Opinion
INDEX NO. 653915/2015
10-04-2019
HARTFORD FIRE INSURANCE COMPANY Plaintiff, v. SEDGWICK CLAIMS MANAGEMENT SERVICES, INC., Defendant.
NYSCEF DOC. NO. 188 PRESENT: HON. ANDREA MASLEY Justice MOTION DATE __________ MOTION SEQ. NO. 004
DECISION + ORDER ON MOTION
The following e-filed documents, listed by NYSCEF document number (Motion 004) 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 182, 184 were read on this motion to/for JUDGMENT - SUMMARY.
MASLEY, J.:
This action relates to the administration of an insurance claim by defendant Sedgwick Claims Management Services, Inc. (Sedgwick), which stemmed from a Massachusetts wrongful death action entitled Garrick Calandro, as Administrator of the Estate of Genevieve Calandro v Radius Management Services, Inc., et al. (Civil Action No. MICV2011-02874D [Middlesex Superior Court 2011]) (the Calandro action). Defendants in the Calandro action include a consortium of defendants (the Radius Entities) that were all insureds of plaintiff The Hartford Insurance Company (Hartford). The Radius Entities allegedly operated a Danvers, Massachusetts nursing home known as the Radius Healthcare Center (the Radius Home), at which the decedent was a resident.
The Calandro action asserted causes of action to recover for the decedent's alleged wrongful death and pain and suffering on the basis that she had received inadequate care. The case resulted in a jury verdict against the Radius Entities in the amount of $1,425,000) in compensatory damages and $12,514,605 in punitive damages.
Sedgwick and Hartford were both parties to a "Third Party Administrator Agreement" under which Hartford paid Sedgwick to perform claim services in connection with claims made under certain insurance policies (TPA Agreement [NYSCEF no. 93]). Sedgwick's duties under the TPA Agreement included reviewing the insured's policy, obtaining and directing an investigation of the facts, working with defense counsel to develop strategy, performing an ongoing assessment of exposure as the case evolved, and settling the case. Hartford alleges that, in connection with the Calandro action, Sedgwick breached the TPA Agreement because it never informed either Hartford or the Radius Entities that the complaint sought punitive damages, which were not covered by the policy, or that the potential exposure in the case was far beyond the $1 million policy limit. Hartford also alleges that Sedgwick failed to discharge its central duty to evaluate risk and settle the case.
Sedgwick now moves, pursuant to CPLR 3212, for summary judgment dismissing all claims as against it with prejudice.
For the reasons set forth below, the motion for summary judgment is denied.
BACKGROUND
The following background is taken from the complaint (NYSCEF No. 1), the parties' Joint Statement of Undisputed Facts (JSUF [NYSCEF No. 82]), as well as the affidavits of Mary L. Blair, Sedgwick's claims manager for the Calandro action (NYSCEF No. 122), Allen N. David, Esq., Sedgwick's counsel (NYSCEF No. 134), Becky Shingleton, a consultant with Hartford's TPA services department (NYSCEF No. 132), Michael Hotaling, Hartford's senior vice president of liability and financial products claims (NYSCEF No. 173), and Ariel P. Cannon, Esq., counsel for Hartford (NYSCEF No. 143).
The Parties
Hartford is a diversified insurance company operating through subsidiaries. Sedgwick is a company that offers claims management and other services to insurance companies, including Hartford.
Insurers like Hartford often contract claims responsibilities for certain policies out to a third-party administrator, or TPA, like Sedgwick. The TPA is paid to handle the identified claims, brings claims handling expertise and economies of scale to the task.
The Sedgwick/SRS Acquisition and the TPA Agreements
In February 2011, Sedgwick acquired Specialty Risk Services, LLC (SRS), a wholly-owned subsidiary of Hartford (JSUF, ¶ 13). SRS employed Blair as a claims manager responsible for adjusting nursing home-related claims (id., ¶ 14). At the time Sedgwick acquired SRS in 2011, the relationship between SRS and Hartford was governed by a TPA Agreement dated October 2003 (id., ¶ 15). Effective March 1, 2012, Sedgwick and Hartford entered into the TPA Agreement, pursuant to which Sedgwick received a fee for adjusting and managing certain claims by policyholders of Hartford (id., ¶ 16).
Under the TPA Agreement, Sedgwick was required to provide Hartford with third-party administrator services, including handling the day-to-day activity on a claim, directing and managing an investigation, and providing Hartford with up to date reports on the status of the claim and settlement efforts. The services also included certain critical functions, including:
Adjusting claims (TPA Agreement, § I.A.1);(NYSCEF Do. 93)
Reviewing the policy for coverage issues and reporting any coverage issues to both Hartford and the insured with a reservation of rights letter (id., § I.A.3 [a]);
Evaluating the exposure and informing Hartford and the insured of any potential exposure in excess of the Policy limit (id., § I.E.3);
Selecting and working with counsel on strategy and case disposition (id., § I.A.11), with counsel responsible for legal decisions, and Sedgwick, as the claims handler, responsible for directing strategy and positioning the case for settlement (id., § I.A.5); and
Evaluating the risk of exposure on an ongoing basis, including through trial, seeking increase in settlement authority as necessary, and settling the case (id., § I.A. 11)
The TPA Agreement also provides that Sedgwick "shall exercise its Reserve and Settlement Authority . . . to the extent that . . . in the judgment of [Sedgwick], The Hartford is legally obligated to pay (id., § I.A.5). In the event that a claim required more than the default settlement authority, the TPA Agreement provides that Sedgwick, upon written authorization from Hartford, "shall handle Claims in excess of its Settlement Authority according to these Services Requirements" (id., § I.A.6).
Sedgwick was obligated to promptly "notify The Hartford of any loss with a potential verdict or loss exposure in excess of the Policy limit," or if there was a possibility that damages might exceed the policy's coverage (id., § I.E.3).
