offer." 82 N.Y.2d at 454, 605 N.Y.S.2d at 212, 626 N.E.2d 24.
Instead, the Second Circuit's approach in Pinto best harmonizes the two
competing provisions into a workable and practical framework. The Pinto
decision requires the factfinder to first determine whether the carrier
acted in bad faith by weighing the numerous factors cited in Pavia, and
reasserted in Smith. For example, the court in Pinto found that on the
one hand, the carrier had conducted a thorough investigation and made an
informed evaluation of the plaintiff's settlement demand. 221 F.3d at
400. On the other hand, it also found that the carrier had conceded
liability, had received warnings from its attorney that a damage award
would likely exceed the policy limits, and had an indication during jury
deliberations that the jury was prepared to issue a large award. Id.
Under these circumstances, the Second Circuit found that the jury
appropriately resolved the multifactor bad faith test against the
carrier. Id. at 400-01.
However, the court in Pinto went on to state that the "final
prerequisite for Pinto's bad faith claim is that Allstate lost an actual
opportunity to settle at a time when there remained no serious doubt about
the insured's liability." Id. at 401. This incorporates the element of
"clear liability" at the point in which settlement within the policy
limits is actually possible. It is important to note that in Pinto. there
was conceded liability. While the multi-factor bad faith analysis
examines the totality of the carrier's acts in light of the likelihood of
success and possible damage exposure. the "clear liability" element
examines only the question of whether settlement was possible at the
point in time when all of the carrier's good-faith defenses to liability
were exhausted. See e.g. Pavia, 82 N.Y.2d at 454, 605 N.Y.S.2d at 212,
626 N.E.2d 24 ("insurance carriers are not compelled to concede liability
and settle a questionable claim"); Federal Ins. Co. v. Liberty Mut. Ins.
Co., 2001 WL 333009 (S.D.N.Y. 2001) ("the potential for a large
plaintiff's verdict does not render an insurer's settlement posture
unreasonable so long as the insurer's course was informed by a defensible
Imposing the burden of establishing "clear liability" on a plaintiff
alleging bad-faith is not only supported by the language of the Pavia
case and its progeny, but also by the lack of any reported cases in which
courts have upheld bad-faith verdicts in favor of the insured in cases
with less than clear liability. Since the Pavia decision, only the Pinto
and Smith cases appear to have resulted in affirmances of jury verdicts
for an insured, and both of these cases involved pre-established clear or
perfect liability on the part of the insured. By contrast, virtually all
of the other reported bad-faith cases involve judgments as a matter of
law in favor of the carrier. See e.g. Vecchione v. Amica Mut. Ins. Co.,
274 A.D.2d 576, 577, 711 N.Y.S.2d 186, 187 (2d Dept. 2000) (reversing
jury verdict in favor of insured); Daus v. Lumbermen's Mut. Cas. Co.,
241 A.D.2d 665, 659 N.Y.S.2d 584, 585 (3d Dept. 1997) (granting summary
judgment to carrier); Federal Ins. Co. v. Liberty Mut. Ins. Co., 2001 WL
333009 (S.D.N.Y. 2001) (summary judgment granted to carrier); Redcross
v. Aetna Casualty & Surety Co., 260 A.D.2d 908, 913, 688 N.Y.S.2d 817,
821 (3d Dept. 1999) (granting summary judgment to carrier on bad-faith
refusal to settle claim, but denying summary judgment on insureds' claim
that carrier failed to inform them of settlement offer in excess of
policy that they could have contributed to; Monarch Cortland Div. v.
Columbia Casualty Co., 224 A.D.2d 135, 646 N.Y.S.2d 904 (3d Dept. 1996)
(summary judgment granted to carrier).
Obviously, successful bad-faith cases are rare in New York State as a
result of the courts' requirement that bad-faith plaintiffs meet a high
burden, namely "clear liability," a result that would markedly change if
a plaintiff merely had to demonstrate that there was a serious injury
creating a large exposure to potential damages, even though the insured's
liability for the injury is disputed and questionable.
As indicated above and stated concretely here, there are two necessary
elements that New England had to prove in this "bad faith" case. First,
that there was a time when the liability in the Weinstock action was
clear — that is, all serious doubts as to the Hospital's liability
were removed. Second, that Healthcare lost an actual opportunity to
settle the claim within its $1 million policy limit, at a time after
liability became clear.
In this regard, the Court's research reveals that almost every bad
faith case involves automobile accidents where the insured's liability is
either conceded, already decided against the insured, or essentially
undisputed. For example, in DiBlasi, the plaintiff was a passenger in a
motor vehicle which crossed a double yellow line and struck another
vehicle head-on. 542 N.Y.S.2d 187; compare Daus, 241 A.D.2d at 665, 659
N.Y.S.2d at 585 (because a question of fact existed as to whether the
insured was driving the car at the time of the accident, it could not be
said that plaintiff's settlement offers came at a time "when all serious
doubts as to [insured's] liability had been removed").
