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Utica Mutual Insurance Co. v. Fireman's Fund Insurance Co.

United States District Court, N.D. New York

February 24, 2017

UTICA MUTUAL INSURANCE COMPANY, Plaintiff-Counter Defendant,
v.
FIREMAN'S FUND INSURANCE COMPANY, Defendant-Counter Claimant.

          HUNTON & WILLIAMS LLP Attorneys for Plaintiff, SYED S. AHMAD, ESQ., WALTER J. ANDREWS, ESQ., PATRICK M. MCDERMOTT, ESQ.

          SIDLEY AUSTIN LLP Attorneys for Plaintiff, DANIEL R. THIES, ESQ., THOMAS D. CUNNINGHAM, ESQ., WILLIAM M. SNEED, ESQ.

          WILLIAMS LOPATTO PLLC Attorneys for Defendant, MARY A. LOPATTO, ESQ., JOHN B. WILLIAMS, ESQ.

          DAVID N. HURD United States District Judge.

         TABLE OF CONTENTS

         I. INTRODUCTION ..................................................... 3

         II. BACKGROUND ............................... ....................... 4

         III. LEGAL STANDARDS. . ............................................... 7

         A. Motion for Judgment on the Pleadings ............................... 7

         B. Motion for Summary Judgment.. ................................... 8

         IV. DISCUSSION.. ...................................................... 9

         A. Defendant FFIC's Motions.. ....................................... 9

         1. Motion for Judgment on the Pleadings (to dismiss Counts II and III) . . 9

         a. Count II. . ......................................... 10

         b. Count III.. ......................................... 11

         2. Motion for Partial Summary Judgment on Count I (Utica's "Aggregate Limits" Contention) . . ..................................... 13

         3. Motion for Partial Summary Judgment on Count II (Utica's "Bad Faith" Contention) . . ........................................... 18

         4. Motion for Summary Judgment on Count I (Utica's "Follow the Settlement" Contention) . . ................................. 24

         5. Motion in Limine to Preclude Testimony of Dennis R. Connolly.. . . . . 39

         B. Plaintiff Utica's Motions. . ........................................ 45

         1. Motion for Partial Summary Judgment on the Follow the Fortunes Doctrine .. .............................................. 45

         2. Motion for Partial Summary Judgment That FFIC Is Not Entitled To Rescission .. ............................................ 51

         3. Motion for Partial Summary Judgment That Notice Was Not Due Before February 1999 . . ......................................... 57

         IV. CONCLUSION.. .................................................... 61

         MEMORANDUM-DECISION AND ORDER

         I. INTRODUCTION

         Plaintiff Utica Mutual Insurance Company ("Utica" or "plaintiff") commenced this diversity action against defendant Fireman's Fund Insurance Company ("FFIC" or "defendant") on July 29, 2009 seeking to enforce the terms of its reinsurance contracts.

         Plaintiff seeks damages in the amount of nearly $29 million for amounts billed through August 31, 2009, interest, attorneys' fees, costs, and declaratory relief based on defendant's alleged breach of the reinsurance contracts and breach of the duty of good faith and fair dealing. FFIC counterclaims for rescission based on plaintiff's alleged intentional and/or negligent rescission. The case was referred to mandatory mediation, but did not settle.

         After completing limited discovery, plaintiff moved on June 6, 2014 and June 13, 2014 for partial summary judgment pursuant to Federal Rule of Civil Procedure ("Rule") 56 dismissing two of defendant's affirmative defenses. Oral argument was heard on July 25, 2014 and a Memorandum-Decision and Order was issued on February 9, 2015, denying both motions. Utica Mut. Ins. Co. v. Fireman's Fund Ins. Co., No. 6:09-CV-853, 2015 WL 521024 (N.D.N.Y. Feb. 9, 2015). With respect to FFIC's late notice defense, it was held that the parties may litigate lost commutations at trial, and if FFIC can establish resulting prejudice, it would be entitled to complete relief from its duty to indemnify. As to FFIC's bad faith defense, disputed issues of material fact remain as to whether Utica was grossly negligent or reckless in failing to provide prompt notice to FFIC and thus whether its claim for indemnification is barred.

