Court Opinion

ID: 9954283
Source: CourtListenerOpinion
Date Created: 2024-03-25 21:10:10.708143+00
Date Added: 2024-06-11T08:12:00.206619
License: Public Domain

Bahnuk v Countryway Ins. Co.
               2024 NY Slip Op 30923(U)
                     March 21, 2024
             Supreme Court, Broome County
     Docket Number: Index No. EFCA2019000970
               Judge: Eugene D. Faughnan
Cases posted with a "30000" identifier, i.e., 2013 NY Slip
 Op 30001(U), are republished from various New York
 State and local government sources, including the New
  York State Unified Court System's eCourts Service.
 This opinion is uncorrected and not selected for official
                       publication.
                                                    At a Motion Term of the Supreme Court of
                                                    the State of New York held in and for the
                                                    Sixth Judicial District at the Broome County
                                                    Courthouse, Binghamton, New York, on the
                                                    28 th day of November 2023, by Microsoft
                                                    Teams.

        PRESENT:       HON. EUGENE D. FAUGHNAN
                       Justice Presiding

        STATE OF NEW YORK
        SUPREME COURT : COUNTY OF BROOME

        PAUL BAHNUK,
                                 Plaintiff,                DECISION AND ORDER

                       vs.
                                                           Index No. EFCA2019000970
        COUNTRYWAY INSURANCE COMPANY,

                                 Defendant.

        APPEARANCES:

        Counsel for Plaintiff:                ANTHONY R. MARTOCCIA, Esq.
                                              Stanley Law Offices
                                              215 Burnet Avenue
                                              Syracuse, NY 13203

        Counsel for Defendant:                ALAN J. PIERCE, Esq.
                                              Hancock Estabrook, LLP
                                              100 Axa Tower I, 100 Madison Street
                                              Syracuse, NY 13202

[* 1]
        EUGENE D. FAUGHNAN, J.S.C.

                This matter is currently before the Court to address the motion filed by Plaintiff Paul
        Bahnuk ("Bahnuk") to compel discovery from Defendant Countryway Insurance Company
        ("Countryway") concerning reserves set by Countryway in regard to the underlying accident in
        this case. For the reasons set forth below, Plaintiff's motion is granted. 1

        PROCEDURAL FACTS

                This case has been before the Court previously and the Court has issued two prior
        Decisions. The facts are more fully set forth in those Decisions, and will only be highlighted
        here, as pertinent.
                Plaintiff was working as a paramedic on March 6, 2012 and sustained injuries while
        responding to a call at an apartment in a building in Binghamton, NY, owned by non-party
        Pauline Williams and insured by Countryway. In a Decision and Order dated June 27, 2020, the
        Court denied Defendant's motion to dismiss and also denied Plaintiff's motion for summary
        judgment, without prejudice. At that point, discovery had not been conducted, so the Court's
        denial of Plaintiff's summary judgment motion was made without prejudice. Defendant
        appealed the Decision and Order but did not perfect the appeal.
                Thereafter, the parties engaged in some limited discovery and subsequently, both parties
        made a motion for summary judgment. The Court issued its second Decision and Order on
        September 28, 2021 denying both motions. The Court determined that Countryway did not
        provide sufficient notice of its disclaimer to the injured party, Bahnuk, and therefore Countryway
        had waived its right to rely on the grounds set forth in its denial. The Court also found that there
        were questions of fact precluding summary judgment for the Plaintiff. Both parties appealed
        and the Third Department rendered a Memorandum and Order on March 23, 2023 affirming this
        Court's September 28, 2021 Decision and Order. Bahnuk v. Countryway Ins. Co., 214 AD3d
        1218 (3 rd Dept. 2023).

        1
          All the papers filed in connection with the motion are included in the NYSCEF electronic case file and have been
        considered by the Court.