Further, to the best of this Court's research, no court sitting in New
York State has published a decision finding bad-faith by an insurance
carrier in a medical malpractice case, despite the fact that potential
damages in such cases are unusually substantial. In this Court's view,
this is because, unlike auto accident cases, "clear liability" is rarely
present in the medical malpractice field, particularly against a hospital
when an attending physician treated the patient. As a general rule, a
hospital is not vicariously liable for the malpractice of an attending
physician who is not its employee. Hill v. St. Clare's Hospital,
67 N.Y.2d 72, 79, 499 N.Y.S.2d 904, 908, 490 N.E.2d 823 (1986); Woodard
v. LaGuardia Hospital, ___ A.D.2d ___, 723 N.Y.S.2d 109, 110 (2d Dept.
2001); Padula v. Bucalo, 266 A.D.2d 524, 698 N.Y.S.2d 911 (2d Dept.
1999); Abraham v. Dulit, 255 A.D.2d 345, 679 N.Y.S.2d 707 (2d Dept.
After considering the many facets surrounding the issue, the Court
finds that "clear liability" in the sphere of an underlying medical
malpractice action, refers to the consideration of the liability only;
namely, whether it is "clear" that the Hospital departed from accepted
medical practice in its treatment of the injury party. "Likelihood of
success" refers to the probability that the plaintiff in the underlying
action will recover a verdict. This latter concept takes into
consideration the many elements that would persuade a jury to return a
verdict in favor of the plaintiff in addition to the pure liability
issues. Some of these non-liability considerations were set forth by New
England's counsel in their memorandum of law in opposition to
Healthcare's motion for judgment as a matter of law as follows:
• The enormous sympathy for the infant;
• That the obstetrician's settlement left the Hospital as the only
defendant at trial;
• In order to set-off liability against Dr. Horn, the Hospital was
required to criticize the care of the Hospital's Chief of
• The fine quality of the plaintiff's lawyers;
• The devastating injuries.
These considerations, especially the devastating nature of the injuries
suffered by the infant plaintiff and the enormous sympathy for him should
warn any reasonable insurance company adjuster that if the case goes to
the jury, this would be a very difficult case for the Hospital to win.
Therefore, in this situation, there would be a high probability of
success for the injured plaintiff, even with disputed liability. As
Ignatius Melito, attorney for New England, testified, this was among the
most dangerous type of case to defend.
The courts in New York have been striving to define what constitutes
"bad faith" in many different factual situations. Each case must be
decided on its particular facts. As the Second Circuit recently stated in
Pinto, "[g]ood faith as defined in New York is an intangible
quality. . . . No pat formula applies to the wide variety of fact patterns
that occur, or readily resolves whether an insurer acted in good faith."
221 F.3d at 399.
In this case, the question is thus squarely presented to the Court: in
the case of a horrendous injury to a newly born infant and very
substantial exposure to the primary carrier, well in excess of its
million dollar policy, but in a factual situation where liability is
sharply disputed and by no means "clear," is the carrier compelled to
settle notwithstanding the dispute as to liability, or else be faced with
a "bad faith" result? This Court is of the view that, based on the Pavia
law and policy considerations, the answer is that the failure to settle
in this type of disputed liability case, although foolish and perhaps
even negligent, cannot create a "bad faith" result.
On the policy level, holding otherwise would render a carrier liable in
"bad faith" for the failure to settle virtually every case involving
major, permanent, serious injuries, despite disputed liability. For
example, every brain damaged infant case, most amputation cases, and ever
paraplegic or quadriplegic injury case would have to be settled, even with
disputed or even questionable liability. Such a ruling, unsupported by
the Pavia principle, could cause serious repercussions in the insurance
industry, including substantially increased premiums and declined
coverage with severe economic consequences to hospitals and other medical
institutions. With reasonable certainty, it would also artificially
enlarge plaintiffs' demands in every malpractice case and alter the whole
structure of settlement negotiations. Stated simply, because medical
malpractice cases generally involve very serious injuries, a malpractice
carrier would have to settle virtually every disputed liability case.
This result would be directly contrary to the direction of the New York
Court of Appeals in Pavia that "it is settled that an insurer cannot be
compelled to concede liability and settle a questionable claim." 82
N.Y.2d at 454, 605 N.Y.S.2d at 212, 626 N.E.2d 24.
B. Applying the "clear liability" standard to this case.
The plaintiffs in the Weinstock action presented expert testimony that
(i) the Hospital had the obligation to call a pediatrician to be in the
delivery room, and that it failed to do so; (ii) that the failure to have
a pediatrician respond for approximately 40 minutes caused the injuries
David Weinstock suffers from; (iii) and that the Hospital was negligent
in not enacting rules as to who has the obligation to call a
pediatrician. On the other hand, the Hospital introduced expert testimony
that (i) it is the obligation of the obstetrician to call for a
pediatrician, and (ii) in any event, the medical condition at issue
was suffered by David Weinstock prior to birth and that no acts by the
Hospital's staff contributed in any way to his condition. These positions
were buttressed by medical experts on both sides. Thus, as usual in
medical malpractice cases, there were disputes between medical experts.
