Korn v. Federal Insurance Company

UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF NEW YORK

MARC IRWIN KORN, )

)

Plaintiff, )

)

Vv. ) Case No. 1:17-cv-00188

)

FEDERAL INSURANCE CoO., )

)

Defendant. )

OPINION AND ORDER

GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

(Doc. 39)

On December 30, 2016, Plaintiff Marc Irwin Korn filed an action against

Defendant Federal Insurance Company in New York state court arising out of a dispute

regarding defense costs under an insurance policy. Plaintiff filed an Amended Complaint

on January 19, 2017 alleging the same claims.! On March 1, 2017, Defendant removed

the case to federal court based on diversity of citizenship jurisdiction pursuant to 28

U.S.C. § 1332. On December 27, 2018, Defendant moved for summary judgment on

each of Plaintiff's claims and sought a declaratory judgment pursuant to its counterclaim.

Plaintiff opposed the motion. On April 26, 2019, the court heard oral argument, at which

time the court took the pending motion under advisement.”

Steven M. Cohen, Esq., Randy Carl Mallaber, Esq., and Ryan Johnsen, Esq.

represent Plaintiff. Adam Stein, Esq. and Laura B. Dowgin, Esq. represent Defendant.

! Plaintiff's Amended Complaint contains five “causes of action,” three of which appear to seek

only damages. The remaining two causes of action are not labelled but appear to allege vicarious

liability/breach of a fiduciary duty, breach of the duty to defend, breach of the Policy on other

grounds, and violations of the implied covenant of good faith and fair dealing.

Although the parties’ filings are sealed at their request, the court finds no grounds for sealing its

Opinion and Order which does not reveal attorney-client confidences and which provides only

generalized statements regarding Plaintiff's criminal case in order to explain its complexity,

longevity, and outcome.

I. Whether the Court Should Consider Plaintiffs Statement of Disputed Facts.

In support of its motion for summary judgment, Defendant filed a statement of

undisputed facts as required by the Western District of New York’s Local Rules. In his

response, Plaintiff disputes Defendant’s characterization of the evidence but does not

provide citations to the record in support of each disputed fact. The Federal Rules of

Civil Procedure provide:

A party asserting that a fact cannot be or is genuinely disputed must support

the assertion by: (A) citing to particular parts of materials in the record,

including depositions, documents, electronically stored information,

affidavits or declarations, stipulations (including those made for purposes

of the motion only), admissions, interrogatory answers, or other materials;

or (B) showing that the materials cited do not establish the absence or

presence of a genuine dispute, or that an adverse party cannot produce

admissible evidence to support the fact.

Fed. R. Civ. P. 56(c)(1).

Pursuant to the Western District of New York’s Local Rules: “Each numbered

paragraph in the [Defendant’s] statement of material facts may be deemed admitted for

purposes of the motion unless it is specifically controverted by a correspondingly

numbered paragraph in [Plaintiff's] opposing statement.” L. R. Civ. P. 56(a)(2).

To the extent Plaintiff provides record citations in his Opposition, the court will

consider those supported facts as disputed. However, the court disregards facts that are

disputed without citation to admissible evidence. To the extent Defendant relies on facts

that Plaintiff has not properly controverted, those facts will be deemed admitted."

3 See Lester v. M&M Knopf Auto Parts, 2006 WL 2806465, at *2 (W.D.N.Y. Sept. 28, 2006)

(“In light of Plaintiff's express failure to properly controvert Defendant[’s] statement of facts,

this [c]ourt will deem those factual assertions admitted to the extent they are supported by the

record evidence.”); see also Glazer v. Formica Corp., 964 F.2d 149, 154 (2d Cir. 1992) (“When

a party has moved for summary judgment . . . [and] has, in accordance with local court rules,

served a concise statement of the material facts as to which it contends there exist no genuine

issues to be tried, those facts will be deemed admitted unless properly controverted by the

nonmoving party.”).

4 See Monahan vy. N.Y.C. Dep’t of Corrs., 214 F.3d 275, 291-92 (2d Cir. 2000) (holding summary

judgment was properly granted where party’s “counter-statement was . . . utterly bereft of record

citations” and noting that the court “is not required to consider what the parties fail to point out”)

(internal quotation marks omitted); Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001)

I. The Undisputed Facts.

At all relevant times, Plaintiff was the sole owner of Senior Associates, LLC

(“Senior Associates”), Fairchild Manor Nursing Home, LLC (“Fairchild Manor”), and

Healthcare Alliance, Inc. (“Healthcare Alliance”), companies engaged in the business

and/or operation of nursing homes and elder care facilities within the greater Buffalo,

New York region. Plaintiff was also a Member Manager of Senior Associates, Batavia,

and Fairchild Manor, and the President of Healthcare Alliance. Defendant, a member of

the Chubb Group of Companies, is an Indiana corporation engaged in the insurance

industry with its principal place of business in New Jersey.

