Petition for Writ of Certiorari — Brockstein v. Nationwide Mutual Insurance

Supreme Court brief1972

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SUPREME ‘= COURT, ule.

: T1774

IN THE

Supreme Court of. the a States

y / as October Term, 1971

a a

NATHAN BROCKSTEIN and MANUEL. BROCKSTEIN,

} — business as CHURCH AVENUE. POULTRY,

. Petitioners,

agamst

NATIONW IDE MUTUAL IN SURANCE COMPANY, -

" Respondent. .

; PETITION FOR A WRIT OF CERTIORARI TO THE ¢

UNITED STATES COURT OF APPEALS

‘ FOR THE SECOND CIRCUIT

-4

‘ -Jacos W. FRiepMay,-

| Attorney for Petitioners,

233 Broadway,

New _— N,. ¥.. 10007

- APPENDIX:

Opinion of United States Court of Appeals for the:

Second . Circuit Dated October 20, 1969 Keiaess

of United States Court of Appeals for the

Second Circuit After Remand Dated Septem-

ad .

d 7 \ PAGE

* Opinions Below a, ames Si Tre oe a paek tas ot 1

Jurisdiction ee eet AERO ey ne fa MEI T 2

Question Puen for Review .. sis nies le tien an he ee =

Statement of Case ......0.... ate Cisne 3 2

Reasons. for..Allowance of Writ.........¢)......-+ =

eo ree eens pee ig ey Chae MEET Wiecoan he er 7 o

‘PRO ee 13a 4

4 . NE ci, aE FON Re

ton . Cases Cited i rE -%

Board of imicaesiia v. Lumber mens ] Mutual Casualty

- Co. (C. A. 8), 419 F. 2d 837 ..... phan Roe a 5

Brown v. United. States Fidelity and Casualty Com-. —- .

pany (C. A. 2), We Es OOM Fa bs kas ke ekne . 6 :

Ging Vv. ‘Americati Liberty Insurance Co, (C. A. 5),

423. FR. 2d.115 .:....0..... eT Lee raasik 5

Young v. American Casailiy Company of Reading, ea

:.. Pa. ioiat A. 2), 416 F. 2d op eee 6

ee Statute Cited pre tg

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- INTHE -

: Supreme Court of the Ruited States:

aay ae "Ocrosex.TeRM, 1971 ;

Natuan Brockstern and MaNnveE. BRocKSTEIN, doing,

business as CHURCH AVENUE Povutry, a

CF mate Se - Petitioners,

. against oo hy :

Nationwwe Mutvay Insurance Company, -

: <i N +.

Respondent..

. es

& 77

aa PETITION-FOR A WRIT OF CERTIORARI THE

. ‘UNITED STATES COURT OF APPEALS )

| FOR THE SECOND CIRCUIT. Siete

g To the. Honorable the Chief Justice of the United States’

: and the Associate Justices of the Supreme Court of.

the United States:- .

Your petitioners Nathan Brockstein and. Manuel ‘Brock-

stein, by their attorney, Jacob W. Friedman, respectfully

pray that a writ of certiorari igsue-to review a determina- |

tion of the United States Court of. Appeals for the Second _

Circuit rendered September 21, 1971, affirming, by a divided

Court, a judgment of the United States District Court for

the Eastern Distrigt ‘of New York in favor of defendant -

(respondent heréin). Be aaa ee

Opinions Below ,

Copies of the opinions of the Court of Appeals (the first

reported in 417 F: 2d 703) on two successive ‘appeals by

‘petitioners are hereto appended.

° *”

Jurisdiction - Rin te

“The: udgment of f the Court of. Appeals ‘was bad on?

Sept nber 21,' 1971.

