Opinion ID: 778184
Heading Depth: 2
Heading Rank: 2

Heading: The Bad Faith Action

Text: 14 On March 23, 1998, New England sued Healthcare in the district court (based upon diversity jurisdiction) alleging that Healthcare had the opportunity and the obligation to settle the Weinstock action within the primary policy limit of $1 million both prior to and during the malpractice trial and that its refusal to do so constituted bad faith. 6 New England sought to recover $1.1 million, plus interest. 15 The bad faith action was tried before a jury beginning in November 2000. At the close of New England's direct case, Healthcare moved for judgment as a matter of law pursuant to Federal Rule of Civil Procedure (Fed. R. Civ.P.) 50. The district court denied the Rule 50 motion, concluding that it would be a jury question... whether [the Hospital] would have consented [to settle] if asked to consent. (Trial Transcript (Tr.) at 1611). The court also noted that there is evidence in this case, ... much evidence, that [the Hospital's representative] was never consulted, and that he would seriously have considered consenting, if he had been asked to consent.... He went along with Healthcare's recommendation.... They never asked him to consent to anything. (Tr. at 1610-11). 7 The court further stated, I think there is enough evidence on clear liability for the jury. (Tr. at 1610). 16 Healthcare moved again for judgment as a matter of law at the close of all the evidence. Once again, the district court denied the motion, this time stating, I am not the jury.... [I]t is not a case where there can be but one conclusion that reasonable jurors would reach. No reasonable juror would be compelled to accept the view of [Healthcare] in this case.  (Tr. at 1845) (emphasis added). The trial court also reasoned that whether Huntington Hospital would have consented had a timely [settlement] opportunity [been] afforded it, is a question for the jury to decide. (Tr. at 1843-44). 17 During the charge conference preceding jury deliberations, the district judge initially informed counsel that he intended to instruct the jury, inter alia, that New England bore the burden of proving that the Hospital's liability was clear at a time that Healthcare had an opportunity to settle the case within its policy limit, according to its reading of the leading New York bad faith case, Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445, 605 N.Y.S.2d 208, 626 N.E.2d 24 (1993). New England objected, arguing persuasively that Pavia established a multifactor test to be considered by the jury in determining an insurer's bad faith and did not require a preliminary or threshold showing of clear liability. Prior to summations and prior to charging the jury, the district court advised counsel that it had reconsidered its earlier thinking about clear liability, stating: 18 The New York Pattern Jury Instructions... make[] no mention whatsoever of ... clear liability .... Every court which [has] addressed the bad faith analysis since Pavia has cited the probability of success on the issue of liability as one aspect of the multifactor balancing test .... [T]he Court has found no case since Pavia in which a Court held that a finding of clear liability was given conclusive or totally dispositive weight as my original jury [instructions] would give it.... Accordingly, after a review of all the cases and the Pattern Jury Instructions approved expressly by the New York Court of Appeals, the Court finds that the likelihood of success on the issue of liability or the probability of a plaintiff's verdict in the underlying case, as set forth in the New York Pattern Jury Instructions, is the correct statement of the law. 19 (Tr. at 1998-2000) (emphasis added). 20 The district court directed the jury to determine whether Healthcare acted in `gross disregard' of New England's interests in reaching its decisions not to settle. (Tr. at 2176). 8 It relied upon the New York Pattern Jury Instructions (PJI) and did not employ its earlier-stated clear liability theory in its jury charges: 21 An insurer cannot be compelled to concede liability and settle a questionable claim simply because an opportunity to do so is present. However, in deciding whether to settle or try the case defendant Healthcare was required to view the situation as it would if there were no policy limit applicable to the Weinstock claim and it alone was liable for the entire amount of the Weinstock claim and to weigh the probabilities and reach a judgment which did not grossly disregard New England's interests. 