For the policy period January 23, 2011 to January 23, 2012, Defendant issued a

ForeFront Portfolio insurance policy to Senior Associates, LLC, policy number 8209-

6069 (the “Policy”). Batavia, Fairchild Manor, and Healthcare Alliance are all Insured

Organizations under the Policy. The Policy afforded a maximum aggregate limit of

$1,000,000 for Directors & Officers Liability coverage, inclusive of Defense Costs, and

an additional $500,000 limit of liability for a covered loss resulting from a Directors &

Officers Claim against any “Executive,” inclusive of Defense Costs.

On December 15, 2011, a criminal indictment (the “Indictment”) charged Plaintiff

in the United States District Court for the Western District of New York with four counts

of wire fraud and one count of making a false statement to Special Agents of the Federal

Bureau of Investigations (“FBI”) and the Internal Revenue Service (“IRS”) in a case,

styled United States v. Marc Irwin Korn, Case No. 1:11-cr-00384 (the “Criminal

Action”). Defendant acknowledged receipt of the Indictment as an event that gave rise to

(observing that “a court is not required to scour the record in search of evidence to defeat a

motion for summary judgment’) (internal quotation marks omitted); Skotak v. Tenneco Resins,

Inc., 953 F.2d 909, 915-16 (Sth Cir. 1992), cert. denied, 506 U.S. 832 (1992) (“Rule 56 does not

impose upon the district court a duty to sift through the record in search of evidence to support a

party’s opposition to summary judgment].]”).

5 The Policy defines an “Executive” as any natural person who is a “duly elected or appointed

director[], officer[], [or] member[] . . . of any Insured Organization incorporated in the United

States of America[.]” (Doc. 1-2 at 72.) It is undisputed that Plaintiff is an “Executive” as

defined by the Policy.

a duty to defend under the Policy. On or about December 27, 2011, Defendant’s

representative “explained [to Plaintiff] in detail . . . the rate situation and emphasized that

it [was] likely that either way the insured would likely use the entire policy limit and

would be left paying for the remainder[.]” (Doc. 43-1 at 5, 4 20.)

In a letter dated January 30, 2012, Defendant agreed to provide Plaintiff with a

defense in the Criminal Action subject to a reservation of rights. In this letter, Defendant

informed Plaintiff that because the Indictment was a criminal proceeding, pursuant to

Section II(C) of Plaintiff's Policy, only Plaintiff's Defense Costs would be covered in

accordance with the Policy’s terms and conditions. Defendant advised Plaintiff that

Defense Costs incurred in the Criminal Action would reduce the Policy’s coverage limits.

On June 28, 2012, a grand jury returned a superseding indictment (the

“Superseding Indictment”) in the Criminal Action against Plaintiff which asserted four

counts of wire fraud; two counts of false statements to a financial institution and to

investigative agents of the FBI and the IRS; and four counts of failing to pay payroll/trust

fund taxes as well as a false statement to a financial institution pertaining to a mortgage.

Plaintiffs Opposition references “an additional indictment” dated April 17, 2015

although no information regarding it has been provided. (Doc. 50 at 6 n.1.) Plaintiff was

involved in a bankruptcy proceeding while the Criminal Action was pending which

implicated Plaintiffs Fifth Amendment right against self-incrimination.

By letter dated July 2, 2012, Defendant acknowledged receipt of the Superseding

Indictment and affirmed it would continue to provide Plaintiff with a defense in the

Criminal Action. Because it was determined that Defendant’s regular panel of defense

counsel should not handle the Criminal Action, Defendant agreed that a non-panel

member would be retained to provide Plaintiff’s defense. Defendant assented to

Plaintiffs request for assistance in obtaining representation and recommended several

criminal defense lawyers. Defendant advised Plaintiff that: “Defense Costs were part of,

and not in addition to, the applicable Limit of Liability” and that Defense Costs incurred

and paid “would continue to reduce [the Policy’s liability coverage] limit[.]” (Doc. 43-1

at 4, 9 17.) Defendant further advised that the total amount of Defense Costs paid to date

under the Policy was $228,909.88, with $771,090.12 remaining under the Policy. Jd. By

email dated January 5, 2013, Plaintiff instructed to “proceed with the current lawyers of

DeVita and Considine.” (Doc. 50-1 at 4.) In the course of the Criminal Action which

was pending for approximately six years, Plaintiff was represented by Day Pitney, LLP,

Connors & Vilardo LLP, Seward & Kissell LLP, and Hogan Willig, PLLC.

On or about November 9, 2018, Plaintiff resolved the Criminal Action by pleading

guilty to two misdemeanors pursuant to a misdemeanor indictment charging him with one

count of bank fraud and one count of violating 26 U.S.C. § 2203 for failing to file a

federal tax return, supply information, or pay taxes. As part of the plea agreement, the

Indictment and Superseding Indictment were dismissed. Plaintiff was sentenced on or

about April 3, 2019. As of an April 26, 2019 hearing, Plaintiff filed a notice of

appeal, however, the parties agree that, insofar as it pertains to the pending motion, the

Criminal Action has terminated.

