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ALLSTATE INS. CO. v. AMERICAN TRANSIT INS. CO.

September 19, 1997

ALLSTATE INSURANCE COMPANY, Plaintiff, against AMERICAN TRANSIT INSURANCE COMPANY, BISCEGLIA & OPPENHEIM, P.C., and CENTRAL QUEENS ICE and ICE CUBE CO., Defendants. FEDERAL INSURANCE COMPANY, Cross-claim Plaintiff, -against- AMERICAN TRANSIT INSURANCE COMPANY, BISCEGLIA & OPPENHEIM, P.C., Cross-claim Defendants.


The opinion of the court was delivered by: GERSHON

ORDER

 GERSHON, United States District Judge:

 This action arises out of the settlement of two personal injury suits in New York State Supreme Court. Plaintiff Allstate Insurance Company ("Allstate") is the excess insurer for one of the three state suit defendants. It alleges that (1) Federal Insurance Company ("Federal"), the excess insurer for the other two state suit defendants, and Central Queens Ice Co. and Ice Cube Co. ("Central"), one of those two defendants, breached their contractual obligation to indemnify plaintiff; (2) American Transit Insurance Company ("American Transit"), the primary insurer for all three state suit defendants, breached the fiduciary duties it owed to plaintiff; and 3) Bisceglia & Oppenheim, P.C. ("Bisceglia & Oppenheim") committed malpractice in defense of the state suits. Federal filed cross-claims against defendants American Transit and Bisceglia & Oppenheim similar to the claims brought by Allstate. By stipulation, Allstate has withdrawn its claims against Federal without prejudice to reinstating them on or before December 31, 1998 but with prejudice to reinstating them after that date. Central has failed to appear.

 Defendants American Transit and Bisceglia & Oppenheim move under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss Allstate's claim and Federal's cross-claims.

 Background

 In the underlying New York personal injury actions, two individuals, Tomas Goris and Edwin Bookman, sought damages resulting from an accident that occurred on the Brooklyn-Queens Expressway. Goris and Bookman were changing a tire on their disabled vehicle in the right lane, when a truck operated by Roodnath Ramroop, an employee of Central, approached in the same lane. Ramroop allegedly swerved his truck into the middle lane to avoid the pedestrians; he struck a second truck, swerved back and struck Goris and Bookman, causing severe injuries to both individuals. The truck driven by Ramroop was leased to Central by Mendon Leasing, Inc. ("Mendon"). Goris and Bookman commenced two separate actions against Ramroop, Central and Mendon.

 At the time of the accident, the three defendants in the state court actions were insured by four different companies. American Transit was the primary insurance carrier for Mendon, Central and Ramroop and provided one million dollars in coverage. Northbrook Insurance Company, a non-party to this action, was also an insurer for Central and provided one million dollars in coverage. Federal, the excess insurer for Central and Ramroop, provided one million dollars in excess coverage; and Allstate, the excess insurer for Mendon, provided five million dollars in excess coverage.

 American Transit did not dispute coverage over the accident involving Goris and Bookman and agreed to defend Mendon, Central and Ramroop. American Transit hired the law firm Bisceglia & Oppenheim to represent all three defendants. Biscelgia & Opppenheim sent a notification letter to Mendon, Central and Ramroop, which stated:

 
We are the attorneys appointed by your insurance company, AMERICAN TRANSIT INSURANCE COMPANY, to defend you in the above matter without costs or expenses to you as long as you fully cooperate with us. If you wish us to appear on your behalf, kindly sign the within authorization and return same.

 Allstate alleges that this notification failed to advise the defendants of potential conflicts of interest. Allstate further alleges that American Transit, as primary insurer, and Bisceglia & Oppenheim failed to provide them with proper notice of the state court action. Before the case went to trial, the parties agreed to a settlement; each of the four insurance companies contributed one million dollars, providing a settlement of two million dollars to Goris and two million dollars to Bookman.

 Allstate and Federal each seek to recover the one million dollars that it paid as an excess insurer to settle the two personal injury cases. Both allege that American Transit, the primary insurance carrier, breached the fiduciary duties it owed to its excess insurers and that Bisceglia & Oppenheim, as defense counsel for the insureds, committed malpractice.

 Discussion

 "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). For purposes of a motion to dismiss, the allegations of the complaint must be taken as true. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 515, 30 L. Ed. 2d 642, 92 S. Ct. 609 (1971).

 A federal court sitting in diversity must follow the law determined by the highest court of the state whose law is applicable to the resolution of the dispute. Plummer v. Lederle Laboratories, 819 F.2d 349, 355 (2d Cir.), cert. denied, 484 U.S. 898, 98 L. Ed. 2d 191, 108 S. Ct. 232 (1987). When the highest state court has not ruled directly on the issued presented, a federal court must make an estimate of what the state's highest court would rule to be its law. Francis v. INA Life Ins. Co. of New York, 809 F.2d 183, 185 (2d Cir. 1987); Hausman v. Buckley, 299 F.2d 696, 704 (2d Cir.) ("The proper function of this Court is to ascertain what New York law is, and not to speculate about what it will be, or in Learned Hand's felicitous phrase, 'to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time, but whose birth is distant.' It is certainly not our function to apply the rule we think better or wiser.")(citation omitted), cert. denied, 369 U.S. 885, 8 L. Ed. 2d 286, 82 S. Ct. 1157 (1962). "[A] federal court may discern the forum state's law by examining relevant ...


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