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        BACKGROUND FACTS

                After the accident, Bahnuk brought an action against the property owner (Williams) in
        Broome County Supreme Court (Index No.: CA2013000491). Countryway denied coverage for
        this incident because Williams was not living-at the premises, and secondly, because she was
        using the premises as rental property. Based on those facts, Countryway advised Williams that it
        would not be providing her with a defense of the action. Williams was thus required to defend
        the action herself without any insurance carrier. Williams ultimately signed a Confession of
        Judgment to Bahnuk for $100,000 which was entered in the County Clerk's Office in January
        2019.
                Subsequently, Bahnuk commenced this case, which is a direct cause of action against
        Countryway under Insurance Law§ 3420 (a)(2). That statute permits an injured party to bring
        an action against an insurer after that injured party has obtained a judgment against the insured,
        but the judgment remains unsatisfied. In order to succeed in an action under Insurance Law §
        3420(a)(2), there must be an underlying valid and enforceable judgment. Bahnuk v. Countryway,
        214 AD3d at 1220 (emphasis added). Where a judgment was the product of collusion and
        "offends ... a sense of justice and propriety [it] cannot be condoned." Bond v. Giebel, 101 AD3d
        1340, 1343 (3 rd Dept. 2012). Thus, ifthere was collusion in the execution of the underlying
        Confession of Judgment in favor of Bahnuk, then he cannot recover from Countryway on the
        basis of that underlying judgment. That is the crux of the matter herein. As the Third
        Department noted
                a question remains as to whether the negotiations between plaintiff and Williams in the
                underlying litigation amounted to such misconduct. On the one hand, it is true that, as
                defendant argues, Williams sought to avoid risk by agreeing to a confession of judgment
                in the precise amount of her insurance policy limit in exchange for an assurance that
                plaintiff would not seek to enforce the judgment against her, and this resolution occurred
                without any meaningful discovery having been undertaken. On the other hand, however,
                an agreement to cap damages in the amount of a policy limit is not unheard of in personal
                injury matters and does not necessarily mean that something untoward took place in the
                negotiations. Further, recognizing that plaintiff, as a consequence of his injuries,
                underwent a surgery and multiple hospitalizations and missed approximately 30 weeks of"
                work, incurring a Workers' Compensation lien in excess of $60,000, it cannot be said that
                the agreed-upon amount of $100,000 was per se unreasonable. In addition, it is noted that
                the resolution was apparently negotiated by the lawyers for plaintiff and Williams and

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               discussed with Supreme Court.... Under these circumstances, Supreme Court
               appropriately found that a factual question exists regarding the intentions and conduct of
               plaintiff and Williams, such that summary judgment was not warranted.

        Bahnuk v. Countryway Ins. Co., 214 AD3d at 1220-1221.

               Following the Third Department's decision in March 2023, the parties continued to
        conduct discovery. Cherie Marshall, a claims representative for Countryway, appeared for a
        videotape deposition on August 3, 2023. During the course of that deposition, Ms. Marshall
        testified that Countryway had set a reserve on the file. When Plaintiffs counsel asked the
        amount of the reserve, Defendant's counsel directed her not to answer that question. That refusal
        prompted the instant motion. Plaintiff argues that the amount of reserve that Countryway set on
        the file is relevant to the issue of whether there was any collusion; Defendant argues that
        information regarding reserves is not discoverable nor admissible, particularly when the case
        does not involve a bad-faith claim.
               In support of his motion, Plaintiff submitted an attorney affirmation from Anthony
        Martoccia, Esq., dated October 12, 2023 with Exhibits, including the transcript from the
        Marshall deposition, and a Memorandum of Law. In opposition, Defendant submitted an
        attorney affirmation from Alan J. Pierce, Esq,, dated November 9, 2023 with Exhibits.

        LEGAL DISCUSSION AND ANALYSIS

               With respect to civil actions, CPLR 3101 (a) provides that "[t]here shall be full disclosure
        of all matter material and necessary in the prosecution or defense of an action, regardless of the
        burden of proof." The Court of Appeals has noted that "[t]he words, 'material and necessary',
        are ... to be interpreted liberally to require disclosure, upon request, of any facts bearing on the
        controversy which will assist preparation for trial by sharpening the issues and reducing delay
        and prolixity. The test is one of usefulness and reason." Forman v. Henkin, 30 NY3d 656, 661
        (2018), quoting Allen v. Crowell-Collier Pub/. Co., 21 NY2d 403,406 (1968); County of Warren
        v. Swan, 203 AD3d 1504 (3 rd Dept. 2022); Loiselle v. Progressive Cas. Ins. Co., 190 AD3d 17,
        19 (3 rd Dept. 2020). It is well established that the "statute embodies the policy determination that
        liberal discovery encourages fair and effective resolution of disputes on the merits, minimizing

