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Scottsdale Ins. Co. v. Indian Harbor Ins. Co.

United States District Court, S.D. New York

January 16, 2014


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[Copyrighted Material Omitted]

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For Scottsdale Insurance Company, Plaintiff: Ann Odelson, Carroll, McNulty & Kull, New York, NY; Gary Scott Kull, Carroll, McNulty & Kull L.L.C (NJ), Basking Ridge, NJ; Joshua C. Weisberg, Callan, Koster Brady & Brennan, LLP, New York, NY.


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Paul A. Engelmayer, United States District Judge.

Plaintiff Scottsdale Insurance Company (" Scottsdale" ) brings this diversity action against defendant Indian Harbor Insurance Company (" Indian Harbor" ). Scottsdale, the excess insurer to Cole Partners, Inc. (" Cole" ), alleges that Indian Harbor, Cole's primary insurer, acted in bad faith and with gross disregard to Scottsdale's interests by failing to settle, for an amount within the $1 million primary insurance policy, a lawsuit brought by Linzy Dickson (" Dickson" ). Ultimately, Dickson's lawsuit settled for $2.5 million, which required Scottsdale to pay $1.5 million in excess liability. Scottsdale now seeks this amount, plus interest, in damages from Indian Harbor.

The parties have filed cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons that follow, both motions are denied.

I. Background[1]

A. Mr. Dickson's Underlying Injury and Lawsuit

In March 2007, Cole entered into a contract with JFK Center Associates, LLC

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(" JFK" ) to perform construction work at a project site located in Queens, NY. JSF ¶ 7. Cole agreed to indemnify JFK and the owner of the construction site, Merkel Properties, LLC (" Merkel" ), against certain personal injury claims that might arise in the course of Cole's work at the project site. Id. ¶ 8.

On November 14, 2007, Linzy Dickson (" Dickson" ), a Cole employee, fell approximately 18 feet from a wall while conducting demolition work at the project site. Id. ¶ 9-10. Dickson sustained a Grade III open tibia-fibula fracture of his right leg. Id. ¶ 10. He underwent immediate surgery to address his open fracture. Id. ¶ 11. On November 16, 2007, Dickson had a second surgery. Id. ¶ 12. On November 27, 2007, Dickson was discharged from the hospital. Id. ¶ 13.

On December 3, 2007, Dickson filed a complaint against Merkel in New York State Supreme Court. Id. ¶ 58. JFK was added as a defendant at the beginning of 2008. Id. ¶ 59. Cole eventually assumed the defense for both Merkel and JFK. Id. ¶ ¶ 61, 99. Cole held a $1 million primary insurance policy with Indian Harbor,[2] and a $10 million excess insurance policy with Scottsdale. Id. ¶ ¶ 1-6.

On August 22, 2008, Cole provided notice to Indian Harbor of Dickson's lawsuit. Id. ¶ 63. Indian Harbor assigned Patricia Evans (" Evans" ) to handle Dickson's claim. Id. ¶ 64. On October 15, 2008, Evans told Dean Clause (" Clause" ) from Scottsdale that " her initial impression [was] that [the Dickson] case [did] not pose reasonable potential for exposure beyond [the] primary policy limit." Id. ¶ 66. On November 12, 2008, Indian Harbor informed Cole that it had retained Gregory Katz (" Katz" ) and Bryan Schwartz (" Schwartz" ) to defend Cole against Dickson's lawsuit. Id. ¶ 68-69. On January 21, 2009, Evans told Clause that she had instructed Katz and Schwartz to copy Scottsdale on all reports they sent to Indian Harbor. Id. ¶ 71. That same day, Evans sent an e-mail to Katz, copying Clause, in which she requested a copy of Katz's initial report on the Dickson matter. Id. ¶ 72.

On January 22, 2009, Katz sent the initial report by e-mail to Evans, copying Clause. Id. ¶ 73; JSF Ex. 37. Katz summarized Dickson's injuries as " Right Grade III tibia-fibula fracture with open reduction and internal fixation; subsequent irrigation and debridement; severe disfiguring and scarring; lumbar and cervical spine injuries." JSF ¶ 74. As a result of these injuries, Dickson claimed $35,000 in lost earnings and $1.5 million in future lost earnings. Id. ¶ 74. Katz's assessment of the case was that liability was not reasonably in dispute. In his words, it " appear[ed] that [Cole] caused [Dickson's] accident, and would be found liable under Labor Law § 240." Id. ¶ 76; JSF Ex. 37 at 5. The sole issue, then, was damages. Katz's preliminary assessment of Cole's exposure was " in the $350,000-$500,000 range." Id. ¶ 77.