II. The Disputed Facts.

Plaintiff contends that after July 2, 2012, he obtained an additional $500,000 in

coverage from Defendant thereby raising the Policy limit to $1,500,000. This assertion is

unsupported by any citation to the record and will not be considered.

Although Plaintiff selected Day Pitney as defense counsel in the Criminal Action,

he points to a December 21, 2011 email from Defendant’s representative stating:

Here is another option, Michael Considine at Day Pitney. He is a former

federal prosecutor and came very highly recommended.

I have not worked with either of the individuals [I]’ve sent to you, but I am

happy to contact either or both for you to arrange a teleconference to

discuss this matter. This would likely necessitate me forwarding the

indictment to them to understand what we’re dealing with. Let me know if

this is okay with you.

Let me know how you would like to proceed.

(Doc. 50-12 at 1.) Plaintiff further points to a statement by Defendant’s representative

that she “take[s] the choice of counsel matters extremely seriously and will continue to

evaluate the effectiveness of ... counsel in this matter.” (Doc. 50-20 at 1.) Plaintiff

contends these communications support a conclusion that Defendant participated in

choosing the lawyers who represented him in the Criminal Action.

Defendant contends that Plaintiff, at various times between 2012 and 2015, asked

Defendant to authorize additional attorneys for Plaintiff's defense team to be paid with

Policy funds. Plaintiff acknowledges that “Twhile it is true that on several occasions [he]

requested that additional legal personnel outside of Day Pitney be added to his legal

team, these requests were either denied by [Defendant] or rejected by his then-current

counsel before getting to [Defendant’s] decision makers.” (Doc. 50-1 at 5, J 22.)

Defendant’s statement of undisputed facts is supported by admissible evidence

documenting Plaintiffs requests for additional staffing, including on matters unrelated to

the Criminal Action. It also includes Plaintiff's admission that Defendant “on previous

occasions authorized expenditures for other additional legal professionals. It should be

noted; to-date [Defendant’s representative] has approved all such requests.” (Doc. 41-10

at 1) (emphasis in original). Plaintiffs contention that his requests for additional counsel

were denied is unsupported by admissible evidence, is contrary to the record evidence,

and is thus disregarded.

It is undisputed that Plaintiff and Defendant discussed the staffing of Plaintiffs

defense in the Criminal Action and that Plaintiff requested and obtained new counsel. On

June 20, 2014, Plaintiff described his concerns to Defendant’s representative as follows:

I am concerned that any response in writing in this matter will result in a

backlash without first having an exit strategy in place. The remaining

resources of the [Policy] of course will be a deciding factor if any new

representation will be interested in taking over the case.

This isn’t the first time I’ve mentioned the switching of representation and

have had on multiple instances mentioned this to Monica [Logan] over the

past two years. It was [Defendant] who recommended and positioned Day

Pitney into place.

One of the several items to be included in my comments will be[:]

Including but not limited to remembering the client is the number [one]

priority at all time. That the highest level of professional demeanor is the

number | priority at all times. It seems that this has been on multiple

occasions forgotten by Mr. Devita and his team.

However, I prefer to highlight these matter(s) in writing, after new counsel

has been engaged. What I am requesting is how much money is remaining

and whether a recommendation of another firm is available. And let me

express the urgency in this pursuit.

(Doc. 51-14 at 2.) The same day, Defendant’s representative responded, “[i]t appears

that you believe counsel is treating you [im]properly. I’d like to discuss further.” Id.

at 1. On July 6, 2014, Plaintiff replied:

I thought about the discussion we very briefly started last week. Before I

initiate a formal request and introduce [Defendant] to a new firm that would

represent me, I’m open to having you initiate contact on my behalf to the

firm Day Pitney. At this juncture I’m not sure how this will impact my

representation however I’m anticipating improved representation. I will

initiate in the next few days a list of concerns that need addressing[.] The

burning to date of over $1M is of grave concern to me. I feel this is the

entire agenda of Mr. Devita and team. I will address this in my more

lengthy email.

Id. In the light most favorable to Plaintiff, this evidence supports Plaintiff's contention

that he raised concerns about the adequacy of his representation in the Criminal Action —

a contention Defendant does not dispute.

Defendant claims that “Day Pitney and other lawyers and law firms engaged by

Plaintiff at [Defendant’s] expense represented Plaintiff in the Criminal Action for

approximately a three year prior of time commencing on or about January 12, 201 [2].

(Doc. 43-1 at 5, 9 23.) Plaintiff disputes this chronology and claims that Day Pitney

began representing him in the Criminal Action on January 3, 2012. The court finds this

dispute immaterial.

With regard to Day Pitney’s representation, Defendant claims that Plaintiff played

an active role in his defense, was kept fully informed, participated in his defense team’s

strategic objectives and goals, and directed his defense. Plaintiff acknowledges that he

was kept informed through the provision of “sporadic commentary regarding desired

goals and/or outcomes of the case,” but asserts that he deferred to his criminal defense

6 There appears to be a typographical error in the year as it is undisputed the Criminal Action

commenced on or about December 5, 2011.

attorneys regarding final decisions on substantive motions and case direction. (Doc. 50-1

at 5, § 24.)

