First State v. Utica ( 1996 )


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  • USCA1 Opinion











    March 6, 1996 [Not for Publication] [Not for Publication]
    United States Court of Appeals United States Court of Appeals
    For the First Circuit For the First Circuit
    ____________________

    No. 95-1100

    FIRST STATE INSURANCE COMPANY,

    Plaintiff, Appellant,

    v.

    UTICA MUTUAL INSURANCE COMPANY,

    Defendant, Appellee.

    ____________________

    APPEAL FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF MASSACHUSETTS

    [Hon. Richard G. Stearns, U.S. District Judge] ___________________

    ____________________

    Before

    Cyr, Circuit Judge, _____________
    Bownes, Senior Circuit Judge, ____________________
    and Stahl, Circuit Judge. _____________

    ____________________

    Myles W. McDonough, with whom Robert H. Gaynor and Sloane and ___________________ _________________ ___________
    Walsh, were on brief for appellant. _____
    Eugene G. Coombs, Jr., with whom Jeffrey A. Novins and Kilburn, ______________________ __________________ ________
    Casey Goscinak & Coombs were on brief for appellee. _______________________



    _____________________


    _____________________


















    STAHL, Circuit Judge. Excess insurer First State STAHL, Circuit Judge. _____________

    Insurance Company ("First State") sued primary insurer Utica

    Mutual Insurance Company ("Utica"), claiming that Utica

    unreasonably and in bad faith failed to settle a claim within

    the primary policy limits, resulting in a significant payout

    by First State on the excess policy. The district court,

    sitting without a jury, found that Utica indeed acted

    unreasonably and in bad faith, but that First State failed to

    prove that the underlying claim could have been settled at

    any time for less than the amount actually paid.

    Consequently, the district judge ruled that First State

    failed to prove that it was harmed by Utica's actions, and

    entered judgment for defendant Utica. First State appeals.

    Finding no reversible error, we affirm.

    I. I. __

    BACKGROUND BACKGROUND __________

    We begin by summarizing the facts as found by the

    district court, reported in detail in First State Insurance _____________________

    Co. v. Utica Mutual Insurance Co., 870 F. Supp. 1168, 1169-74 ___ __________________________

    (D. Mass. 1994) (Stearns, J.). This dispute between insurers

    is a by-product of the tragic 1983 drowning of a five-year-

    old boy at a bridge construction site. The boy, attempting

    to traverse a plank leading to a bridge support pier, slipped

    and fell into the river and drowned. His body was not

    recovered for several weeks.



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    The bridge contractor had not fenced in the

    construction site, which was adjacent to a playground, nor

    had it hired security guards or posted the site with warning

    or "no trespassing" signs. Prior to the accident, the

    contractor was aware that children and vandals were

    trespassing on the site. The contractor found more than once

    that someone had placed planks to allow access from the shore

    to the support piers in the middle of the river.

    In November 1983, the parents, represented by the

    law firm of Mardirosian & Barber, brought a wrongful death

    action against the contractor in Massachusetts state court.

    Utica, the primary liability insurer for the

    contractor, had provided a $500,000 policy, of which it had

    reinsured $300,000 with Prudential Reinsurance, limiting its

    actual loss exposure to $200,000. First State had issued an

    excess liability policy to the contractor in the amount of

    $15,000,000. Utica, as the primary carrier, was obligated to

    provide the contractor with a defense, and in late 1983 it

    retained the firm of Roche & Heifetz for that purpose.

    The wrongful death case proceeded at a leisurely

    pace. During the six years following the filing of the

    claim, the parties' lawyers had several inconclusive

    settlement discussions. On February 6, 1989, two days before

    the start of trial, Utica offered its entire $500,000 policy

    limit to settle the case. The offer was rejected. Utica



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    then tendered its policy to First State, effectively turning

    over control of the settlement negotiations to First State.

    Trial began on February 8, 1989. On the second day of trial,

    First State made a $750,000 settlement offer, but that was

    rejected. Subsequent offers of $1,000,000 and $1,100,000

    were also rejected. On the fifth day of trial, with the help

    of the trial judge, the case was settled for $1,250,000 .

    Utica thus paid $500,000 under the primary policy ($300,000

    of which was reinsured) and First State paid $750,000 under

    the excess policy.

    In November 1989, First State brought a diversity

    action against Utica in the United States District Court for

    the District of Massachusetts, alleging that Utica's refusal

    to pursue a reasonable settlement of the wrongful death case

    caused First State to lose the $750,000 paid in excess of

    Utica's policy limit. After a six-day bench trial, the

    district judge ruled that Utica had indeed acted unreasonably

    and in bad faith in not seriously pursuing settlement long

    before trial. But the district judge found that First State

    had failed to prove that the boy's parents would probably

    have settled for less than the $1,250,000 actually paid, and

    held therefore that First State failed to show it had been

    harmed by Utica's actions.