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        the possibility for ambush and unfair surprise." Spectrum Sys. Intl. Corp. v. Chemical Bank, 78
        NY2d 371,376 (1991); see Galasso v. Cobleskill Stone Prods., Inc., 169 AD3d 134 ("3 rd Dept.
        2019). "If there is any possibility that the information is sought in good faith for possible use as
        evidence-in-chief or in rebuttal or for cross-examination, it should be considered evidence
        material in the prosecution or defense." Allen v. Crowell-Collier Publishing Co., 21 NY2d at
        407. ''New York has long favored open and far-reaching pretrial discovery." DiMichel v. South
        Buffalo Ry. Co., 80 NY2d 184, 193 (1992), cert denied sub nom Poole v. Consolidated Rail
        Corp., 510 U.S. 816 (1993).
                With that backdrop, the Court now considers whether the material sought in this case, the
        insurance carrier's reserves, is discoverable. "The discoverability of this information does not
        govern its use or admissibility at trial, which will be subject to appropriate evidentiary rulings."
        Loiselle v. Progressive Cas. Ins. Co., 190 AD3d at 20, n.5.
                Countryway argues that the reserve set on this case is irrelevant and not subject to
        discovery. Rather, according to Countryway, reserve information would only be discoverable in
        a bad-faith. claim, and even in those cases, it is arguable. Since Bahnuk has not advanced a bad-
        faith claim, Countryway contends that disclosure of the reserve is not available in this situation.
                Plaintiff counters that the request for reserve information is appropriate under the
        statute's liberal disclosure intendment. In particular, Plaintiff notes that Defendant has raised the
        issue of collusion in the execution of the Bahnuk-Williams Confession of Judgment, and that in
        order to resolve that question, Countryway's own assessment of its potential exposure (as
        reflected in the reserve that it established) has at least some bearing on the collusion argument.
                "In general, reserve accounts are monies set aside by an insurer to pay potential claims.
        The amounts set aside represent value approximations made by the insurance company regarding
        what will be sufficient to pay all the obligations under the policy. It is a preliminary estimate of
        potential liability that does not necessarily take into account all the factual and legal components
        comprising a particular claim." Continental Ins. Co. v. Garlock Sealing Tech., LLC, 2006 NY
        Misc LEXIS 9430, *3 (Sup. Ct., NY County 2006). The establishment of reserves is mandated
        by statute (New York Ins. Law§ 1303)2, and serves to measure the financial health of the

        2
         That statute provides that all insurers "shall ... maintain reserves in an amount estimated in the aggregate to
        provide for the payment of all losses or claims incurred on or prior to the date of statement, whether reported or
        unreported, which are unpaid as of such date and for which such insurer may be liable."

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        insurer, i.e. that it is sufficiently funded to cover potential losses. See, Gold Fields Am. Corp. v.
        Aetna Cas. & Sur. Co., 1994 NY Misc. LEXIS 709 (Sup. Ct., NY County 1994). Thus, as a
        measure of overall financial stability, a reserve amount in a particular claim is of limited value,
        and provides the rationale for the position that reserve information is generally not discoverable.
        Indeed, there is some support for that proposition. See, e.g. Drennan v. Certain Underwriters at
        Lloyd's ofLondon, 575 B.R. 29 (Bankr., SONY 2017) (and cases cited therein).
               Defendant also cites to Hart v. RC/ Hospitality Holdings, Inc., 90 F.Supp3d 250 (SONY
        2015) as support for the non-discoverability of reserve information, but the Court finds Hart to
        be distinguishable. First, Hart did not deal with discovery but rather, was a motion in limine,
        addressing whether Plaintiff would be allowed to question witnesses at the trial about the
        reserve. There is a vast difference between permitting questions at a deposition concerning
        reserves, and the usage of reserve information at trial in front of a jury. On this motion, this
        Court is being asked to rule on the discoverability of the reserve, not its admissibility. This
        critical distinction makes Hart inapposite. Second, in Hart the court observed that the issue for
        the jury was defendants' state of mind, to wit, whether defendants acted willfully in not paying
        plaintiffs a minimum wage. Defendants in Hart had characterized plaintiffs as independent
        contractors rather than employees. In concluding that the reserve information was not
        discoverable, the court in Hart noted that the reserve was "not relevant to the defendants' state of
        mind at the time of the events at issue." Hart, 90 F.Supp3d at 62. That is to say, the amount of
        reserve that was established could have no bearing on whether defendants' classification of
        plaintiffs as independent contractors, long before the action was commenced, was believed to be
        correct at the time the decision was made. The court's conclusion in Hart was not based on a
        blanket prohibition against discovery of reserves, but rather was based on the fact that the
        material was not relevant to the issue in that case, and could cause jury confusion.
               In the present case, the reserve information is being sought as part of discovery, not in the
        context of a trial. As noted above, that does not mean it will be admissible. At the discovery
        phase, the main issue is relevancy. Relevance should be "construed broadly to encompass any
        matter that bears on, or that reasonably could lead to other matter that could bear on any party's
        claim or defense." State Farm Mut. Auto. Ins. Co. v. Fayda, 2015 US Dist. LEXIS 162164, *7
        (SONY 2015) (internal quotation marks and end citation omitted). The issue, as argued by
        Countryway, and framed by the Third Department on the appeal, is whether there was collusion

