Citations
- 238 F. Supp. 3d 314
Full opinion text
MEMORANDUM-DECISION and ORDER
DAVID N. HURD, United States District Judge
TABLE OF CONTENTS
I. INTRODUCTION...320
II. BACKGROUND...321
III. LEGAL STANDARDS... 323
A. Motion for Judgment on the Pleadings ...323
B. Motion for Summary Judgment. . .323
IV.DISCUSSION... 324-
A, Defendant FFIC’s Motions... 324
1. Motion for Judgment on the Pleadings (to dismiss Counts II and III)...324 ■
a. CountII...324
. b. Count III... 325
2. Motion for Partial Summary Judgment on Count I (Utica’s “Aggregate Limits” Contention).., 326
3. Motion for Partial Summary Judgment on Count II (Utica’s “Bad Faith” Contention)... 329
4. Motion for Summary Judgment on Count I (Utica’s “Follow the Settlement” Contention),.. 332
5. Motion in Limine to Preclude Testimony of Dennis R. Connolly... 340
B. Plaintiff Utica’s Motions... 343
1. Motion for Partial Summary Judgment on the Follow the Fortunes Doctrine ...343
2. Motion for Partial Summary Judgment That FFIC Is Not Entitled To Rescission,,, 347
3. Motion for Partial Summary Judgment That Notice Was Not Due Before February 1999.. .350
IV. CONCLUSION...352
I. INTRODUCTION
Plaintiff Utica Mutual Insurance Company (“Utica” or “plaintiff’) commenced this diversity action against. defendant Fireman’s Fund Insurance . Company (“FFIC” or “defendant”) on July 29, 2009 seeking to enforce the terms of its reinsurance contracts.
Plaintiff seeks damages in the amount of nearly $29 million for amounts billed through August 31, 2009, interest, attorneys’ fees, costs, and declaratory relief based on defendant’s alleged breach of the reinsurance contracts and breach of the duty of good faith and fair dealing. FFIC counterclaims for rescission based on plaintiffs alleged intentional and/or negligent rescission. The case was referred to mandatory mediation, but did not settle.
After completing limited discovery, plaintiff moved on June 6, 2014 and June 13, 2014 for partial summary judgment pursuant to Federal Rule of Civil Procedure (“Rule”) 56 dismissing two of defendant’s affirmative defenses. Oral argument was heard on July 25, 2014 and a Memorandum-Decision and Order was issued on February 9, 2015, denying both motions. Utica Mut. Ins. Co. v. Fireman’s Fund Ins. CO., No. 6:09-CV-853, 2015 WL 521024 (N.D.N.Y. Feb. 9, 2015). With respect to FFIC’s late notice defense, it was held that the parties may litigate lost commutations at trial, and if FFIC can establish resulting prejudice, it would be entitled to complete relief from its duty to indemnify. As to FFIC’s bad faith defense, disputed issues of material fact remain as to whether Utica was grossly negligent or reckless in failing to provide prompt notice to FFIC and thus whether its claim for indemnification is barred.
Thereafter, plaintiff moved for partial summary judgment pursuant to Rule 56 on the follow the fortunes doctrine, defendant’s counterclaims for rescission, and when notice to defendant was required. Defendant simultaneously moved for judgment on the pleadings pursuant to Rule 12(c) to dismiss Counts II and III, and for partial summary judgment pursuant to Rule 56 on plaintiffs aggregate limits, bad faith, and follow the settlement contentions. Plaintiff opposed defendant’s motions, and defendant opposed plaintiffs motions. Both parties submitted replies in further support.
All seven pending motions were fully briefed and oral argument was heard on February 13, 2015, in Utica, New York. Decision was reserved. While pending, defendant filed a motion in limine pursuant to Federal Rule of Evidence 702 to preclude expert testimony at trial by Dennis R. Connolly. Plaintiff opposed. That motion will be considered on the basis of the submissions without oral argument.
II. BACKGROUND
The parties’ familiarity with the facts and history of this case is presumed, and only those facts necessary for the disposition of the pending matters will be recited. This case involves a dispute over $35 million which Utica claims FFIC owes it under its reinsurance contracts. FFIC argues it does not owe Utica any money because Utica breached provisions in the reinsurance contracts.
Utica issued primary liability insurance policies to Goulds from 1966 through 1972. These seven primary policies have not been located and one of the main issues in this case is whether those policies contained aggregate limits for bodily injury. Utica also issued umbrella policies to Goulds for these same years providing for $10 million in coverage each year. Utica reinsured the umbrella policies, reinsuring $5 million of each $10 million with FFIC pursuant to facultative reinsurance contracts. Each of the facultative reinsurance contracts contain the following provision: “All claims involving this reinsurance, when settled by the Company [Utica], shall be binding on the Reinsurer [FFIC].... ” See LoPatto Decl., Ex. 2, ECF. No. 285 (the “Certificates”). This provision is known as a follow the settlements clause. See Travelers Cas. & Sur. Co. v. Gerling Global Reins. Corp., 419 F.3d 181, 184 (2d Cir. 2005) “(Gerling”).
Goulds became the subject of thousands of asbestos bodily injury claims, with the first suits naming Goulds in 1997. Pursuant to the primary policies between Goulds and Utica, Utica defended and indemnified Goulds for these claims. In mid-2001, Uti-ca provided notice of the Goulds losses to reinsurers of its umbrella policies, including reinsurers at the $5 million excess of the $5 million umbrella layer. Utica contends this was an initial and precautionary notice. FFIC disputes this and suggests the reinsurers actually received earlier notice, but Utica has no record of such. According to Utica, FFIC did not receive the precautionary notice at this time because Utica was unaware of the FFIC reinsurance and did not learn about it until 2008, when another reinsurer notified Utica about it. According to Utica, it had not retained all of its policy records from decades earlier, consistent with its document retention policies.
FFIC disputes this and contends that when Utica notified these reinsurers— those reinsuring umbrella policies post-1972—is irrelevant to when Utica determined or should have determined there was a reasonable possibility that the 1966-72 umbrella policies would be involved. FFIC maintains that Utica’s sharing information on the Goulds claims in 1996 with Gen Re indicated that Utica recognized then that the claims could penetrate the 1996-72 umbrella policies. However, Utica contends that Gen Re only learned of the Goulds claims in the 1990s through its routine review of Utica’s asbestos and environmental files. Utica asserts that it provided precautionary notice of the claims to the other reinsurers of its umbrella policies in June 2001, and that it would have included a notice to FFIC if Utica had known about FFIC’s reinsurance at the time.
Declaratory judgment actions between Goulds and its insurers, including Utica, followed in 2003 to determine the rights of the insurers. Goulds and Utica engaged in mediation relating to the coverage. According to FFIC, Utica made it non-negotiable that Goulds agree that all Utica primary policies had aggregate limits of coverage, even those policies which were not at issue in the coverage litigation. According to FFIC, in exchange for Goulds’ receipt of a $325 million settlement from Utica, Goulds agreed to stipulate that all of the Utica primary policies had aggregate limits for bodily injury of $300,000 and that all such limits had been exhausted. The agreement, signed in February 2007 by Utica and Goulds, also provided that the $325 million settlement would come from the umbrella policies (therefore triggering Utica’s reinsurance policies). See LoPatto Decl., Ex. 6, EOF. No. 285 (the “Settlement Agreement”).
According to Utica, by 2007, payments on Goulds claims had reached FFIC’s layer on the umbrella policies at issue and after learning about FFIC’s reinsurance in 2008, Utica notified FFIC in July 2008. FFIC asserts that Utica provided no rationale for reporting its reinsurance claim more than a year after its February 2007 settlement with Goulds. According to the Certificates, “[pjrompt notice shall by given to the Reinsurer ... of any occurrence or accident which appears likely to involve this reinsurance.” See generally Certificates. Utica submitted reinsurance claims in August, September, October, and November 2009, totaling $35 million. Under the Certificates, Utica was required to “make available for inspection and place at the disposal of [FFIC] at reasonable times any of its records relating to this reinsurance or claims in connection therewith.” Id.
Following Utica’s requests for payment, FFIC initiated a claims investigation. FFIC sought numerous pieces of information from Utica, inspected its files, and sent a team to Utica’s offices for inspection. While its claims investigation was ongoing, Utica filed this suit contending that FFIC was taking too long to pay and was, inter alia, in breach of the Certificates.
III. LEGAL STANDARDS
A. Motion for Judgment on the Pleadings
The standard for granting a Rule 12(c) judgment on the pleadings is identical to that of a Rule 12(b)(6) motion to dismiss. Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001). To survive a Rule 12(b)(6) motion to dismiss, the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although a complaint need only contain “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), more than mere conclusions are required. Indeed, “[wjhile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), Dismissal is appropriate only where plaintiff has failed to provide some basis for the allegations that support the elements of its claims. See Twombly, 550 U.S. at 570, 127 S.Ct. 1955 (requiring “only enough facts to state a claim to relief that is plausible on its face”). When considering a motion to dismiss, the complaint is to be construed liberally, and all reasonable inferences must be drawn in the plaintiffs favor. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).
B. Motion for Summary Judgment
The entry of summary judgment is warranted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing Fed. R. Civ. P. 56(c)); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is “material” for purposes of this inquiry if it “might affect the outcome of the suit under the governing law.” Anderson, 477 U.S. at 248, 106 S.Ct. 2606; see also Jeffreys v. City of N.Y., 426 F.3d 549, 653 (2d Cir. 2005). A material fact is genuinely in dispute “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
When summary judgment is sought, the moving party bears the initial burden of demonstrating that there is no genuine issue of material fact to be decided with respect to any essential element of the claim. Id. at 250 n.4, 106 S.Ct. 2505. The failure to meet this burden warrants denial of the motion. See id. In the event this initial burden is met, the opposing party must show, through affidavits or otherwise, that there is a material issue of fact for trial. Id.
When deciding a summary judgment motion, a court must resolve any ambiguities and draw all inferences from the facts in a light most favorable to the non-moving party. Jeffreys, 426 F.3d at 553. Summary judgment is inappropriate where “a review of the record reveals sufficient evidence for a rational trier of fact to find in the [non-movant’s] favor.” Treglia v. Town of Manlius, 313 F.3d 713, 719 (2d Cir. 2002); see also Anderson, 477 U.S. at 250, 106 S.Ct. 2505 (summary judgment is appropriate only when “there can be but one reasonable conclusion as to the verdict”).
IV. DISCUSSION
A. Defendant FFIC’s Motions
1. Motion for Judgment on the Pleadings (to dismiss Counts II and III) (ECF No. 276)
•FFIC moves for judgment' on the pleadings to dismiss Counts II and III.as dupli-cative of Count I. In Count I, Utica complains that FFIC breached the Certificates by not paying its claims and seeks damages in the form of the sums due under the Certificates through August 31, 2009. In Count II, Utica alleges that FFIC asked for irrelevant information and ignored its billings, inquiries, and repeated requests for payment, thereby violating FFIC’s duty to deal with Utica in utmost good faith, For damages under Count II, Utica seeks attorneys’ fees and other costs in connection with this lawsuit. In Count III, Utica seeks a declaration that FFIC is obligated to pay for .bills after August 31, 2009, pursuant to the Certificates.
Defendant contends Counts II and III are duplicative of Count I and are not independent causes of action. It argues Counts II and III are premised on the same alleged breach of its duties under the Certificates—its failure' to 'pay—and seek relief for that breach.
Utica responds that Count II is not du-plicative as nowhere in Count I is it alleged that FFIC ignored information in its claim investigation, requested additional improper information, and ignored Utica’s inquiries. Further, Count II seeks attorneys’ fees and other costs in connection with this lawsuit, a different remedy than Count I. Similarly, Utica argues Count III is different than Count I as the declaratory judgment cause of action recognizes that future obligations may arise under the Certificates, in addition to the amounts already billed and unpaid. Specifically, that the Certificates continue to apply to Uti-ca’s umbrella coverage to Goulds, and the parties continue to dispute how those Certificates apply.
a. Count II
The test for duplication respecting a breach of contract claim and a bad faith claim is whether “the [alleged] wrongful conduct was ‘also the predicate for a claim for breach of covenant of an express provision of the underlying contract.’” Haym Salomon Home for the Aged, LLC v. HSB Group, Inc., No. 06-CV-3266, 2010 WL 301991, at *6 (E.D.N.Y. Jan. 20, 2010).
Count I seeks relief for FFIC’s failure to pay amounts billed under the Certificates. Count II seeks relief for FFIC’s alleged improper claims handling; that cause of action includes allegations that FFIC ignored information provided by Utica, asked for additional irrelevant information not needed to process Utica’s billings, and improperly ignored Utica’s numerous inquiries regarding its review of Utica’s billings and payment status. Utica alleges FFIC’s bad faith in its claims processing caused it damages beyond the recovery of amounts owed under the Certificates, the relief sought in Count I. Thus Count II seeks attorneys’ fees and other costs in connection with this lawsuit and all resulting damages from the breach of the duty of utmost good faith and fair dealing.
Because these causes of actions are predicated on different wrongful conduct and seek different relief, they may stand as separate causes of action. See e.g., Ret. Bd. of Policemen’s Annuity & Benefit Fund v. Bank of N.Y. Mellon, No. 11 Civ. 5459, 2014 WL 3858469, at *3 (S.D.N.Y. July 30, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim because they rested upon different facts); Friedman v. Maspeth Fed. Loan & Sav. Ass’n, 30 F.Supp.3d 183, 195 (E.D.N.Y, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim where the facts supporting each claim were not identical); O.K. Petroleum Distrib. Corp. v. Travelers Indem. Co., No. 09 Civ. 10273, 2010 WL 2813804, at *4 (S.D.N.Y. July 15, 2010) (finding bad faith allegations that insurer inadequately investigated and inordinately delayed were not duplicative because they extended beyond a breach of insurance contract claim); JJM Sunrise Auto., LLC v. Volkswagen Grp. of Am., Inc., No. 601658-14, 2014 WL 5800301, at *13 (N.Y. Sup. Ct. Nov. 6, 2014) (finding breach of good faith claim was not duplicative of breach of contract claim because breach of good faith claim contained allegations of wrongful conduct that were not alleged in breach of contact claim).
b. Count III
The Declaratory Judgment Act, 28 U.S.C. § 2201(a), vests district courts with “broad discretion” to decline jurisdiction over requests for declaratory relief, Dow Jones & Co., Inc. v. Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003) (identifying factors relevant to exercise of such discretion, including, inter alia, “whether the judgment will serve a useful purpose in clarifying or settling the legal issues involved”; “whether a judgment would finalize the controversy and offer relief from uncertainty”; and “whether the proposed remedy is being used merely for procedural fencing, or a race to res judicata’” (internal quotation marks omitted)). Fort v. Am. Fed. of State, Cnty. and Mun. Emps., 375 Fed.Appx. 109, 112 (2d Cir. Apr, 29, 2010) (summary order).
In Count III, Utica seeks a declaration of the same rights that will be determined under Count I for breach of contract. Count I alleges that as a result of the breach of the Certificates, FFIC owes Utica for billings through August 31, 2009, totaling nearly $29 million and that such damages are continuing. The parties do not dispute that future obligations may arise under the Certificates at issue, in addition.to the amounts billed and unpaid as of the filing of the Amended Complaint. Count III seeks payment for billings subsequent to August 31, 2009. The declaratory judgment sought in Count III will not clarify or settle the legal issues involved in this case. The declaration sought, that FFIC breached the Certificates and that FFIC is obligated to make payment to Utica for subsequent billings, will be addressed in Count I, the breach of contract claim. Nor will a declaratory judgment offer relief from uncertainty because resolution of the breach of contract claim will offer that relief. Therefore, Count III is duplicative of Count I and it is proper to decline jurisdiction over plaintiffs request for declaratory relief in Count III.
FFIC’s motion for judgment on the pleadings dismissing Counts II and III as duplicative of Count I will be granted in part and denied in part and Count III will be dismissed.
2. Motion for Partial Summary Judgment on Count I (Utica’s “Aggregate Limits” Contention) (ECF No. 279)
FFIC moves for partial summary judgment on Count I, arguing it was not obligated to provide reinsurance coverage to Utica with respect to the five years 1966, 1968, 1969, 1970, and 1971. It contends that because it was not obligated to provide reinsurance coverage for those years, it could not breach the Certificates for those years as a matter of law.
As explained in the previous Memorandum-Decision and Order, one of the main issues in this case involves the existence of aggregate limits for bodily injury in the primary policies between Goulds and Uti-ca. Aggregate limits for bodily injury in the primary policies would allow Utica to combine asbestos injuries arising from multiple accidents, occurrences, or individuals into a loss that would exceed the primary policy limits, penetrate the umbrella policy, and access FFIC’s reinsurance. Utica claims that these policies did in fact have aggregate limits, while FFIC contends they did not. If these missing primary policies had said aggregate limits, the umbrella policies between Goulds and Utica could and would have been accessed, thereby triggering the reinsurance policies between Utica and FFIC. Alternatively, if the primary policies did not contain aggregate limits, the umbrella policies would never have been triggered, and FFIC’s reinsurance coverage would not have been reached. It follows that FFIC would have no liability to Utica for the five years in question. As the primary policies in question are missing, much of the discovery in this case has focused on whether those policies had aggregate limits for bodily injury.
The instant motion for partial summary judgment is about different aggregate limits—those listed in the umbrella policies. According to FFIC, the contractual reinsurance relationship between Utica and FFIC is governed by (1) the annual (reinsurance) Certificate, and (2) the corresponding umbrella policy. It is undisputed that the Certificates contain a follow form provision, providing that FFIC’s liability is subject to the terms and conditions of Uti-ca’s contract with Goulds (the umbrella policy). FFIC agreed to provide reinsurance only in accordance with the terms and conditions of the umbrella policies and therefore what those policies said about the limits of the underlying primary policies. While the primary policies between Goulds and Utica for the years at issue are missing, the parties are in possession of the umbrella policies between Goulds and Utica for those years.
FFIC argues the umbrella policies are clear and unambiguous, and none contain aggregate limits for bodily injury for the underlying primary policies. FFIC has submitted the declarations page of each umbrella policy. LoPatto Deck, Ex. 2, ECF. No. 279-5 (the “Umbrella Declarations pages”). Each Umbrella Declarations page includes a “Schedule of Underlying Insurance Policies.” According to FFIC, these pages provide the bodily injury and property damage claim limits for the corresponding underlying primary policies. Each Umbrella Declarations page submitted by FFIC includes an aggregate limit for property damage, but no aggregate limit is listed for bodily injury. FFIC asserts this shows Utica knew how to provide for an aggregate limit when it wanted to—if the primary policies had aggregate limits for bodily injury, they would have appeared on the Umbrella Declarations page of the corresponding umbrella policy.
According to FFIC, because the Umbrella Declarations pages (which the Certificates follow form to) list no aggregate limits for bodily injury and because the contracts are clear and unambiguous, they may not be altered by extrinsic evidence. Therefore, FFIC contends that without aggregate limits for bodily injury in the primary policies, the Goulds claims never moved out of the primary policies, the umbrella policies never triggered, and Uti-ca never should have paid under the umbrella policies. It follows that FFIC’s reinsurance should never have been triggered and it cannot be obligated to provide reinsurance coverage for these five years and thus could not breach the Certificates as a matter of law.
Utica argues partial summary judgment should be denied because FFIC cannot prove by way of the umbrella policies that the missing primary policies lack aggregate limits for bodily injury. Further, even if it could, the umbrella policies as presented do not actually establish that the underlying primary policies lack aggregate limits for bodily injury. Utica takes issue with FFIC’s theory about how the umbrella coverage applies over the primary policies because FFIC does not discuss nor attach any triggering language from the umbrella policies. Instead, FFIC’s entire argument is based on how the umbrella policies might apply in light of the Umbrella Declarations pages, but fails to provide any supporting umbrella policy contract language such as the insuring agreements, exclusions, definitions, endorsements, or terms and conditions. According to Utica, there is not a complete contract to be interpreted: application of the Certificates requires an understanding of both the primary and umbrella policies and the umbrella policies include terms and conditions explaining how the Umbrella Declarations pages apply but FFIC has not provided these. Each umbrella policy generally includes a declarations page, pre-printed policy terms and conditions called the “policy jacket,” and any endorsements. See Pl.’s Stmt. Addt’l Mat. Facts & Resp. to Def.’s Stmt, of Mat. Facts in Supp. of Mot. for Part. Summ. J. on Count I, ECF No. 303, ¶ 1 (“Pl.’s Resp. SMF Count I”).
Utica also argues that the Umbrella Declarations pages FFIC relies upon lack clarity; for example the 1971 page which, according to FFIC, shows no aggregate limit for bodily injury products coverage. See Umbrella Declarations pages» However,. Utica alleges such a reading -ignores the headings “Each Person” and “Aggregate” which appear to be applicable to the products coverage entry only, with “300 agg” appearing in the aggregate column. Utica insists that FFIC reads in additional language to assume that the aggregate column applies only to property damage coverage. Because the contracts as presented are incomplete, unclear, and ambiguous on their face, Utica urges extrinsic evidence should be permitted. According to Utica, the current missing parts of the Certificates and the umbrella policies contradict FFIC’s assumption that the primary policies lack aggregate limits for bodily injury.
• FFIC’s motion for partial summary judgment is based on incomplete contracts. While FFIC argues that extrinsic evidence should not be permitted, this presupposes a complete contract, which is not at hand. The rules governing contract interpretation, including the legal determination of ambiguity and the consideration of extrinsic evidence, presuppose a complete contract. See e.g., Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 780 N.E.2d 166 (2002). When determining whether a contract.is ambiguous, a court reviews the contract “as a. whole to determine its purpose and intent.” W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162-63, 565 N.Y.S.2d 440, 566 N.E.2d 639 (1990); see also Sayers v. Rochester Tele. Corp. Supplemental Mgmt, Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993) (explaining court must examine the entire contract, in order to “safeguard against adopting an interpretation that would render any individual provision superfluous”).
The contracts forming the basis of this motion are incomplete for two reasons; the Certificates are not integrated agreements and the umbrella policies have not been submitted in full. The Certificates are not integrated agreements because their application requires an understanding of the umbrella policies and primary policies. See, e.g., Travelers Cas. & Sur. Co. v. ACE Am. Reins. Co., 392 F.Supp.2d 659, 664 (S.D.N.Y. 2005), aff'd, 201 Fed.Appx. 40 (2d Cir. 2006) (summary order). The umbrella policies are similarly incomplete because only the Umbrella Declarations pages have been submitted; the policies include terms and conditions which explain how the Umbrella Declarations pages apply,' but those terms and conditions have not been provided by FFIC. To consider the declarations page of an insurance policy in isolation from the remainder of the contract would be to consider an incomplete contract.
Finally, FFIC’s assumption, without authority, that the absence alone of an aggregate limit in the declarations pages means that the primary policies lack aggregate limits is unpersuasive. As a California trial court in a related coverage action found in an analogous argument regarding the absence or presence of aggregate limits in the subject primary policies, “leaving a space blank is not clearly and unambiguously the same as typing ‘0’ or ‘No Aggregate Limit’ in the space.” See Pl.’s Resp. SMF Count I, ¶ 3. Because the contracts required to resolve this issue are incomplete and not fully provided, a determination as a matter of law cannot be made at this time and FFIC is not entitled to partial summary judgment on this issue.
Accordingly, FFIC’s motion for partial summary judgment on Count I of the Amended Complaint as to its obligation to provide reinsurance coverage to Utica with respect to the five years 1966, and 1968-71 will be denied.
3. Motion for Partial Summary Judgment on Count II (Utica’s “Bad Faith” Contention) (ECF No. 275) (286 sealed)
FFIC moves for partial summary judgment dismissing Count II alleging á breach of the duty of utmost good faith for which Utica seeks attorneys’ fees and other costs in connection with this lawsuit, including lost internal resources and lost investment income. Count II alleges FFIC acted in bad faith by failing to pay Utica’s reinsurance claim. FFIC argues this count must be dismissed because the fact that it did not pay Utica’s belatedly filed claim does not come close to the standard for establishing bad faith; it had a sufficient basis to question Utica’s claims and other reasonable carriers would have, and did do the same.
Utica opposes and argues the motion should be denied because FFIC’s compliance with its duty of utmost good faith is in dispute and should go to a jury. Utica also contends that in addition to payment delay or refusal, misconduct in a claims investigation can lead to bad faith liability in New York and there is evidence FFIC mishandled the claims investigation.
“As in all contracts, implicit in contracts of insurance is a covenant of good faith and fair dealing, such that ⅛ reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims.’ ” Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 194, 856 N.Y.S.2d 505, 886 N.E.2d 127 (2008); (quoting N.Y. Univ. v. Cont’l Ins. Co., 87 N.Y.2d 308, 318, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995)). However, “an insurer is not liable in excess of the policy limits for the breach of an insurance contract absent bad faith.” In re AXIS Reins. Co. REFCO Related Ins. Litig., No. 07-CV-07924, 2010 WL 1375712, at *5 (S.D.N.Y. Mar. 7, 2010). Moreover, New York generally does not recognize a separate cause of action for damages based on the denial of insurance coverage when a breach of contract claim is also asserted. See e.g., Haym Salomon Home for the Aged, LLC, 2010 WL 301991, at *5.
However, the New York Court of Appeals in Sukup v. State, 19 N.Y.2d 519, 281 N.Y.S.2d 28, 227 N.E.2d 842 (1967) established that there is a cause of action for extra-contractual damages where an insurer refuses, in bad faith, to pay a claim of its own insured. To prevail on such a claim and “impose an extra-contractual liability for legal expenses,” “more than an arguable difference of opinion between carrier and insured over coverage” is required. Id. at 522, 281 N.Y.S.2d 28, 227 N.E.2d 842. “It would require a showing of such bad faith in denying coverage that no reasonable carrier would, under the given facts, be able to assert it.” Id. In Sukup, the Court found the plaintiff did not demonstrate that the insurer denied his worker’s compensation coverage in bad faith.
Several courts since Sukup have acknowledged a cause of action for extra-contractual damages for a bad faith denial of coverage, but have generally found that the plaintiff was unable to meet the high standard to prevail on such a claim. See Ebrahimian v. Nationwide Mut. Fire Ins. Co., 960 F.Supp.2d 405, 416 (E.D.N.Y.2013) (Collecting cases). In Liberty Surplus Ins. Corp. v. The Segal Co., 420 F.3d 65, 70 (2nd Cir. 2005) (per curiam), the United States Court of Appeals for the Second Circuit acknowledged that an insured could recover the costs of litigation, including attorneys’ fees. It proceeded to affirm dismissal of the defendant’s counterclaim because the defendant did not allege that its claim was denied in bad faith and furthermore, “the dispute reflected] an arguable difference of opinion rather than bad faith by the insurer.” Id. (internal quotation marks omitted).
In Greenburgh Eleven Union Free School District v. National Union Fire Ins. Co. of Pittsburgh, 304 A.D.2d 334, 758 N.Y.S.2d 291 (App. Div. 1st Dep’t 2003), the New York Appellate Division First Department relied on Sukup in affirming the lower court’s decision that the plaintiff was not entitled to extra-contractual damages of attorneys’ fees since both parties “had an arguable basis for their respective disclaimers.” Id. at 336-37, 758 N.Y.S.2d 291. A few months later in Wurm v. Commercial Ins. Co. of Newark, 308 A.D.2d 324, 766 N.Y.S.2d 8 (App. Div. 1st Dep’t 2003), the First Department again cited Sukup in declining to award attorneys’ fees to a plaintiff. Even viewing the facts in the light most favorable to that plaintiff, that Court could not conclude that the insurer “had no arguable basis for discontinuing plaintiffs benefits.” Id. at 329, 766 N.Y.S.2d 8. It affirmed the jury’s finding that the insurer breached the policy, but found the plaintiff failed to make the required “ ‘showing of such bad faith in denying coverage that no reasonable carrier would, under the given facts, be expected to assert it.’ ” Id. at 330, 766 N.Y.S.2d 8 (quoting Sukup, 19 N.Y.2d at 522, 281 N.Y.S.2d 28, 227 N.E.2d 842).
The New York Court of Appeals again spoke on the issue in Bi-Economy Market, 10 N.Y.3d at 187, 856 N.Y.S.2d 505, 886 N.E.2d 127. The Court held that “in light of the nature and purpose of the insurance contract at issue, as well as Bi-Economy’s allegations that Harleysville breached its duty to act in good faith,” the plaintiff was permitted to pursue a claim for extra-contractual consequential damages—specifically, the damages for ongoing business interruption as they were reasonably contemplated by the parties prior to contracting. Id. at 196, 856 N.Y.S.2d 505, 886 N.E.2d 127. More recently, the Eastern District of New York in Ebrahimianhe relied on Sukup to find that the plaintiffs did not sufficiently allege they suffered any damages as a result of the “[defendant’s alleged bad faith refusal to pay their claims other than the damages associated with the alleged breach of the Policy,” concluding that general disapproval is insufficient to state a claim for bad faith disclaimer of insurance coverage. Ebrahi-mianhe, 960 F.Supp.2d at 416-17.
For Utica to recover attorneys’ fees and other costs, including lost internal resources and lost investment income, it must show that FFIC had no arguable basis to challenge its claim and further show that no reasonable carrier would, under the given facts, challenge the claim—in other words that the challenge was more than a difference of opinion. The undisputed facts are that FFIC received notice of Utica’s reinsurance claim in July 2008, well over a year after Utica settled with Goulds in February 2007. Utica’s first bill to FFIC for $5 million was received on September 22, 2008 and included a two-page claim summary and chart of the number of claims by state. Utica was required to provide proof of loss to FFIC per the Certificates, and even construing the two-page claim summary as such, FFIC was permitted to conduct its own investigation and evaluate a possible late notice defense among its other coverage positions. During its investigation, FFIC learned that the primary policies for the years at issue were missing and that there was a question as to whether those policies contained aggregate limits.
Between September 22, 2008, and January 9, 2009, Utica and its broker followed up with FFIC in an attempt to prompt it to take action on the pending claims. Pl.’s Resp. to Def.’s Stmt, of Mat. Facts in Supp. of Mot. for Partial Summ. J. on Count II, ECF No. 309-9, ¶3 (“PL’s Resp. SMF Count II”). On December 1, 2008, the broker wrote to Utica that “I have called [FFIC’s representative] numerous times and either have gotten his voicemail, with no return call, or spoke to an individual in his office who informed me he was in a meeting.” Id. During this time, the only information transmitted from Utica to FFIC had been the two-page claim summary and a chart of the number of claims by state. According to FFIC, this was insufficient information on which to pay the claim.
FFIC did not provide a substantive response or formally acknowledge Utica’s bill until January 9, 2009. On that date, FFIC requested an extensive list of information from Utica and an opportunity to review Utica’s files in person. Utica responded on February 9, 2009, and provided all of the information FFIC requested that was available to it, including copies of previous notices that Utica sent to reinsur-ers.
FFIC sent an inspection team to three of Utica’s offices in April 2009. Utica made available for FFIC’s review its California and New York litigation files, the Goulds claim database, documents relating to the Settlement Agreement between Utica and Goulds, and communications between Uti-ca and its counsel, including analyses as to coverage for claims under Utica’s policies. FFIC contends that some of the documents it discovered during its investigation were inconsistent with Utica’s assertions and stipulations in the Settlement Agreement that all of the primary policies had aggregate limits for bodily injury. According to FFIC, this raised serious questions as to its obligation to pay under the Certificates. Utica disputes that any documents were inconsistent.
Following the inspection, Utica provided additional information to FFIC on May 4, 2009 and July 24, 2009. FFIC continued to request evidence of the aggregate limits for bodily injury in the missing policies as well as other information, including asking on July 30, 2009 for copies of Utica policies issued to insured other than Goulds which allegedly showed that Utica had issued general liability policies without bodily injury aggregate limits. On July 29, 2009, Utica filed the Complaint in this action contending FFIC was taking too long to pay.
Even drawing inferences from the facts in a light most favorable to Utica, the non-movant—that FFIC’s belated or even non-responses to Utica’s inquires, FFIC’s repeated requests for documents which Uti-ca contends it did not need because it had been previously provided the information, and FFIC’s on site inspection, over the time period of September 22, 2008 to July 29, 2009 while conducting an investigation into a potential $35 million plus claim involving missing primary liability policies for which there was at minimum a possibility those policies lacked aggregate limits for bodily injury, constituted delay tactics—this evidence does not come close to satisfying the high standard for sustaining a bad faith'claim.
Instead, the undisputed evidence demonstrates that FFIC had legitimate grounds for investigating and not yet paying Uti-ca’s claim by July 2009. Given when FFIC was notified by Utica compared to other similarly situated reinsurers, how long Uti-ca waited to notify FFIC after settling with Goulds (over a year), and the missing primary policies for which there was at least a question regarding aggregate limits for bodily injury, it was reasonable for FFIC to conduct a thorough investigation. That Utica did not receive payment under the Certificates as quickly as it would have preferred does not render FFIC dilatory in its investigation. Notably, Utica is responsibly for a greater delay in this process: more time elapsed between when it settled with Goulds (February 2007) and provided notice to FFIC of its reinsurance claim (July 2008) than between when it provided notice to FFIC (July 2008) and when, according to Utica, FFIC should have been prepared to render a resolution on its claims but had not yet done so and thus commenced this suit (July 2009). Thus, even drawing all inferences in favor of Utica, there are no material facts in dispute that would preclude summary judgment. Utica cannot sustain its burden in opposition to summary judgment because it cannot show that FFIC had no arguable basis to challenge its claim nor can it prove that no reasonable carrier would, under the given facts, challenge the claim.
Therefore, FFIC’s motion for partial summary judgment dismissing Utica’s bad faith damages claim will be granted and Count II of the Amended Complaint will be dismissed.
4. Motion for Summary Judgment on Count I (Utica’s “Follow the Settlement” Contention) (ECF No. 277) (285 sealed)
FFIC moves for summary judgment declaring that the settlement between Utica and Goulds was unreasonable and improperly designed to access and maximize Utica’s reinsurance with FFIC and Utica is therefore not entitled to the protections of the follow the settlement, or follow the fortunes doctrine. Specifically, FFIC contends that Utica inserted two provisions in the Settlement Agreement with Goulds that rendered the settlement in bad faith and unreasonable: (1) that there were aggregate limits in the primary policies, and (2) that Utica’s payment of the settlement amount was to be borne by the umbrella policies between Utica and Goulds, which were reinsured. In doing so, FFIC contends that Utica put its own interests as the cedent above FFIC’s interests as the reinsurer. According to FFIC, it should therefore be relieved of its duty to indemnify Utica and as such, it did not breach the Certificates by failing to pay and Count I of the Amended Complaint should be dismissed.
Utica opposes and seeks a favorable summary disposition of its own on the follow the settlement contention, arguing that FFIC misstates the law, and any alleged motivation to increase reinsurance recoveries is irrelevant. It contends its settlement with Goulds was reasonable and justified by multiple non-reinsurance related reasons and FFIC has put forth no evidence to demonstrate the settlement was unreasonable.
Count I is based on the assertion that FFIC is required to follow the settlement Utica- entered into with its insured, Goulds. “Under the follow-the-settlements doctrine, a reinsurer must ‘accept the cedent’s good faith decisions on all things concerning the underlying insurance terms and claims against the underlying insured: coverage, tactics, lawsuits, compromise, resistance or capitulation,’ as well as settlements and settlement allocation.” Utica Mut. Ins. Co. v. Clearwater Ins. Co.. No. 613-CV-1178, 2016 WL 254770, *at 4 (N.D.N.Y. Jan. 20, 2016) (Sharpe, S.J.) (“Clearwater”), app. dismissed, July 13, 2016 (quoting N. River Ins. Co. v, Ace Am. Reins. Co., 361 F.3d 134, 139-40 (2d Cir. 2004)). T he follow the settlement doctrine serves to promote the “long established” goals of “maximum coverage and settlement” and to avoid “a proliferation of litigation” between the ce-dent and the reinsurer. Clearwater, 2016 WL 254770, at *4 (quoting N. River Ins. Co. v. CIGNA Reins. Co., 52 F.3d 1194, 1205-06 (3d Cir. 1995) (“CIGNA”)), As long as the cedent settles in good faith, reasonably, and within the applicable policies, the reinsurer is bound by the settlement and cannot relitigate the underlying coverage issues. Clearwater, 2016 WL 254770, at *4.
Generally, “good faith requires the reinsured to align its interests with those of the reinsurer.” CIGNA, 52 F.3d at 1216. However, these interests need not be “perfectly aligned to trigger a follow-the-settlements clause.” Gerling, 419 F.3d at 190 (internal quotation marks omitted). “ ‘The reinsurer bears the burden to prove the cedent’s bad faith and must present an extraordinary showing of a disingenuous or dishonest failure.’” Clearwater, 2016 WL 254770, at *4 (quoting Gerling, 419 F.3d at 191) (internal quotation marks omitted). To prove bad faith, the reinsurer must demonstrate that the cedent acted, at a minimum, with gross negligence or recklessness. Id.
Deference to the follow the settlement doctrine also requires that the cedent reasonably settle. See Gerling, 419 F.3d at 194. “[Objective reasonableness should ordinarily determine the validity of a [settlement] allocation.” U.S. Fidelity & Guar. Co. v. Am. Re-Ins. Co., 20 N.Y.3d 407, 420, 962 N.Y.S.2d 566, 985 N.E.2d 876 (2013) (“USF&G”). In USF&G, the New York Court of Appeals recognized that “[r]easonableness does not imply disregard of a cedent’s own interests” as “[c]edents are not the fiduciaries of reinsurers, and are not required to put the interests of reinsurers ahead of their own.” Id. Accordingly, a settlement allocation is reasonable if the cedent and the insured could have arrived at the .allocation without the possibility of reinsurance recovery. See id.
First, the parties dispute the applicability of two relatively recent decisions: the Clearwater decision decided at the beginning of 2016 in this District, and Goulds Pumps, Inc. v. Travelers Casualty and Surety Co., B255439, 2016 WL 3564244, at *1 (Cal. Ct. App. June 22, 2016) (unpublished decision) (“Travelers”) decided by a California appellate court. Utica has submitted supplemental briefing urging that both decisions bolster its position and undermine FFIC’s, while FFIC submitting briefing contending the decisions are factually distinguishable and should not affect this case. While the decisions illuminate disputes similar to those in this case, as well as present helpful background information and standards of law, neither case is ultimately persuasive because the . evi-dentiary records are not even remotely the same as the instant matter.
In Clearwater, cedent Utica pursued similar breach of contract litigation against its reinsurer Clearwater stemming from the same Utica-Goulds settlement involved here. Senior United States District Judge Gary Sharpe held that Clearwater was bound.by the follow the settlement doctrine because it did not produce any evidence that Utica’s settlement with Goulds was made in bad faith, and failed to raise any triable issue of fact that Utica acted unreasonably in its settlement decision to stipulate that the primary policies involved contained an aggregate limit. Clearwater, 2016 WL 254770, at *4-5. While the Clear-water decision is certainly persuasive, it is factually distinguishable. That case involved the policy years 1978-81, the primary policies were a part of that record, and some of those primary policies lacked an explicit aggregate limit. Judge Sharpe found that the lack of explicit aggregate limits rendered the policies ambiguous, and in light of the ample extrinsic evidence (submitted only by Utica) suggesting that all policies were intended to have aggregate limits, found Utica’s resolution of that ambiguity to be reasonable. By contrast, this case involves the policy years 1966-72 and the primary policies are missing. The entire dispute in this case surrounding whether those primary policies contained aggregate limits for bodily injury is because they are missing—not because the section is blank, contains a zero, or is ambiguous.
In addition to the factual differences already noted, the Clearwater Court’s finding that it was reasonable for Utica to conclude that the primary policies had aggregate limits of $500,000 was based on a different evidentiary record and different extrinsic evidence than that presented here. Significantly, the defendant in that case elected to submit absolutely no extrinsic evidence. FFIC also contends that discovery was limited in that case, and urges that the record contained none of the significant admissions, concessions, and witness credibility issues that have been developed in this case.
In Travelers, a California appellate court recently affirmed the judgment of the Superior Court of Los Angeles County finding that the primary policies Utica issued to Goulds in the years 1977-82 had aggregate limits. 2016 WL 3564244, at *16. In that case, Goulds contracted with Utica and Aetna, Traveler’s predecessor, for primary, umbrella, and excess policies. The parties agreed that the aggregate limit sections of the 1977-81 Utica primary policies contained blank spaces. The Court described that “next to the language ‘Bodily Injury Liability and Property Damage Liability1 the policies identify the aggregate limit thusly: ‘$,000.’ ” Id. at *15. However, the 1982 Utica primary policy listed a $500,000 product liability aggregate limit. The Court applied California law and found through the use of secondary evidence that the aggregate limit sections of the 1979 through 1982 policies were left blank by mistake. It was noted that the result would be the same under New York law, as New York permits the use of extrinsic evidence to determine the parties’ intended meanings if there are multiple meanings that can be derived from a contract term. The Court went on to explain that the Utica primary policies included a form endorsement which created an internal ambiguity sufficient to permit the admission of extrinsic evidence.
Again, the factual differences between the cases renders Travelers unhelpful for much guidance. Like the Clearwater decision, Travelers: involved different policy years; had primary policies available for the Court to examine and then find an ambiguity, permitting the admissibility of extrinsic evidence (if the issue was analyzed under New York law which it was only considered in dicta); and was supported by a different evidentiary record regarding the presence of aggregate limits including a complete lack of extrinsic evidence presented by the defendant whom took the position that the primary policies were unambiguous. By contrast, as explained below, here there is evidence demonstrating the primary policies did not contain aggregate limits for bodily injury.
Finally, FFIC misinterprets the New York Court of Appeals’ holding in USF&G. Relying on USF&G, FFIC urges that “a reinsurer will not be bound by provisions in a settlement agreement if those provisions were inserted by the reinsured in order to maximize potential recoveries from it reinsurers.” Def.’s Mem. of Law in Supp. of Mot. for Summ. J. on Count I, ECF No. 285, at 1. However, that is not the standard of law articulated in USF&G. Instead, the Court held that a reinsurer is bound only by a reinsured’s good faith decisions. USF&G, 20 N.Y.3d at 420, 962 N.Y.S.2d 566, 985 N.E.2d 876. It noted: “While that expression might seem to suggest that the cedent’s subjective intentions are critical, most decisions also consider reasonableness or some other objective element.” Id. (internal citations omitted). As explained above, “Reasonableness does not imply disregard of a cedent’s own interests. Cedents are not the fiduciaries of reinsurers, and are not required to put the interests of reinsurers ahead of their own.” Id. The Court further elaborated:
As the Third Circuit put it in Travelers v INA: “[T]o establish a breach of the duty of good faith, it is not sufficient simply to demonstrate that a particular allocation decision increased the insurer’s access to reinsurance, at least not where the insurer is able to point to some legitimate (i.e., non-reinsurance-related) reason for the challenged decision” (609 F.3d at 158-159). W e mean by “reasonable” essentially what we take the Third Circuit to mean by “legitimate”: The reinsured’s allocation must be one that the parties to the settlement of the underlying insurance claims might reasonably have arrived at in arm’s length negotiations if the reinsurance did not exist.
USF&G, 20 N.Y.3d at 420-21, 962 N.Y.S.2d 566, 985 N.E.2d 876.
The USF&G Court went on to reject the Third Circuit’s conclusion in Travelers Casualty and Surety Co. v. Ins. Co. of North America, 609 F.3d 143, 159 (3d Cir. 2010) that a cedent’s allocation could be rejected if the cedent was motivated primarily by reinsurance considerations. USF&G, 20 N.Y.3d at 421, 962 N.Y.S.2d 566, 985 N.E.2d 876. In doing so, the New York Court of Appeals held:
We conclude, however, that the cedent’s motive should generally be unimportant. When several reasonable allocations are possible, the law ... permits a cedent to choose the one most favorable to itself (see id.; Gerling, 419 F.3d at 193 [an “allocation that increases reinsurance recovery ... would rarely demonstrate bad faith in and of itself’]). We think it unrealistic to expect that the cedent will not be guided by its own interests in making the choice.
Id. In sum, a cedent’s motive to reach reinsurance, while singularly unimportant, may invalidate the follow the settlement protection if it causes the cedent to make an unreasonable settlement allocation.
With these principles in mind, Utica’s factual allegations, liberally construed, raise the reasonable possibility that its settlement with Goulds was reasonable, in good faith, and justified by legitimate business reasons, thus requiring FFIC to follow the settlement. For instance, FFIC asserts Utica insisted the Settlement Agreement include stipulations that all of the primary policies contained aggregate limits and that those limits had been exhausted; however, the stipulations applied to over 30 years of policies, even though the Goulds coverage litigation focused on only five of those years. Namely, the 1966-72 primary policies underlying the umbrella policies reinsured by FFIC and swept into the stipulation were not litigated between Utica and Goulds. FFIC contends the stipulations w ere- admittedly unnecessary to reaching the deal; specifically the stipulations were labeled “gratuitous” by Utica’s General Counsel, Bernard Turi (“Turi”). Def.’s Stmt, of Mat, Facts in Supp. of Mot. for Summ. J. on Count I, ECF No. 285-1, ¶ 6 (“Def.’s SMF Count I”). A draft settlement agreement with Turi’s handwritten comments includes the notation under the section entitled “Exhaust of Goulds Primary Policies for Product Liability Claims” directing “Need gratuitous language on aggregate limits.” LoPatto Decl., Ex. 8, ECF No. 285. According to FFIC, the insertion of gratuitous stipulations concerning aggregate limits merely underscores Utica’s top concern, which was to push the $325 million settlement payment on its reinsurers whether or not .credible evidence existed for doing so.
Utica however disputes that the term “gratuitous” meant unnecessary. Instead, Turi testified that he wrote this note be-, cause he wanted to include “[p]roaetive language” that designated that Utica had aggregate limits in that particular- section of the Settlement Agreement. He indicated that he wanted a second, gratuitous statement that the primary policies had aggregate limits, which was redundant with the Settlement Agreement’s initial listing of the aggregate limits in the primary policies. Pl.’s Resp. to Def.’s SMF Count I, ECF No. 309—1, ¶ 6. He testified that “gratuitous” did not mean that the aggregate limit provisions were unnecessary.
Next, Turi conceded in his deposition that Utica insisted the Settlement Agreement include the aggregate limit and exhaustion stipulations in order to foreclose the issue with reinsurers, because Utica “didn’t want -to have, this whole fight with Goulds and then this whole fight with .rein-surers” but wanted it “resolved once and for all [on] the aggregate issue.” Def.’s SMF Count I, - ¶ 7; LoPatto Decl., Ex. 7, ECF No. 285, 99:9-100:15, 100:24-101:5 (“ Turi Dep.”). However, Turi testified that “it wasn’t a consequence of that- we had reinsurance,. that we agreed that we had aggregate limits.”.Turi Dep. at 85:15-17, He also testified that avoiding a fight with reinsurers was one of “several reasons” for including the aggregate limit and exhaustion provisions, not “the purpose.” Id. at 99:9-100:15,
Another reason was to cap Utica’s liability under the primary policies, which was important regardless of whether Utica had reinsurance." Id. at 84:18-86:5. Turi testified that the need to cap Utica’s liability under the primary policies was the “primary reason” for the settlement. .
A. Again, if there was no aggregates, Goulds, under California Law .., could select a policy year and have each individual claim go over and over and over again on an unaggre-gated basis.... They would pick a year and' each claim would be subject to that limit and there’d be no cap. So that was the biggest reason. I mean, that far outweighed any reinsurance claim. So that was the primary reason.
Pl.’s Resp. SMF Count I, Ex. A, 51:24-52:10; see also id. at 51:13-53:4;53:17-54:8; Pl.’s Resp. SMF Count I, Ex. C, 84:18-86:5; 93:24-94:14. Another reason for the settlement’s terms was that Utica believed it had a strong case that the primary policies did in fact have aggregate limits. Exhibit C, 84:18-86:5. A third reason was to avoid fights with Utica’s other umbrella carriers. Id. at 99:16-100:6. Turi testified that “the issue of aggregate limits went well beyond the question of reinsurance.” Id. at 85:21-22.
Utica’s Executive Vice President and attorney Kristin Martin (“Martin”) testified in agreement with Turi, stating that “[t]he primary purpose for putting the aggregate limits in the agreement was that it was a contested issue between Goulds and Utica, so that’s why it was in the agreement.” Pl.’s Resp. SMF Count I, Ex. B, 151:4-7 (“Martin Dep.”). Specifically, even though Goulds was not pushing its argument with respect to years outside of 1978-82 at the time of the settlement, “[t]here was no way [Utica was] going to sign a settlement agreement that didn’t clearly articulate what our coverage was, because otherwise they’d be back.” Id. at 155:4-7.
According to FFIC, Martin confirmed that Utica wanted to make sure that there was nothing in the Settlement Agreement that would jeopardize Utica’s ability to collect reinsurance. Def.’s SMF Count I ¶ 8; LoPatto Decl., Ex. 9, ECF No. 285, at 160-62. Martin testified that “we didn’t want to do anything [in the Settlement Agreement] that would impact [reinsurers] or give them a right not to pay.” Id. Utica contends that the cited excerpts do not discuss the reasons why Utica included the aggregate limit provision in the settlement.
In further support of the argument that Utica was improperly focused on reinsurance, FFIC submits an email dated February 6, 2006 from Martin to Richard Cree-don, Utica’s then General Counsel and Senior Claim Officer, which refers to the “reinsurance impact” of Utica’s allocation of the Goulds’ costs. Def.’s SMF Count I, ¶ 9. According to FFIC, Goulds’ attorney Jay Konkel (“Konkel”) also testified that Utica demanded aggregate and exhaustion provisions in the Settlement Agreement for reinsurance purposes. Id. ¶ 10.
Utica points out that Konkel does not comment on the reasons why Utica sought aggregate and exhaustion provisions in the Settlement Agreement. Instead, he speculates about the reasons why Utica sought a judicial determination (from the judges who conducted the mediation) finding that the parties negotiated and consummated the settlement in good faith. Utica submitted the following testimony from Konkel:
Q. And again, you do not know why [Utica] wanted a good faith settlement determination?
A. I, I don’t know why. I might have intuited it.
Q. What do you mean “intuited”?
A. It was a guess. I don’t know.
Q. What was your guess?
A. It might have been pertinent for reinsurance-related issues.
Id. at 93:20-94:6. Utica urges the court to find Konkel’s testimony speculative and contends it has no bearing on the reasons Utica sought aggregate and exhaustion provisions in the Settlement Agreement; Konkel himself admitted that his testimony was only “a guess” and that he had no direct knowledge of Utica’s motivations.
Next, Utica’s privilege log includes multiple entries noting redactions for “legal advice regarding reinsurance” throughout the time that Utica and Goulds were negotiating the settlement. Def.’s SMF Count I, ¶ 11. For example, Utica redacted portions of emails reflecting reinsurance advice in December 2005. Id. Utica also redacted internal memoranda drafted in February 2007 based on “legal advice regarding reinsurance and in connection with anticipation of litigation.” Id, According to FFIC, this is dispositive as to Utica’s ill motives.
Utica does not dispute the privilege log entries. However, courts will not make adverse inferences based on a par