    First State asserts on appeal that the judge's

    factual finding on the potential for a less-costly settlement



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    was clearly erroneous. This is a fact-bound appeal, and we

    will focus in some detail on the evidence relevant to the

    settlement question. Because appellee Utica has not argued

    that the district judge erred in ruling that Utica breached

    its duty to pursue settlement reasonably, we accept that

    ruling without further analysis. We do note, though, that

    the legal issue in this case, the duty of a primary insurer

    to an excess insurer, is controlled by Hartford Casualty __________________

    Insurance Co. v. New Hampshire Insurance Co., 628 N.E.2d 14, _____________ ___________________________

    16-19 (Mass. 1994).

    II. II. ___

    DISCUSSION DISCUSSION __________

    When, as here, a district court sits as the trier

    of fact, its determinations are accorded great respect.

    Langton v. Johnston, 928 F.2d 1206, 1218 (1st Cir. 1991). _______ ________

    Federal Rule of Civil Procedure 52(a)1 dictates that we

    review such factual findings only for clear error. The clear

    error test is rigorous:


    ____________________

    1. Fed. R. Civ. P. 52(a) provides in pertinent part:

    In all actions tried upon the facts
    without a jury . . . the court shall find
    the facts specially and state separately
    its conclusions of law thereon . . . .
    Findings of fact, whether based on oral
    or documentary evidence, shall not be set
    aside unless clearly erroneous, and due
    regard shall be given to the opportunity
    of the trial court to judge of the
    credibility of the witnesses.

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    If the district court's account of the
    evidence is plausible in light of the
    record viewed in its entirety, the court
    of appeals may not reverse it even though
    convinced that had it been sitting as the
    trier of fact, it would have weighed the
    evidence differently. Where there are
    two permissible views of the evidence,
    the factfinder's choice between them
    cannot be clearly erroneous.

    Anderson v. City of Bessemer City, 470 U.S. 564, 573-74 ________ _______________________

    (1985). We do not set aside a district court's findings of

    fact unless "on the whole of the record, we form a strong,

    unyielding belief that a mistake has been made." Cumpiano v. ________

    Banco Santander Puerto Rico, 902 F.2d 148, 152 (1st Cir. _____________________________

    1990). Because the record in this case supports two

    permissible views of the evidence, we discern no clear error.



    A. Was settlement possible within Utica's $500,000 policy _____________________________________________________________

    limit? ______

    A number of documents presented at trial suggested

    that the lawyers for the plaintiff-parents had, at one time,

    valued the case in the $200,000 to $250,000 range. A

    memorandum to Utica from defense attorney Therese Roche

    referred to a statement in 1984 by one of the parents'

    lawyers that "he was seeking well over $100,000." That

    memorandum, however, indicated that the parents were "not

    making a specific demand." A Utica claims manager recorded

    in a March 1987 memorandum that he had spoken with the

    parents' counsel, who had assessed the "full liability value"


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    of the case at $200,000 to $250,000. Another memorandum by

    defense attorney Roche to Utica memorialized an April 1988

    discussion between Roche and another lawyer for the parents;

    that discussion occurred at the courthouse after a scheduled

    settlement conference had been canceled. The memorandum

    stated that the parents' "current demand was $200,000, which

    does not seem too far out of line." While none of these

    communications were formal written demands, a factfinder

    could reasonably conclude from them that a settlement could

    perhaps have been negotiated at roughly $250,000.

    Those memoranda did not, however, compel such a

    finding; other evidence at trial cast doubt on the

    feasibility of settlement in the $250,000 range. The

    plaintiffs made no written demands until much later, and

    those demands were for a significantly larger amount. The

    lawyer who allegedly said he sought "well over $100,000" was

    only on the case a short while, and he did not testify in

    this trial. His successor, who was not the partner in charge

    of the case, did testify; he had purportedly made the

    $200,000 demand. He stated that he could not remember

    discussing any specific numbers, and he stated that he would

    never make a demand without putting it in writing. He also

    testified that, based on his personal evaluation of the case

    at the time, he would have recommended that his clients

    settle for "a figure in the $250,000 range." The partner in



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    charge of the parents' case testified that he did not recall

    giving any lawyer authority to make a specific demand or to

    settle the case, and he also testified that he was not sure

    if he would have recommended that his clients accept $500,000

    to settle the case. Yet another attorney testified as an

    expert that demands are always made in writing. Thus, from

    this evidence, the district judge was amply justified in

    finding that the parents never authorized a settlement demand

    in the $200,000 to $500,000 range. Moreover, the conflicting

    evidence about what was said, and when, and what was meant,

    justified the district judge's conclusion that First State

    failed to prove the likelihood of settlement for less than

    $500,000.

    That conclusion was reinforced by evidence (and by

    First State's arguments) that this wrongful death case had,

    from the start, obvious potential for a major verdict, one

    well over $500,000, perhaps $1,000,000 or more. That

    evidence was critical to the district judge's conclusion that

    Utica was unreasonable in not pursuing an early settlement;

    that same evidence makes it less likely that the parents and

    their lawyers would have settled for $250,000 or even

    $500,000. Our careful review of the entire record convinces

    us that the district judge did not clearly err in concluding

    that First State failed to prove that the parents would





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    probably have settled for an amount within the $500,000

    primary policy limits.

