994 F. Supp. 2d 438
S.D.N.Y.2014Background
- Scottsdale is the excess insurer for Cole; Indian Harbor is Cole’s primary insurer.
- Dickson sued Cole and related parties for injuries from a construction site incident; exposure was potentially within the primary policy and later expanded by back-surgery-related damages.
- Indian Harbor initially reserved at or near the primary policy limit and did not engage in meaningful settlement activity after liability became clear.
- Mediation occurred in Feb 2011 with Hecht demanding $2.5 million; Indian Harbor’s offer capped at $200,000, despite internal recommendations to settle for up to $950,000.
- Dickson’s back surgery in 2011 greatly increased damages; Dickson ultimately settled for $2.5 million with Indian Harbor paying $1 million and Scottsdale $1.5 million; Scottsdale sues Indian Harbor for mis-handling the claim under New York bad-faith law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Indian Harbor acted with gross disregard under New York law. | Scottsdale asserts gross disregard via inaction and poor settlement posture. | Indian Harbor contends no gross disregard; decisions were within reasonable judgment. | Disputed; jury must decide whether gross disregard occurred. |
| Whether Indian Harbor’s gross disregard caused Scottsdale to lose a settlement opportunity within the primary limit. | Evidence shows lost opportunity to settle for $1 million or less. | Causation is not established beyond reasonable dispute; letters/offers are ambiguous. | Disputed; jury must determine causation. |
| Whether a primary insurer may be liable to an excess insurer for bad faith in refusing to settle within the policy limits. | New York law allows excess insurer to recover when primary’s bad faith causes excess exposure. | Some cases limit recovery; ultimate liability depends on facts at trial. | Supported; case must proceed to trial to resolve bad-faith liability. |
Key Cases Cited
- Pinto v. Allstate Ins. Co., 221 F.3d 394 (2d Cir. 2000) (multifactor test for bad faith; no fixed formula)
- New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co., 295 F.3d 232 (2d Cir. 2002) (duty to consider excess carrier’s interests; causation analysis)
- Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445 (N.Y. 1993) (good faith requires not just motive but reasonable conduct; causation standard)
- State v. Merchants Ins. Co. of New Hampshire, 109 A.D.2d 935 (3d Dep’t 1985) (insurer’s placement of itself at risk can show bad faith by failing to settle)
- Pavia cited Reifenstein v. Allstate Ins. Co., 92 A.D.2d 715 (N.Y. 1983) (illustrative of bad-faith standards for settlement)