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        in the underlying settlement between Bahnuk and Williams. The amount of the reserve could be
        relevant to that issue. For example, if the reserve was set at the amount of the underlying
        judgment ($100,000), then it would be reasonable to ask further questions as to the basis of that
        reserve, such as was the reserve based simply on the amount of the underlying Confession of
        Judgment, or was there an independent calculation performed as to Plaintiff's damage. If
        Countryway's reserve was based on its own independent review of Plaintiff's damage, and it was
        equal to the amount of the underlying judgment, then that would tend to establish the
        reasonableness of the underlying Confession of Judgment and negate any finding of collusion.
                The Court is not suggesting that discovery of the reserve is conditioned on the reserve
        being based on Countryway's valuation of Plaintiffs damage. At this point, the amount of the
        reserve is at least pertinent or relevant. It is sufficient that there is some possibility that the
        reserve information could lead to information that would have bearing on the main issue in this
        case, which is Countryway' s argument that the underlying judgment was the product of
        collusion.
                The Court is also not persuaded by Defendant's argument that disclosure of reserve
        information is only appropriate in bad-faith claims. Defendant has not cited cases for that broad
        proposition. It is true that the amount of reserve would have little relevance if the issue was
        something like the interpretation of an insurance policy, but there is not an absolute bar to
        discovery of reserve information. Some cases have created an "exception" to the non-
        discoverability of reserves, when a bad-faith claim is asserted, but this (::ourt does not believe
        that discoverability is limited to bad-faith claims.
                A brief review of bad-faith claims is helpful to see the rationale of the discoverability (or
        non-discoverability) of reserves. "In every contract 'there exists an implied covenant of good
        faith and fair dealing."' Gordon v. Nationwide Mut. Ins. Co., 30 NY2d 427,437 (1972), quoting
        Kirke La Shelle Co. v. Armstrong Co., 263 NY 79, 87 (1933). When the insured believes that the
        insurance carrier has failed to satisfy that covenant, a claim of bad-faith can be advanced. "[I]n
        order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer's
        conduct constituted a 'gross disregard' of the insured's interests--that is, a deliberate or reckless
        failure to place on equal footing the interests of its insured with its own interests when
        considering a settlement offer. In other words, a bad-faith plaintiff must establish that the
        defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference

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        · to the probability that an insured would be held personally accountable for a large judgment if a
         settlement offer within the policy limits were not accepted." Pavia v. State Farm Mut. Auto. Ins.
         Co., 82 NY2d 445, 453-454 (internal citation omitted); accord Healthcare Professionals Ins. Co.
         v. Parentis, 165 AD3d 1558 (3rd Dept. 2018); Miller v. Allstate Indem. Co., 132 AD3d 1306 (4th
         Dept. 2015). "In establishing a claim for bad faith, although not an exhaustive list, 'the courts
         will consider the facts and circumstances surrounding the case, including whether liability is
         clear, whether the potential damages far exceed the insurance coverage and any other evidence
         which tends to establish or negate the insurer's bad faith in refusing to settle."' Roemer v.
         Allstate lndem. Ins. Co., 163 AD3d 1324, 1326 (3 rd Dept. 2018), quoting Redcross v. Aetna Cas.
         & Sur. Co., 260 AD2d 908,911 (3 rd Dept. 1999) (other citations omitted).
                 In the context of bad-faith claims, some courts have found that the establishment of a
         reserve could be relevant and discoverable because it may have bearing on the insurer's belief
         about coverage, amount of damages and the insurer's potential liability. That does not mean
         bad-faith claims are the only situations in which reserve· information would be discoverable.
         Rather, this Court is of the view that reserve information can also be relevant in other contexts,
         such as the current case, where the reserve amount could have bearing on the ultimate issue. In
         this case, the issue is the conduct of Bahnuk and Williams in entering into the underlying
         Confession of Judgment. To that end, the reasonableness of the settlement amount is one
         material component. Certainly, evidence may come from Bahnuk and Williams on that issue,
         but other evidence to establish the settlement was "reasonable" can come from the insurer's
         reserve on the case. If it is shown that the insurer had done an independent review of Plaintiffs
         damages prior to the underlying confession of judgment and concluded that Plaintiff had
         incurred, or would incur, $100,000 in damages, then that would be additional evidence as to the
         reasonableness of the underlying Confession of Judgment. Although Bahnuk has not raised a
         bad-faith claim, the Court does not believe that precludes the discovery of reserve information.
         Accordingly, the Court concludes that Countryway's reserve information is relevant and
         discoverable.
                 There is one other matter that merits discussion. During the oral argument on this
         motion, the Court suggested that it would be appropriate for Defendant to at least advise Plaintiff
         and the Court what the amount of the reserve was. By letter dated December 1, 2023, counsel

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        for Countryway did provide information as to the damage only value of the reserve. 3 Thereafter,
        by letter of the same date, Plaintiffs counsel argued that the reserve was discoverable and
        admissible. However, Plaintiffs motion was based on discoverability, not admissibility, and the
        Court deems it inappropriate to expand the scope of the motion at this point. Therefore, the
        Court is only issuing this ruling on discovery.

        CONCLUSION

                 Based on the foregoing, the Court determines that the amount of Countryway's reserve is
        discoverable, and that Plaintiff should be allowed to continue questioning of Ms. Marshall
        concerning the reserve amount set by Countrway and the bases for that reserve. The Court is
        withholding determination of admissibility at this time. Accordingly, it is hereby

        ORDERED, that Bahnulc's motion is GRANTED, and it is further

        ORDERED, that the parties are to arrange for the continued deposition of Cherie Marshall,
        which shall be completed within 45 days of the date of this Decision and Order, and it is further

        ORDERED, to ensure proper compliance with the directions made herein, and to set a date for
        the trial of this matter, the parties are directed to appear for a preliminary conference on
        APRIL 22, 2024 AT 2:30 PM, which will be conducted virtually, by Microsoft Teams.
        Chambers will provide the link for the parties to join the conference.

        THIS CONSTITUTES THE DECISION AND ORDER OF THIS COURT.

        Dated:            March   &_,  2024
                          Binghamton, New York

        3 Although not relevant to the Court's analysis and determination, counsel reported that the reserve is, in fact,

        $100,000.

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[* 9]
                       NYSCEF Confirmation Notice
                       Broome County Supreme Court
                      The NYSCEF website has received an electronic filing on 03/21/2024 09:22 AM. Please keep this notice
                      as a confirmation of this filing.
                                                              EFCA2019000970
                                               Paul Bahnuk v. Countryway Insurance Company
                                                    Assigned Judge: Eugene D Faughnan

                       Documents Received on 03/~1/2024 09:2~ AM
                      Doc#            Document Type
                      131         · DECISION + ORDER ON MOTION, Motion #5

                       Filing User
                       Filed by court user.

                       E-mail Notifications
                       An email regarding this filing has been sent to the following on 03/21/2024 09:22 AM:

                        ANTHONY R. MARTOCCIA - amartoccia@stanleylawoffices.com
                        JOHN L. MURAD JR -jmurad@hancocklaw.com
                        ALAN J. PIERCE - apierce@hancocklaw.com
                        ROBERT A. QUA1TROCCI - rob@stanleylawoffices.com

         Joseph A. Mihalko, Broome County Clerk - clerkinfo@co.broome.ny.us
         Phone: Phone: 607.778.2255     Fax: Fax: 607.778.2243     Website: http://www.gobroomecounty.com/clerk

         NYSCEF Resource Center, nyscef@nycourts.gov
         Phone: (646) 386-3033 I Fax: (212) 401-9146 I Website: www.nycourts.gov/efile

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