Summary
finding that the insured was entitled to attorneys' fees despite filing suit because the insured's case was in direct response to the insurer's attempt to avoid its obligations under the policy
Summary of this case from La. Generating LLC v. Ill. Union Ins. Co.Opinion
No. 99cv512 (RCC) and No. 99cv2214 (RCC)
September 25, 2000
Opinion and Order
American Motorists Insurance Company ("American Motorists") brought this action before the Court seeking a declaratory judgment that it was not obligated to indemnify GTE Corporation ("GTE") under the terms of a commercial general liability insurance policy entered into between the parties and effective from July 1, 1986 through July 1, 1989 (the "Policy"). GTE moved to dismiss the complaint, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. By Order of the Court, dated August 4, 1999 (the "August 4 Order"), the Honorable Kimba M. Wood granted GTE's motion with respect to all claims but with leave to replead American Motorists' claim that a portion of the settlement was based on liability for punitive damages.
American Motorists subsequently moved for the entry of partial final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, or for certification of the August 4 Order for interlocutory appeal pursuant to Title 28 of the United States Code, Section 1292(b). By Order dated October 18, 1999, the Honorable Kimba M. Wood denied such motion.
American Motorists replead its punitive damages claim and has brought a counterclaim and an amended counterclaim against GTE. GTE has brought before the Court a motion to dismiss American Motorists' complaint, amended complaint, counterclaim and amended counterclaim against GTE, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, and a motion for judgment on the pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. For the reasons stated herein, GTE's motions are GRANTED and American Motorists complaint, amended complaint, counterclaim and amended counterclaim are DISMISSED.
Jurisdiction
American Motorists is an Illinois corporation, having its principle place of business in Long Grove, Illinois. GTE is a Connecticut corporation having its principle place of business in Dallas, Texas. The Court has jurisdiction over this matter pursuant to Title 28 of the United States Code, Section 1332, based on diversity jurisdiction. Further, the amount in controversy exceeds $75,000.
Background
The Court omits any discussion of the facts of American Motorists' claims that were dismissed previously by the Honorable Kimba M. Wood, and only discusses the facts relevant to the Complaint and Amended Complaint, which are currently before the Court.
These consolidated cases refer to an earlier action, entitledEstate of Steven R. Nunn v. GTE Sylvania. Inc., Glass Tech. Inc., BE Electric Corp., Barnes Construction Corp., City of Jamestown Board of Public Utilities, and Trautman Assoc., brought in the Supreme Court of the State of New York, county of Chautauqua (the "Nunn lawsuit"). On February 29, 1988, Steven R. Nunn suffered burns in an explosion at his place of employment, which eventually led to his death approximately thirty (30) days after the accident. The accident involved a GTE-manufactured low voltage switchboard that had been installed by BE Electric Corp. in 1981. A lawsuit followed, which was controlled by GTE. American Motorists agreed to provide a defense for the Nunn lawsuit. During the course of the lawsuit, a discovery dispute arose regarding whether GTE has complied with the court's discovery demands in good faith. State Supreme Court Justice Joseph Gerace found that GTE had acted in bad faith, imposed sanctions and ordered that GTE would be precluded from introducing evidence to rebut the Nunn plaintiff s claims of proximate cause. This decision was affirmed on June 10, 1998 in Nunn v. GTE Sylvania, Inc., 251 A.D.2d 1089 (App.Div. 4th Dep't 1998).
As the Honorable Kimba M. Wood noted in the August 4 Order, American Motorists' and GTE's cases are "mirror images" of one another. Accordingly, the Court will address them together.
Settlement discussions to dispose of the case commenced, during which GTE's trial attorney made a number of unsuccessful attempts to reach an agreement pursuant to which Falconer Glass would agree to pay a substantial majority of any verdict received, based on a preliminary estimation that Falconer Glass was the most culpable for the accident. At the end of 1998, GTE and Falconer Glass settled the Nunn lawsuit for $5 million, pursuant to which GTE paid $4.5 million. GTE sought payment from American Motorists for such settlement, pursuant to the Policy. American Motorists thereafter brought a lawsuit seeking a declaratory judgment that it had no obligation to reimburse GTE for amounts paid to settle the lawsuit; alleging that GTE breached the "Cooperation Condition" of its policy with American Motorists by committing discovery abuses; alleging that GTE breached the Subrogation Condition of the policy by committing discovery abuses which promoted judicial sanctions prejudicing American Motorists rights; alleging that American owes no duty to indemnify GTE because New York policy precludes insurance coverage for willful conduct; and alleging that New York policy precludes insurance coverage for punitive damages, thus, American Motorists need not indemnify GTE for any amount of punitive damages.