Defendant asserts that the defense provided to Plaintiff was “rigorously

professional and robust.” (Doc. 43-1 at 6, 4 25.) Plaintiff disagrees and asserts that,

while representing him, Day Pitney exhausted $1,121,239.43 of the Policy limits and

engaged in only four “efforts”: (1) seeking the severance of counts six, seven, eight, and

nine from the Superseding Indictment; (2) filing a motion to suppress statements made by

Plaintiff to IRS agents; (3) participating in basic discovery including two evidentiary

hearings; and (4) objecting to the Report and Recommendation by Magistrate Judge

Jeremiah J. McCarthy.

Defendant represents that it periodically and throughout the three-year period of

Day Pitney’s representation kept Plaintiff apprised of the amount of Defense Costs paid

as well as the remaining funds under the Policy. Plaintiff agrees that he was informed of

the remaining Policy limits on five occasions: January 14, 2013, March 7, 2013,

September 10, 2013, November 11, 2013, and December 1, 2013. He, however, asserts

that he never received a monthly accounting of either the legal bills submitted by Day

Pitney or the Defense Costs paid through the Policy. Plaintiff cites no evidence that he

requested or was entitled to a monthly accounting.

Pursuant to Defendant’s Litigation Management Guidelines (the “Guidelines”),

defense counsel billing was reviewed for compliance; fees and expenses inconsistent with

the Guidelines were not deducted from the Policy limits. Specifically, Defendant cites its

auditors’ reductions totaling $209,318.84 from defense counsels’ invoices, which were

later reduced by $56,382.59 on appeal. Plaintiff disputes Defendant’s calculations and

asserts that he performed his own audit which reveals that Defendant reduced the

attorney’s fees by $65,149.50 and expenses by $55,578.02. Plaintiff further contends that

there are “several line items on Day Pitney’s legal bills for ‘Matter Disbursements’ that

memorialize legal services rendered by law firms such as Connors & Vilardo, LLP and

Seward & Kissell LLP.” (Doc. 50-1 at 6, § 27.) Plaintiff asserts that these “Matter

Disbursements” violated the Guidelines’ requirement that all work performed by

attorneys be billed with specificity. Plaintiff contends that his review of Defendant’s

audit reports memorializes no review or subsequent write-off for these allegedly

improperly billed “Matter Disbursements[.]” In his Opposition, Plaintiff identifies

charges totaling $136,322.66 which he finds inadequately documented and potentially

inconsistent with the Guidelines.

On or about April 21, 2015, Defendant paid the remaining $261,978.94 available

under the Policy. Plaintiff disputes this assertion and claims that Defendant paid

$334,325.24, $72,346.30 of which was paid to Plaintiffs current counsel after invoices

were submitted to Defendant.

The court concludes that none of the alleged disputed facts are material to the

resolution of Defendant’s motion for summary judgment as they are either unsupported

by record references, see Fed. R. Civ. P. 56(c)(1) and L. R. Civ. P. 56(a)(2), will not

affect the outcome,’ or consist of arguments regarding the proper characterization of

undisputed evidence as opposed to actual disputes of fact. See Bordelon v. Chicago Sch.

Reform Bd. of Trs., 233 F.3d 524, 528 (7th Cir. 2000) (ruling that “a disputed issue of

fact is “not satisfied by citations to the record that support legal argument rather than

controvert material facts”).

IV. Conclusions of Law and Analysis.

A. Standard of Review.

Summary judgment must be granted when “there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a). The court “constru[es] the evidence in the light most favorable to the nonmoving

party and draw[s] all reasonable inferences in his favor.” McElwee v. Cty. of Orange,

700 F.3d 635, 640 (2d Cir. 2012). “The function of the district court in considering the

motion for summary judgment is not to resolve disputed questions of fact but only to

7 Not all disputes of fact are material — “[i]f the evidence is merely colorable, or is not

significantly probative, summary judgment may be granted.” Anderson vy. Liberty Lobby, Inc.,

477 U.S. 242, 249-50 (1986) (citations omitted). In addition, “[a] fact is ‘material’ . . . [only] if

it ‘might affect the outcome of the suit under the governing law.’” Rodriguez v. Vill. Green

Realty, Inc., 788 F.3d 31, 39 (2d Cir. 2015) (quoting Anderson, 477 U.S. at 248).

determine whether, as to any material issue, a genuine factual dispute exists.” Kaytor v.

Elec. Boat Corp., 609 F.3d 537, 545 (2d Cir. 2010). “Credibility determinations, the

weighing of the evidence, and the drawing of legitimate inferences from the facts are jury

functions, not those of a judge.” Proctor v. LeClaire, 846 F.3d 597, 608 (2d Cir. 2017)

(internal quotation marks omitted).

The moving party always “bears the initial responsibility of informing the district

court of the basis for its motion, and identifying those portions of the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, which it believes demonstrate the absence of a genuine issue of material

fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks

omitted). “[T]he plain language of Rule 56(c) mandates the entry of summary

judgment... against a party who fails to make a showing sufficient to establish the

existence of an element essential to that party’s case, and on which that party will bear

the burden of proof at trial.” Jd. at 322. When the moving party has carried its burden,

its opponent must produce “sufficient evidence favoring the nonmoving party for a jury

to return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249

(1986).

Summary judgment is not a “disfavored procedural shortcut, but rather an integral

part of the Federal Rules as a whole, which are designed to secure the just, speedy and

inexpensive determination of every action.” Celotex, 477 U.S. at 327.

Although Plaintiffs Amended Complaint alleges causes of action which are not

clearly identified as sounding in tort or contract, in his Opposition, he describes his

claims as follows:

In order to ensure [Plaintiff] received an adequate defense, [Defendant]

should have: (1) made certain that [Plaintiff's] defense by Day LLP and

other law firms retained by the same was progressing at a rate at which

promoted resolution of the Criminal Proceeding; (2) followed its own

Litigation Management Guidelines to ensure proper disbursement of the

Policy’s Funds; and (3) followed and abided by its own directives and

statements regarding staffing of [Plaintiff's] defense team.

10

(Doc. 50 at 3.) The court thus adjudicates the motion for summary judgment on the basis

of Plaintiff's claims as articulated in his Amended Complaint and as summarized in his

Opposition.

B. Whether Plaintiff’?s Claim for Vicarious Liability/Breach of Fiduciary

Duty Fails as a Matter of Law.

Plaintiff asserts that Defendant owed him a fiduciary duty based on a special

relationship of trust and confidence, and that Defendant’s failure to monitor his criminal

defense attorneys, audit the legal fees they incurred, and replace counsel “when Plaintiff

made Defendant] aware that the firm was wasting the finances available for coverage”

constituted a breach of that duty. (Doc. 1-2 at 16, J 109.) More specifically, he contends

Defendant “breached [its] duty owed to Plaintiff by failing to keep track of the legal fees

and compare [them] to the work performed in order to ensure effective and efficient

delivery of legal services.” Jd. at 13, § 86. Defendant seeks summary judgment on this

claim, arguing New York does not recognize a fiduciary duty or vicarious liability

premised upon the acts or omissions of outside counsel retained by an insurance company

for its insured’s defense.

Under New York law, to establish a breach of fiduciary duty, “a plaintiff must

prove the existence of a fiduciary relationship, misconduct by the defendant, and

damages that were directly caused by the defendant’s misconduct[.]” Kurtzman v.

Bergstol, 835 N.Y.S.2d 644, 646 (N.Y. App. Div. 2007). “[G]enerally speaking, a

liability insurer may not be held vicariously liable for the lapses of retained counsel

exercising independent judgment on behalf of the insured[.]” Young v. Nationwide Mut.

Ins. Co., 801 N.Y.S.2d 827, 829 (N.Y. App. Div. 2005). The reasons for this exception

are twofold:

First, the duty to defend an insured is by its very nature delegable, as all the

parties must know from the outset, for in New York . . . an insurance

company is in fact prohibited from the practice of law (Judiciary Law

§ 495). Accordingly, the insurer necessarily must rely on independent

counsel to conduct the litigation. Second, the paramount interest

independent counsel represents is that of the insured, not the insurer. The

insurer is precluded from interference with counsel’s independent

11

professional judgments in the conduct of the litigation on behalf of its

client... Vicarious liability thus produces an untenable situation here: on

the one hand an insurer is prohibited from itself conducting the litigation or

controlling the decisions of the insured’s lawyer, yet on the other hand it is

charged with responsibility for the lawyer’s day-to-day independent

professional judgments in the “nuts and bolts” of representing its client.

Feliberty v. Damon, 527 N.E.2d 261, 265 (N.Y. 1988) (emphasis omitted).

“Despite the general rule that an insurer owes no fiduciary duty to the insured,

‘there are instances where a fiduciary relationship springs into existence’ under

circumstances where there is a special relationship of trust and confidence between the

parties.” Emp’rs Ins. Co. of Wausau v. Crouse-Cmty. Ctr., Inc., 489 F. Supp. 2d 176, 180

(N.D.N.Y. 2007) (quoting Rabouin v. Metro Life Ins. Co. of Am., 699 N.Y.S.2d 655, 657

(N.Y. Sup. Ct. 1999)). “But those instances are the exception rather than the rule[.]”

Rabouin, 699 N.Y.S.2d at 635. “[I]n general, a contract of insurance does not otherwise

create a fiduciary relationship between the parties.” Goshen v. Mut. Life Ins. Co. of N.Y.,

1997 WL 710669, at *8 (N.Y. Sup. Ct. Oct. 21, 1997). “Such a relationship exists and a

fiduciary duty is created [only] when the insurer undertakes the responsibility of

representing the insured in the context of litigation.” Emp ’rs Ins. Co., 489 F. Supp. 2d at

180. “The basis for the fiduciary obligation is quite clear in the litigation context, for the

insurer is undertaking to represent the insured’s interests.” Jd. (quoting Dornberger v.

Metro. Life Ins. Co., 961 F. Supp. 506, 546 (S.D.N.Y. 1997)); see also Hartford Accident

& Indem. Co. v. Mut. Ins. Co., 462 N.Y.S.2d 175, 178 (N.Y. App. Div. 1983) (“In

defending a claim, an insurer is obligated to act with undivided loyalty; it may not place

its own interests above those of its [insured].”).

To the extent Plaintiff seeks to hold Defendant liable for the alleged shortcomings

of his defense counsel in the Criminal Action or their “day-to-day independent

professional judgments|,]” Feliberty, 527 N.E.2d at 265, “[g]iven the insurer’s inability

to provide or control the legal services in issue, and the existence of a remedy for

incompetence against counsel, . . . the imposition of vicarious liability in the

circumstances is unwarranted.” Jd. Because it is undisputed that Defendant did not

12

represent Plaintiff in the Criminal Action, there is neither a factual nor legal basis for

concluding that Defendant assumed responsibility for Plaintiffs defense. Emp ’rs Ins.

Co., 489 F. Supp. 2d at 180 (citation omitted). Even if Defendant brokered the attorney-

client relationship as Plaintiff contends, this is not one of those rare cases in which a

fiduciary duty may be found. Defendant’s motion for summary judgment on Plaintiff's

claim for breach of fiduciary duty/vicarious liability is therefore GRANTED.

C. Whether Plaintiff’s Claim for Breach of the Policy Fails as a Matter of

Law.

Defendant moves for summary judgment on Plaintiff's claims for breach of the

duty to defend because Plaintiff fails to rebut Defendant’s evidence that it fully satisfied

its defense obligations under the Policy. In response, Plaintiff asserts that Defendant

breached the Policy by: (1) failing to ensure that his defense in the Criminal Action

progressed at a proper rate to reach resolution before the Policy limits were exhausted;

(2) failing to follow its own Guidelines; and (3) failing to appropriately staff □□□ defense

team. Under New York Law, a plaintiff alleging a breach of contract must establish:

(1) “the existence of a contract; (2) a breach of that contract; and (3) damages resulting

from the breach.” Nat’l Mkt. Share, Inc. v. Sterling Nat’! Bank, 392 F.3d 520, 525 (2d

Cir. 2004).

1. Defendant’s Alleged Failure to Ensure the Criminal Action

Progressed at a Rate to Reach Resolution Prior to Exhaustion of

the Policy Limits.

Plaintiff argues that the Policy required Defendant to ensure the Criminal Action

reached a final resolution before the Policy limits were exhausted. He identifies no

provision of the Policy that imposes this obligation. The Policy provides in relevant part:

[Defendant] shall have the right and duty to defend any Claim covered by

this Policy and shall have the sole right and duty to select counsel for the

defense of any such Claim and such counsel shall be chosen from the

[Defendant’s] list of approved counsel. The Parent Corporation shall have

the right to consent to the [Defendant’s] choice of defense counsel, which

consent shall not be unreasonably withheld, and to participate and assist in

the direction of the defense of any Claim. Ifthe Parent Corporation

reasonably withholds its consent to the [Defendant’s] choice of defense

counsel for a particular Claim, the Parent Corporation may choose defense

13

counsel from [Defendant’s] list of approved counsel. Coverage shall apply

even if any of the allegations are groundless, false or fraudulent.

[Defendant’s] duty to defend any Claim shall cease upon exhaustion of the

applicable Limit of Liability.

(Doc. 1-2 at 40.) By its plain language, the Policy requires no “reasonable rate of

progression.” It thus neither required Defendant to ensure a swift resolution of the

Criminal Action, nor could it reasonably impose such a burden unless Defendant

assumed responsibility for Plaintiff’s criminal defense. See Feliberty, S27 N.E.2d at 265

(recognizing “the insurer’s inability to provide or control the legal services” of retained

counsel). From the outset of the Criminal Action, Defendant advised Plaintiff that

Plaintiff would “likely use the entire [P]olicy limit and would be left paying for the

remainder[.]” (Doc. 43-1 at 5, 20.) Thereafter, Defendant repeatedly reminded

Plaintiff that Defense Costs would reduce the Policy limits. Plaintiff has proffered no

evidence of a promise to the contrary.

Because Plaintiff has failed to establish a contractual obligation under the Policy

to ensure a “reasonable rate of progression” so as to avoid exhaustion of the Policy limits,

Defendant’s motion for summary judgment on this aspect of Plaintiff's breach of contract

claim is GRANTED. See Celotex, 477 U.S. at 322 (“[T]he plain language of Rule 56(c)

mandates the entry of summary judgment . . . against a party who fails to make a showing

sufficient to establish the existence of an element essential to that party’s case, and on

which that party will bear the burden of proof at trial.”).

2. Defendant’s Alleged Breach Based on Failure to Comply with Its

Guidelines.