         Thereafter, plaintiff moved for partial summary judgment pursuant to Rule 56 on the follow the fortunes doctrine, defendant's counterclaims for rescission, and when notice to defendant was required. Defendant simultaneously moved for judgment on the pleadings pursuant to Rule 12(c) to dismiss Counts II and III, and for partial summary judgment pursuant to Rule 56 on plaintiff's aggregate limits, bad faith, and follow the settlement contentions. Plaintiff opposed defendant's motions, and defendant opposed plaintiff's motions. Both parties submitted replies in further support.

         All seven pending motions were fully briefed and oral argument was heard on February 13, 2015, in Utica, New York. Decision was reserved. While pending, defendant filed a motion in limine pursuant to Federal Rule of Evidence 702 to preclude expert testimony at trial by Dennis R. Connolly. Plaintiff opposed. That motion will be considered on the basis of the submissions without oral argument.

         II. BACKGROUND[1]

         The parties' familiarity with the facts and history of this case is presumed, and only those facts necessary for the disposition of the pending matters will be recited. This case involves a dispute over $35 million which Utica claims FFIC owes it under its reinsurance contracts.[2] FFIC argues it does not owe Utica any money because Utica breached provisions in the reinsurance contracts.

         Utica issued primary liability insurance policies to Goulds from 1966 through 1972.[3]These seven primary policies have not been located and one of the main issues in this case is whether those policies contained aggregate limits for bodily injury. Utica also issued umbrella policies to Goulds for these same years providing for $10 million in coverage each year. Utica reinsured the umbrella policies, reinsuring $5 million of each $10 million with FFIC[4] pursuant to facultative reinsurance contracts. Each of the facultative reinsurance contracts contain the following provision: "All claims involving this reinsurance, when settled by the Company [Utica], shall be binding on the Reinsurer [FFIC] . . . ." See LoPatto Decl., Ex. 2, ECF. No. 285 (the "Certificates"). This provision is known as a follow the settlements clause.[5] See Travelers Cas. & Sur. Co. v. Gerling Global Reins. Corp., 419 F.3d 181, 184 (2d Cir. 2005) "(Gerling").

         Goulds became the subject of thousands of asbestos bodily injury claims, with the first suits naming Goulds in 1997. Pursuant to the primary policies between Goulds and Utica, Utica defended and indemnified Goulds for these claims. In mid-2001, Utica provided notice of the Goulds losses to reinsurers of its umbrella policies, including reinsurers at the $5 million excess of the $5 million umbrella layer. Utica contends this was an initial and precautionary notice. FFIC disputes this and suggests the reinsurers actually received earlier notice, but Utica has no record of such. According to Utica, FFIC did not receive the precautionary notice at this time because Utica was unaware of the FFIC reinsurance and did not learn about it until 2008, when another reinsurer notified Utica about it. According to Utica, it had not retained all of its policy records from decades earlier, consistent with its document retention policies.

         FFIC disputes this and contends that when Utica notified these reinsurers-those reinsuring umbrella policies post-1972-is irrelevant to when Utica determined or should have determined there was a reasonable possibility that the 1966-72 umbrella policies would be involved. FFIC maintains that Utica's sharing information on the Goulds claims in 1996 with Gen Re indicated that Utica recognized then that the claims could penetrate the 1996-72 umbrella policies. However, Utica contends that Gen Re only learned of the Goulds claims in the 1990s through its routine review of Utica's asbestos and environmental files. Utica asserts that it provided precautionary notice of the claims to the other reinsurers of its umbrella policies in June 2001, and that it would have included a notice to FFIC if Utica had known about FFIC's reinsurance at the time.

         Declaratory judgment actions between Goulds and its insurers, including Utica, followed in 2003 to determine the rights of the insurers. Goulds and Utica engaged in mediation relating to the coverage. According to FFIC, Utica made it non-negotiable that Goulds agree that all Utica primary policies had aggregate limits of coverage, even those policies which were not at issue in the coverage litigation. According to FFIC, in exchange for Goulds' receipt of a $325 million settlement from Utica, Goulds agreed to stipulate that all of the Utica primary policies had aggregate limits for bodily injury of $300, 000 and that all such limits had been exhausted. The agreement, signed in February 2007 by Utica and Goulds, also provided that the $325 million settlement would come from the umbrella policies (therefore triggering Utica's reinsurance policies). See LoPatto Decl., Ex. 6, ECF. No. 285 (the "Settlement Agreement").

         According to Utica, by 2007, payments on Goulds claims had reached FFIC's layer on the umbrella policies at issue and after learning about FFIC's reinsurance in 2008, Utica notified FFIC in July 2008. FFIC asserts that Utica provided no rationale for reporting its reinsurance claim more than a year after its February 2007 settlement with Goulds. According to the Certificates, "[p]rompt notice shall by given to the Reinsurer . . . of any occurrence or accident which appears likely to involve this reinsurance." See generally Certificates. Utica submitted reinsurance claims in August, September, October, and November 2009, totaling $35 million. Under the Certificates, Utica was required to "make available for inspection and place at the disposal of [FFIC] at reasonable times any of its records relating to this reinsurance or claims in connection therewith." Id.

         Following Utica's requests for payment, FFIC initiated a claims investigation. FFIC sought numerous pieces of information from Utica, inspected its files, and sent a team to Utica's offices for inspection. While its claims investigation was ongoing, Utica filed this suit contending that FFIC was taking too long to pay and was, inter alia, in breach of the Certificates.

         III. LEGAL STANDARDS

         A. Motion for Judgment on the Pleadings

         The standard for granting a Rule 12(c) judgment on the pleadings is identical to that of a Rule 12(b)(6) motion to dismiss. Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001). To survive a Rule 12(b)(6) motion to dismiss, the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Although a complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief, " Fed.R.Civ.P. 8(a)(2), more than mere conclusions are required. Indeed, "[w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Dismissal is appropriate only where plaintiff has failed to provide some basis for the allegations that support the elements of its claims. See Twombly, 550 U.S. at 570 (requiring "only enough facts to state a claim to relief that is plausible on its face"). When considering a motion to dismiss, the complaint is to be construed liberally, and all reasonable inferences must be drawn in the plaintiff's favor. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).

         B. Motion for Summary Judgment

         The entry of summary judgment is warranted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing Fed.R.Civ.P. 56(c)); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). A fact is "material" for purposes of this inquiry if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248; see also Jeffreys v. City of N.Y., 426 F.3d 549, 553 (2d Cir. 2005). A material fact is genuinely in dispute "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

         When summary judgment is sought, the moving party bears the initial burden of demonstrating that there is no genuine issue of material fact to be decided with respect to any essential element of the claim. Id. at 250 n.4. The failure to meet this burden warrants denial of the motion. See id. In the event this initial burden is met, the opposing party must show, through affidavits or otherwise, that there is a material issue of fact for trial. Id.

         When deciding a summary judgment motion, a court must resolve any ambiguities and draw all inferences from the facts in a light most favorable to the non-moving party. Jeffreys, 426 F.3d at 553. Summary judgment is inappropriate where "a review of the record reveals sufficient evidence for a rational trier of fact to find in the [non-movant's] favor." Treglia v. Town of Manlius, 313 F.3d 713, 719 (2d Cir. 2002); see also Anderson, 477 U.S. at 250 (summary judgment is appropriate only when "there can be but one reasonable conclusion as to the verdict").

         IV. DISCUSSION

         A. Defendant FFIC's Motions

         1. Motion for Judgment on the Pleadings (to dismiss Counts II and III) (ECF No. 276)

         FFIC moves for judgment on the pleadings to dismiss Counts II and III as duplicative of Count I. In Count I, Utica complains that FFIC breached the Certificates by not paying its claims and seeks damages in the form of the sums due under the Certificates through August 31, 2009. In Count II, Utica alleges that FFIC asked for irrelevant information and ignored its billings, inquiries, and repeated requests for payment, thereby violating FFIC's duty to deal with Utica in utmost good faith. For damages under Count II, Utica seeks attorneys' fees and other costs in connection with this lawsuit. In Count III, Utica seeks a declaration that FFIC is obligated to pay for bills after August 31, 2009, pursuant to the Certificates.

         Defendant contends Counts II and III are duplicative of Count I and are not independent causes of action. It argues Counts II and III are premised on the same alleged breach of its duties under the Certificates-its failure to pay-and seek relief for that breach.

         Utica responds that Count II is not duplicative as nowhere in Count I is it alleged that FFIC ignored information in its claim investigation, requested additional improper information, and ignored Utica's inquiries. Further, Count II seeks attorneys' fees and other costs in connection with this lawsuit, a different remedy than Count I. Similarly, Utica argues Count III is different than Count I as the declaratory judgment cause of action recognizes that future obligations may arise under the Certificates, in addition to the amounts already billed and unpaid. Specifically, that the Certificates continue to apply to Utica's umbrella coverage to Goulds, and the parties continue to dispute how those Certificates apply.

         a. Count II

         The test for duplication respecting a breach of contract claim and a bad faith claim is whether "the [alleged] wrongful conduct was 'also the predicate for a claim for breach of covenant of an express provision of the underlying contract.'" Haym Salomon Home for the Aged, LLC v. HSB Group, Inc., No. 06-CV-3266, 2010 WL 301991, at *6 (E.D.N.Y. Jan. 20, 2010).

         Count I seeks relief for FFIC's failure to pay amounts billed under the Certificates. Count II seeks relief for FFIC's alleged improper claims handling; that cause of action includes allegations that FFIC ignored information provided by Utica, asked for additional irrelevant information not needed to process Utica's billings, and improperly ignored Utica's numerous inquiries regarding its review of Utica's billings and payment status. Utica alleges FFIC's bad faith in its claims processing caused it damages beyond the recovery of amounts owed under the Certificates, the relief sought in Count I. Thus Count II seeks attorneys' fees and other costs in connection with this lawsuit and all resulting damages from the breach of the duty of utmost good faith and fair dealing.

         Because these causes of actions are predicated on different wrongful conduct and seek different relief, they may stand as separate causes of action. See e.g., Ret. Bd. of Policemen's Annuity & Benefit Fund v. Bank of N.Y. Mellon, No. 11 Civ. 5459, 2014 WL 3858469, at *3 (S.D.N.Y. July 30, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim because they rested upon different facts); Friedman v. Maspeth Fed. Loan & Sav. Ass'n, No. 13-CV-6295, 2014 WL 3473407, at *9 (E.D.N.Y. July 14, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim where the facts supporting each claim were not identical); O.K. Petroleum Distrib. Corp. v. Travelers Indem. Co., No. 09 Civ. 10273, 2010 WL 2813804, at *4 (S.D.N.Y. July 15, 2010) (finding bad faith allegations that insurer inadequately investigated and inordinately delayed were not duplicative because they extended beyond a breach of insurance contract claim); JJM Sunrise Auto., LLC v. Volkswagen Grp. of Am., Inc., No. 601658-14, 2014 WL 5800301, at *13 (N.Y. Sup. Ct. Nov. 6, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim because breach of good faith claim contained allegations of wrongful conduct that were not alleged in breach of contact claim).

         b. Count III

         The Declaratory Judgment Act, 28 U.S.C. § 2201(a), vests district courts with "broad discretion" to decline jurisdiction over requests for declaratory relief, Dow Jones & Co., Inc. v. Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003) (identifying factors relevant to exercise of such discretion, including, inter alia, "whether the judgment will serve a useful purpose in clarifying or settling the legal issues involved"; "whether a judgment would finalize the controversy and offer relief from uncertainty"; and "whether the proposed remedy is being used merely for procedural fencing, or a race to res judicata'" (internal quotation marks omitted)). Fort v. Am. Fed. of State, Cnty. and Mun. Emps., 375 F.App'x 109, 112 (2d Cir. Apr. 29, 2010) (summary order).

         In Count III, Utica seeks a declaration of the same rights that will be determined under Count I for breach of contract. Count I alleges that as a result of the breach of the Certificates, FFIC owes Utica for billings through August 31, 2009, totaling nearly $29 million and that such damages are continuing. The parties do not dispute that future obligations may arise under the Certificates at issue, in addition to the amounts billed and unpaid as of the filing of the Amended Complaint. Count III seeks payment for billings subsequent to August 31, 2009. The declaratory judgment sought in Count III will not clarify or settle the legal issues involved in this case. The declaration sought, that FFIC breached the Certificates and that FFIC is obligated to make payment to Utica for subsequent billings, will be addressed in Count I, the breach of contract claim. Nor will a declaratory judgment offer relief from uncertainty because resolution of the breach of contract claim will offer that relief. Therefore, Count III is duplicative of Count I and it is proper to decline jurisdiction over plaintiff's request for declaratory relief in Count III.

         FFIC's motion for judgment on the pleadings dismissing Counts II and III as duplicative of Count I will be granted in part and denied in part and Count III will be dismissed.

         2. Motion for Partial Summary Judgment on Count I (Utica's "Aggregate Limits" Contention) (ECF No. 279)

         FFIC moves for partial summary judgment on Count I, arguing it was not obligated to provide reinsurance coverage to Utica with respect to the five years 1966, 1968, 1969, 1970, and 1971.[6] It contends that because it was not obligated to provide reinsurance coverage for those years, it could not breach the Certificates for those years as a matter of law.

         As explained in the previous Memorandum-Decision and Order, one of the main issues in this case involves the existence of aggregate limits for bodily injury in the primary policies between Goulds and Utica. Aggregate limits for bodily injury in the primary policies would allow Utica to combine asbestos injuries arising from multiple accidents, occurrences, or individuals into a loss that would exceed the primary policy limits, penetrate the umbrella policy, and access FFIC's reinsurance. Utica claims that these policies did in fact have aggregate limits, while FFIC contends they did not. If these missing primary policies had said aggregate limits, the umbrella policies between Goulds and Utica could and would have been accessed, thereby triggering the reinsurance policies between Utica and FFIC. Alternatively, if the primary policies did not contain aggregate limits, the umbrella policies would never have been triggered, and FFIC's reinsurance coverage would not have been reached. It follows that FFIC would have no liability to Utica for the five years in question. As the primary policies in question are missing, much of the discovery in this case has focused on whether those policies had aggregate limits for bodily injury.

         The instant motion for partial summary judgment is about different aggregate limits-those listed in the umbrella policies. According to FFIC, the contractual reinsurance relationship between Utica and FFIC is governed by (1) the annual (reinsurance) Certificate, and (2) the corresponding umbrella policy. It is undisputed that the Certificates contain a follow form provision, providing that FFIC's liability is subject to the terms and conditions of Utica's contract with Goulds (the umbrella policy). FFIC agreed to provide reinsurance only in accordance with the terms and conditions of the umbrella policies and therefore what those policies said about the limits of the underlying primary policies. While the primary policies between Goulds and Utica for the years at issue are missing, the parties are in possession of the umbrella policies between Goulds and Utica for those years.

         FFIC argues the umbrella policies are clear and unambiguous, and none contain aggregate limits for bodily injury for the underlying primary policies. FFIC has submitted the declarations page of each umbrella policy. LoPatto Decl., Ex. 2, ECF. No. 279-5 (the "Umbrella Declarations pages").[7] Each Umbrella Declarations page includes a "Schedule of Underlying Insurance Policies." According to FFIC, these pages provide the bodily injury and property damage claim limits for the corresponding underlying primary policies. Each Umbrella Declarations page submitted by FFIC includes an aggregate limit for property damage, but no aggregate limit is listed for bodily injury. FFIC asserts this shows Utica knew how to provide for an aggregate limit when it wanted to-if the primary policies had aggregate limits for bodily injury, they would have appeared on the Umbrella Declarations page of the corresponding umbrella policy.

         According to FFIC, because the Umbrella Declarations pages (which the Certificates follow form to) list no aggregate limits for bodily injury and because the contracts are clear and unambiguous, they may not be altered by extrinsic evidence. Therefore, FFIC contends that without aggregate limits for bodily injury in the primary policies, the Goulds claims never moved out of the primary policies, the umbrella policies never triggered, and Utica never should have paid under the umbrella policies. It follows that FFIC's reinsurance should never have been triggered and it cannot be obligated to provide reinsurance coverage for these five years and thus could not breach the Certificates as a matter of law.

         Utica argues partial summary judgment should be denied because FFIC cannot prove by way of the umbrella policies that the missing primary policies lack aggregate limits for bodily injury. Further, even if it could, the umbrella policies as presented do not actually establish that the underlying primary policies lack aggregate limits for bodily injury. Utica takes issue with FFIC's theory about how the umbrella coverage applies over the primary policies because FFIC does not discuss nor attach any triggering language from the umbrella policies. Instead, FFIC's entire argument is based on how the umbrella policies might apply in light of the Umbrella Declarations pages, but fails to provide any supporting umbrella policy contract language such as the insuring agreements, exclusions, definitions, endorsements, or terms and conditions. According to Utica, there is not a complete contract to be interpreted: application of the Certificates requires an understanding of both the primary and umbrella policies and the umbrella policies include terms and conditions explaining how the Umbrella Declarations pages apply but FFIC has not provided these.[8] Each umbrella policy generally includes a ...


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