22 In determining whether the defendant Healthcare acted in bad faith in deciding not to settle [the] Weinstock[] claim, you will consider ... all of the facts and circumstances existing at the time the decisions were made. 23 These facts and circumstances include the probability, in light of the evidence that it appeared would be presented to the jury ..., that the jury would find in favor of the Weinstocks against the Huntington Hospital; the evidence concerning injuries and damages in the prior trial that would be presented to the jury ...; [and] the probability that a verdict, if in favor of the Weinstocks would be in an amount ... which exceeded the Healthcare one million dollar policy limit.... 24 (Tr. at 2176-78) (emphasis added). The district court distributed a verdict sheet to the jury which directed jurors to evaluate New England's claim during two time periods, i.e., from February 1991 (when Dr. Horn settled with the Weinstocks) to July 30, 1992 (the date the Hospital demanded in writing that Healthcare settle the case), and from July 30, 1992 to September 1, 1992 (the date the jury returned its verdict in favor of the Weinstocks). 9 On December 20, 2000, the jury returned a verdict in favor of New England and against Healthcare with respect to both time periods. 25 After the verdict was announced, Healthcare renewed its (twice denied) application for judgment as a matter of law. The district court denied this application (orally) from the bench. In so doing, the court determined that it was for the jury to decide whether Healthcare's conduct amounted to bad faith and whether the insured lost an actual opportunity to settle. The court emphasized that Healthcare had not made a single settlement offer despite five bad faith letters from New England and one from the Hospital and stated that it couldn't think of a combination of circumstances which could cause a bigger verdict and a more certain verdict. (Tr. at 2218-19). 10 The court posed the following rhetorical question: How could any hospital where there is a prima facie case and the hospital is all alone in the case, how could any hospital win that case? (Tr. at 2220). 26 On January 29, 2001, Healthcare filed a post-trial motion for judgment as a matter of law pursuant to Fed.R.Civ.P. 50 and, in the alternative, for a new trial pursuant to Fed.R.Civ.P. 59. 11 On June 26, 2001, the district court, in a written decision, reversed the jury verdict in favor of New England — and also reversed its own (three) previous rulings. Surprisingly, the court reintroduced its notion of clear liability after the jury had spoken and held that New England was required, but had failed, to prove two elements to succeed on its bad faith claim: 27 First, that there was a time when the liability in the Weinstock action was clear — that is, all serious doubts as to the Hospital's liability were removed. Second, that Healthcare lost an actual opportunity to settle the claim within its $1 million policy limit, at a time after liability became clear. 28 New England Ins. Co. v. Healthcare Underwriters Mut. Ins., 146 F.Supp.2d 280, 288 (E.D.N.Y.2001) ( New England ). The district court described clear liability as the point in time when all of the carrier's good-faith defenses to liability were exhausted, id. at 287, adding that `clear liability' ... refers to the consideration of the liability only; namely, whether it is `clear' that the Hospital departed from accepted medical practice in its treatment of the injur[ed] party. Id. at 288. Clear liability did not, according to the district court, include other elements that would persuade a jury to return a verdict in favor of the plaintiff, such as sympathy for David or any other non-medical factors. 12 Id. at 288-89. 29 The district court determined that, as a matter of law, New England failed to prove that the liability was clear at any point from January 1991, when settlement negotiations apparently commenced, until June 30, 1992[sic], at the end of the plaintiffs' case .... Therefore, there could not be responsibility on the part of Healthcare for bad faith in failing to make an offer during this period of time. 30 Id. at 291. The district court also determined that, viewing the evidence in the light most favorable to New England, a reasonable jury could find that the Hospital's liability became `clear' on August 18, 1992, when the Hospital's witness, Dr. Rozenweig [sic], admitted that the Hospital departed from accepted medical practice by not starting an I.V. Id. But the court also decided that, on August 18, 1992, the Weinstocks' settlement demand was either $2 million or $4 million, and the evidence was unclear, equivocal, and speculative as to whether the Weinstocks would have settled the case for $1 million at that time. 13 Id.