Plaintiff asserts Defendant breached the Policy by failing to comply with its own

Guidelines and “failing to keep track of the legal fees and compare the work performed in

order to ensure effective and efficient delivery of legal services.” (Doc. 1-2 at 13, { 86.)

Plaintiff identifies no obligation in the Policy requiring Defendant to follow its own

Guidelines for Plaintiff's benefit. The Guidelines themselves do not extend this promise

but rather provide that they:

[were] developed to establish the expectations of [Defendant] . . . with

respect to reasonable defense costs (as defined in the policy) of defense

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counsel retained to defend our insureds. Our objective, which we believe is

shared, is to provide an aggressive, efficient, quality defense of claims

brought against our insureds. We expect, and the policy requires, full

cooperation from defense counsel responsible for the litigation as well as

from the insureds. We believe that the partnership developed through

adherence to these guidelines will ensure that these mutual objectives are

achieved.

(Doc. 50-3 at 2.) The language in question is clearly aspirational in nature. See Ullmo ex

rel, Ullmo v. Gilmour Acad., 273 F.3d 671, 677 (6th Cir. 2001) (holding “a breach of

contract claim will not arise from the failure to fulfill a statement of goals or ideals’);

Gally v. Columbia Univ., 22 F. Supp. 2d 199, 207-08 (S.D.N.Y. 1998) (holding “the mere

allegation of mistreatment without the identification of a specific breached promise or

obligation does not state a claim on which relief can be granted” and noting “general

promises about ethical standards” are unenforceable). Moreover, no reasonable

interpretation of the Guidelines gives rise to a contractual duty to Plaintiff. To the

contrary, the Guidelines recognize that Defendant must not restrict the exercise of the

professional judgment of retained defense counsel in rendering legal services on behalf of

its insured.®

“TCJourts in New York .. . have expressly disavowed a cause of action based . . .

on failure to follow internal guidelines.” Nassar v. Madera, 2016 WL 3945689, at *6

(S.D.N.Y. July 19, 2016). Here, “Plaintiffs theory of liability against the insurer

defendants fails because plaintiff has not alleged that the insurer defendants had a duty of

care to him in the form of following their internal underwriting guidelines.” Jd. Even if

Plaintiff could establish a contractual obligation, he fails to proffer admissible evidence

of its breach. See Nat’! Mkt. Share, Inc., 392 F.3d at 525 (“To establish a prima facie

case for breach of contract, a plaintiff must plead and prove . . . a breach of that

contract[.]”). Because Plaintiff fails to establish a promise by Defendant to follow its

8 The Guidelines recognize that: “Nothing contained herein is intended to restrict, nor shall

[Defendant] restrict, defense counsel’s exercise of professional judgment in rendering legal

services on behalf of the insured or otherwise interfere with any ethical obligation governing the

conduct of counsel.” (Doc. 50-3 at 2.)

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own Guidelines for Plaintiffs benefit and a breach thereof, summary judgment in

Defendant’s favor is GRANTED on this aspect of Plaintiff's breach of contract claim.

3. Whether Defendant Breached its Promise Regarding the

Staffing of Plaintiff’'s Defense Team.

Asserting that he relied on Defendant’s representation that Attorney “Considine

and his law firm would be the only attorneys representing him throughout the Criminal

Proceeding],]”” (Doc. 50 at 20), Plaintiff claims Defendant breached the Policy by adding

attorneys and law firms to Plaintiff's defense team without his approval.’ Plaintiff notes

that Defendant “allowed three separate law firms to bill time in conjunction with the

Policy funds.” Jd. at 21. Plaintiff, however, admits that he “requested that additional

legal personnel outside of Day Pitney be added to his legal team[.]” (Doc. 50-1 at 5,

q 22.)

The Policy provides Defendant “shall have the sole right and duty to select

counsel for the defense of any .. . [c]laim.” (Doc. 1-2 at 40.) Construing the evidence in

the light most favorable to Plaintiff, no rational jury could interpret this provision as

requiring Plaintiff's consent to any additional representation. See Scott v. Harris, 550

U.S. 372, 380 (2007) (“Where the record taken as a whole could not lead a rational trier

of fact to find for the nonmoving party, there is no genuine issue for trial.”) (internal

quotation marks omitted). It is thus immaterial whether Defendant, Plaintiff, or both

participated in the staffing of Plaintiffs criminal defense. Under the Policy, Defendant

retained the sole right and duty to select defense counsel. It did so in the Criminal Action

In support of this claim, Plaintiff cites Defendant’s December 22, 2011 case notes which state:

[Plaintiff] kept discussing wanting a “team” of lawyers and hiring Michael on top

of his current lawyers. I stressed that would definitely not be the case and if we

were to retain Michael it would be just him and his firm. I tried to explain to the

insured that multiple firms involved in this matter would be disastrous to his

defense.

(Doc. 39-10 at 1.) It is not clear how this case note supports Plaintiffs contention that attorneys

were added to his defense team in the Criminal Action against his will. Rather, the note supports

a contrary conclusion. Were Plaintiff's interpretation of the case note correct, it nonetheless does

not give rise to a contractual obligation.