‘The jurisdiction of the United Statas District Court: was

iy oked under 28 UW S. Code See. 1382. :

“Phe jurisdiction - ‘of. the Supreme. Court: of the’ ‘United |

er is invoked under 28 U. S. C ‘ode See. 1254.

e ‘ 4 P we ‘ os a

Question Presented for Review ae

> *

“Where a liabiblty insurance ‘company - astanbe to gettle. a

death action within the policy’ Tits: ‘although the excess

verdict theréafter rendered: appears a virtual certainty, .

cand: fails to keep the insured informed concerning settle:

ment: negotiations or to advise that a relatively minor,

‘contribution by the insured would ‘suffice ‘to settle the

action, s this ‘course of conduct constitute bad faith so —

as. to nder the insurer liable to its insu d for any

» excess payment 96 insured has: been seqenee ! to make?"

| Statgment, of Case aes a i

‘The ‘genesis sof. the matt er is an ncchuint oceurring in

1960.. A truck driven by petitiotiers’ employee was: negli-

gently. backed up, struek one- Kiely and caused his death.

_ Petitioner..was insured against such liability by. respond-

ent, with maximum eoverage of $50,000. Kiely, who died:

3 eight days after the -agcident, was a man of 59, with’a

life expeétancy of. 16.48 years ‘and . annual earnings. of

$7,000. . His: administratrix was represented: by Harry H:

Lipsig, an experienced and. well known lawyer, notably .

suecessful ‘in actions of ‘this character. ~The case could ©

have. -been settled tor 7” 000, but respondent refused to

— » J a

: . -

¢ ¥

‘go above $35, 000. Bows éver; petitioners were not ifformed

of the status of the jegotiations or that a relatively small

“, eantribution . by. them could have disposed of: the litiga-

"tom. The suit ‘proceeded ito trial, the jury returned a

. verdict of $95,000, and a judgment was finally , entered: for

ee. $106, 418. 33: ‘Respondent paid the administratrix $50,000

plus: interest and costs, while petitioners effected a settle-.

. ment by: paying $25,000, for which . amount, ph Eaey: sued eye

cs respondent n. the present action. /. ‘ ; ert

oa * Upon: ‘the foregoing facts thé . United ‘States: District © |

|. Court for the Rastern District of. New York. (Dooling, J). «|

; ‘rendered a judgment in favor of respondent. Petitioners.

-- . appéaled to ‘the. United States: Court. of Appeals for. the’

' “Second Circuit, which in-an opinion by Feinberg, Pire. J. é

held in

__ substanee: Where the, action of an insurance company in .

allowing ‘a case to coyitinue’ ‘rather than settling it made it. °:

(reported i in. 417 F. 20.763, copy hereto anriexed),

highly “probable | ‘that the insured would bésubjected to

So . (exeess” liability, and where the ‘insured’s personal expo-

.. sure ‘was high and the additional risk of the insurer was -

~ far. less, the’ failure of the insurer to. settle was. indicative

of bad faith; that. in a suit by the insured against the —

insurer where the verdict. was substantially more than the

“ poli¢y: limit, where it.could have been settled by an addi-

_” tionak $5,000, it ; ‘was essential to determine what- the in-

, tthe amount required to settle and would —

5 “be willing to contribute ; and that.it was significant to -

.. aseertain w ‘ther the insured had been properly: apprised --

_° of the like. risk. Accordingly, the case Was remanded :

| for furthor findings ‘as to. (1) precisely what: the Brock-

steins wre told or knew regarding the amount needed to:

settle- the: (ely action, the amount the insurer was ‘willing

to coptribute, and: what their potential personal liability: ;

“Wwas/ and (2): what they, were Yhen | ane to contribute © x

th nselves. ”

a ee 4

ad .

. a *

-A rehearing w: was held in the District Cut: with fur-

ther ‘findings, all of which, as will be shown below, sus-:

‘tained ‘the posture of ‘petitioners. Nevertheless, the Dis-

trict ‘Court adhered -to its. original determination and

again rendered judgment in favor of respondent. Peti-

tioners: todk a second appeal, and the judgment was

vafirmed, with Moore, Cire. J., dissenting.

It is from that gletermination | that petitioners file the

» present — for certiorari.