B. Indian Harbor's Initial Assessment of Dickson's Claim

On March 11, 2009, after receiving the initial report from Katz, Evans presented the case to an Indian Harbor committee charged with deciding on a reserve recommendation. Id. ¶ 78-81. The committee's

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assessment for total exposure in Dickson's case was between $400,000 and $850,000. Id. ¶ 82. Accordingly, the committee increased Indian Harbor's indemnity reserve for the case from $10,000 to $500,000. Id. ¶ 83.

On June 16, 2009, Katz provided another written report to Evans. Id. ¶ 85; JSF Ex. 42.[3] Katz summarized Dickson's deposition testimony from November 21, 2008, in which Dickson stated, inter alia, that he: (1) had received surgery to his right knee and ankle; (2) had undergone physical therapy to his back, neck and both shoulders twice a week for approximately six months; (3) was walking with a limp and with the use of a cane; (4) had residual pain in his neck and numbness in his toes; and (5) did not have injuries to his right leg, back, or neck before the accident. JSF ¶ ¶ 88-90. Based on the circumstances of the incident, Katz again concluded that Cole would be held liable for Dickson's injuries. JSF Ex. 42. Katz also stated that " it is expected that [Dickson] will not be able to return to work as a laborer," and that exposure would likely be " in the $600,000-$750,000 range, based upon the surgeries and the loss of earnings claim." JSF ¶ 94; JSF Ex. 42.

On June 17, 2009, Evans indicated in her file notes that another committee meeting was necessary to address Katz's assessment of exposure in the $600,000 to $750,000 range. JSF ¶ 97. On July 28, 2009, Evans's manager, Nicolas Cordaro (" Cordaro" ) told Evans to proceed with committee review " as noted." Id. ¶ 98; JSF Ex. 38. On October 4, 2009, Cordaro indicated to Evans a desire to committee the case " soon." JSF ¶ 100; JSF Ex. 38.[4] On January 24, 2010, Cordaro again recommended scheduling the case " soon" for committee review. JSF ¶ 101; JSF Ex. 38. It appears that no committee review was ever scheduled.

On February 4, 2010, Katz sent Evans another written report about the Dickson case, copying Clause. JSF ¶ 102; JSF Ex. 44. Katz noted that they had reviewed the files of JFK's and Merkel's prior defense counsel. JSF ¶ 103. After summarizing the findings of various medical examinations, Katz concluded:

Based upon the information we have (and considering that this case is venued in Kings County), this case appears to have exposure in the $750,000 range, based upon the surgeries and the loss of earnings claim.

Id. ¶ 107; JSF Ex. 44 at 5.

On March 10, 2010, Evans prepared a Large Loss Report, which requested an increase in the reserve to $750,000 in indemnity and $100,000 in expense. JSF ¶ 108. In this report, Evans further stated that " [u]pon completion of all depositions, discovery and receipt of all medical reports, it is my intent to settle the case." Id. ¶ 109; JSF Ex. 45. Thereafter, Evans and Cordaro set the reserve for Dickson's case at $750,000. Pl. 56.1 ¶ 14.

C. Dickson Moves for Summary Judgment in New York State Court

On March 23, 2010, discovery closed in Dickson's case. Pl. 56.1 ¶ 16. In April 2010, Dickson moved for summary judgment on the issue of liability. JSF ¶ 112.

On April 30, 2010, Katz sent another report to Evans, copying Clause, informing

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Evans that Dickson had moved for summary judgment, and that Dickson's counsel, Jordan Hecht (" Hecht" ), had made a settlement demand of $2 million. JSF ¶ 114; JSF Ex. 46. On May 20, 2010, after reviewing the April 30 report, Clause indicated in his file notes that " it is time to lightly push primary towards beginning negotiations." JSF ¶ 119. That same day, Clause sent an e-mail to Schwartz, copying Evans, in which he inquired about " the outlook on negotiation." Id. ¶ 120; JSF Ex. 48. Clause noted that it appeared that " plaintiff is telegraphing an interest in moving towards a resolution or a trial," and asked whether there was any " interest in mediation from plaintiff and [Indian Harbor]." JSF Ex. 48. On May 24, 2010, Evans responded to Clause by e-mail, stating that she planned to " conduct a few days of surveillance" and then " schedule a mediation." Id.

