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Doherty v. Merchants Mutual Insurance Co.

June 11, 2010

JENNIFER M. DOHERTY AND PATRICK M. DOHERTY, AS ASSIGNEES OF THOMAS S. FITZPATRICK, PLAINTIFFS-APPELLANTS,
v.
MERCHANTS MUTUAL INSURANCE COMPANY, DEFENDANT-RESPONDENT.



Appeal from an order of the Supreme Court, Erie County (Penny M. Wolfgang, J.), entered October 2, 2008. The order granted defendant's motion for summary judgment dismissing the complaint.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

PRESENT: SCUDDER, P.J., SMITH, CENTRA, CARNI, AND PINE, JJ.

It is hereby ORDERED that the order so appealed from is affirmed without costs.

Memorandum

Plaintiffs, as assignees of Thomas S. Fitzpatrick, the defendant in the underlying personal injury action, commenced this action alleging that defendant acted in bad faith by failing to settle the underlying action and thereby exposing Fitzpatrick to personal liability. Plaintiffs commenced the underlying action seeking damages for injuries sustained by Jennifer M. Doherty (plaintiff) when the vehicle she was operating was rear-ended by a vehicle operated by Fitzpatrick. The jury awarded plaintiffs damages in excess of the coverage that Fitzpatrick had pursuant to his insurance policy with defendant and, in this action, plaintiffs seek damages in the amount of the difference between the verdict and the policy limit. Supreme Court (Wolfgang, J.) granted defendant's motion seeking summary judgment dismissing the complaint. We affirm.

"To prevail in . . . an action [seeking damages for an insurer's bad faith refusal to settle an underlying action], a plaintiff must establish that the insured lost an actual opportunity to settle the . . . [action] . . . at a time when all serious doubts about [his or her] liability were removed . . ., and that defendant insurer [acted with gross disregard for the insured's interests, i.e., it] engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that [the] insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted" (Kumar v American Tr. Ins. Co., 57 AD3d 1449, 1450 [internal quotation marks omitted]; see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 453-454, rearg denied 83 NY2d 779). In the underlying action, Supreme Court (Curran, J.) denied Fitzpatrick's motion seeking summary judgment dismissing the complaint based in part on its determination that plaintiffs raised a triable issue of fact whether plaintiff sustained a serious injury within the meaning of Insurance Law § 5102 (d), and the court granted plaintiffs' cross motion seeking partial summary judgment on the issue of Fitzpatrick's negligence.

It is undisputed that, prior to the trial of the underlying action, the attorneys for plaintiffs and Fitzpatrick requested that defendant settle the underlying action for the policy limit of $300,000. Nevertheless, "[i]t is settled that an insurer cannot be compelled to concede liability and settle a questionable claim' . . . simply because an opportunity to do so is presented' " (Pavia, 82 NY2d at 454). In support of its instant motion, defendant established that it investigated the claim in the underlying action and arranged for a physical examination of plaintiff to determine the extent of her alleged injuries and whether they constituted a serious injury. Although the expert retained by defendant and plaintiff's treating physician had differing views with respect to the extent of plaintiff's injuries, the expert determined that plaintiff sustained cervical, thoracic and lumbar strains that resulted in a "moderate, partial, temporary disability for recreational activities and activities of daily living in the home." Defendant's investigation included a videotape of plaintiff engaged in activities without apparent difficulty, despite her alleged injuries. Defendant further established that it participated in settlement negotiations prior to and during the trial and that Supreme Court (Curran, J.) was actively engaged in the settlement negotiation process. Prior to trial, plaintiffs reduced their demand to $250,000 and, during the trial, they further reduced their demand to $240,000. Defendant thereafter increased its settlement offer from $25,000 to $55,000. Furthermore, the internal records of defendant submitted in support of the instant motion establish that the "high-low" offer that it made after the trial commenced was "not well received," and plaintiffs' attorney testified at his deposition that the "high-low" offer was rejected.

We conclude that defendant established that Fitzpatrick did not lose an actual opportunity to settle the claim at a time when all serious doubts about his liability were removed and it was clear that the potential recovery far exceeded the insurance coverage (see id.), and thus that it did not act with gross disregard for Fitzpatrick's interests (see id. at 453). We therefore conclude that defendant established its entitlement to summary judgment dismissing the complaint, and that plaintiffs failed to raise a triable issue of fact in opposition (see generally Zuckerman v City of New York, 49 NY2d 557, 562).

All concur except Centra and Carni, JJ., who dissent and vote to reverse in accordance with the following Memorandum: We respectfully dissent and begin our analysis with the well-settled proposition that a jury question exists in most cases where the issue is whether an insurer's good faith obligation has been met (see 2 NY PJI2d 4:67, at 1016). Bad faith is generally proven by evidence largely circumstantial in nature (see Cappano v Phoenix Assur. Co. of N.Y., 28 AD2d 639). Like many other actions involving bad faith, it is a rare occasion to uncover a "smoking gun" and instead the proof of these cases requires the careful and collective evaluation of a confluence of factors and inferences uniquely within the province of a jury. The determination of whether an insurer acted in bad faith involves a review of the evolving body of information that is developed over the course of the management of the claim and the settlement posture of the parties as the litigation progresses.

Although the plaintiff's burden of proof in a bad faith action is correctly stated by the majority, in our view the majority fails to provide appropriate scrutiny to the legion of factors the Court of Appeals has identified as necessary in reaching the conclusion that there was no bad faith as a matter of law (see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 454-455, rearg denied 83 NY2d 779). Although not mentioned by the majority, we also note at the outset that the jury verdict against Thomas S. Fitzpatrick in the underlying personal injury action was $740,000 and defendant's highest settlement offer was $55,000. The limit of Fitzpatrick's insurance policy with defendant was $300,000, and the sum of $289,489 was available after payment of other claims.

One of the important factors to be considered in evaluating the merits of a bad faith claim is the likelihood that a verdict in favor of the injured claimant, in this case Jennifer M. Doherty (Doherty), would exceed the policy limit (see PJI 4:67). Here, the record establishes that, on May 9, 2003, defendant concluded, with respect to the issue of negligence, that it had "no legal defenses" and, on January 9, 2003, defendant determined that its proportionate share of fault for liability in this rear-end accident was "100%." On December 11, 2003, defendant's claim representative advised defendant's counsel that a motion for summary judgment on the serious injury threshold was not authorized because defendant's own "IME indicate[d] [Doherty] is disabled" and that such a motion would not be granted since defendant's "IME was completed on 11/4/03 (1 year and 2 mos after the [date of loss]) indicating [Doherty] is still disabled." Thus, defendant had already determined that its insured was 100% responsible for the accident and that Doherty was still disabled more than one year after the accident. All serious doubts about culpability for the accident were resolved in Doherty's favor very early on in the process. The only issues to be resolved were whether Doherty sustained a threshold serious injury and, if so, the damages to be awarded.

On August 13, 2004, notwithstanding defendant's prior determination that Doherty was still disabled more than a year after the accident, Supreme Court denied a motion for summary judgment by Fitzpatrick on the issue of the serious injury threshold. In making this determination, the court stated that Doherty and her husband presented "objective evidence" of a serious injury which was supported by the "qualitative assessment" of Doherty's orthopedic surgeon.

Doherty was 27 years old in December 2003 and had a life expectancy of 54.4 years (see 1B NY PJI3d, Appendix A, at 1729). Thus, defendant's potential exposure included 54.4 years of future pain and suffering and disability. The jury awarded $500,000 for future pain and suffering. There is no indication ...


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