Reasons for Allowance of Writ |

;

so far upheld on appeal is completely untenable in the

light of the further findings made upon rehearing. Thus,

> in response to the issues emphasized by the remand, the

District Court expressly found: (a) petitioners had the.

financial means to-contribute $10,000 or even more (fur

ther finding 70 at 296a); (b) petitioners were not told

‘*the amout needed to settle the Kiely aétion’’ (73-A at

298a) ; (¢), petitioners were not advised ofthe settlement

position so as to suggest that. there was a difference to be

~ made up (73-B at 298a); (d) petitioners. would ‘have con-

tributed $10,000 or more if advised by respondent. that

they had the right to contribute to a settlement (76-A at

299¢); (e) respondent never mentioned to petitioners that

they had tlie opportunity ‘‘to make a relatively small.

contribution to avoid a large exposure’’ (77 at 301a); (f)

no’ one on behalf of respondent indicated to petitioners

that a contribution by them to settlement was possible

(78 at 301a). In the face of these additional findings and

the failure of respondent to produce any further evidence

in support of a defense of good faith, a judgment in -

favor of respondent is quite devoid of any justifiable

foandation.

1. The conclusion reached by the District Court, and

2. ‘The Court of Appeals | in the very majority o —_—— .

: of ‘which we seek a review admitted : .

‘*It is true that the insurer made no mention of

the possibility that the Brocksteins might -make a>

contr#bution; the imsurer apparently thought that

doing so would have been improper... . But now

that we have spoken out on the subject, insurers

are put.on notice and should act oe, in the

- fature,”’

-And in its first opinion the same Court wed dnctanets” aad

“*We hold that bad faith may be evidenced by

_ the failure of the insurer even to mention to the

«insured his opportunity to make a relatively small -

contribution to avoid a large exposure,”’ e

‘ and elsewhere in the opinion referred to this element as’ |

‘the crux of the matter.’’ How can there be any justifi--

cation for stressitig this item as being decisive, and then,

upon a finding ‘in favor-of petitioners on the vital and.

critical issue, brushing it aside and consequently relieving

respondent of any liability? Tt is quite un tandable

how Moore; Cire. J., in his’ dissent was co to

observe at the outset that ‘“‘the result reached by the

4ajority is- quite contrary to our previous statement on

the first appeal of the principles applicable to this case.’’

”

3. The last- majority opinion ef the Court of Appeals

appears te be squarely at variance with the law as ex: .

pressed in recent. holdings of the Third ‘and Fifth Cir- ~

cuits: So, in Board of Education v. Lumbermans Mu-

tual Casualty Co. (C. A. 3), 419 F. 2d 837, it was held

that whether the amount defendant was willing to pay was

communicated to plaintiff was crugial on the-i issue of good

faith, citing the opinion on the first appeal herein. Ging .

v. American Liberty Isurance Co. (C. A. 2), 423 F. 2d

115, also cited the first Brockstein opinion in support of

the conclusion that the duty of the insurance company

. included’ apprising ‘the client of settlement

opportunities within a reasonable time after they

were -presented; it entailed, the duty to warn, the

client of difficulties which the litigation posed for

him wherever such difficulties: were not inchided in

the contract of indemnity; it included the duty ‘to

advise the client of: the outcome of the litigation

and of any particular procedares which might lessen

its financial impact upon him; and it included the

conduct of settlement negotiations in good faith in -

. the interests of the insured wherever those inter-

ests might be divergent from the interests of the

insurance company. diy

It ‘appeats reasonably certain that the two other Courts

referred to would, havé come to the opposite conclusion

in the instant case. Obviously, a conflict in the. law as ‘ex-

pounded by different-circuits presents ‘a classic case for ~

the assumption of jurisdiction: by this Court.

‘4. Even as to the Court of Appeals for tlt® Second Cir-’

cuit, the second opinion herein suggests a different set of

principles from those. set forth in other reported decisions

of the same tribunal, notably Brown v. United States Fidel- -

ity and Casualty Company (C. A. 2), 314 F. 2d 675, and

Young v. American Casualty Company of Reading, Pa.

(C. A. 2), 416 F. 2d 906. These divergences were sig-

nifieantly noted by Moore, Cire. J., in his dissenting opin-

ion herein. His conclusion was-that ‘‘the opinion of the

majority to.me seems quite contrary.to our previous dé-

- ¢isions and to the views of five judges of this court.’’

5. It is further manifest that the present application

° . z . ‘* °

_ presents meritorious and certainly arguable questions of a

kind likely to-drise in ther cases and+éalling: for authori-

tative disposition—especially in view of the contrary views.

expressed both in this as well as in other circuits. More-

over, judicial notice may well be taken of the millions of

liability insurance’ palicies now in forge and of the huge

‘volume of litigation of witich their construction is dis-

positive. While petitioners are naturally concerned with

their own rights, the controversy is of a sort. with which

courts are likely to be confronted jn increasing number.

