89 F. Supp. 3d 291
N.D.N.Y.2014Background
- Quincy Mutual (excess carrier, $1,000,000) and New York Central (primary carrier, $500,000) insured Randolph Warden for a 2000 auto accident that seriously injured Peggy Horton.
- New York Central controlled Warden’s defense from 2001 until Jan 2008; Quincy monitored as the excess carrier and reserved its rights until primary limits were exhausted or tendered.
- Court granted summary judgment on liability and serious injury for Horton in May 2005 (affirmed Aug 2006); interest began accruing from May 20, 2005.
- New York Central made only a $75,000 (later reportedly $200,000) settlement offer from Dec 2005 through mid-2009 despite medical reports, multiple surgeries, expert disclosures, and the trial judge’s admonitions indicating high verdict potential.
- New York Central did not tender its policy limits until Sept 28, 2009; Quincy Mutual then paid $1,000,000 (including accrued interest) to settle. Quincy sued New York Central for bad faith and recovery of its excess payout and interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did New York Central breach its duty of good faith to Quincy by refusing reasonable settlement and exposing the excess carrier? | New York Central acted in gross disregard by refusing to tender policy limits (or negotiate fairly) from Dec 2005–Sept 2009, losing clear settlement opportunities. | Quincy (excess) caused/failed to mitigate because it did not negotiate earlier or protect interests before primary was tendered. | Held for Quincy: New York Central acted in bad faith and gross disregard by maintaining a low offer and delaying tender until Sept 2009. |
| Causation and damages — would earlier tender have avoided Quincy’s full excess payment? | Had New York Central tendered limits in Dec 2005 or by July 2007, settlements would have followed (Dec 2005: $500k; July 2007: $750k total), reducing Quincy’s payout. | New York Central contends Quincy could have negotiated earlier and mitigated. | Held for Quincy: lost actual settlement opportunities; Quincy proved proximate causation and damages of $1,000,000. |
| Prejudgment interest — is Quincy entitled to interest and from what date? | Yes; as breach-of-contract remedy under NY law, interest at statutory 9% from earliest ascertainable date (court chose Jan 1, 2006). | (No successful opposing position preserved in holding.) | Held for Quincy: prejudgment interest at 9% per year from Jan 1, 2006 to judgment. |
| Claim for attorney’s fees under NY Gen. Bus. Law § 349 (consumer protection) via alleged Insurance Law § 2601 violation | Quincy seeks fees arguing NY Ins. Law § 2601 violation supports a § 349 claim because the carrier’s settlement practices were deceptive and public-oriented. | New York Central argued conduct was not consumer-oriented or part of a public policy/practice subject to § 349. | Held for New York Central on this issue: Quincy failed to show a consumer-oriented, public policy/practice violation under § 349; no fees awarded. |
Key Cases Cited
- New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 295 F.3d 232 (2d Cir. 2002) (excess carrier may sue primary for bad faith; primary must consider excess carrier’s interests)
- Pinto v. Allstate Ins. Co., 221 F.3d 394 (2d Cir. 2000) (elements and factors for bad-faith settlement decisions; need more than negligence)
- Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445 (N.Y. 1993) (insurer owes insured duty of good faith in settlements; gross disregard standard for bad faith)
- Hugo Boss Fashions, Inc. v. Federal Ins. Co., 252 F.3d 608 (2d Cir. 2001) (strong presumption against finding insurer bad faith)
- Fed. Ins. Co. v. Liberty Mut. Ins. Co., 158 F. Supp. 2d 290 (S.D.N.Y. 2001) (primary insurer must give equal consideration to excess carrier when defending)
- Scottsdale Ins. Co. v. Indian Harbor Ins. Co., 994 F. Supp. 2d 438 (S.D.N.Y. 2014) (unrealistic settlement posture by primary that exposes excess carrier is evidence of bad faith)