Court Opinion

ID: 2963920
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:17:24.6642+00
Date Added: 2024-06-11T11:42:48.478329
License: Public Domain

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        March 6, 1996           [Not for Publication]
                                [Not for Publication]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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                                          2

                      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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                                          3

            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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                                          4

            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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                                          5

                      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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                                          6

            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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                                          7

            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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                                          8

            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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                                          9

            $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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                                          10

            $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

                                         -11-
                                          11

            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

                                         -12-
                                          12

            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.

                                         -13-
                                          13

                                         III.
                                         III.
                                         ____

                                      CONCLUSION
                                      CONCLUSION
                                      __________

                      For   the  foregoing   reasons,  the   judgment  is

            affirmed.  Costs to the appellee Utica.
            ________

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                                          14