The TPA also contains a broad indemnification provision that covers all losses, including settlement payments, arising out of Sedgwick's negligence or intentional misconduct:
"TPA and its successors and assigns shall indemnify, defend and hold harmless The Hartford and its respective directors, officers, agents, employees, successors and assigns, and the Insureds at all times from and after the date of this Agreement against any Loss and Litigation Expenses from any third party claims to the extent such loss or litigation expenses arise out of (i) negligent acts or omissions in the performance of the Services, or intentional misconduct on the part of TPA, its Service Providers, directors, officers, attorneys, representatives, servants, associates, and assignees . . . or (iii) any material misrepresentation or breach by TPA of any representation, warranty or obligation set forth in this Agreement"(TPA Agreement, § 11.1 [a]). The TPA Agreement is governed by New York law.
The Hartford Policy
The Radius Entities were all insured under Policy No. ZY 0004802 issued for the policy period from June 1, 2008 to June 1, 2009 by Pacific Insurance Company, Limited, a Hartford affiliate (the Hartford Policy) (JSUF, ¶ 2). The Hartford Policy include Health Care Facility Professional Liability Coverage subject to a $1,000,000 Limit of Liability per "Medical Incident" as defined therein (id., ¶ 3). The Hartford Policy contained an exclusion for punitive damages (complaint, ¶ 28).
The Calandro Action
Genevieve Calandro was admitted to the Radius Home on December 1, 2007 (JSUF, ¶ 18). On July 11, 2008, Ms. Calandro fell out of her wheelchair and was taken to Beverly Hospital (id., ¶ 19). At Beverly Hospital Ms. Calandro was diagnosed with renal failure, dehydration, appendicitis, and other health problems (id., ¶ 20). Ms. Calandro was discharged from Beverly Hospital on July 22, 2008, and transferred to Cedar Glen Care and Rehabilitation (id., ¶ 21). Ms. Calandro died on August 16, 2008 (id., ¶ 22). The death certificate lists her cause of death as congestive heart failure and acute renal failure, with "other significant conditions contribution to her death, but hot resulting in underlying cause" (id., ¶ 23).
On October 12, 2011, Sedgwick received notice that the Calandro Estate had filed a lawsuit against the Radius Entities alleging that Ms. Calandro's death was caused by the Radius Entities' inadequate care and seeking compensatory and punitive damages (JSUF, ¶¶ 5, 24). The Estate alleged that the Radius Entities had engaged in a pattern of "ongoing neglect" that "was a proximate cause of Genevieve Calandro's injuries, damages and death for which the [Radius Entities] are liable" and sought punitive damages for the wrongful death of Ms. Calandro, allegedly as the "result of the malicious, willful, wanton or reckless conduct, or gross negligence of the" Radius Entities (complaint, ¶ 27).
Sedgwick managed the Calandro action for Hartford under the TPA Agreement (id., ¶ 29). The Calandro action was managed on behalf of Sedgwick by Blair (Blair dep at 23-24, 42-43 [JSUF, exhibit J9, NYSCEF No. 91]; Blair aff, ¶¶ 1, 16). Sedgwick hired Lawrence Kenney, Esq. of Sloane & Walsh LLP to represent the Radius Entities in connection with the Estate's claims (JSUF, ¶ 25). Sedgwick also retained Bistany Adjustment Services (id., ¶ 26). The Estate amended the complaint to add Dr. David Wahl, Ms. Calandro's primary care physician, as a defendant (id., ¶ 27).
Hartford had no day to day involvement in the administration of the Estate's claims, or the Calandro action (Blair aff, ¶¶ 1, 16; Shingleton aff, ¶ 4).
Sedgwick admits that it did not reserve any rights on behalf of Hartford, nor did it inform the Radius Entities that the policy did not cover the punitive damages sought by the Estate (Blair dep at 210-211). It also failed to inform either Hartford or the Radius Entities that exposure could potentially exceed the $1 million policy amount (Blair dep at 195-197). Sedgwick also did not secure any fact witnesses to testify on behalf of the Radius Entities at any point during the proceedings (see id.). Hartford alleges that Sedgwick failed to inform the Radius Entities about the effect not having witnesses testify on their behalf might have on their defense (complaint, ¶ 36).
On August 16, 2013, Sedgwick prepared a status report and transmitted it to Hartford (JSUF, ¶ 28; see exhibit J12 [NYSCEF No. 94]). In that report, Sedgwick advised Hartford that the $85,000 initial indemnity reserve Sedgwick posted was "adequate at this point. In discussions with defense counsel we need additional information through discovery to be able to protect an injury and liability value. This will be addressed in 90 days." Hartford alleges that, despite this representation, Sedgwick never advised it that the "liability value" could involve punitive damages (complaint, ¶ 37).
Before serving the complaint on the Radius Entities, David Hoey, Esq., the Estate's counsel, made a $500,000 settlement demand on the Radius Entities (see Estate's post judgment demand, at 5 [JSUF, exhibit J30, NYSCEF No. 112]). Kenney rejected that demand (id.).
On November 13, 2013, the Estate, through Hoey, verbally made a joint $500,000 demand on the Radius Entities and Dr. Wahl (JSUF, ¶ 29). On February 16, 2014, a $275,000 joint offer to settle, on behalf of the Radius defendants and Dr. Wahl was relayed by Wahl's insurance adjustor (id., ¶ 30). Hartford's share of this joint offer was $125,000 (Blair dep at 89-92). On March 27, 2014, Hoey wrote to Kenney, rejecting the joint offer (JSUF, ¶ 31), and stated that he would seek separate offers from the co-defendants going forward (see claim notes and 3/27/14 email from Blair to Shingleton [JSUF, exhibit J20, NYSCEF No. 102]).
Kenny submitted a June 30, 2014 pre-trial report to Sedgwick, in which he advised that the "only defense at this point, if allowed, will be a reference to the chart by an expert who can opine as to the compliance with the standard of care. How effective that might be without live testimony from the people involved in her care is questionable" (see pretrial report attached to 7/7/14 email, JSUF, exhibit J13 [NYSCEF No. 95]). Kenney further advised Sedgwick that "[d]efending this case on liability will be very difficult" and "we will likely have no choice but to admit liability" because of the lack of evidence and witnesses. Kenny also advised that "it is very likely if not assured that there will be an award against our insured," and that "[t]here is also evidence sufficient to submit the question of conscious pain and suffering to the jury" (id.).
Hartford alleges that Sedgwick did not send the February 7, 2014 pre-trial report to it, or advise it of the evaluation it contained, until approximately one week before trial (complaint, ¶ 46).
By April 7, 2014, Sedgwick knew that the Radius Entities would have no fact witnesses who could testify at trial, because, by that time, the Radius Entities "had been dissolved and no longer legally existed" (see 7/7/14 pretrial status report email from Blair to Shingleton [JSUF, exhibit J13, NYSCEF No. 95]).
On April 8, 2014, the Estate issued a joint demand for the $1 million policy limit to the Radius Entities and Dr. Wahl (complaint, ¶ 47). Hartford alleges that Sedgwick failed to inform either it or the Radius Entities about the Estate's new demand, despite the fact that it was a demand for the policy limit (id., ¶ 48). Nevertheless, on April 26, 2014, Kenny wrote to the Estate's counsel that "Hartford is left with no alternative but to reject your most recent demand" (id.).
On July 3, 2014, Krzysztof Sobczak, Hoey's associate, contacted Kenney to make a $1 million policy-limit demand directed solely at Hartford (see Cannon aff, exhibit P19 [NYSCEF No. 162]). Sobczak requested that Hartford make an offer of at least $500,000 by July 9, 2014, or the Estate would not make any subsequent offers (see id.). No offer was made.
In early July 2014, before the trial of the Calandro action began, Sedgwick learned that the Estate had settled with Dr. Wahl for $250,000 (JSUF, ¶¶ 32-33). By email dated July 9, 2014 to Hoey, Kenney stated that he was offended about the Estate's settlement with Dr. Wahl (see Cannon aff, exhibit P27, NYSCEF No. 170 ["I am pissed that you have tried to hang Mary out to dry . . . And she was still ready to make you a decent offer but you never called me and instead went to [Dr. Wahl's insurance adjustor] and cut a 'secret settlement' . . . because obviously you thought you had Mary over a barrel since we are and have to concede liability"]). Kenney also told Hoey that he would have to "earn [his] money the hard way" - i.e., by trying the case to verdict (see id.).
By email dated July 7, 2014, Sedgwick furnished its first status report to Hartford, along with 40 pages of attachments, including the plaintiff's proposed expert disclosures from Dr. Paul Genecin and Lance Youles, as well as defendant's proposed expert disclosure from Dr. Terrance O'Malley (JSUF, ¶ 34; see 7/7/14 pre-trial status report email from Blair to Shingleton). In that email, Sedgwick also set forth its Case Synopsis, Case Status and Recommendations. Sedgwick advised that:
(1) Both the Estate's and Radius Entities' experts agree that the decline of Ms. Calandro's physical condition began after she left Radius' nursing home;(see id.).
(2) "[b]ased on our inability to produce anybody to testify and the strength of our medical review for the causation issues, we filed the attached (#6) Stipulation. We are conceding liability for a breach of the standard of care and will try the cause on the injury and causation issues";
(3) "[w]e will be attending the [court] conference on the 9th with an attempt to see if we can settle out separately rather than to try the case. So-defendant does not want to contribute any additional money until it is determined whether or not plaintiff will settle globally and for what amount . . . We do not believe that a jury will award more than $500K + 200K interest for a total of $700K worst case scenario. This would leave us at 50% or $350K. Our recommendation is to attend the Court Conference to attempt to settle out separately on the best figure up to $300K"
Hartford alleges that Sedgwick was aware, but failed to include in its July 7, 2014 email, that both of the Estate's experts opined that the Radius Entities' neglect caused the death of Ms. Calandro (complaint, ¶ 50), and failed to inform it that Sedgwick never advised the Radius Entities about the stipulation wherein they conceded liability (id., ¶ 51).
Neither Sedgwick's July 7, 2014 email status report, nor Kenney's enclosed June 30, 2014 pre-trial report, addressed the Estate's claim for punitive damages. In fact, the pre-trial report notes simply that damages were the "[u]sual wrongful death damages" and that "[t]here is nothing particularly compelling or unusual about the [facts underlying the claim" . . . that would take this case [out] of the norm on the usual measure of damages" (see pretrial report attached to 7/7/14 email, JSUF, exhibit J13 [NYSCEF No. 95]).
In the July 7th report, Sedgwick also requested authority to settle for up to $300,000 (JSUF, ¶ 35). On July 8, 2014, Hartford approved that request (id., ¶ 36).
On July 8, 2014, Hartford provided the settlement authorization requested by Sedgwick, advising Blair that "you are authorized to proceed as recommended" (see 7/8/14 email from Shingleton to Blair [JSUF, exhibit J23, NYSCEF No. 105]). Hartford alleges that Sedgwick never offered the $300,000 that it authorized to settle the Estate's claims, and never informed it of the failure to do so (complaint, ¶ 56).
On July 10, 2014, Sedgwick told Hartford that a "settlement cannot be reached," that the Estate separately settled with Dr. Wahl, and that "[w]e are fairly confident that we have a strong argument for causation and injuries." Sedgwick discussed a verdict range of $300,000 to $500,000 with a credit for Dr. Wahl's settlement (id., ¶ 57).
Kenney then made a pre-trial oral "overture" of $250,000 to Hoey (Blair dep at 147, 152-153), but the Estate did not consider this an offer. Hoey testified that Kenney told him that "Mary's got 250 for you if it will settle the case," but Hoey could not take that to his client (Hoey dep at 30-31 [JSUF, exhibit J34, NYSCEF No. 116]).
On July 15, 2014, just before the trial was set to begin, Hoey wrote to Kenney, stating "I've given three different demands with no offer from your client" (Cannon dep, exhibit P2 [NYSCEF No. 145]; see also Hoey dep at 35-36). He asked for an offer to take to his client, and stated, "I wanted to know if Mary/Hartford has an offer I can bring to my client that is more than $250,000? Right now I have nothing to offer him. If Hartford's re-evaluation is 'no pay' then let me know that too" (id.). Kenney did not reply to this email, either to say that Hoey was mistaken, or to make a settlement offer.