Ultimate appellate review would be most helpful in fur-

nishing sound guidelines to,aid in the just resolution of

future similar controversies.

CONCLUSION

For the foregoing reasons; your petitioners respect-

fully pray that a writ of certiorari issue to the United .

States Court of Appeals for the Second Circuit to the

end that this cause may be reviewed and determined by

this Court; that the determination, order and judgment

of the said Court of Appeals may be reversed, and that

petitioners be granted such other, further and different ;

relief as may seem proper.

Dated: New York, N.*Y., December 7, 1971..

Respectfully submitted,

Jacos W. FriepMan,

Attorney for Petitioners,

233 Broadway,

New York;. N. Y. 10007 |

ONPG EN OE APR GOLIATH ee

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' that is a fertile source of litigation by insured against in-.-

Opinion of United States Court of ppeals for the -

. Second Circuit Dated Octeber 20, 196 aaa

UNITED STATES COURT OF APPEALS

For tHe Secoxnp Circvitr

“No. 131—September Term, 1969.

(Argued September 8, 1969 . Decided October-20; 1969.) _

° se i ————— . .

Docket No. 31393

s. .

* Naruan Brocksrers and Maxver Brockstern, doing

business as Cutrcen Avenve Povtrry,

Plaintiff s-A ppellauts,

—against—

Nationwipe Mutuar Ixsvrance Compaxy,

‘Defendant-A ppellee.

Before: a ! ;

LumBarp, Chief Judge,

. P ~w -

Fensere, Circuit J udge:

The sense of repose afforded. by the knowledge that one _

is insured is sometiines shattered by the rude news that a

‘policy does not fully cover a cJaim. ‘What happens after

surer. This is such a case, in which plaintiffs Nathan and

Manuel Brockstein, doitig business as‘Chureh Avenue Poul-

try, appeal ftom a judgment in favor of their insurer, de-

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4 th AAPA R AEM MASS Fic inh Maw fect abe

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4 Ae AMAA BELTED AH the hs RSC RRRER S80

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eeitinin’ Nationwide Mytual Insurance: Company; after a

non-jury trial before. John F,, Dooling, J ee ch in the United”

States District Court for the Eastern ot New York.

_ Plaintiffs sued to recovery $25,000, thé amount they paid in

exeess of thie policy limit to settle a judgment against them |

in a:death action. ‘For tr ‘asons given below, we remand

the case to the district court.

= .* Yd

The action drises out of an accident that occurred

March 1960, when Irving Bloom, an employee driving a

truck owned by plaintiffs, fatally injured John F. Kiely

in backing wp. At that time,- plaintiffs: were insured by’

defendant Nationwide against liability for personal injuries

or death resulting from use of the truck by plaintiffs or

their employees. Maximum coverage for any one person

“Was $90,000. Aécording to the findings of the court below,

Mr. Kiely died in the hospital eight days after the accident. :

Kiely was then 59, had an indicated life expectancy of °

16.4 years, and was earning $7, 000 per year. Shortly there-

after, the ‘decedent’ s administratrix, sued the Brocksteins

and Bloom. "The complaint had two causes of action : one,

based on wrongful death, sought damages of $50,000 for

the widow; the other, based on the deceased’s pain and

suffering, claimed $500,000." Counsel for the administratrix

_was Harry H. Lipsig, an experienced and well- known trial

lawyer. Settlement attempts, of whith more later, were

abortive; the case was tried in January 1963. The jury

returned a verdict of $65,000 on the wrongful death claim

and $30,000 on the pain and suffering action. Judgment, as

finally entered, was for $106,413.33. This liability was dis-

charged by payment to the administratrix of $93,847.81, of

’ The complaint was amended to rey erse Coe figures after the

Vv erdict came in. ; , -

which ‘defendant N ationwide paid $58,847.81 -(450,000 plus *

interest and costs) and the Brocksteins paid $25,000. There-. -

"after, in the action now before us, the Brocksteins sued” -

Nationwide for the $25,000. . ; :

- The theory of ,plaintiffs’ action is that @der New York

law, which concededly governs, Nationwide did not prop-

erly represent their interest in its efforts to settle’ the

case. The insurance policy provided that with respect to

the relevant coverage, the insurer shall: . %

defend any suit against the Insured alleging such’ —

injury .. and seeking damages on account thereof, .

even if such suit is groundless, false or fraudulent ;

but. the Company may make such investigation,

negotiation and settlement of any claim or suit as it

deems expedient.