In the Court's view, liability in the underlying case could not., as a
matter of law, be considered "clear" at any stage prior to the
commencement of the defendant Hospital's case.
Indeed, the unclear nature of the liability against the Hospital was
even shared by some of the Weinstock attorneys. Pegalis, who entered the
trial after the plaintiffs' case was completed, when his partner's mother
had become ill, testified to the quandary facing the Weinstock counsel in
this case of catastrophic injuries and disputed liability:
Q: When Mr. Wachsman's mother became ill and
ultimately died, Mr. Spencer was supposed to fill
in and he had some sort of chest pains and he
couldn't do the trial, and you were to assume the
role of trial attorney for the Weinstock family;
is that correct?
Q: And a part of your preparation for assuming this
trial was talking to your partner, Mr. Wachsman,
as well as the associate assisting him at the
trial, Mr. Nagrotsky?
Q: Mr. Wachsman is also sometimes known as Dr.
Wachsman, because he has a medical degree and once
Q: As a part of picking up the file, you discussed
with them their impressions, their opinions, their
senses of how the trial had gone to date; is that
A: I am sure I must have. And my best recollection is
I spent a lot of time with Mr. Nagrotsky, and not
that much time with Harvey Wachsman.
Q: But you spent enough time with Dr. Wachsman to
learn that he was pessimistic about the outcome of
A: Yes, I don't know why, but he was.
Q: Mr. Nagrotsky who assisted him on the first half
of the trial was likewise pessimistic with respect
to the outcome of the case?
A: Sandy recently told me that he thought at the time
I took over that we were going to lose.
Q: Dr. Wachsman not only had problems with the way
the case had gone in, but he also expressed doubts
about the theory of the case against the
hospital; is that correct?
A: I don't remember that. I remember he was
pessimistic. Exactly why he was pessimistic, I am
[. . . . .]
Q: Is it your testimony that if a million dollars had
been offered on the day the plaintiff rested and
the day the defense began, that you would have
recommended it to your client?
A: You know, I have Harvey Wachsman, as I mentioned,
who was pessimistic. I am not sure exactly why.
Sandy Nagrotsky was negative not negative on the
case, but he thought we were going to lose. I
wasn't there. And we did a lot of I can't get into
what the discussions were with my clients for
that I hope is obvious. But I was a little I was
uncomfortable about getting into a case —
and I never had an experience like this before,
the one and only time I tried half a case. So, I
was uncomfortable. And the only two people who
were there, one was pessimistic, and the other
thought we were going to lose.
(Tr. 839-43) (emphasis added) ("Tr. ___" refers to pages of the trial
During the defendant's case in the underlying action, the liability
issue turned somewhat against the Hospital. On cross-examination, Dr.
Rozenweig, a Hospital pediatrician, "admitted that Huntington Hospital
had departed from good and accepted standards of practice . . . by not
starting an IV on the infant, and that the record indicates that upon
arrival of the pediatrician to the nursery 40 minutes after delivery, the
IV was started." (Tr. 1079) However, on redirect examination, the
Hospital's trial counsel was able to somewhat ameliorate this situation
in that Dr. Rozenweig testified that most likely, the lack of an IV did
not cause the infant's condition. In addition, in the defendant's case, a
portion of Dr. Horn's testimony was not favorable to the Hospital and the
trial judge precluded one of the Hospital's expert witnesses.
Upon reviewing the totality of the record in this case, the Court finds
that, as a matter of law, New England failed to prove that the liability
was "clear" at any point from January 1991, when settlement negotiations
apparently commenced, until June 30, 1992, at the end of the plaintiffs'
case when Pegalis entered the trial. Therefore, there could not be
responsibility on the part of Healthcare for "bad faith" in failing to
make an offer during this period of time.
However, viewing the evidence in the light most favorable to New
England, a reasonable jury could find that the Hospital's liability
became "clear" on August 18, 1992, when the Hospital's witness, Dr.
Rozenweig, admitted that the Hospital departed from accepted medical
practice by not starting an I.V. Accordingly, the Court must now turn to
the second prong of the "bad faith" claim in this case: namely, whether
Healthcare lost an actual opportunity to settle the Weinstocks' claim
within its policy limits after August 18, 1992 when liability had become
"clear." In other words, the issue becomes whether there was any
agreement by the Weinstocks to settle the claim against the Hospital for
$1 million or less on or after August 18, 1992.
C. Was there ever an agreement by the Weinstocks to settle for $1 million
or less after the liability became "clear"?
In reviewing the record, the Court finds that New England has failed to
prove that there was such an agreement to settle on the part of the
Weinstocks. At the time Dr. Rozenweig testified during the defense case
in the underlying trial, the Weinstocks' record demand to settle was
either $2 million or $4 million, and there is no evidence that, at that
juncture, a $1 million offer from Healthcare would have been accepted.
The evidence as to what figure would have been acceptable to the
Weinstocks is unclear, equivocal, and speculative, as shown in the
following excerpts from trial counsel Pegalis' testimony: