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GREENIDGE v. ALLSTATE INSURANCE COMPANY

February 19, 2004.

GAIL GREENIDGE and GEARY GREENIDGE, Plaintiffs, -against- ALLSTATE INSURANCE COMPANY, Defendant


The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge

MEMORANDUM OPINION AND ORDER
The question in this case is a novel one: does an insurer act in bad faith when it rejects a demand that would make its contribution to a settlement contingent upon the outcome of a subsequent declaratory judgment action in which the limits of liability under the relevant policy would be established? Although no case has decided this precise issue under New York law, the convergence of several well-established principles lead to the conclusion that an insurer can refuse such a demand without violating its good faith obligation to the insured.

Background

  The plaintiffs in this action, Gail Greenidge and Geary Greenidge, own a three family home at 1883 Billingsly Terrace in the Bronx. In 1995, Ray Teachey brought an action on behalf of his daughter, Taniya Seay, against the Greenidges in New York State Supreme Court, Bronx, County. Seay v. Delano Village, Index No. 6012/95 (the Seay Action"). The Complaint alleged that Taniya suffered lead poisoning from exposure to lead paint while she resided with her mother and grandmother in the Greenidges' property Page 2 from October 1992 to April 1994. (Seay Complaint, attached as Exh. 1 to Notice of Motion by Plaintiff for Summary Judgment ("P1. Notice of Motion"), ¶¶ 34, 41). The plaintiffs in the Seay Action also brought claims against the owners and managing agents of the apartment where Taniya's father lived, since she had often stayed with him during the same period. (Seay Complaint ¶¶ 4-18, 24-25).

  The Greenidges were insured pursuant to a homeowners' policy issued by the Allstate Insurance Company ("Allstate"), the defendant in this action. The insurance consisted of a Standard Form policy issued on Allstate policy form AU2074. (Defendant's Statement of Uncontested Facts Pursuant to Local Civil Rule 56.1 ("Def. Rule 56.1 Statement"), Exh. F (the insurance Policy")). That policy had been in effect continuously since 1988, and its effective date was February 13 of each year. (Deposition of Gail Greenidge dated June 20, 2003 ("Greenidge Dep."), attached as Exh. A to Def. Rule 56.1 Statement, at 26; Declaration Pages, attached as Exh. E to Def. Rule 56.1 Statement). Since Taniya's exposure to lead paint allegedly spanned two policy periods, it was arguable that, for purposes of the policy limits, not one, but two, policies were triggered. The Insurance Policy provided up to $300,000 in indemnification for claims of bodily injury, defined as "physical harm to the body, including sickness or disease, and resulting death. . . ." (Insurance Policy at 3, 31; Declaration Pages. The relevant language of the Insurance Policy stated:

  Subject to the terms, limitations and conditions of this policy, Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury . . . arising from an accident and covered by this part Page 3 of the policy.

  * * *

 
We are not obligated to pay any claim or judgment after we have exhausted our limit of liability.
(Insurance Policy at 21). In addition, the Insurance Policy contained an "anti-stacking" provision:
Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limits shown on the Declarations Page. All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.
(Insurance Policy at 27).

  When the Greenidges notified Allstate of the Seay Action, Allstate responded by assigning the firm of Minetti and Benedict to defend them. (Geary Dep. at 12-13). Allstate further advised that the plaintiffs in the Seay Action were claiming damages beyond the policy limits, that the Greenidges could be personally liable for the excess, and that the Greenidges were entitled to retain separate counsel at their own expense, in addition to counsel appointed by the insurer. (Letter dated Feb. 22, 1995, attached as Exh. B to Def. Rule 56.1 Statement).

  Beginning in 1998, Theresa Sturges, a senior claim representative for Allstate, was responsible for handling the claim against the Greenidges. (Deposition of Theresa Sturges dated June 30, 2003 ("Sturges Dep."), attached as Exh. D to Def. Rule 56.1 Statement, at 4-5). In February 1998, counsel appointed by Allstate to defend the Greenidges advised Ms. Sturges that the case Page 4 would soon be assigned for trial. (Sturges Dep. at 16). They further reported that counsel for the plaintiffs in the Seay Action, Sanders, Sanders, Block & Woycik, had made a settlement demand: $700,000, of which $300,000 was to be paid by Allstate on behalf of the Greenidges, and $400,000 was to come from the co-defendants. (Sturges Dep. at 13, 16-17). Apparently no further progress was made toward settlement at that time.

  On August 20, 1999, Ms. Sturges learned that a trial date had been set and that the plaintiffs' demand was still $700,000. (Sturges Dep. at 17, 19). On October 5, 1999, counsel conferred in New York State Supreme Court, and the presiding justice sought a settlement offer from Allstate on behalf of the Greenidges. (Sturges Dep. at 23). Ms. Sturges advised counsel that they had authority to offer $300,000. (Sturges Dep. at 23). This offer was conveyed to counsel for the plaintiffs, and further negotiations were adjourned. (Sturges Dep. at 23).

  On October 14, 1999, Ms. Sturges was advised that counsel for the plaintiffs would not discuss settlement unless Allstate agreed that the policy limit was $600,000: $300,000 for each of two policy periods. (Sturges Dep. at 23-24). In the alternative, plaintiffs' counsel proposed a settlement between $300,000 and $600,000, with $300,000 to be paid immediately and the balance contingent upon the outcome of a declaratory judgment action that Allstate would agree to litigate to resolve the issue of whether the policy limits for one policy period or two applied. (Sturges Dep. at 23-24). On behalf of Allstate, Ms. Sturges rejected this Page 5 demand. (Sturges Dep. at 24). At the same time, she referred the question of the relationship between the policy limit and the anti-stacking provision in the policy to three sets of outside counsel for their review. (Sturges Dep. at 25).

  Shortly thereafter, the co-defendants settled for $150,000. (Claim Diary, attached as Exh. G to Def. Rule 56.1 Statement, at 33). In a letter dated October 21, 1999, counsel for the plaintiffs stated that unless Allstate tendered $600,000, there would be no settlement and a bad faith action would be commenced by the plaintiffs against Allstate. (Def. Rule 56.1 Statement, Exh. H). Ms. Sturges forwarded this letter to the attorneys who were in the process of reviewing Allstate's interpretation of the policy.

  Over the following week, Allstate received opinions from outside counsel. Dennis O'Connor of the firm of 0'Connor, McGuinness, Conte, Doyle & Oleson submitted a letter on October 25, 1999, suggesting that there was no proof that Taniya had been exposed to lead paint during the first policy period and that, therefore, only the second policy had been triggered. Mr. O'Connor did not, however, address the anti-stacking provisions of the policies. (Def. Rule 56.1 Statement, Exh. I).

  On October 29, 1999, Alan C. Eagle, a partner with the firm of Rivkin, Radler & Kremer, submitted an opinion letter that explicitly dealt with the anti-stacking language. Mr. Eagle acknowledged that "[o]ur research has not revealed any cases applying the Allstate limits of liability provision to a claim involving successive policy periods." (Def. Rule 56.1 Statement, Page 6 Exh. J at 4). However, Mr. Eagle reviewed closely related caselaw and found:
There is New York authority applying a "non-cumulation" clause to restrict an insurer's liability to one limit of liability under successive policies. While the insureds could argue that the "non-cumulation" clause more specifically addresses the question of stacking policies from multiple policy periods than the Allstate language and that Allstate could have employed such a clause if it deemed appropriate, Allstate could argue that the Allstate provision has the same effect.
(Def. Rule 56.1 Statement, Exh. J at 5). He ultimately reached the following conclusion:
In the absence of decisions directly on point, we look to analogous cases and resort to interpretation of the plain language of the limits of liability provision contained in the Allstate insurance policy. While we must anticipate that plaintiff and/or the insureds may raise a number of arguments that the limits of liability ...

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