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LIBERTY MUT. INS. CO. v. THALLE CONST. CO.

October 10, 2000

LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFF,
V.
THALLE CONSTRUCTION COMPANY, INC., DEFENDANT.



The opinion of the court was delivered by: William C. Conner, Senior District Judge.

OPINION AND ORDER

Plaintiff Liberty Mutual Insurance Company, a Massachusetts corporation, brings this action against defendant Thalle Construction Company, Inc., a New York corporation, alleging a breach of contract based upon defendant's refusal to pay a retrospective premium adjustment under a policy of general commercial liability insurance issued by plaintiff to defendant. Defendant alleges that plaintiffs improper settlement of a claim asserted under the policy constituted a breach of the implied duty of good faith and nonperformance of a condition precedent, thereby excusing defendant's obligations to pay the increased premiums. Plaintiff now moves for summary judgment pursuant to FED. R. Civ. P. 56(b) and defendant cross moves for summary judgment. For the reasons that follow, plaintiffs motion for summary judgment is granted in all respects and defendant's cross motion is denied.

BACKGROUND

Plaintiff issued defendant a Commercial General Liability Policy, No. TB1-121-034616-029 (the "Policy"), containing a retrospective premium adjustment provision with a loss limitation of $125,000. (Pl. Exs.9(A), 13.) On August 25, 1998, plaintiff conducted an Eighth Retrospective Premium Adjustment. As a result thereof, plaintiff alleges that defendant owes an additional premium in the amount of $122,495, less a credit of $588, for a total of $121,907 plus interest.*fn1 (Id. ¶¶ 11-13.) The additional premium is based upon plaintiff's settlement of a claim asserted by Susan McMichael in 1995 for $260,000 (the "McMichael Claim") for damages to her home allegedly caused by defendant. (Id. ¶¶ 15-16.)

Defendant claims that its construction activities did not cause damages in the amount of $260,000. It claims that plaintiff conducted an inadequate and careless investigation of the McMichael Claim, resulting in an excessive settlement. (Hall Aff. ¶ 5.) Defendant alleges that plaintiff was careless in that it: (1) lost the claims file and a videotape showing pre-existing damages to the McMichael residence; (2) failed to take statements from any of defendant's employees or to obtain estimates from McMichael concerning the alleged damages; and (3) failed to ensure that the experts retained by plaintiff completed a thorough investigation.

Plaintiff claims that it based its decision to accept the settlement figure of $260,000 upon the advice of its experts and its attorney, Chris Christofides, a principal of the law firm of Jones, Hirsch, Connors & Bull, P.C. ("JHCB"). (Galasso Aff. ¶ 5.) Christofides, who was assigned to the case on May 1, 1998, states that he based his recommendation of settlement upon: expert reports; unavailability of witnesses; videos taken before, during, and after construction; and his own personal experience in construction litigation. (Christofides Aff. ¶ 13.)

I. The McMichael Claim

During the 1980's, defendant contracted with the County of Westchester to perform work for the Outfall Pipeline Project (the "Project"). The Project involved the laying of a culvert from the Mamaroneck Park and treatment facility through the McMichael property. (Christofides Aff. ¶ 4.) In 1988, McMichael granted the County a temporary easement pursuant to which the County had the right to enter the land and bury a portion of the sewer line. (McMichael Complt. ¶ 3.)

In connection with the placement of the sewer line, a vibratory hammer was needed to install steel sheet piles and blasting was required to remove bedrock underneath the water basin adjacent to the McMichael residence. (Christofides Aff. ¶ 5; Notaro Aff. ¶ 7.) The parties in the present action dispute the location of the work in relation to the McMichael house. Plaintiff alleges that the work was performed as close as four feet from the house. (Christofides Aff. ¶ 5.) Defendant alleges that the trench was excavated twenty-five to thirty-five feet from the house itself and the nearest blast occurred approximately thirty to forty feet from the house. (Notaro Aff. ¶¶ 5-7.)

In 1990, McMichael complained of damages caused by defendant during construction. Plaintiff agreed to indemnify and defend the County for claims arising out of the Project based upon defendant's insurance policy as well as its contractual obligations with the County. Thereafter, plaintiff opened a claims file and, on April 24, 1990, retained American Standards Testing Bureau, Inc. ("ASTB") to perform an engineering examination of the McMichael property.

The report, issued on April 30, 1990, stated that defendant's construction efforts were responsible, at least in part, for some damage to the plaintiffs home by aggravating a pre-existing condition and causing the soil to move underneath the deck. (Christofides Aff. ¶¶ 20-22; Ex. 2.) Based upon the ASTB report and its recommendations, plaintiff made a settlement offer of $8,791.34 to McMichael, to which there was no response. For purposes of this suit, defendant estimates that the cost of the repairs listed in the ASTB report amounted to $1,775. (Mirabelli Aff. ¶ 26.)

II. Liberty Mutual's Investigation

As stated above, defendant alleges that plaintiff's carelessness included losing the original claims file as well as a videotape showing pre-existing damage to the McMichael home. Defendant alleges that this videotape would have mitigated its damages. (Mirabelli Aff. ¶¶ 23, 26.) Plaintiff denies that the videotape was ever given to it. However, plaintiff argues that even if it did have possession of the tape, it would have hurt defendant's position in settling the McMichael Claim. It argues that the tape showed a pre-existing drop of only one inch and offers the testimony of Paul Mirabelli, a corporate administrator employed by defendant since 1989, who admits seeing a one-inch drop. Plaintiff contends that it was the additional two to three-inch drop in the concrete foundation which caused the most significant damage to the McMichael residence. (Potashner Aff. ¶¶ ...


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