accordingly, we grant defendants' motion for summary judgment on plaintiffs' claim under the second half of Paragraph 16.
D. Defendants' Counterclaim
Defendants have brought a counterclaim in this action, alleging that plaintiffs themselves breached the terms of the Employers policy by disclaiming coverage groundlessly. This counterclaim is essentially the converse of plaintiffs' claim that they should be excused from having to indemnify defendants for their losses (in excess of $ 2 million) in the Hyde litigation. Given that, for all of the foregoing reasons, we are granting defendants' motion for summary judgment on plaintiffs' petition for relief from contribution, we grant defendants' counterclaim for nonpayment by plaintiffs of their share of the losses covered by the Employers policy.
III. Attorney's Fees
Defendants assert that they are entitled to an award of attorney's fees, and rely on Mighty Midgets, Inc. v. Centennial Insurance Co., 47 N.Y.2d 12, 389 N.E.2d 1080, 416 N.Y.S.2d 559 (N.Y. 1979), to that effect. Mighty Midgets does indeed state that an award of fees against an insurer is available when the insured is "cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligation." 389 N.E.2d at 1085. However, the Mighty Midgets principle does not apply to situations like this one where the insurer seeks to be relieved only from its obligations to indemnify, as opposed to its obligations to defend. Puritan Insurance Co. v. Eagle Steamship Co., S.A., 779 F.2d 866, 872-73 (2d Cir. 1985). And because we do not perceive that the circumstances of this case furnish a basis for an award of fees under either Federal Rule of Civil Procedure 11 or the Court's equity powers, defendants' request for fees is denied.
We are mindful of the caution with which the question of summary judgment must be addressed in cases where the parties state of mind is relevant. See Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 7 L. Ed. 2d 458, 82 S. Ct. 486 (1962). But although caution must be exercised, it is clear that summary judgment is an available remedy even when intent is in issue. See McLee v. Chrysler Corp., 38 F.3d 67 (2d Cir. 1994). In a case such as this one, where exhaustive discovery has fully illuminated the facts upon which inferences of intent and good faith are to be drawn and where, especially, the Court will itself be the ultimate fact finder in the event summary judgment is denied, summary judgment is surely not precluded and, indeed, appears here to be entirely appropriate.
Defendants' motion for summary judgment as to each of plaintiffs' causes of actions is granted, as is defendants' motion for summary judgment on its counterclaim.
Dated: December 19, 1994
New York, New York
Leonard B. Sand