While this - broad statement appears to give, the: insurer

unlimited settlement ‘discretion, such is not the case—and

for geod reason. The policy confers upon the insurér the

exclusive right to decide whether to settle or defend, but .

that decision may affect not only ‘its own interest but also

'- that of the insured. Since the insurer has that exclusive

-right, it must take responsibility for its exercise. While

the insurer has an interest in paying out as little as pds-

sible on claims covered by its policies, the insuredhas an

interest in not being: exposed to a- judgment beyond the

policy limit. When these two interests conflict, the company

has the unenviable duty of dealing fairly with them both.

See Harris .v. Standard Accident & Insurance Co., 191 F. -

Supp. 538, 540 (S.D.N.Y.), rev’d on other grounds, 297. F.

2d 627 (2d Cir. 1961), cert. denied, 369 U.S. 843 (1962).

‘ Therefore, the insurer’s power, not to settle is actually moreé

limited than the languige of the policy indicates. e-

_ We have. recently reviewed the applicable cases dealing

‘with the insurer's obligation in settlement situations. In

ie '

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Brown vy. L “nited States yf ‘idelity & envinte: c v., BY4-¥.

2d 675 (2d Cir. 1963), we concluded that a New York ‘court

would require at the very least that the insur er’s decision’

-.s whether to defend or settle must be made in good faith .

and that “in ev raluating ‘the propriety -of a Settlement”.

when thevinterest of the e company and the insured may .

differ, the interest of-the latter ‘‘must be given at least

equal consideration.’’, We there stated, 314 F. 2d at 678,

*- that the rule may be phrased: as follows ;

“With respect. to the decision whether to settle or

try the case, the insurance company must: in good

eer <i 4s faith view the situation as it-would if there were no

«polity limit applicable to the elaim.”’ | Keeton, Lia-

. | . bility Insurance and -Responsibility for Settlement,

x Soir « “67 Harv:’L. Rev. 1136,.1448 (1953)] « “(T]he fainest

“> s method of balancing the interests i$ for the insurer

4 , to treat the claim as if it wére alone liable for the

: yn veey ’*- Bell v. Commercial Ins. Co., 280

; 4, 515 (3d Cir. 1960)..

“Moreov ar, we quoted, 314 F. 2d “at 679, from the district

| court opinion in Harris, supra, ‘to emphasize that an in-

>. ’ surer’s bad faith,

is most readily inferable when the severity of the

plaintiff’s injuries is such that any verdict against, +.

* “the insured fs: likely to be greatly in excess of the \

policy limits, and further when the facts in the case

: __indicate that a defendant’ s verdict on the issue of

+ _ liability is doubtful. . |

New York law was again assessed in Y oung V. American °

- Casualty Co. F. 2d +—, slip op. 3383 (2d Cir. 1969),

which was tesiedl after Tudge Dooling’s decision in this

ease. Chief J udge Lumbard stated there: sfor this court at

lip op. 3388-89 as amended :

e 6. Ee

‘Where, becausggof the likelihood that an excess ver- ° :

_ diet -will be returned, the greater financial risk of

the litigation rests ou the insured, a finding of bad

faith on the part of the insurer may. be based-on such

factors as these: tr Te ;

on (1) The failure of the insurer to investigate prop-

erly the circumstances of the accident. ie

(2). The refusal of the insurer to accept a settlenient’

within the limits of fhe policy. ‘

(3) The failure of the ‘ixsurey to inform the insured:

of a compromise offer. ;

(4) The failure of .the insurer. to attempt to induce

* contribution by the insured. [Footnote omitted. |

. With this brief summary: of our recent decisions construing. °”

New York law,” we turn to the facts of, the ease before us.