    B. Was settlement possible between $500,000 and $1,250,000? ____________________________________________________________

    First State also argues that the district judge

    erred by not addressing whether the case could have settled

    for an amount over $500,000, but less than the $1,250,000

    eventually paid, had Utica acted reasonably. The district

    judge recognized that question to be relevant, however,

    framing the dispositive causation question thus: "[I]s it

    probable, had Utica reasonably pursued a settlement as it

    should have, that the case would have settled within Utica's

    $500,000 policy limit and, if not, was the eventual

    settlement of $1,250,000 larger than what might reasonably

    have been achieved but for Utica's misfeasance?" First State ___________

    Ins. Co. v. Utica Mut. Ins. Co., 870 F. Supp. at 1178. _________ _____________________

    Although it is implicit in his judgment that the district

    judge answered "no" to both prongs of that question, several

    subsequent statements in the judge's opinion suggest that he

    did not focus on the second prong. In three separate

    statements, the judge explained that his judgment was based

    on his finding that First State had failed to prove that the

    parents would have settled for $200,000 or an amount within

    the $500,000 policy limit. See id. at 1178-79. Although the ___ ___

    district judge did not expressly find that First State failed

    to prove a likelihood of settlement in the $500,000 to



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    $1,250,000 range, our review of the record reveals that the

    contrary conclusion -- that such a settlement was probable --

    lacks evidentiary support.

    While we can speculate that a settlement at a

    figure between $500,000 and $1,250,000 may indeed have been

    likely, First State presented no evidence to that effect.

    The finding that First State seeks could be based only upon

    speculation and surmise. The only evidence of settlement

    discussions in that range was the parents' formal written

    demand in August 1988 for $1,000,000. That offer, however,

    was expressly based on the belief that the combined insurance

    coverage was $1,000,000, as the defendant contractor had

    erroneously stated in an interrogatory answer. The demand

    was increased to $15,000,000 several months later when the

    parents' lawyers learned that the total coverage was actually

    $15,500,000.

    No other evidence in the record indicates that a

    settlement between $500,000 and $1,250,000 would have been

    acceptable to the parents and their lawyers. What evidence

    there is points to the opposite conclusion. The parents

    rejected an offer of $750,000 two days before trial, and

    rejected offers of $1,000,000 and $1,100,000 during trial,

    but of course those rejections do not negate the prospect of

    settlement at like amounts at an earlier point in time. The

    district judge found, as First State argued, that the



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    $1,250,000 settlement actually negotiated by First State,

    after Utica had tendered its policy, was reasonable from an

    insurer's perspective.

    It appears to us that the district judge focused

    his written opinion on the question of the alleged demand for

    $200,000 and the potential for settlement in the $200,000 to

    $500,000 range, because that was the thrust of First State's

    evidentiary presentation. Because there was no evidence that

    settlement in the $500,000 to $1,250,000 range was probable,

    the district court did not err in omitting an express finding

    that First State failed to prove the likelihood of such a

    settlement.

    C. Other Arguments ___________________

    We find no merit in First State's argument that the

    district judge erroneously believed that, as a legal matter,

    the case turned on whether a formal demand for settlement had

    been made by the parents. The lack of a formal demand was an

    important factor in the judge's ruling, but the opinion is

    expressly clear that the issue was whether settlement for a __________

    lesser amount was probable, not whether a lower demand was ______

    made. See First State Ins. Co. v. Utica Mut. Ins. Co., 870 ___ ____________________ ____________________

    F. Supp. at 1178.

    All of the causes of action advanced by First State

    require a showing that Utica's action caused harm to First

    State, i.e., that a real opportunity to settle at a lower



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    amount was wasted due to Utica's unreasonableness or

    subjective bad faith. Because we affirm the district judge's

    finding that First State failed to prove that an opportunity

    for settlement was lost, we need not address any legal

    distinctions between the several causes of action.

    First State also claims that the district judge

    erred in keeping under seal documents that were subpoenaed

    into court from Prudential Reinsurance, Utica's reinsurer.

    The documents were withheld from First State because of an

    assertion of attorney-client privilege. The district judge

    reviewed the documents in camera and determined that they __ ______

    were not relevant, thereby foreclosing First State's

    challenge to the assertion of privilege.

    Having reviewed the record and First State's

    arguments on this issue, we find that any relevance the

    documents may have had concerned only the issue of Utica's

    reasonableness and good faith in pursuing settlement.

    Because the district judge found that Utica acted

    unreasonably and in bad faith, First State cannot complain

    about the sealing of documents relevant to that issue. First

    State made no proffer, nor has it argued on appeal, that the

    documents contained evidence probative of the dispositive

    causation issue, i.e., the likelihood of a settlement at a

    lower amount. The critical fact lacking in First State's

    case was the parents' willingness to settle for a lower



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    amount, and it seems unlikely that correspondence between

    Utica and Prudential Reinsurance would contain evidence on

    that issue. We conclude that there was no prejudice to First

    State and thus there is no reversible error in the judge's

    ruling on the disputed documents.











































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    III. III. ____

    CONCLUSION CONCLUSION __________

    For the foregoing reasons, the judgment is

    affirmed. Costs to the appellee Utica. ________













































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