Hartford alleges that Sedgwick received this email on the same day, yet never advised Hartford or the Radius Entities of this communication (complaint, ¶ 58). Rather, on that same day, Sedgwick advised Hartford that it "believe[d] we will do well with a jury and any award will be offset by what the co-defendant paid" (see 7/15/2014 email from Blair to Shingleton [JSUF exhibit J24, NYSCEF No. 106]). Sedgwick asked if it still had $250,000 in settlement authority, stating that it had "pretty much confirmed" that the co-defendant settled for $250,000, and "there is no way we should pay more than that amount" on behalf of the Radius Entities (see id.).
Hartford alleges that, as trial rapidly approached, Sedgwick made no attempt to reevaluate the risk of an adverse jury verdict, despite numerous factors suggesting that a large damages award - including punitive damages - was possible (complaint, ¶ 60). Instead, Blair ignored the Radius Entities' deteriorating position, and refused to offer up more than the co-defendant had settled for, regardless of the risk (see 7/15/2014 email from Blair to Shingleton ["It is pretty much confirmed that the codefendant settled for $250K and there is no way she should pay more than that amount]").
Hartford further alleges that Sedgwick failed to continuously evaluate liability, as its own expert conceded a claims handler should do (see Donald J. Eodice dep at 81 [JSUF, exhibit J35, NYSCEF No. 117] [analysis can "change at any time up to and including trial"]), and ignored the factors that it knew increased the risk of a large adverse judgment. For instance, Sedgwick failed to take into account that: (1) the Radius Entities had no fact witnesses to tell their story to the jury at trial (see 7/7/14 pretrial status report email from Blair to Shingleton; Blair dep at 79-81, 125-126); (2) Hoey sought punitive damages (Blair dep at 196-197); (3) Hoey was a well-known proponent of the "reptile strategy," by which he sought to circumvent judicial control over the trial, and that he sought to win a big case (Blair dep at 40-42; 129; Kenney dep at 71-74 [JSUF, exhibit J22, NYSCEF No. 104]); and (4) "[j]uries are not favorable to pressure sore cases and . . . will find in favor [of] the plaintiff regardless of the causative arguments" (Blair dep at 55-56).
On the night before trial, Sedgwick sent a status email to Hartford, along with 32 pages of attachments (JSUF, ¶ 37). One of the attachments was a document entitled "Defendant's Proposed Agreed Statement of Facts to be Read to the Jury" (id., ¶ 38). Hartford contends that in this email, Sedgwick deliberately buried the admissions that would be read to the jury regarding the Radius Entities' breaches of the duty of care (see 7/15/14 email from Blair to Shingleton).
These admissions, which the judge subsequently read to the jury at trial, explicitly set out the defendants' breaches: the Radius Entities "failed to notify [Ms. Calandro's doctor] of her deteriorating blood/oxygen level"; "fail[ed] to take and record vital signs between July 3 and July 7, 2008, despite [her] clinically compromised condition"; "[f]ailed to get the medical director involved to take independent action to transfer [her] to the hospital faced with her symptoms of infection, dehydration, and worsening pressure ulcer [and] dangerously elevated blood glucose levels; and "failed to get the medical director involved . . . [when she] had gone over a week with no antibiotics, no hospitalization; experienced dangerously [elevated] blood/glucose levels and received no specialized wound care" (see tr of Day 3 of trial, at 55-56 [JSUF, exhibit J27, NYSCEF No. 109]).
Kenney had specifically requested that Blair get Hartford's approval on such an "unusual" set of admissions (see Kenney dep at 58-59). Hartford contends that Blair advised him that Hartford had approved it, but that this was not true (see Shingleton dep at 180-185 [JSUF, exhibit J3, NYSCEF No. 85]). Hartford alleges that, despite these graphic admissions, Blair did not move off her refusal to engage in settlement discussions.
The Verdict in the Calandro Action
The Calandro action proceeded to trial in the Middlesex Superior Court on July 16, 2014 (Shingleton dep at 199). During a pre-trial conference on day 1 of the trial, the judge conveyed that he had serious concerns about the Radius Entities' conduct. For instance, after reviewing Sedgwick's proposed admissions, Judge Krupp commented that he believed it amounted to "gross negligence," which could support an award of punitive damages (see tr of Day 1 of trial [aff of Ariel P. Cannon, exhibit P4, NYSCEF No. 147] ["It does seem to me that everything that you've admitted constituting negligence essentially amounts to disregard of [Ms. Calandro's] symptoms for a week, it sounds kind of like gross negligence"]). Hartford alleges that, even though Blair was informed of Judge Krupp's comments, she still made no effort to engage in settlement discussions, evaluate the risk of a large damages award (including a punitive damages award), make adjustments in her settlement calculation, or inform Hartford or the Radius Entities of those risks (see Blair dep at 180-184).
During the trial, the Estate called numerous witnesses, including Ms. Calandro's family, a doctor from Beverly Hospital, a nurse from the Cedar Glen Care and Rehabilitation Center, and two expert witnesses (tr of Day 2 of trial at 35-36, 59-62 [JSUF, exhibit J26, NYSCEF No. 108]; tr of Day 3 of trial at 10-11, 19, 119, 156 [JSUF, exhibit J27, NYSCEF No. 109]). When it came time for the Radius Entities to put on their case, they had no fact witnesses. Instead, the judge read to the jury the Radius Entities' admission of its failure to adequately care for Ms. Calandro (tr of Day 3 of trial, at 55-56). The defense put on a single witness, its paid expert, and rested (tr of Day 4 of trial, at 16-17, 60, 122 [JSUF, exhibit J28, NYSCEF No. 110]).
A jury was empaneled in the Calandro action on July 16, 2014 (JSUF, ¶ 39). Blair did not attend proceedings that day (id., ¶ 40). The trial lasted four additional days, and Blair did attend on those days (id., ¶ 41).