rg Bi, : : II, : aa

Plaintiffs claims that the failure of Nationwide to settle |

the-Kiely action against the Brocksteins for less thaii the

policy limit of $50,000; coupled ‘with Nationwide’s other

actions and inaction, conclusively show its bad faith. That

the Kiely action could have been—and almost was—settled

for less than $50,000 is clear. J udge Dooling found that the

early demand in the case by Kiely’s lawyer, Lipsig, was for

$100,000, but that well before trial, Lipsig told O'Neill, one -

‘of the insirer’s lawyers, that if the policy limit was $50,000,

Lipsig would recommend settlement for $45,000, that -this

offer was repeated by Lipsig at a later pre-trial conference

and at trial, and finally, that during the trial the presiding

? We note that both Brown v. United ‘States Fidelity & Guar. Co.

_and Harris v. Standard Acc. & Ins. Co. Were. cited with approval .

in Cappano v. Phoenix Assurance Co., 280 N-Y.& 2d 695 (App.

Div. 4th Dep't 1967)... gaa

~ =

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are told O'Neill, that the’ éase could be settied for 440,000.

- Meanwhile, the insurers evaluation of the case for settle-

ment purposes was not too far off- from Lipsig’ s. When the .

_ driver, of. tht truck, ‘Bloom, was deposed in July 1961,-

plaintiff Manuel Brockstein was told by the insurer’s

lawyer that lie thought the- case would be settled ‘out of

for about $35,000. In. May 1962; the insurer *g Regio al

Manager, after a full’ conference with claims personnel,

.fixed a settlement authorization for the case of $35,000, .

which apparently was never changed. However, its lawyers

~ were only given ‘‘authority’’‘at-that time to go to $25,000.

Five months later, this authority was inereasid to $32,000... >

Nevertheles$, in the ‘byzantine bargaining that so. often

characterizes these cases, ‘Lipsig was: apparently never

offered more than $15,000 until the trial, when an offer of |

$52,500 was made.’ During trial, the insurer finally: author-

izedgits attorney. to go. to $35,000, and this offer was made, °

Whether this w as. done while Lipsig was still prepared to

‘ take $40,000. i is not clear;* whats clear is that the parties

. were at one time during the trial apart by $7 7300 at most—.

and possibly by only #9,000. The © jury, retured a ‘verdict :

of $95,000.

‘Turning to factors emphaniond in- Harris. wa _Brown,. 3

' the parties disagree as to what was a reasonable ‘predic- :

tion of the verdict in the Kiely action. Kiely was. earn-

ing $7,000. a year. and had a life expectancy of over 16

- ‘years when he was killed, had been steadily, employed for

30 years before and had hho history of prior iHnesses.

‘While his’ widow would not’ be automatically entitled to

an award of Kiely’ s entire expected salary, nevertheless.

a verdict im excess of $50,000: on these items alone was

8 Judge Dodling found: that after Lisi rested his case. in the

Kiely. action, he raised his figure. to $50

| egwahe ease

readily’ predictable. When .to’ this is added a sum )for

- ‘Kiely’s pain and suffering for/the ‘eight days he lingered,

while conscious, in the hospital, it whys obvious—in, the

~ words of Harris and Brown—that’a verdict ‘greatly in

po,

-excess of the policy limits’? was ‘‘likely,’’ if: liability is

assumed. As to that, the insurér was inexplicably opti-

mistic ‘about the possibility of a defendant’s verdict in a ©

_ ease where Bloom, the driver of the“truck,- had no visibil-

7 ' ity ‘‘in the center rear,’’ as Judge Dooling found, and

‘ injured Kiely while backing: up. It-is true that Bloom

stated at his deposition that he had- sounded his horn, but

he apparently had’ never ‘said. this before, mo to police

officers who ‘investigated the accident orJat a Motor’

Vehicle Bureau hearing. All in all, it is clear; in the lan:

guage of Harris and Brown, that) ‘‘a defendant’s verdict

on the issue of. liability’? was ‘“doubtful,”’ at the yery -

‘least. = .

| ’ coe co el

Accordingly, allowing the case to’ continue made / it

hig probable that the Brocksteins would be subjected

to petsonal liability. Their personal expostre was high;..

it turned out to be $45,000. The additional risk ