07-2794-cv 

Schwartz v. Twin City

1

2 UNITED STATES COURT OF APPEALS

3

4 FOR THE SECOND CIRCUIT

5

6 August Term, 2007

7

8

9 (Argued: June 13, 2008 Decided: August 19, 2008)

10

11 Docket No. 07-2794-cv, 07-2818-cv

12

13 - - - - - - - - - - - - - - - - - - - -x

14

15 BERNARD L. SCHWARTZ,

16

17 Plaintiff-Counter18 Defendant-Appellee,

19

20

21 TWIN CITY FIRE INSURANCE COMPANY,

22

23 Defendant-Cross-Defendant24 Counter-Claimant-Appellee,

25

26 ROYAL INDEMNITY COMPANY,

27

28 Defendant-Cross-Defendant,

29

30 - v.-

31

32 LIBERTY MUTUAL INSURANCE COMPANY,

33

34 Defendant-Cross-Claimant35 Appellant,

36

37 NORTH AMERICAN SPECIALTY INSURANCE 

38 COMPANY,

39

40 Defendant-Counter-Claimant41 Cross-Claimant-Appellant.

42

43 - - - - - - - - - - - - - - - - - - - -x

44
 The Honorable Jane A. Restani, Chief Judge of the *

United States Court of International Trade, sitting by

designation.

2

1 Before: JACOBS, Chief Judge, POOLER, Circuit

2 Judge, RESTANI, Judge.

*

3

4 Excess insurers appeal from an amended judgment,

5 entered after a jury trial in the United States District

6 Court for the Southern District of New York (Castel, J.),

7 granting damages to their policy-holder and dismissing the

8 bad-faith claims they asserted as subrogees against the

9 primary insurer. Affirmed.

10 EDWARD M. SPIRO, Morvillo,

11 Abramowitz, Grand, Iason, Anello

12 & Bohrer, P.C., New York, NY 

13 (Elkan Ambramowitz, Thomas M.

14 Keane, Sarah J. North, on the

15 brief), for Plaintiff-Counter16 Defendant-Appellee Bernard L. 

17 Schwartz.

18

19 CATHERINE E. STETSON, Hogan &

20 Hartson L.L.P., Washington, DC

21 (William J. Bowman, Paul A.

22 Werner, Hogan & Hartson LLP, Ira

23 G. Greenberg, John F. McCarrick,

24 Edwards Angell Palmer & Dodge

25 LLP, on the brief), for

26 Defendant-Cross-Defendant27 Counter-Claimant-Appellee Twin

28 City Fire Insurance Company.

29

30 DAVID J. MARGULES, Bouchard

31 Margules & Friedlander, P.A.,

32 Wilmington, DE (Sean M.

33 Brennecke, of counsel, Joshua
3

1 Dratel, Law Offices of Joshua

2 Dratel, New York, NY, on the

3 brief), for Defendant-Cross4 Claimant-Appellant Liberty

5 Mutual Insurance Company.

6

7 PETER A. STROILI, D’Amato &

8 Lynch, New York, NY (Robert E.

9 Kushner, on the brief), for

10 Defendant-Counter-Claimant11 Cross-Claimant-Appellant North

12 American Specialty Insurance 

13 Company. 

14

15 DENNIS JACOBS, Chief Judge:

16

17 The day before he was to testify as a defendant in a

18 securities class action, Bernard L. Schwartz agreed to a $20

19 million settlement. He later brought suit in the United

20 States District Court for the Southern District of New York

21 (Castel, J.) against the four companies that covered him for

22 directors and officers liability. He sued the primary

23 insurer, Twin City Fire Insurance Company, for bad faith

24 refusal to settle and breach of contract, and he sued three

25 excess insurers, Royal Indemnity Company, Liberty Mutual

26 Insurance Company, and North American Specialty Insurance

27 Company, for breach of contract. Liberty and North

28 American, pleading equitable subrogation, asserted cross29 claims for bad faith against Twin City. Twin City and Royal

30 settled with Schwartz in the course of this litigation.
4

1 Liberty and North American appeal from an amended

2 judgment, entered after a jury trial, in favor of Schwartz

3 and Twin City. See Schwartz v. Twin City Fire Ins. Co., 492

4 F. Supp. 2d 308 (S.D.N.Y. 2007). The issues on appeal are

5 whether the jury’s verdict in favor of Schwartz was

6 supported by sufficient evidence; whether Schwartz’s

7 entitlement to prejudgment interest (under California law)

8 runs from the date he paid the $20 million or from the date

9 the underlying layers of coverage were exhausted; and

10 whether the cross-claims against Twin City are governed by

11 New York law (which requires a showing of “gross disregard”)

12 or by California law (which does not). For the reasons that

13 follow, we affirm.

14

15 BACKGROUND

16 Schwartz was chief executive officer of Globalstar

17 Telecommunications Ltd., a now-defunct public company in the

18 satellite telephone business. In that capacity, he was

19 covered by $50 million in directors and officers liability

20 insurance. The primary layer of $10 million was written by

21 Twin City; Royal, Liberty and North American, the first

22 three excess carriers, each provided $5 million in coverage.
5

1 The remaining layers of coverage were not implicated.

2 In 2001, after Globalstar revealed that its satellite

3 technology had fizzled, a securities class action was filed

4 against Schwartz, Globalstar, and Loral Space &

5 Communications, Ltd. (a Globalstar investor also under

6 Schwartz’s control), alleging violations of sections 10(b)

7 and 20(a) of the Securities Exchange Act of 1934 (the

8 “Globalstar Litigation”). Globalstar timely notified its

9 insurers of the litigation. With Twin City’s approval,

10 Schwartz retained Francis Menton to defend him. 

11 After Globalstar and Loral filed for bankruptcy in

12 2002, the Globalstar Litigation proceeded against Schwartz

13 alone.

14 Over the following two years, Menton worked with Twin

15 City, Royal, Liberty and North American to negotiate a

16 settlement with the Globalstar Litigation plaintiffs. 

17 Counsel to Liberty and North American (the “Excess

18 Insurers”) participated in negotiations at which the

19 plaintiffs offered to settle for $15 million, but warned

20 that the demand would rise to $20 or $25 million once trial

21 began. Twin City’s counter-offers never rose above

22 $5 million. Settlement was not achieved. 
 At that stage of the litigation, $3 million of Twin

2

City’s primary layer had been absorbed by defense fees and

costs, leaving $7 million available for settlement. The 

$20 million figure therefore implicated four layers of

coverage: Twin City, Royal, Liberty and North American. 

6

1 Trial of the Globalstar Litigation began on July 6,

2 2005. Counsel for the Excess Insurers were in the courtroom

3 monitoring all of the proceedings. 

4 After two weeks of testimony, the only remaining

5 defense witnesses were Schwartz and his damages expert. 

6 Facing the prospect of a jury verdict in the hundreds of

7 millions of dollars, Schwartz decided to settle the case.

8 At 10:04 p.m. on Sunday, July 17, 2005, Menton wrote to the

9 four insurers seeking their consent to settle for 

10 $20 million. Menton offered to discuss the settlement that 2

11 night or early the following morning. 

12 On Monday, July 18, 2005, the district court approved

13 the $20 million settlement and discharged the jury. In the

14 course of that day and the following week, all the insurers

15 refused consent.

16 Twin City refused consent on the stated ground that the

17 plaintiffs’ evidence was too weak to merit more than “the

18 $5 million average settlement for shareholder class action

19 lawsuits settled in 2004.” 
7

1 Royal likewise declined to consent.

2 Liberty acknowledged receiving an email from Menton on

3 Saturday, July 16, relaying plaintiffs’ $20 million demand,

4 but said it was unaware of Menton’s request for consent to

5 settle until Monday morning. Liberty could not “understand

6 why it would be reasonable to settle at $20 million,

7 particularly in light of the positive developments at

8 trial”; in any event, its obligations had not been triggered

9 because the underlying layers of coverage had not yet been

10 exhausted. 

11 North American’s position was that the litigation

12 “should have been settled for an amount at or below 

13 $15 million”; that an opportunity to do so had been

14 “squandered” through “no fault of North American’s”; that,

15 having “observed the trial closely,” North American had seen

16 nothing “that would justify a $5 million increase in the

17 plaintiffs’ demand”; that it was “not included in the

18 negotiations of the last 5 days,” or “kept apprised of these

19 negotiations in any material way”; and that in any event any

20 demand on it “would appear to be premature,” given that the

21 underlying layers of coverage (Twin City, Liberty and Royal)

22 had not paid out their limits. 
8

1 On August 24, 2005, Schwartz wrote a personal check to

2 the Globalstar plaintiffs for $20 million. 

3 Schwartz then filed this lawsuit, alleging two causes

4 of action: breach of contract against Twin City, Royal,

5 Liberty and North American; and a bad faith claim against

6 Twin City. Liberty and North American, as subrogees,

7 brought bad-faith cross-claims against Twin City. See

8 Commercial Union Assurance Cos. v. Safeway Stores, Inc., 26

9 Cal. 3d 912, 918 (1980) (explaining that under equitable

10 subrogation, an excess carrier “stands in the shoes of the

11 insured and should be permitted to assert all claims against

12 the primary carrier which the insured himself could have

13 asserted”). 

14 Before the coverage suit went to trial, Twin City and

15 Royal settled with Schwartz by paying their policy limits

16 ($10 million and $5 million, respectively). 

17 On the remaining claims, the jury awarded Schwartz 

18 $5 million against Liberty and $4,085,723.11 against North

19 American (the full amounts sought); and on the bad-faith

20 cross-claims against Twin City, the jury awarded Liberty 

21 $2 million and awarded North American $3 million. The

22 district court entered judgment on January 29, 2007. 
9

1 After post-trial briefing, the district court denied

2 the Excess Insurers’ motions for judgment as a matter of law

3 (or, alternatively, a new trial), but amended the judgment

4 in two significant ways. As to the claim against the Excess

5 Insurers, the court awarded Schwartz prejudgment interest

6 measured from the date Schwartz paid the $20 million

7 settlement. As to the bad-faith cross-claims against Twin

8 City, the court decided a choice of law issue that was

9 raised by the jury’s finding (in response to a special

10 interrogatory) that Twin City had not acted in “gross

11 disregard” of Schwartz’s interests. “Gross disregard” is a

12 requisite finding under New York law, but not under the law

13 of California. The court ruled that New York law applied,

14 and amended the judgment accordingly to dismiss the bad15 faith cross-claims.

16

17 DISCUSSION

18 Liberty and North American challenge the amended

19 judgment on three fronts. First, they seek judgment as a

20 matter of law on the breach of contract claims based on

21 Schwartz’s failure to obtain their consent to settle the

22 Globalstar Litigation. Second, they contend that
10

1 prejudgment interest (on those claims) should run from the

2 date the underlying layers of insurance were exhausted, as

3 opposed to the date Schwartz paid the $20 million

4 settlement. Third, they argue that California law (rather

5 than New York law) applies to their cross-claims against

6 Twin City. 

7

8 I

9 We review de novo the Excess Insurers’ challenge to the

10 denial of their motions for judgment as a matter of law,

11 “viewing the evidence, as the district court was required

12 to, in the light most favorable to the nonmoving party.” 

13 Sanders v. N.Y. City Human Res. Admin., 361 F.3d 749, 755

14 (2d Cir. 2004). 

15 Several facts and propositions relevant to Schwartz’s

16 claims of breach against the Excess Insurers are not in

17 dispute. First, it is undisputed that California law

18 applies to those claims. Schwartz v. Twin City Fire Ins.

19 Co., 492 F. Supp. 2d 308, 318 (S.D.N.Y. 2007). Second, it

20 is undisputed that the coverage agreements required Schwartz

21 to obtain the Excess Insurers’ consent before settling a

22 claim. (The wording of the consent clauses is in the
 This is the Liberty consent clause: 3

Defense and Settlement: The insureds

shall not admit liability for, offer to

settle any claim or incur costs of

defense, where the liability, settlement

and/or costs of defense are reasonably

likely to involve the limit of liability

of this Policy, without the Insurer’s

prior written consent, which consent

shall not be unreasonably withheld.

This is the North American consent clause:

This insurance is subject to the same

terms, conditions, agreements, exclusions

and definitions as the “Underlying

Insurance,” except:

(1) We will have no obligation under

this insurance with respect to any

claim or suit that is settled

without our consent; and

(2) With respect to any provisions

to the contrary contained in this

insurance.

11

1 margin. ) Lastly, it is undisputed that Schwartz did not

3

2 obtain the Excess Insurers’ consent before settling the

3 Globalstar Litigation. 

4 On appeal, the Excess Insurers advance a simple

5 argument: Schwartz’s failure to satisfy the condition

6 precedent of consent to settle absolved of them of their

7 contractual duties. But the jury found that in refusing
12

1 consent, the Excess Insurers breached their duties of good

2 faith and fair dealing--duties that are absolute and

3 unconditional under California law. 

4

5 A

6 “There is an implied covenant of good faith and fair

7 dealing in every contract that neither party will do

8 anything which will injure the right of the other to receive

9 the benefits of the agreement. This principle is applicable

10 to policies of insurance.” Comunale v. Traders & Gen. Ins.

11 Co., 50 Cal. 2d 654, 658 (1958) (citation omitted). “An

12 insurer owes to its insured an implied-in-law duty of good

13 faith and fair dealing that it will do nothing to deprive

14 the insured of the benefits of the policy.” Fletcher v. W.

15 Nat’l Life Ins. Co., 10 Cal. App. 3d 376, 401 (4th Dist.

16 1970). 

17 In Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973),

18 the California Supreme Court explained that this duty, “the

19 breach of which sounds in both contract and tort,” id. at

20 573, “is unconditional and independent of the performance of

21 [the insured’s] contractual obligations.” Id. at 578. The

22 Gruenberg court concluded that the policy-holder’s refusal
13

1 to “submit to an examination under oath and to produce

2 certain documents” as required by the insurance policies was

3 no bar to the policy-holder’s bad-faith action. Id. at 581.

4 While an insurer and its insured can “define, by the terms

5 of the contract, their respective obligations and duties 

6 . . . no matter how those duties are stated, the

7 nonperformance by one party of its contractual duties cannot

8 excuse a breach of the duty of good faith and fair dealing

9 by the other party.” Id. at 578. Under California law, an

10 insurer’s duty of good faith and fair dealing is “absolute.”

11 Id.

12 In the context of this appeal, “the implied obligation

13 of good faith and fair dealing requires the insurer to

14 settle in an appropriate case although the express terms of

15 the policy do not impose the duty,” and further, “in

16 determining whether to settle the insurer must give the

17 interests of the insured at least as much consideration as

18 it gives to its own interests.” Crisci v. Sec. Ins. Co., 66

19 Cal. 2d 425, 429 (1967). In other words, “the insurer must

20 conduct itself as though it alone were liable for the entire

21 amount of the judgment.” Johansen v. Cal. State Auto. Ass’n

22 Inter-Ins. Bureau, 15 Cal. 3d 9, 15 (1975). “Such factors
14

1 as the limits imposed by the policy, a desire to reduce the

2 amount of future settlements, or a belief that the policy

3 does not provide coverage, should not affect a decision as

4 to whether the settlement offer in question is a reasonable

5 one.” Id. at 16. This rule recognizes the potential for

6 conflict between the interests of the insurer and those of

7 its insured:

8 [W]hen a settlement within policy limits is

9 offered by claimant, the previously parallel

10 interests of the assured and carrier diverge,

11 and a conflict of interest arises, for while

12 it is invariably to the assured’s financial

13 interest to settle within policy limits,

14 settlement is only to the carrier’s financial

15 interest when the relationship between

16 settlement offer and policy limits is

17 mathematically favorable in the light of the

18 probabilities of winning or losing the suit.

19

20 Merritt v. Reserve Ins. Co., 34 Cal. App. 3d 858, 869-70 (2d

21 Dist. 1973). 

22 “In determining whether an insurer has given

23 consideration to the interests of the insured, the test is

24 whether a prudent insurer without policy limits would have

25 accepted the settlement offer.” Crisci, 66 Cal. 2d at 429. 

26 A policy-holder seeking recovery for “a judgment in excess

27 of the policy limits” need not show “actual dishonesty,

28 fraud, or concealment” on the part of the insurer. Id. at
15

1 430. Rather, “liability may exist when the insurer

2 unwarrantedly refuses an offered settlement where the most

3 reasonable manner of disposing of the claim is by accepting

4 the settlement.” Id.

5 “Whether the insurer has acted unreasonably, and hence

6 in bad faith, in rejecting a settlement offer is a question

7 of fact to be determined by the jury.” Cain v. State Farm

8 Mut. Auto. Ins. Co., 47 Cal. App. 3d 783, 792 (1st Dist.

9 1975); see also Allen v. Allstate Ins. Co., 656 F.2d 487,

10 489 (9th Cir. 1981) (“An insurer’s ‘good faith’ is

11 essentially a matter of fact. . . . Thus, due deference must

12 be granted to the trier-of-fact[,] in this case the jury.”).

13 The question is therefore whether the jury verdict in favor

14 of Schwartz was supported by sufficient evidence. We

15 conclude that it was.

16 At trial, the jury heard testimony from the attorneys

17 who represented Schwartz, Twin City, Royal, Liberty, North

18 American and the Globalstar plaintiffs, and the jury

19 reviewed the emails, letters and notes exchanged throughout

20 the Globalstar Litigation. Together, that evidence showed

21 that Liberty and North American took an active role in the

22 Globalstar Litigation: monitoring the claims, evaluating
16

1 settlement possibilities, participating in settlement

2 negotiations, and watching the trial unfold. Specifically,

3 the jury learned about the following series of events.

4 Liberty and North American participated in three

5 mediation sessions with Schwartz, Royal, Twin City and the

6 Globalstar plaintiffs. All three ended without success

7 after Twin City made settlement offers well below the

8 plaintiffs’ $15 million demand. Meanwhile, discovery

9 continued and the Globalstar Litigation progressed to trial.

10 At the second mediation session, in January 2005, Twin

11 City asked the other insurers to leave the room so that it

12 could settle the case within the primary layer. Twin City

13 then offered $3 million in settlement--one fifth the

14 settlement demand of the Globalstar plaintiffs. The offer

15 was rejected.

16 The plaintiffs’ $15 million offer would have exhausted

17 the layers of Twin City and Royal, while Liberty “would have

18 to pay a small amount,” and North American would pay

19 nothing. But after the January 2005 mediation session,

20 Menton warned Liberty and North American that Twin City’s

21 “posture in this mediation” was risking exposure of their

22 layers of coverage. Menton testified to telling Liberty and
17

1 North American: “You need for Twin City to put up all of its

2 layer now; otherwise, the plaintiff will go up and your

3 layers are going to be endangered, and you need to be

4 thinking about and get on top of how you are going to

5 prevent that from happening.” 

6 The following month, North American wrote to Twin City,

7 asserting a bad-faith failure to settle: “Given the damages

8 numbers, the uncertain liability defenses and the

9 plaintiffs’ words and deeds that confirm they will not

10 settle this case for less than $10 million, any reasonable

11 party would settle this case for an amount at or above the

12 remaining [Twin City] limit of liability.” 

13 Liberty wrote to Twin City on March 3, 2005, to the

14 same effect:

15 Settlement for an amount up to $12 million is

16 in our estimation reasonable and achievable. 

17 Potential damages are, even in a reasonable

18 scenario, far in excess of this amount. We

19 have reviewed the strengths and weaknesses of

20 the Plaintiffs’ claims and the Insured’s

21 defenses and, notwithstanding [Twin City’s]

22 optimism regarding the defensibility of this

23 action, we believe dismissal at summary

24 judgment highly unlikely. . . . [F]urther

25 discovery, including the deposition of Bernard

26 Schwartz, risks revelation of facts adverse to

27 the Insured, thereby driving up the value of

28 the case to the plaintiffs and ensuring that

29 this matter will be tried before a jury. 

30
18

1 Liberty reminded Twin City that at the January mediation,

2 the case “appeared capable of settlement” for under

3 $15 million, and warned that a lowball offer from Twin City

4 could “precipitate a move upward by the plaintiffs.”

5 On March 10, Liberty and North American participated in

6 a conference call with Menton and the other insurers’

7 counsel. Menton presented three possible measures: (1) make

8 an offer between $12 and $13 million; (2) move for summary

9 judgment, with the risk of settling for $20 million (or

10 more) if the motion failed; or (3) divide the cost of

11 settlement among several insurers, each contributing $2 to

12 $3 million. The second option was chosen.

13 Schwartz moved for summary judgment on June 10, 2005. 

14 That same day, the parties met for a settlement conference

15 with the district court in New York. Plaintiffs offered to

16 accept $15 million, but said the demand would rise if the

17 summary judgment motion was denied or the case went to

18 trial. Twin City counter-offered $5 million. There was no

19 settlement. 

20 Soon after, Menton wrote as follows to Twin City and

21 Royal, with a copy to Liberty and North American:

22 In light of the impending trial, [Twin City]

23 and Royal’s unwillingness to resolve this
19

1 matter has been prejudicial to both Mr.

2 Schwartz and the other excess insurers, whose

3 layers are increasingly at risk. . . . Unless

4 this matter is settled on June 29, it will

5 proceed to trial immediately after the July 4

6 weekend. At that point, plaintiffs’

7 willingness to compromise the case for $15

8 million will have been withdrawn and

9 plaintiffs’ current demand of $25 million or

10 some higher number will have replaced it. . .

11 . [A] return by the plaintiffs to their demand

12 of $25 million combined with our approximately

13 $2 million in legal fees above the deductible

14 would mean that [Twin City], Royal, Liberty

15 and North American would each have to

16 contribute their entire policy limits to

17 settlement, and Starr [the next layer excess

18 insurer] would have to contribute a

19 significant portion of its layer.

20

21 Menton noted that at trial, the Globalstar plaintiffs would

22 “likely seek to prove $600-$800 million in damages,” and

23 warned that it would be “a breach of duty to the insured to

24 subject [Schwartz] to the risk of such mammoth damages when

25 the opportunity to settle within [Twin City] and Royal’s

26 limits has been pending for months.” 

27 In a separate letter to Liberty and North American,

28 Menton warned “that it may be necessary” for Liberty and one

29 or more of the excess carriers “to participate in the

30 ongoing effort to settle this matter.” 

31 For its part, Liberty wrote to Twin City and Royal,

32 accusing them of acting in bad faith. Liberty described the
20

1 likelihood of success on Schwartz’s summary judgment motion

2 as “slim,” and noted “that the possibility remains that

3 damages may be awarded in excess of your limits or indeed

4 the Globalstar program in its entirety.” 

5 Trial began on July 6, 2005. Counsel to Liberty and

6 North American monitored the Globalstar trial, attending

7 substantially all of the proceedings and participating in

8 ongoing discussions with Menton and the Globalstar

9 plaintiffs about settling the case. 

10 On July 11, Menton alerted all four insurers to “a

11 window of opportunity” to settle the case while the

12 Globalstar plaintiffs felt “vulnerable” about pending

13 motions to exclude plaintiffs’ damages expert and for a

14 directed verdict. Menton predicted that, after this

15 “watershed moment,” Schwartz would “not have another

16 similarly attractive opportunity to settle this matter.” 

17 Menton received no response.

18 The following day, Liberty and North American

19 participated (along with the other parties) in a settlement

20 conference with the court. The trial judge advised that the

21 case would likely reach the jury, and that a plaintiff’s

22 verdict could be eight or nine figures. Twin City again
21

1 offered $3 million. The plaintiffs passed. 

2 On Friday, July 15, after two weeks of testimony, two

3 defense witnesses remained: Schwartz and his damages expert.

4 At Royal’s behest, Menton asked the Globalstar plaintiffs

5 whether the $15 million settlement figure was still on the

6 table. Plaintiffs’ counsel responded the following day: 

7 The $15 million number was [what] we would

8 have settled for prior to trial. In a good

9 faith effort to reach a settlement, even

10 though the trial was already underway, I

11 expressed to you . . . that we still would

12 accept $15 million at that time, before any

13 ruling on the “directed verdict” motion. 

14 There was no interest from your side after

15 that discussion. Since it is clear that the

16 directed verdict motion is not going to be

17 granted in full . . . the $15 million number

18 is off the table. I reaffirmed this to you

19 and certain representatives of the carriers on

20 Thursday afternoon, stating that we were at

21 $25 million to settle but it was not a firm

22 $25 million. . . . We would accept $20 million

23 to settle at this time; as the case progresses

24 towards a verdict, that number will only

25 increase.

26

27 Menton forwarded the message to counsel for Twin City,

28 Royal and Liberty on Saturday, July 16, adding: “My

29 observation is that you gentlemen, by making ridiculously

30 low bids, waiting until the last possible minute, and

31 bidding against yourselves repeatedly, have completely

32 undermined your insured’s position in this matter. Please
22

1 advise by tomorrow about what you want to do.” Menton

2 received no response.

3 On Sunday, July 17, Menton forwarded the full email

4 exchange to North American and advised: “It looks like this

5 has now become your problem as well. If you don’t mind my

6 saying it, ‘I told you so.’” 

7 The same day, Menton and the Globalstar plaintiffs

8 agreed to settle the case for $20 million. Menton formally

9 sought consent from Twin City, Royal, Liberty and North

10 American at 10:04 p.m. that night. Menton offered to

11 discuss the reasonableness of that figure later that night

12 or between 8:45 and 9:00 a.m. on Monday, July 18 at the

13 courthouse. Over the next days, all four insurers denied

14 consent.

15 The jury that heard this evidence could find (and

16 evidently did) that Liberty and North American had an

17 adequate opportunity to consider and evaluate the settlement

18 opportunities; that $20 million was a reasonable sum; and

19 that Liberty and North American unreasonably withheld

20 consent. We therefore decline to disturb the jury verdict.

21

22
23

1 B

2 Notwithstanding the evidence supporting the jury’s

3 verdict, Liberty and North American contend that Schwartz

4 forfeited any right to coverage as a matter of law. We are

5 unpersuaded.

6 A consent clause entitles an insurer “to notice of a

7 proposed settlement and an opportunity to determine, before

8 the settlement, whether it will grant or withhold consent.” 

9 Travelers Indem. Co. v. Eitapence, 924 F.2d 48, 50 (2d Cir.

10 1991). Here, the excess insurance contracts unambiguously

11 (and without exception) required that Schwartz obtain the

12 consent of Liberty and North American before entering into a

13 settlement. Schwartz did not get his insurers’ consent to

14 settle, and gave them mere hours (over a Sunday night and

15 Monday morning) to decide whether to consent. So, the

16 argument goes, Schwartz forfeited his right to coverage.

17 In support of this argument, Liberty and North American

18 cite several cases in which California state courts enforced

19 consent clauses notwithstanding claims of excuse. See,

20 e.g., Gribaldo, Jacobs, Jones & Assocs. v. Agrippina

21 Versicherunges A. G., 3 Cal. 3d 434, 449 (1970) (“[I]t is

22 only when the insured has requested and been denied a
24

1 defense by the insurer that the insured may ignore the

2 policy’s provisions forbidding the incurring of defense

3 costs without the insurer’s prior consent, and under the

4 compulsion of that refusal undertake his own defense at the

5 insurer’s expense.”); Low v. Golden Eagle Ins. Co., 110 Cal.

6 App. 4th 1532, 1546-47 (1st Dist. 2003) (holding that, in

7 “the rare case where the insured tenders the defense and

8 then negotiates a settlement on its own, leaving the insurer

9 in the dark,” the insured’s breach “relieved the insurer of

10 posttender costs, too, including the settlement”); Jamestown

11 Builders, Inc. v. Gen. Star Indem. Co., 77 Cal. App. 4th

12 341, 346 (4th Dist. 1999) (“[I]nsureds cannot unilaterally

13 settle a claim before the establishment of the claim against

14 them and the insurer’s refusal to defend in a lawsuit to

15 establish liability. . . . In short, the provision protects

16 against coverage by fait accompli.”). 

17 Based on these cases, Liberty and North American argue

18 that, under California law, the failure to obtain consent

19 can be excused only where the insurer breaches a contractual

20 duty to defend, Gribaldo, 3 Cal. 3d at 449, or “where the

21 previous payments were made involuntarily because of

22 circumstances beyond [the insured’s] control” (such as
25

1 inability or exigency), Jamestown, 77 Cal. App. 4th at 348. 

2 Here, the Excess Insurers have no duty to defend, and though

3 Schwartz’s payment was made under the pressure of an ongoing

4 jury trial, it was not “involuntary” within the narrow

5 meaning of California law. Ergo, Schwartz’s breach of the

6 consent clause was unexcused as a matter of contract law. 

7 Liberty and North American also point to Eitapence, in

8 which we affirmed a ruling that an insured lost her coverage

9 by settling a lawsuit without first obtaining her insurer’s

10 consent. We wrote:

11 The insurer, having insisted on the [consent]

12 clause, is entitled to notice of a proposed

13 settlement and an opportunity to determine,

14 before the settlement, whether it will grant

15 or withhold consent; the fact that in some

16 circumstances its withholding of consent can

17 be successfully challenged as lacking good

18 faith ought not to mean that it should be

19 deprived of the opportunity of assessing the

20 circumstances before the settlement occurs.

21

22 924 F.2d at 50.

23 None of these cases helps the Excess Insurers. In

24 Jamestown, Low and Gribaldo, the insurers had a duty to

25 defend; here, Liberty and North American had no such duty. 

26 And in each of the cases cited by the Excess Insurers, the

27 insured either failed to provide notice of the claim or left

28 its insurer in the dark about a proposed settlement. And
26

1 there was no allegation that the insurers had acted in bad

2 faith. Here, Liberty and North American participated in

3 three mediation sessions and a settlement conference; sent

4 several letters urging Twin City and Royal to settle in

5 light of the risk that the plaintiffs would demand far more

6 than $15 million at trial; and monitored the trial in the

7 courtroom. The record certainly does not require a finding

8 that Liberty and North American were blindsided by

9 Schwartz’s request for consent to the $20 million

10 settlement. 

11

12 C

13 North American challenges the jury charge on the ground

14 that it allowed the jury to consider the facts and

15 circumstances set out above in deciding whether Schwartz

16 complied with the condition precedent of seeking (and

17 obtaining) his insurers’ consent before settlement. Thus,

18 argues North American, the district court failed to instruct

19 the jury on the principle that an insurer must be given

20 “notice of a proposed settlement and an opportunity to

21 determine, before the settlement, whether it will grant or

22 withhold consent.” Id. at 50. 
27

1 We review jury instructions “as [a] whole to determine

2 if they provide a misleading impression or inadequate

3 understanding of the law,” Phillips v. Bowen, 278 F.3d 103,

4 110 (2d Cir. 2002) (internal quotation marks omitted), “and

5 will reverse on this basis only if the []appellants can show

6 that in viewing the charge given as a whole, they were

7 prejudiced by the error.” Anderson v. Branen, 17 F.3d 552,

8 556 (2d Cir. 1994).

9 We see no error in the jury charge given here. 

10 According to North American, the jury’s attention should

11 have been focused exclusively on the eleven hours (starting

12 at 10:04 p.m. on Sunday night) that Menton gave the insurers

13 to decide whether to consent to the $20 million settlement,

14 as though that was the interval in which the Excess Insurers

15 had to assess--for the first time--the risks, opportunities

16 and settlement demands at play in the Globalstar Litigation.

17 But the insurers’ opportunity to consider settlement

18 extended over a prolonged course of consultation, monitoring

19 and negotiation, so that the settlement was in the nature of

20 anticlimax rather than surprise. The Excess Insurers had

21 participated in mediation sessions at which the parties were

22 expected to respond to settlement offers, accepting or
28

1 rejecting them on the spot. And at those sessions, the

2 Excess Insurers learned that the plaintiffs’ demands would

3 rise to $20 million or more at trial. The jury was properly

4 allowed to consider this, and much else, in deciding whether

5 the eleven-hour interval of time was sufficient.

6

7 II

8 The district court awarded Schwartz prejudgment

9 interest to run from the date Schwartz paid the $20 million

10 settlement. The Excess Insurers argue that Schwartz’s right

11 to prejudgment interest vested only when Twin City and Royal

12 exhausted the underlying layers of coverage several months

13 later. The issue is affected by choice of law.

14 The district court was sitting in diversity, and so it

15 properly applied the choice of law rules of New York, the

16 forum in which it sits. See Klaxon Co. v. Stentor Elec.

17 Mfg. Co., 313 U.S. 487, 496-97 (1941). “[U]nder New York

18 choice of law principles, the allowance of prejudgment

19 interest is controlled by the law of [the state] whose law

20 determined liability on the main claim.” Entron, Inc. v.

21 Affiliated FM Ins. Co., 749 F.2d 127, 131 (2d Cir. 1984).

22 California law applied to Schwartz’s claims against the
29

1 Excess Insurers; so the district court applied the

2 California statute on prejudgment interest:

3 Every person who is entitled to recover

4 damages certain, or capable of being made

5 certain by calculation, and the right to

6 recover which is vested in him upon a

7 particular day, is entitled also to recover

8 interest thereon from that day, except during

9 such time as the debtor is prevented by law,

10 or by the act of the creditor from paying the

11 debt.

12

13 Cal. Civ. Code § 3287(a). 

14 California appellate courts review de novo a trial

15 court’s award of prejudgment interest under § 3287(a). See

16 State Farm Fire & Cas. Co. v. D & G Autosound, Inc., 2007 WL

17 4442881, at *7 (2d Dist. Dec. 20, 2007) (“When the facts are

18 not in dispute, a trial court’s determination as to whether

19 and when damages were certain or capable of being made

20 certain by calculation is reviewed de novo.”); Sukumar v.

21 Wise, 2006 WL 1134771, at *6 (4th Dist. Apr. 28, 2006) (“We

22 therefore may appropriately review on a de novo basis the

23 trial court’s application of [§ 3287(a)] to the facts as

24 established by the trial court.”); Worthington Constr., Inc.

25 v. L.A. Contractors Corp., 2004 WL 2677088, at *14 (4th

26 Dist. Nov. 24, 2004) (“[W]e disagree with [defendant’s]

27 assertion that the abuse of discretion standard applies in
30

1 cases involving an award of prejudgment interest under 

2 [§ 3287(a)]. This is the standard of review to be used in

3 cases dealing with discretionary prejudgment interest for

4 unliquidated claims under [§ 3287(b)], or when there is a

5 breach of an obligation not arising from contract, which by

6 statute is a matter for the jury’s discretion.” (internal

7 quotation marks and citation omitted)); KGM Harvesting Co.