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either at Plaintiff's urging or with Plaintiff's knowledge and consent. Under New York

law, a claim of breach of contract does not lie when a plaintiff cannot identify a provision

of the insurance policy that has been breached. See Gally, 22 F. Supp. 2d at 207. The

court therefore GRANTS Defendant’s motion for summary judgment on this final

component of Plaintiff's breach of contract claim.

D. Whether Plaintiff’s Claim for Breach of the Implied Covenant of Good

Faith and Fair Dealing Fails as a Matter of Law.

Plaintiff claims Defendant breached the implied covenant of good faith and fair

dealing based on the same facts he alleges in support of his breach of contract claims.

“New York law... does not recognize a separate cause of action for breach of the

implied covenant of good faith and fair dealing when a breach of contract claim, based

upon the same facts, is also pled.” Harris v. Provident Life & Accident Ins. Co., 310 F.3d

73, 81 (2d Cir. 2002); see also Mktg. Devs., Ltd. v. Genesis Imp. & Exp., Inc., 2009 WL

4929419, at *4 (E.D.N.Y. Dec. 21, 2009) (“Plaintiff has not demonstrated that its

allegations of breach of the covenant of good faith and fair dealing are causes of action

independent of the alleged breach of contract. Therefore, ... any appropriate damages

[should] be awarded only on the basis of plaintiff's claimed breach of contract.”); [CD

Holdings S.A. v. Frankel, 976 F. Supp. 234, 243-44 (S.D.N.Y. 1997) (“A claim for

breach of the implied covenant will be dismissed as redundant where the conduct

allegedly violating the implied covenant is also the predicate for breach of covenant of an

express provision of the underlying contract.”) (internal quotation marks omitted).

“Despite the existence of a contract, a plaintiff may still succeed on a claim for

breach of the implied covenant of good faith and fair dealing if he can establish[] a legal

duty separate and apart from contractual duties.” Schonfeld v. Wells Fargo Bank, N.A.,

2017 WL 4326057, at *5 (N.D.N.Y. Sept. 27, 2017) (alteration in original) (internal

quotation marks omitted). In this case, Plaintiff establishes no legal duty separate from

Defendant’s contractual duties under the Policy and therefore his claim based on the

implied covenant of good faith and fair dealing fails as a matter of law. Plaintiff's failure

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to proffer admissible evidence establishing that Defendant failed to act in good faith only

buttresses that conclusion.

For the reasons stated above, Defendant’s motion for summary judgment on

Plaintiff's breach of the implied covenant of good faith and fair dealing claim is

GRANTED.

E. Whether Plaintiff’s Claim for Emotional Damages Fails as a Matter of

Law.

In his Amended Complaint, Plaintiff seeks $5 million in damages for “great

mental anguish” as a result of Defendant’s conduct which he characterizes as “negligent,

careless, wanton, intentional and unreasonable.” (Doc. 1-2 at 17, J 112-13.) He claims

Defendant’s acts and omissions resulted in “severe stress which[] . . . caused a worsening

of his heart condition resulting in three heart attacks and numerous hospitalizations and

strokes.” Id. at 17, 4 121. Defendant seeks summary judgment with regard to this claim,

asserting that New York law does not authorize the recovery of emotional distress

damages in the facts and circumstances of this case.

“In New York it is generally held that emotional and mental distress is not

compensable in a breach of contract action... Bad faith alone is insufficient to justify

an exception to the general rule.” Martin v. Donald Park Acres at Hasting, Inc., 389

N.Y.S.2d 31, 32 (N.Y. App. Div. 1976); see also Brown v. Gov’t Emps. Ins. Co., 66

N.Y.S.3d 733, 736 (N.Y. App. Div. 2017) (“It has long been the rule that absent a duty

upon which liability can be based, there is no right of recovery for mental distress

resulting from the breach of a contract-related duty[.]”) (internal quotation marks

omitted). In other words, “damages for emotional distress for breach of contract are

available only in certain limited circumstances, such as a willful breach accompanied by

egregious and abusive behavior[.]” Jd. In this case, no breach of contract has been

established, no legal duty independent of the Policy exists, and Plaintiff has proffered no

admissible evidence of bad faith. Summary judgment with regard to Plaintiff's request

for emotional distress damages is thus mandated. See Campbell v. Silver Huntington

Enters., LLC, 733 N.Y.S.2d 685, 686 (N.Y. App. Div. 2001) (“[Plaintiff] is not entitled to

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recover damages for emotional distress pursuant to her breach of contract claim. It is

well settled that a simple breach of contract is not to be considered a tort unless a legal

duty independent of the contract itself has been violated[.]”).

CONCLUSION

For the foregoing reasons, the court GRANTS Defendant’s motion for summary

judgment (Doc. 39) and enters judgment in Defendant’s favor on each of Plaintiff's

claims. The court DENIES AS MOOT Defendant’s request for a declaratory judgment

pursuant to its counterclaim.

SO ORDERED.

Dated at Burlington, Vermont this OT Yay of September, 2019.

DLE

United States District Court

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