In the August 4 Order, the Court stated correctly that New York public policy precludes insurance coverage for punitive damages. However, the Court concluded that the allegations in American Motorists' complaint suffered from significant pleading defects. Specifically, American Motorists did not allege that the Nunn plaintiffs' motion for leave to amend the complaint to include a claim for punitive damages was granted. Further, American Motorists did not allege that the Nunn complaint included a claim for punitive damages at the time of settlement, nor did American Motorists provide any estimate of what portion of the settlement was attributable to punitive damages. As the Court noted in the August 4 Order, the Nunn plaintiffs initially sought $15 million in compensatory damages. The fact that the settlement was in the amount of $5 million, which is $10 million less than the original claim for compensatory damages, raises the distinct possibility that the $5 million settlement reflected only compensatory damages. However, because the Court determined that it did not appear clear beyond a doubt that American Motorists could prove no set of facts in support of its claim, the Court permitted American Motorists to amend its pleading solely with respect to the punitive damages issue.
American Motorists replead its punitive damages claim, arguing in its amended complaint that the sanctions imposed upon GTE by Judge Gerace created or increased GTE's exposure to punitive damages because the jury would have been instructed that GTE had prior notice of potential defects in the switches as the time of the accident which lead to Mr. Nunn's death. American Motorists further argues that some portion of the settlement amount resolved GTE's exposure to punitive damages. In support of its claims, American Motorists alleges that GTE's trial attorney estimated that the probability of a verdict in favor of plaintiff in the Nunn case was 40-50%, a potential verdict range was between $2.5 million to $4 million, and that Falconer Glass was "clearly most liable for the accident." Id. ¶ 21-23. American Motorists acknowledges in its Complaint that "GTE's trial attorney also referred to unsuccessful attempts to reach an agreement in which Falconer Glass would agree to pay a substantial majority, perhaps 80%, of any verdict received. . . ." Id. ¶ 24. American Motorists states that it reserved its rights to disclaim coverage for the Nunn lawsuit because GTE breached certain conditions of the Policy. The Honorable Kimba M. Wood found that
[i]t is well settled that in order to disclaim coverage on the ground of an insured's lack of cooperation, the carrier must demonstrate that (1) it acted diligently in seeking to bring about the insured's cooperation, (2) the efforts employed by the carrier were reasonably calculated to obtain the insured's cooperation, and (3) the attitude of the insured, after his cooperation was sought, was one of willful and avowed obstruction.
Unpublished Order, 99 Civ. 512, dated August 4, 1999, at 6-7 (citingCommercial Union Ins. Co. v. Burr, 226 A.D.2d 416, 417, 641 N.Y.S.2d 69, 70 (App.Div.2d Dep't 1996) (citation omitted)). The Court found that American Motorists made "no effort, either in the Complaint or in its memorandum, to comply with the pleading requirements . . . [and did] not allege that AMICO requested GTE to comply with discovery demands." Id. at 7. Accordingly, the Court dismissed the counts in the complaint that alleged willful breach of a cooperation and a subrogation clause, and American Motorists' count that alleged that GTE's willful conduct barred indemnification. In its amended complaint, American Motorists alleges that
[u]ntil the sanctions were imposed, GTE's liability defense in the Nunn lawsuit was very strong. After the sanctions, through no fault of [American Motorists], GTE's liability defense was effectively lost. Until the sanctions were imposed, it was highly unlikely GTE would be held liable for at least fifty percent (50%0 of any judgment rendered by the jury in the Nunn lawsuit because the party truly at fault was Falconer Glass. . . . After the sanctions, through no fault of [American Motorists], GTE's cross-claims and third-party claims were either completely lost or substantially weakened.
Amended Complaint ¶ 36-38.