On July 6, 2010, Katz sent Evans another report, copying Clause. JSF ¶ 122; JSF Ex. 50. In this report, Katz stated that he anticipated that Dickson would " win his [summary judgment] motion" and that therefore, " the sole issue, should the case proceed to trial, would be damages." JSF ¶ 125. He also reiterated that Dickson's settlement demand was $2 million, but that Dickson's counsel, Hecht, had indicated " he is willing to accept less." Id. ¶ 124; JSF Ex. 50 at 1. Finally, Katz and Schwarz recommended attempting to settle with Dickson rather than proceeding to trial. JSF ¶ 126; JSF Ex. 50 at 5.

On or about September 22, 2010, the New York State court granted Dickson's motion for summary judgment. JSF ¶ 129; JSF Ex. 52.

On September 27, 2010, Katz sent Evans another report, copying Clause, informing all parties concerned that Dickson had been granted summary judgment. JSF Ex. 52. Katz noted:

There have been no further settlement discussions since plaintiff has made an official settlement demand of $2 million, although it appeared that plaintiff would be willing to settle for less than his demand. We would recommend attempting to mediate the case before proceeding to trial in the matter.

Id. at 2. Katz stated that if the case proceeded to mediation, he would " request up to $800,000 in settlement authority." Id. at 3; JSF ¶ 131. Katz and Schwartz reiterated this position in another report on November 16, 2010. JSF ¶ ¶ 134-35; JSF Ex. 55.

In sum, despite the repeated recommendations made by Indian Harbor's outside counsel to Evans to settle Dickson's case, in the nine months that elapsed between Hecht's April 2010 offer to settle for $2 million and the February 2011 mediation, Indian Harbor made no attempt to engage Hecht in settlement negotiations.

D. Mediation

Mediation was scheduled to take place on February 16, 2011. JSF ¶ 141. In his pre-mediation report, sent on February 11, 2011, Schwartz reiterated that Dickson's settlement demand was $2 million, and that there was " room for significant movement." JSF Ex. 59. He also stated: " [w]e think we can resolve this case for $800,000." Id. at 3. Evans sent an e-mail to Schwartz on February 15, 2011, stating that she was " authorized to provide you with $750,000 in settlement authority." JSF Ex. 60; JSF ¶ 145. According to deposition testimony from Evans and Cordaro, Schwartz was told that if he wanted more settlement authority, he could ask for it during the mediation. JSF ¶ 146.

The mediation occurred on February 16, 2011. JSF ¶ 147. Schwartz attended on behalf of Indian Harbor; Hecht attended

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on behalf of Dickson. Id. ¶ 149. No one attended the mediation on behalf of Scottsdale. Id. The mediator was Ronnie Gallina, Esq. (" Gallina" ). Id.

The parties agree that the mediation did not result in a settlement, JSF ¶ 150, but each has a differing account of how negotiations proceeded. It is undisputed that Hecht's initial settlement demand was $2.5 million. Pl. 56.1 ¶ 24. It is also undisputed that Schwartz's highest settlement offer during the mediation, on behalf of Indian Harbor, was $200,000. Id. ¶ 28. The parties dispute, however, whether Hecht's last settlement offer during the mediation was $1 million or $1.2 million. Hecht's sworn testimony is that he told Schwartz that he was willing to accept $1 million to settle the case. Kull Decl. Ex. 19 (" Hecht Depo." ).

Q: Now, I think you testified that you explained to Ms. Gallina that you would take the million?
A (Hecht): Correct.
Q: Is it your testimony that you actually made that demand directly to Mr. Schwartz?
A: Yes.
Q: You recall in your head that you spoke to Mr. Schwartz and said: We will take $1 million?
A: Yes.
. . .
Q: The theory of the mediation was: We'll continue to talk?
A: The theory was we were going to settle the case for a million dollars. And we were going to do what we needed to do to get the case settled for $1 million. I wasn't taking anything less than a million and I wasn't asking for anything more at ...

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