8 v. Fresh Network, 36 Cal. App. 4th 376, 390-91 (6th Dist.

9 1995) (“As the facts are not in dispute, we independently

10 review whether and when buyer’s damages were certain or

11 capable of being made certain by calculation. It is from

12 that day that buyer’s entitlement to prejudgment interest

13 commences.” (footnote omitted)); see also North Oakland Med.

14 Clinic v. Rogers, 65 Cal. App. 4th 824, 828 (1st Dist. 1998)

15 (stating that under § 3287(a) “the court has no discretion,

16 but must award prejudgment interest upon request, from the

17 first day there exists both a breach and a liquidated

18 claim”). 

19

20 A

21 Section 3287(a) applies where the dispute is over

22 liability rather than the amount of damages. See Canavin v.
31

1 Pac. Sw. Airlines, 148 Cal. App. 3d 512, 524 (4th Dist.

2 1983) (explaining that prejudgment interest is mandatory

3 “where there is essentially no dispute between the parties

4 concerning the basis of computation of damages if any are

5 recoverable but where their dispute centers on the issue of

6 liability giving rise to damage” (internal quotation marks

7 omitted)). The so-called “‘certainty requirement of [§

8 3287(a)] has been reduced to two tests: (1) whether the

9 debtor knows the amount owed or (2) whether the debtor would

10 be able to compute the damages.’” Polster, Inc. v. Swing,

11 164 Cal. App. 3d 427, 434-35 (2d Dist. 1985) (quoting

12 Chesapeake Indus., Inc. v. Togova Enter., Inc., 149 Cal.

13 App. 3d 901, 911 (2d Dist. 1983)); see also Wisper Corp. v.

14 Calif. Commerce Bank, 49 Cal. App. 4th 948, 960 (4th Dist.

15 1996) (“Thus, where the amount of damages cannot be resolved

16 except by verdict or judgment, prejudgment interest is not

17 appropriate.” (emphasis added)). 

18 The Excess Insurers concede that Schwartz is entitled

19 to prejudgment interest under § 3287(a). Our only appellate

20 work on this score is to determine when Schwartz’s

21 prejudgment interest clock began to tick. Schwartz says his

22 damages were “certain” on August 24, 2005, when he wrote a
32

1 check for twenty million dollars and no cents. The Excess

2 Insurers say that Schwartz’s right to damages did not “vest”

3 until January 5, 2007, when Twin City and Royal settled the

4 coverage litigation and the underlying policy limits were

5 thus exhausted. This factual scenario appears to be one of

6 first impression under California law. 

7 Prejudgment interest under § 3287(a) “runs from the

8 date when the damages are of a nature to be certain or

9 capable of being made certain by calculation and when the

10 exact sum due to the plaintiff is made known to the

11 defendant.” Levy-Zentner Co. v. S. Pac. Transp. Co., 74

12 Cal. App. 3d 762, 798 (1st Dist. 1977); see also Polster,

13 164 Cal. App. 3d at 434-35 (citing Levy-Zentner test). Put

14 differently, § 3287(a) mandates prejudgment interest “from

15 the first day there exists both a breach and a liquidated

16 claim.” North Oakland, 65 Cal. App. 4th at 828; 23 Cal.

17 Jur. 3d Damages § 98 (2008) (“This prejudgment interest on

18 damages runs from the date when the damages are certain or

19 are capable of being calculated to a certainty.”) 

20 On the day Schwartz wrote the check, there was a

21 breach: as the jury found, Liberty and North American had

22 unreasonably withheld consent to the settlement. And there
33

1 was a liquidated claim: Liberty and North American owed

2 Schwartz their share of his covered losses (and litigation

3 costs)--$5 million and $4.085 million, respectively. This

4 would seem to require interest from that date.

5 The Excess Insurers emphasize, however, that

6 prejudgment interest under § 3287(a) does not begin to run

7 until the “right to recover” damages has “vested,” Cal. Civ.

8 Code § 3287(a), and that “[l]iability under an excess policy

9 attaches only after all primary coverage has been

10 exhausted.” N. River Ins. Co. v. Am. Home Assurance Co.,

11 210 Cal. App. 3d 108, 112 (2d Dist. 1989). 

12 The Excess Insurers rely on wording from Hartford

13 Accident & Indem. Co. v. Sequoia Ins. Co., 211 Cal. App. 3d

14 1285 (5th Dist. 1989), a case in which several policies

15 covered the loss, and in which the chief issue under the

16 “other insurance” clauses was which insurance was primary

17 and which was excess. After Hartford paid the full amount

18 to settle the underlying tort litigation in that case, it

19 sued Transamerica and Sequoia. The California appellate

20 court determined that Transamerica and Sequoia were excess

21 to Hartford’s primary layer, and (as to Hartford’s claim for

22 prejudgment interest) that “the amount of damages
34

1 recoverable” by Hartford against Transamerica and Sequoia

2 “was ‘certain, or capable of being made certain by

3 calculation’ and was ‘vested’ in Hartford on . . . the day

4 Hartford exhausted its primary policy limit”; prejudgment

5 interest began to accrue on that day. Id. (quoting Cal.

6 Civ. Code § 3287(a)) (emphasis added). The Excess Insurers

7 cite this wording for the proposition that an excess insurer

8 in a coverage dispute is not exposed to prejudgment interest

9 until after the underlying coverage is exhausted. But this

10 interpretation overreads Hartford. Hartford was an easier

11 case than ours because the settlement payment simultaneously

12 fixed the damages at sums certain and effected “vesting” by

13 the exhaustion of the primary layer. 

14 In our case, unlike in Hartford, it becomes necessary

15 to allocate the loss caused by the time value of money in

16 the interval between settlement of the underlying claim and

17 exhaustion of underlying coverages--the interval in which

18 the policy-holder successfully litigated his claims for

19 coverage. 

20 The jury’s finding that the Excess Insurers breached

21 their duties of good faith and fair dealing simplifies the

22 allocation in this case. The covenant of good faith and
35

1 fair dealing “is a contract term that aims to effectuate the

2 contractual intentions of the parties.” Cates Constr., Inc.

3 v. Talbot Partners, 21 Cal. 4th 28, 43 (1999). Although

4 “compensation for its breach has almost always been limited

5 to contract rather than tort remedies,” Foley v. Interactive

6 Data Corp., 47 Cal. 3d 654, 684 (1988), California law

7 recognizes one notable exception: “tort remedies are

8 available for a breach of the covenant in cases involving

9 insurance policies,” Cates, 21 Cal. 4th at 43; see also

10 Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 575 (1973)

11 (explaining that “when [an] insurer unreasonably and in bad

12 faith withholds payment of [a] claim of its insured, it is

13 subject to liability in tort”). That includes damages for

14 emotional distress, see id. at 580-81, as well as punitive

15 damages, see Betts v. Allstate Ins. Co., 154 Cal. App. 3d

16 688 (4th Dist. 1984). 

17 The California Supreme Court has explained that “tort

18 recovery in this particular context is considered

19 appropriate for a variety of policy reasons”:

20 Unlike most other contracts for goods or

21 services, an insurance policy is characterized

22 by elements of adhesion, public interest and

23 fiduciary responsibility. In general,

24 insurance policies are not purchased for

25 profit or advantage; rather, they are obtained
36

1 for peace of mind and security in the event of

2 an accident or other catastrophe. Moreover,

3 an insured faces a unique “economic dilemma”

4 when its insurer breaches the implied covenant

5 of good faith and fair dealing. Unlike other

6 parties in contract who typically may seek

7 recourse in the marketplace in the event of a

8 breach, an insured will not be able to find

9 another insurance company willing to pay for a

10 loss already incurred. 

11

12 Cates, 21 Cal. 4th at 44 (internal citations omitted). 

13 The same policy considerations justify taxing the

14 insurer with prejudgment interest for the period in which

15 the policy-holder successfully litigates a bad-faith claim

16 against it, notwithstanding an otherwise valid contract

17 defense based on unexhausted underlying limits. It follows

18 that Schwartz is able to recover prejudgment interest as for

19 a tort when his damages became fixed and known--the day he

20 wrote a personal check for $20 million. 

21 We need not consider whether an excess insurer would

22 begin to accrue responsibility for prejudgment interest

23 under California law prior to the exhaustion of underlying

24 coverages if it withholds payment based on that condition

25 precedent and not upon grounds found to have been asserted

26 in bad faith. It is enough in this case to predict that the

27 California Supreme Court would hold that § 3287(a) entitles

28 Schwartz to recover prejudgment interest from the Excess
37

1 Insurers from the date his losses were certain and

2 ascertainable, notwithstanding that the underlying layers of

3 coverage had not yet been exhausted. 

4

5 III

6 Liberty and North American challenge the district

7 court’s choice of New York State law (as opposed to

8 California law) to govern their cross-claims against Twin

9 City. At trial, the district court instructed the jury on

10 the elements of bad faith that are common to California law

11 and New York law, and then instructed the jury to decide

12 (separately) whether the Excess Insurers proved that Twin

13 City acted with “gross disregard” for the interests of the

14 Excess Insurers, a showing that is required for recovery

15 under New York law but not under the law of California. The

16 jury awarded Liberty $2 million and North American $3

17 million, but found that Twin City did not act with “gross

18 disregard.” The district court initially entered judgment

19 in favor of Liberty and North American, but then considered

20 the choice of law issue, decided that the law of New York

21 applied to the Excess Insurers’ cross-claims, and filed an

22 amended judgment in favor of Twin City. 
38

1 We review the district court’s ruling on a motion to

2 amend the judgment under Rule 59(e) for abuse of discretion.

3 Devlin v. Transp. Commc’n Int’l Union, 175 F.3d 121, 131-32

4 (2d Cir. 1999). We review the district court’s choice of

5 law determination de novo. IBM v. Liberty Mut. Ins. Co.,

6 363 F.3d 137, 143 (2d Cir. 2004).

7

8 A

9 The district court had subject matter jurisdiction

10 based on diversity; therefore, “we must determine the body

11 of substantive law that applies here with reference to New

12 York’s choice of law rules.” Booking v. Gen. Star Mgmt.

13 Co., 254 F.3d 414, 419 (2d Cir. 2001) (citing Klaxon Co. v.

14 Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941)). Under

15 those rules, “[t]he first step . . . is to determine whether

16 there is an actual conflict between the laws of the

17 jurisdictions involved.” In re Allstate Ins. Co., 81 N.Y.2d

18 219, 223 (1993). 

19 New York law recognizes that “[i]nsurers owe a duty to

20 their insureds . . . to act in good faith when deciding

21 whether to settle . . . a claim, and . . . may be held

22 liable for breach of that duty.” New England Ins. Co. v.
39

1 Healthcare Underwriters Mut. Ins. Co., 295 F.3d 232, 241 (2d

2 Cir. 2002) (internal quotation marks omitted). This duty is

3 also owed to excess insurers, and requires a primary insurer

4 to “giv[e] as much consideration to the excess carrier’s

5 interests as it does to its own.” Id. (citing Pinto v.

6 Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000); Pavia

7 v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445, 453

8 (1993); St. Paul Fire & Marine Ins. Co. v. U.S. Fid. & Guar.

9 Co., 43 N.Y.2d 977, 978-79 (1987)). 

10 To establish a prima facie case of bad faith, an excess

11 insurer must show that the primary insurer’s conduct

12 constituted a “gross disregard” of the excess insurer’s

13 interests. See Pavia, 82 N.Y.2d at 453. Under this New

14 York standard, the conduct must involve “a deliberate or

15 reckless failure to place on equal footing the interests of

16 [the excess insurer] with its own interests when considering

17 a settlement offer.” Id. Such showing is satisfied by

18 demonstrating that the primary insurer engaged in behavior

19 evincing a conscious or knowing indifference to the

20 probability that the excess insurer would also be held

21 accountable for a judgment if a settlement offer within the

22 primary insurer’s policy limits were not accepted. See id.
40

1 Under California law, by contrast, “gross disregard” is

2 not an element of a breach of the covenant of good faith and

3 fair dealing. See, e.g., Love v. Fire Ins. Exch., 221 Cal.

4 App. 3d 1136, 1151 (4th Dist. 1990) (“[T]here are at least

5 two separate requirements to establish breach of the implied

6 covenant: (1) benefits due under the policy must have been

7 withheld; and (2) the reason for withholding benefits must

8 have been unreasonable or without proper cause.”). 

9 This “actual conflict” between the laws of New York and

10 California requires a choice. New York applies a “grouping

11 of contacts” theory to contract claims, Auten v. Auten, 308

12 N.Y. 155, 160-62 (1954), looking to a “spectrum of

13 significant contacts--rather than a single possibly

14 fortuitous event,” In re Allstate, 81 N.Y.2d at 226. “The

15 purpose of grouping contacts is to establish which State has

16 ‘the most significant relationship to the transaction and

17 the parties.’” Zurich Ins. Co. v. Shearson Lehman Hutton,

18 Inc., 84 N.Y.2d 309, 317 (1994) (quoting Restatement

19 (Second) of Conflict of Laws § 188(1) (1971)). Along with

20 “the traditionally determinative choice of law factor of the

21 place of contracting,” the New York Court of Appeals has

22 endorsed the following factors (identified in the
41

1 Restatement): “the places of negotiation and performance;

2 the location of the subject matter; and the domicile or

3 place of business of the contracting parties.” Zurich, 84

4 N.Y.2d at 317. In the insurance law context, New York

5 recognizes the precept that a court should apply “the local

6 law of the state which the parties understood was to be the

7 principal location of the insured risk . . . unless with

8 respect to the particular issue, some other state has a more

9 significant relationship . . . to the transaction and the

10 parties.” Restatement (Second) of Conflict of Laws § 193

11 (1971); see, e.g., Zurich, 84 N.Y.2d at 318 (considering

12 “what the parties understood to be the location of the

13 risk”). However, “[i]t is commonplace for courts applying

14 New York choice-of-law rules to disregard (or at least

15 discount) the location of the insured risk when the risk is

16 located in two or more states.” Maryland Cas. Co. v. Cont’l

17 Cas. Co., 332 F.3d 145, 153 (2d Cir. 2003); see also

18 Restatement (Second) of Conflict of Laws § 193 cmt. b

19 (1971). New York further recognizes that sometimes “the

20 policies underlying conflicting laws in a contract dispute

21 are readily identifiable and reflect strong governmental

22 interests, and therefore should be considered.” In re
42

1 Allstate, 81 N.Y.2d at 226. In such cases, a court “may

2 properly consider State interests to determine whether to

3 apply New York law.” Id. at 227.