GTE has brought a motion to dismiss the amended complaint and a motion for judgement on the pleadings. American Motorists brought a counterclaim against GTE seeking a determination of the portion, if any, of the settlement payment attributed to punitive damages, declaring that public policy of the State of New York relieves American Motorists of any duty to indemnify GTE for such portion of the settlement and seeking and award of costs and fees incurred.
Standard
In order for a party to succeed on a motion to dismiss under Rule 12 (b)(6), it must be clear that the plaintiff can prove no set of facts that would establish his or her claim for relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994). When making a determination of whether plaintiff can prove any set of facts which would entitle him or her to relief, a court must assume that the allegations in the complaint are true and draw all reasonable inferences in the plaintiffs' favor. Cooper v. Pate, 378 U.S. 546, 546 (1964); Kaluczky v. City of White Plains, 57 F.3d 202, 206 (2d Cir. 1995). Vague and conclusory allegations are not sufficient. A complaint must "contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory." American Council of Learned Societies v. MacMillan, Inc., 1996 WL 706911, at *3.
In order for a party to succeed on a motion for judgment on the pleadings under Rule 12(c), which permits a party to move for judgment after the pleadings are closed but within such time as to not delay trial, a court must apply the same standard as on a Rule 12(b)(6) motion and view the pleading in the light most favorable to, and draw all reasonable inferences in favor of the nonmoving party." Davidson v. Flynn, 32 F.3d 27, 29 (2d Cir. 1994) (quoting Madonna v. United States, 878 F.2d 62, 65 (2d Cir. 1989)). The Court will review GTE's motion to dismiss first, as GTE has "predicated [its 12(c) motion] upon GTE prevailing on its motion to dismiss. . . ." GTE's Memorandum in Support of its Motion for Judgment of the Pleadings at 3.
Discussion
American Motorists claims that factual issues exist regarding whether the $5 million settlement included payment for punitive damages and what amount, if any, of such settlement was apportioned to punitive damages. In its opposition to GTE's motion for judgment on the pleadings, American Motorists claims that it assumed GTE's defense of the Nunn litigation for claims of compensatory damages. American Motorists Memorandum in Opposition to its Motion for Judgment on the Pleadings at 5. American Motorists was informed in March of 1998 that GTE would be seeking coverage for amounts paid to eliminate its liability for punitive damages. Id. at 6. Accordingly, it "specifically informed GTE that any sums paid to satisfy liabilities for punitive damages were not covered under the terms and conditions of the AMICO policy" and that "punitive damages in the State of New York are not covered under a policy of insurance." Id. (citation omitted). There has been no allegation supporting American Motorists claim that the $5 million settlement was comprised, in part, of punitive damages. Notwithstanding GTE's knowledge that New York law does not provide for insurance coverage for punitive damages, the fact that the Nunn plaintiffs' complaint did not include a claim for punitive damages, and the fact that the settlement was for $10 million less than the original claim for compensatory damages, the Court has no reason to believe that the $5 million settlement included payment for punitive damages.
The Court cannot encourage parties to engage in settlement discussions and negotiations, arrive at a settlement and then punish them for doing so by denying them insurance coverage that they are due pursuant to the Policy. This would go against the court system's general policy of encouraging settlements. Further, if the Nunn case had gone to trial and a $5 million verdict was reached and designated as compensatory damages, American Motorists would have to pay pursuant to the Policy. This would have been the case even if the award at trial was $15 million, or more. Although American Motorists argue that GTE's trial attorney, at one point, estimated that the probability of a verdict in favor of plaintiff in the Nunn case was 40-50%, and a potential verdict range was between $2.5 million to $4 million, it is obvious to the Court that such a statement was merely a guestimate made during the course of an involved settlement process. American Motorists' First Amended Counterclaim ¶ 23. Such predictions carry no weight in this case.
By settling the Nunn case in the amount of $5 million, GTE avoided the uncertainty of an outcome and award at trial. This was a "favorable outcome" for both American Motorists and GTE, especially considering the initial request for $15 million in compensatory damages. See Waltuch v. Conticommodity Services, Inc., 88 F.3d 87, 96-97 (2d Cir. 1996) (discussing favorable settlements and in the context of employee indemnification). Although the Nunn plaintiff requested leave to amend its complaint to add a claim for punitive damages, such request was denied. American Motorists has presented no factual basis in support of its allegation that the settlement included payment of punitive damages.