On July 21, 2014, the jury returned a verdict for the Estate in the amount of $1,425,000 in compensatory damages (id., ¶ 43). On July 22, 2014, upon a finding of gross negligence, the jury awarded $12,514,605 in punitive damages, plus interest and other costs (id., ¶ 44). With respect to the compensatory award, the jury verdict form allocated $675,000 to the claim for pain and suffering, and $750,000 to the wrongful death claim (id., ¶ 7). The damages vastly exceeded the $1 million policy limit (Shingleton dep at 247).
On July 31, 2014, after Hartford had stepped in and at Hartford's direction, Kenney offered to settle the Calandro action for $1 million, the amount of the policy (see Estate's post judgment demand). The Estate rejected this offer (see the Radius Entities' post judgment demand [JSUF, exhibit J31, NYSCEF No. 113]).
On August 1, 2014, the court entered a judgment of $14,447,906.51 against the Radius Entities (JSUF, ¶ 8; see Wrongful Death Jury Verdict Report [JSUF, exhibit J6, NYSCEF No. 88]). Starting on that date, post-judgment interest accrued at a rate of 12% (see Mass GL c 231, § 6B).
The Radius Entities then moved for judgment notwithstanding the verdict, for a new trial, or for remittitur (Blair dep at 142). On September 19, 2014, those motions were denied (Hotaling dep at 42).
Post-Verdict Massachusetts General Law Chapter 93A Demands
On September 30, 2014, the Estate sent Hartford and Sedgwick a demand for $40 million for purported bad faith and unfair trade practices, claiming that failure to settle violated Mass GL c 176D, § 3, for which double or treble damages could be awarded under Mass GL c 93A, §§ 9, 11 (Chapter 93A) (see JSUF, exhibit J30 [NYSCEF No. 112]). In its demand letter, the Estate claimed, among other things, that the liability of the Radius Entities was reasonably clear before trial, that Sedgwick had not made any pre-verdict settlement efforts on behalf of the Radius Entities, and that thus, the failure to settle the case was a violation of Mass GL c 176D, § 3 (9) (f), justifying an award of double or treble damages (see id.). The Estate alleged that its damages were measured by the amount of the Radius Judgment (JSUF, ¶¶ 9, 46).
Chapter 93A requires insurers, their insureds, and tort plaintiffs to try to "effectuate prompt, fair and equitable settlement of claims in which liability has become reasonably clear" (see Mass GL c 176D, § 3, Mass GL, c 93A, §§ 9, 11). A willful or knowing violation of Chapter 93A, i.e., if an insurer fails to make a settlement offer when liability is reasonably certain, can result in an award of at least double and up to triple the amount of damages in the underlying action (Mass GL, c 93A, §11 ["recovery shall be in the amount of actual damages; or up to three, but not less than two, times such amount if the court finds that the use or employment or the method of competition or the act or practice was a willful and knowing violation"]; see Rhodes v AIG Domestic Claims, Inc., 461 Mass 486, 499 [2012] [full amount of the underlying judgment subject to doubling or trebling]). Chapter 93A provides that "the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same transaction or occurrence" (id.). Chapter 93A provides a safe harbor: if a party makes a "reasonable offer" to settle a 93A claim within 30 days of receipt of a settlement demand, its 93A liability will be limited to the amount of that offer (Mass GL c 93A, § 9 [3]).
On October 8, 2014, following receipt of the Estate's 93A Demand, Hartford made a written demand to Sedgwick, pursuant to Article 11 of the TPA, seeking indemnification for any losses resulting from the Calandro action (see Cannon aff, exhibit P11 [NYSCEF No. 154]). Hartford succeeded in negotiating a standstill agreement whereby the Estate's lawyers agreed to withdraw the 93A Demand as to Hartford, to mediate their claims with Hartford, and to observe a moratorium on further post-verdict discovery directed to the Radius Entities (see Hotaling dep at 44-45 [JSUF, exhibit J32, NYSCEF No. 114]; Hotaling aff, ¶ 5).
October 29, 2014, Sedgwick declined to participate in a joint response and issued a separate response to the Estate (see Cannon aff, exhibit P12 [NYSCEF No. 155]).
Hartford contends that its total exposure at that time was enormous, and that because Sedgwick had not informed Hartford's insured that there was potential exposure beyond the policy limits (see Blair dep at 195-197), Hartford was estopped from denying coverage, even though the vast majority of the verdict was not covered by the policy. Hartford further contends that a successful appeal would probably only reduce the amount of the punitive damages award and would not have eliminated the majority of the judgment (see Hotaling dep at 42-43). Moreover importantly, if Hartford pursued an appeal rather than make a proper settlement effort, it would forgo the benefit of the 93A safe harbor (see Tallent v Liberty Mut. Ins. Co., 2005 WL 1239284 at *15, *19, 2005 Mass Super LEXIS 260 [Mass Sup Ct 2005] [appeal was violation of 93A, warranting award of damages in amount double underlying judgment]).
Hartford's Settlement with the Estate and the Radius Entities
After the verdict, Hartford conducted an examination of the Calandro action, reviewing its own case file, as well as those of Sedgwick and Kenney, and contends that it found no evidence that Sedgwick had made an offer to settle the Estate's claims (Hotaling dep at 15-16, 41-44, 68-69; Hotaling aff, ¶¶ 6-11). According to Hartford, Blair told Shingleton that no offer was made because the opportunity to talk settlement had never arisen (see 7/22/14 email from Shingleton to Jill Behringer [Cannon aff, exhibit P28, NYSCEF No. 171] [Blair told her that plaintiff's attorney would get nervous about any talk of settlement, and that "that opportunity never presented itself. Had it, I was prepared to offer up to $350,000"]).
On November 17, 2014, Hartford advised Sedgwick that it would be attending a mediation with the Estate on November 20, 2014 for the purpose of attempting to settle the Estate's claim against the Radius Entities and Hartford arising out of the Calandro action verdict (complaint, ¶ 83). The November 2014 letter advised Sedgwick that Hartford was providing formal notice pursuant to section 11.3 of the TPA Agreement to assume sole control of the defense or settlement of the Estate's claims. The letter further advised Sedgwick that "The Hartford will seek indemnification from Sedgwick for the full amount of any such settlement" (id., ¶ 84).