4 With these principles in mind, we turn to the Excess

5 Insurers’ bad-faith cross-claims against Twin City.

6 Some factors suggest that “the location of the insured

7 risk” under Globalstar’s directors and officers insurance

8 was New York, Maryland Cas., 332 F.3d at 153: At all

9 relevant times, Schwartz lived and worked in New York, and

10 all but one of Globalstar’s corporate officers worked in New

11 York. Other factors point to California: The primary

12 policy (of Twin City) was issued into California and

13 contained endorsements intended to conform to California

14 law, and most of Globalstar’s 900 employees worked at the

15 company’s facility in San Jose, California, making it

16 (arguably) the company’s principal place of business. Since

17 Globalstar’s directors and officers insurance “cover[ed] a

18 group of risks that are scattered throughout” both New York

19 and California, the “location of the insured risk” is not

20 determinative here. Restatement (Second) of Conflict of

21 Laws § 193 cmt. b (1971). 

22 However, “the location of the subject matter” of the
43

1 bad-faith cross-claims points strongly toward New York. 

2 Zurich, 84 N.Y.2d at 317. The Globalstar Litigation was

3 filed, tried and ultimately settled in New York. Prior to

4 settlement, the parties participated in a mediation session

5 and a settlement conference in New York. (The other two

6 mediation sessions occurred in Washington, DC.) The

7 underlying class action was tried in New York, and Twin

8 City’s alleged misconduct was the refusal in New York to

9 settle that New York litigation. None of these events took

10 place in California.

11 New York policy considerations also militate in favor

12 of applying New York law. That state’s “gross disregard”

13 standard reflects a policy of affording insurers latitude

14 “in investigating and resisting unfounded claims.” Pavia,

15 82 N.Y.2d at 454. As a consequence, “there remains a strong

16 presumption in New York against a finding of bad faith

17 liability by an insurer.” Hugo Boss Fashions, Inc. v. Fed.

18 Ins. Co., 252 F.3d 608, 624 (2d Cir. 2001). To apply

19 California law to the Excess Insurers’ cross-claims, based

20 on an insurer’s conduct that took place chiefly in New York,

21 would offend New York’s policy choice.

22 The Excess Insurers plead (in their words) that “it
 See, e.g., Fieger v. Pitney Bowes Credit Corp., 251 4

F.3d 386, 397 n.1 (2d Cir. 2001) (“There is no conflict in

applying New York law to one claim and Connecticut law to

another. Under the doctrine of depecage as applied by New

York courts, the rules of one legal system are applied to

regulate certain issues arising from a given transaction or

occurrence, while those of another system regulate other

issues.” (internal quotation marks omitted)); Babcock v.

Jackson, 12 N.Y.2d 473, 484 (1963) (“[T]here is no reason

why all issues arising out of a tort claim must be resolved

by reference to the law of the same jurisdiction. . . . [I]t

is more than likely that it is the law of the place of the

tort which will be controlling but the disposition of other

issues must turn . . . on the law of the jurisdiction which

has the strongest interest in the resolution of the

particular issue presented.”). 

44

1 would be unduly confusing to apply the laws of one state to

2 bad faith claims and the laws of another state as to the

3 underlying breach of contract claims.” This kind of

4 selectivity, called depecage, “permits a more nuanced

5 handling of certain multistate situations and thus forwards

6 the policy of aptness.” Corporacion Venezolana de Fomento

7 v. Vintero Sales Corp., 629 F.2d 786, 794 n.8 (2d Cir.

8 1980). And it is not altogether uncommon. Moreover, there 4

9 is no reason to think that the jurors were confused by the

10 application of California law to some claims and New York

11 law to others. After all, the verdict form covered less

12 than two pages. 

13 According to North American’s brief, the district
45

1 court’s choice of New York law “denied the excess carriers

2 the same right that [Schwartz] had under California law to

3 recover in bad faith against Twin City.” “Under the

4 doctrine of equitable subrogation,” the argument goes, “the

5 duty owed an excess insurer is identical to that owed the

6 insured,” Peter v. Travelers Ins. Co., 375 F. Supp. 1347,

7 1350 (C.D. Cal. 1974), and so the Excess Insurers “stand[]

8 in the shoes” of Schwartz to assert his rights under

9 California law against Twin City, Commercial Union Assurance

10 Cos. v. Safeway Stores, Inc., 26 Cal. 3d 912, 918 (1980).

11 But Twin City settled with Schwartz before any choice

12 of law issue was litigated or decided. If Schwartz and Twin

13 City litigated under California law, it may be that each

14 thought it applied, or did not choose to contest it, or

15 thought it offered one or another advantage. In any event,

16 it is far from clear that the doctrine of equitable

17 subrogation requires that an excess insurer standing in the

18 shoes of its policy-holder gets the benefit (or detriment)

19 of the litigation choices its policy-holder made or chose to

20 accept. 

21 Finally, North American argues that the district court

22 “improperly” invoked Federal Rule of Civil Procedure 59(e)
 “A motion to alter or amend a judgment must be filed 5

no later than 10 days after the entry of the judgment.” 

Fed. R. Civ. P. 59(e). 

46

1 “to reverse the jury’s award” in its favor. (The text of

2 the rule is set out in the margin. ) We see no merit in 5

3 this argument. 

4 “[D]istrict courts may alter or amend judgment ‘to

5 correct a clear error of law or prevent manifest

6 injustice.’” Munafo v. Metro. Transp. Auth., 381 F.3d 99,

7 105 (2d Cir. 2004) (quoting Collision v. Int’l Chem. Workers

8 Union, Local 217, 34 F.3d 233, 236 (4th Cir. 1994)). 

9 “Rule 59(e) covers a broad range of motions, and the only

10 real limitation on the type of the motion permitted is that

11 it must request a substantive alteration of the judgment,

12 not merely the correction of a clerical error, or relief of

13 a type wholly collateral to the judgment.” 11 Charles Alan

14 Wright et al., Federal Practice & Procedure § 2810.1 (2d ed.

15 2008) (footnote omitted). 

16 Here, the district court substantively altered the

17 judgment to correct a clear error of law: New York law (as

18 opposed to California law) applies to the Excess Insurers’ 
47

1 bad-faith cross-claims. The district court acted well

2 within its discretion. 

3 CONCLUSION

4 For the foregoing reasons, we affirm.