The Court will not require the parties to go back and reargue this case after a binding settlement has been reached. This would thwart the intent of the parties to dispose of this case by settlement, in full satisfaction of all claims relevant to the Nunn litigation, and would go against the spirit of settlements, which encourage mutual agreements without going to trial. During the settlement negotiations, there was no breakdown of the settlement monies and their allocation. Therefore, any breakdown created now would result from the Court directing the parties to reargue the damages issue, which has already been decided and settled. Further and importantly, by letter dated June 23, 1998, American Motorists withdrew from its participation in the settlement process even after communicating with GTE about punitive damages in a letter dated January 9, 1998, and without requesting a breakdown of any settlement reached. The Court cannot provide a remedy for that decision. GTE's Memorandum in Support of its Motion to Dismiss at 3.
American Motorists' allegations in its complaint are vague and conclusory, and consist of estimates and predictions of what might have happened if the facts were other than they are. The allegations do not support the material elements necessary to sustain recovery under a viable legal theory and are not sufficient to overcome even the deferential standard applied by the Court when reviewing a motion to dismiss. The Court holds that American Motorists has not stated a claim for relief and has put forth no factual allegations which demonstrate that the settlement payment included payment of punitive damages. Accordingly, GTE's motion to dismiss American Motorists' complaint, and amended complaint, and GTE's motion for judgement on the pleadings are GRANTED.
American Motorists has brought a counterclaim and an amended counterclaim against GTE, in which it argues that public policy of the State of New York precludes insurance coverage for punitive damages, therefore, American Motorists has no duty to indemnify GTE for money paid in settlement of the Nunn lawsuit. Accordingly, American Motorists seeks a determination that a portion of GTE's settlement money paid resolved GTE's exposure to punitive damages; a declaration that the public policy of the State of New York relieves American Motorists of any duty to indemnify GTE for that portion of the settlement; an award of costs and fees and all such further relief as the Court deems just and appropriate. For the reasons stated above, the Court finds that such relief is not warranted. American Motorists has not stated a claim upon which relief may be granted in its amended counterclaim, and is not entitled to costs and attorneys' fees or a determination regarding punitive damages. American Motorists has a duty to indemnify GTE under and according to the Policy.
GTE also seeks fees and costs. As GTE notes in its papers, when the Court granted, in part, GTE's first motion to dismiss, it denied GTE's request for costs without prejudice, stating that "this request requires a definitive assessment of the merits of this controversy." August 4 Order at 12. At this time, the Court has dismissed with prejudice all counts that American Motorists has brought against GTE. Accordingly, this issue is ripe for decision.
Under New York law, the award of attorneys' fees in such a case "may not be had in an affirmative action brought by an assured to settle its rights . . . but only when [the insured] has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligation." Cunniff v. Westfield, 829 F. Supp. 55, 58 (E.D.N.Y. August 26, 1993) (citing Mighty Midgets, Inc. v. Centennial Ins. Co., 47 N.Y.2d 12, 21, 416 N.Y.S.2d 559, 564, 389 N.E.2d 1080, 1085 (1979) (citations omitted). Here, as the Court has already held, American Motorists was obligated under the Policy to make certain payments to GTE in connection with the Nunn settlement. There is no merit to American Motorists' claims against GTE. American Motorists' argument that it should not be liable for costs and fees because the second of the two cases was filed by GTE and, therefore, was not a suit initiated by the insurer, similarly has no merit. As the Court held in the August 4 Order, and as this Court has confirmed, the two cases are mirror images of each other, and, indeed, GTE's case was in direct response to American Motorists attempt to avoid payment under the Policy. Accordingly, the Court grants GTE's motion to dismiss American Motorists counterclaim and amended counterclaim and awards GTE attorneys' fees and costs incurred in connection with this case.
Conclusion
For the reasons stated above, GTE's motions to dismiss the complaint, the amended complaint, the counterclaim and the amended counterclaim are GRANTED. GTE's motion for judgement on the pleadings is GRANTED. Accordingly, American Motorists' complaint, amended complaint, counterclaim and amended counterclaim are DISMISSED WITH PREJUDICE. Further, GTE is awarded attorney's fees and costs, consistent with this opinion.
SO ORDERED.