Before it would agree to mediation, the Estate required Hartford to put aside the amount of the verdict, and Hartford agreed (see Cannon aff, exhibit P13 [NYSCEF No. 156]).
Sedgwick did not assist Hartford in preparing for the mediation (JSUF, ¶ 10), or otherwise inform Hartford that it believed it had no 93A exposure because Hartford had made no pre-trial offer (Hotaling aff, ¶¶ 7-8).
The mediation between Hartford and the Estate took place on November 20, 2014, during which Hartford agreed to a confidential settlement that included a complete release by the Estate of all of its claims against the Radius Entities, as well as any 93A claims that it asserted against Hartford (id., ¶ 11; see Confidential Release and Settlement Agreement, ¶¶ 3-4 [JSUF, exhibit J7, NYSCEF No. 89]). Sedgwick was not a party to this settlement and did not contribute any funds to it (complaint, ¶ 85). Hartford took advantage of the 93A "safe harbor" window, settling the case with the Estate for only the amount of the judgment. Thus, Hartford paid $15 million to satisfy the Radius Judgment, and to otherwise resolve all claims against the Radius defendants and Hartford itself (JSUF, ¶ 10).
Hartford gave notice of its settlement with the Estate to Sedgwick's counsel on the evening of November 20, 2014 via a telephone call, and followed with a letter on December 12, 2014, demanding reimbursement of the amounts it paid to settle the Estate's claims (complaint, ¶ 86; Hotaling aff, ¶ 12).
In November 2014, Hartford also received a pre-litigation demand letter from counsel for the Radius Entities demanding that Hartford pay the full amount of the $14,196,425 judgment against them, plus an additional $14,196,425, and attorneys' fees pursuant to 93A (JSUF, ¶ 47; see id., exhibit J31 [NYCEF No. 113]). The 31-page letter, which the Radius Entities also sent to Sedgwick, asserted that the adjustment and defense of the Calandro action were mishandled in that, among other things:
(1) Sedgwick never reserved rights with respect to the Calandro action or ever advised the insured parties that there was an exclusion for punitive damages in the policy;(see id.).
(2) Sedgwick failed to properly communicate with the Radius Entities throughout the course of the litigation; and
(3) Sedgwick failed to effectuate settlement before trial
On December 19, 2014 and February 20, 2015, counsel for the Radius Entities issued further demand letters to Hartford and Sedgwick, asserting that the Radius Entities had suffered millions of dollars in damages, including lost profits and business opportunities, as a consequence of the verdict in the Calandro action (see Cannon aff, exhibit P14 [NYSCEF No. 157]). On April 15, 2015, Sedgwick and Hartford met with the Radius Entities to mediate their dispute. As a result of those discussions, the parties were able to resolve their dispute on confidential terms, and Sedgwick agreed to pay a portion of that settlement (JSUF, ¶ 10).
Hartford alleges that, as a result of Sedgwick's negligent mishandling of the Calandro action, it has incurred Loss and Litigation Expenses within the scope of Article 11 of the TPA Agreement, including the amount to settle the Estate's claims, and the amount it paid to settle the Radius Entities' claims (Hotaling aff, ¶¶ 6-12).
The Estate's Lawsuit against Sedgwick
In response to the Estate's 93A demand, Sedgwick offered the Estate $1,990,197, the full amount of the compensatory portion of the Radius Judgment, plus interests and costs (see Cannon aff, exhibit P15 [NYSCEF No. 158]. The Estate rejected this offer (see Joint Pre-Trial Memorandum, ¶ 29 [Cannon aff, exhibit P28 [NYSCEF No. 171]). On December 5, 2014, the Estate filed an action against Sedgwick, seeking damages of "double or treble" the Radius Judgment, which was removed to federal court in Massachusetts (see David aff, exhibit D1 [NYSCEF No. 135]).
Throughout the Massachusetts action, Sedgwick's position was that, because its $1.99 million settlement offer was reasonable, the Estate was not entitled to multiples of the underlying Radius Judgment (see answer [Cannon aff, exhibit P16, NYSCEF No. 159]; memorandum in support of Sedgwick's motion for summary judgment [id., exhibit P17, NYSCEF No. 160]). On October 13, 2016, Sedgwick moved for summary on this issue, but the court denied it, stating that a "a reasonable factfinder could find that Sedgwick engaged in unfair settlement practices that compelled the Estate into litigation" (Calandro v Sedgwick Claims Mgt. Servs., 2017 WL 1496915, *6, 2017 US Dist LEXIS 192523 [D Mass 2017]).
At no point, until the trial of the case in the fall of 2017, did Sedgwick argue that the case should be dismissed because a pre-trial offer of $250,000 had been made. The Massachusetts action proceeded to trial. Blair testified on October 31, 2017, for the first time (and contrary to her deposition testimony in the Massachusetts action), that a $250,000 offer had been made before trial in the Calandro action, and that thus, there was no 93A liability at all (see Blair testimony at 2-64, 2-68-2-72 [Cannon aff, exhibit P20, NYSCEF No. 163]). Hoey, who has denied under oath in this case that such an offer was made, did not testify because he was counsel (Hoey dep at 7, 89-91). After the conclusion of the trial, Judge Saris ruled that Sedgwick did not violate Chapter 93A (Calandro v Sedgwick, 2017 WL 5593777 at *1). That decision is now on appeal (see Cannon aff, exhibit P18 [NYSCEF No. 161]).
In 2015, Hartford commenced the within action against Sedgwick seeking to recover for Sedgwick's alleged breaches of its contractual duties. The complaint originally contained four causes of action - indemnification (first cause of actidn); breach of contract (second cause of action); declaratory judgment (third cause of action) and breach of the implied covenant of good faith and fair dealing (fourth cause of action). After Sedgwick moved to dismiss the complaint, by stipulation dated July 28, 2016, Hartford agreed to dismiss the third and fourth causes of action, with prejudice, and Sedgwick agreed to withdraw its motion to dismiss (NYSCEF No. 24).
In its first cause of action for indemnification, Hartford alleges that, pursuant to Article 11 of the TPA Agreement, Sedgwick agreed that it would indemnify Hartford for all Losses and Litigation Expenses resulting from Sedgwick's "negligent acts or omissions in the performance of the Services, or intentional misconduct on the part of [Sedgwick], its Service Providers, directors, officers, attorneys, representatives, servants, associates, and assignees . . . or . . . any material misrepresentation or breach by [Sedgwick] of any representation, warranty or obligation set forth in this Agreement" (complaint, ¶ 96). Hartford alleges that Sedgwick failed to adequately perform and negligently performed its services to Hartford with respect to the Calandro action, including its failure to:
a. Advise the Radius Entities and Hartford of the risk of a substantial adverse verdict;
b. Advise the Radius Entities and Hartford of the risk of punitive damages;
c. Advise the Radius Entities and Hartford regarding the terms and content of the Trial Stipulation regarding the Radius Entities' liability;
d. Conduct a reasonable investigation, evaluation and adjustment of the Estate's claims against the Radius Entities;
e. Ensure that the Radius Entities were made aware of the 2014 trial;
f. Exercise the settlement authority it requested and which was provided by Hartford;
g. Extend a separate settlement offer on behalf of the Radius Entities;
h. Fully communicate settlement demands and negotiations to the Radius Entities and Hartford;
i. Fully inform Hartford or the Radius Entities about the Estate's claims and associated risks;
j. Obtain information from the Radius Entities relative to the Estate's claim and discovery requests, and defenses to those claims;
k. Prepare and submit to Hartford for review and approval, a reservation of rights letter to be issued to the Radius Entities on the Policy's exclusion for punitive damages;
l. Properly manage the Estate's claims and lawsuit against the Radius Entities;
m. Report promptly any actual or potential coverage issues, including the Policy's exclusion for punitive damages;
n. Settle the claims against the Radius Entities though liability was reasonably clear; and
o. Settle the claims against the Radius Entities within the Policy limit despite the Estate's offers to settle within the Policy limit
(id., ¶ 97).
In its second cause of action for breach of contract, Hartford alleges that Sedgwick breached the TPA agreement by the above actions (id., ¶ 107).
DISCUSSION
"'[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact'" (Ayotte v Gervasio, 81 NY2d 1062, 1062 [1993] [citation omitted]; Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 [1985]). "Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers" (Winegrad, 64 NY2d at 853; see also Lesocovich v 180 Madison Ave. Corp., 81 NY2d 982 [1993]).
The party opposing summary judgment has the burden of presenting evidentiary facts sufficient to raise triable issues of fact (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; CitiFinancial Co. [DE] v McKinney, 27 AD3d 224, 226 [1st Dept 2006]). The court is required to examine the evidence in a light most favorable to the party opposing the motion (Martin v Briggs, 235 AD2d 192, 196 [1st Dept 1997]). Summary judgment should not be granted if there are genuine material issues of disputed fact (Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957]; Tronlone v Lac d'Amiante Du Quebec, 297 AD2d 528, 528-529 [1st Dept 2002], affd 99 NY2d 647 [2003]). Importantly, claims alleging that the defendant's conduct was negligent, like the claims here, are rarely dismissed on summary judgment (see Rotz v City of New York, 143 AD2d 301, 304-307 [1st Dept 1988] ["Issues of negligence . . . involve the kinds of judgmental variables which have traditionally, and soundly, been left to the finders of fact to resolve even where the facts are essentially undisputed"], citing Derdiarian v Felix Contr. Corp., 51 NY2d 308 [1980]; accord Ziecker v Town of Orchard Park, 75 NY2d 761 [1989]; Litts v Best Kingston Gen. Rental, 7 AD3d 949 [3d Dept 2004]).
Sedgwick's motion for summary judgment is denied, as there are numerous disputed material facts, mandating denial of the motion.
In its summary judgment motion, Sedgwick's main contention is that Hartford is not entitled to recover any part of the $15 million it paid to resolve the Calandro action, or the smaller amount it paid to settle with the Radius Entities, because those payments "did hot result from anything done or not done by Sedgwick, much less any breach of contract by Sedgwick" (Sedgwick's memorandum at 4). Sedgwick argues that Chapter 93A, which requires insurers to make reasonable efforts to "effectuate a prompt, fair and equitable settlement" when liability becomes "reasonably clear" is the exclusive grounds for holding insurers liable in excess of their policy limits. Sedgwick contends that, because liability was never "reasonably clear" on the wrongful death claim, Hartford had no obligation under Massachusetts law to make any settlement offer on the wrongful death claim before trial, and Hartford had no exposure to the liability above the $1 million limit of liability.
Sedgwick further contends that it cannot be held liable to Hartford because the Massachusetts federal court has already decided that reasonable efforts toward a "fair, prompt and equitable" settlement were made by Sedgwick, because liability was only "reasonably clear" on the "pain and suffering" claim, and never "reasonably clear" on the "wrongful death" claim. Sedgwick argues that the federal court found that it had fully complied with Massachusetts law because Kenney extended a $250,000 oral offer to the Estate before the trial started, with the caveat that additional funds could be available. Sedgwick contends that the evidence in this case confirms this, and makes clear that Hartford's settlement payments were attributable to its own miscalculation or ignorance of Massachusetts law, not to anything done or not done by Sedgwick.
Sedgwick's motion, however, is premised oh the erroneous premise that Chapter 93A controls the issue of whether it can be found liable to Hartford for breach of the TPA Agreement. Rather, it is clear that Sedgwick's contractual liability to Hartford turns on whether Sedgwick negligently performed the services that it was bound to provide under the TPA Agreement. In other words, Sedgwick conflates the standard for liability under Chapter 93A (which requires that an insurer make a settlement offer where liability is reasonably clear) with the standard for its own liability under the TPA Agreement.
The standard for indemnification under the TPA Agreement is straightforward: "TPA . . . shalldefend and hold harmless Hartford . . . and the Insureds at all times from and after the date of this agreement against any Loss and Litigation expenses from any third-party claims to the extent such loss or litigation expense arises out of (i) negligent acts or omissions in the performance of the Services" (TPA Agreement, § 11.1 [a]). Thus, Sedgwick is contractually bound to indemnify Hartford in the event of its negligence.
Thus, the real question is whether Sedgwick's conduct in its handling of the Calandro action was negligent. Negligence does not turn on the question of whether liability in the Calandro action was reasonably clear. Rather, negligence under New York law is based on balancing the degree of harm against the costs of avoiding it. "Negligence cases by their very nature do not usually lend themselves to summary judgment, since often, even if all parties are in agreement as to the underlying facts, the very question of negligence is itself a question for jury determination" (Ugarriza v Schmieder, 46 NY2d 471, 474 [1979]; see e.g. Savall v New York City Transit Auth., 173 AD3d 566, 567 [1st Dept 2019] [triable issues of fact as to defendant's negligence precluded summary judgment]).
Here, Hartford presents evidence that raises issues of fact as to whether Sedgwick was negligent in its handling of the Calandro action.
Hartford contends that, applying the "reasonable care" standard, Sedgwick should have settled the Calandro action before trial. Indeed, Hartford presents evidence that Sedgwick failed to discharge its central duty to evaluate risk and settle the case. Despite the fact that defense counsel conceded liability, and even as the litigation risks continued to increase. Sedgwick never took advantage of offers of the plaintiff's counsel to settle the case for less than the $1 million limit. These risks included the facts that:
(1) the Radius Entities had no fact witnesses to tell their story at trial (see 7/7/14 email from Blair to Shingleton ["we had nobody to testify for the Radius entities because they had been dissolved and no longer legally existed"]; see also Blair dep at 79-81, 125-126); while the Estate had various fact witnesses, including Ms. Calandro's family members (see tr of Day 2 of trial, at 35-36, 59-62; tr of Day 3 of trial, at 10-11, 19, 119, 157);
(2) the Radius Entities had to concede a breach of the duty of care, which was read to the jury (tr of Day 3 of trial at 55-56);
(3) Hoey was trying to set up a 93A claim (Kenney dep at 45-48);
(4) Hoey sought punitive damages (Blair dep at 196-197), and the judge noted that the conduct looked like it could form the basis for a punitive damages award (see tr of Day 1 of trial);
(5) Hoey was known for his aggressive tactics, by which he sought to circumvent judicial control over the trial, and that he sought to win a big case (id. at 40-42; Kenny dep at 71-74); and
(6) "[j]uries are not favorable to pressure sore cases and . . . will find in favor [of] the plaintiff regardless of the causative arguments" (Blair dep at 55-56).
The court finds that the existence of these risk factors, and Sedgwick's failure to settle the case in the face of them, raises an issue of fact as to whether it was negligent, under the terms of the TPA Agreement.
Hartford further contends that Sedgwick unreasonably failed to conduct an ongoing analysis of the exposure arising from the Calandro action, or the attendant risk factors. According to Sedgwick's own expert, a claims handler should continuously evaluate liability, including after a trial has begun (see Eodice dep at 81 [analysis can "change at any time up to and including trial"]; id. at 103 ["you may need to reevaluate the case to further protect your insured"]). Hartford presents evidence raising an issue of fact as to whether Sedgwick met that standard. For instance, the settlement value of $250,000 that Sedgwick assigned to the wrongful death case was based only on what Dr. Wahl paid, and Blair's apparent frustration with Hoey's tactics (see 7/15/14 email from Blair to Shingleton ["It is pretty much confirmed that the codefendant settled for $250K and there is no way we should pay more than that amount"]). According to Sedgwick's expert, this approach to settlement valuation is improper (see Eodice dep at 74-75 [the amount at which a co-defendant settles "is not an end line," and an insurer should not prejudice its insured by "dig[ging] its heels in . . . and not paying any more than the co-defendant"]).
Hartford also points to the fact that Sedgwick failed to provide a reservation of rights letter to the Radius Entities. Such a letter - which Sedgwick admits that it did not provide (see Blair dep at 210-211; 106-107) - would have included a disclaimer and reservation of rights for any exposure to punitive damages. If Sedgwick had provided such a letter to its insured, as was required under the TPA Agreement, Hartford would not have been estopped from disclaiming liability from damages above the $1 million policy limit - regardless of whether Sedgwick's negligent failure to make a reasonable settlement offer subjected Hartford to 93A exposure (see Safety Ins. Co. v Day, 65 Mass App Ct 15 [Mass App Ct 2005] [insurer estopped from denying coverage where insurer had controlled defense of case for two years]; Employers Liab. Assur. Corp. v Vella, 366 Mass 651, 658 [1975] [insurer cannot disclaim coverage where it had given no notice of reservation of rights or of disclaimer to the insured]).
Hartford also presents evidence that Sedgwick's conduct with regard to the Radius Entities was negligent. For instance, Sedgwick never informed the Radius Entities that the trial was proceeding, or about any settlement discussions. In addition, the Radius Entities were never told that the Estate was intent on piercing the corporate veil, or that their remaining employees were expected to appear as witnesses (see Radius Entities' 93A demand). Because of this conduct, any judgment against the Radius Entities fell fully on Hartford, regardless of the policy's limitation.
This court finds that Hartford has raised numerous issues of fact with respect to whether Sedgwick acted negligently in its handling of the Calandro action, and thus, whether it breached the TPA Agreement. Thus, the motion for summary judgment must be denied.
The court has considered the remaining arguments, and finds them to be without merit.
ACCORDINGLY, it is
ORDERED that Sedgwick's motion for summary judgment is denied; and it is further
ORDERED that any motions in limine must be served no later than 30 days from the date on which this order is entered on NYSCEF; and it is further
ORDERED that the parties shall appear for a pre-trial conference on November 15 December 10th at 9 30 a.m./p.m. 10/4/19
DATE
/s/ _________
ANDREA MASLEY, J.S.C.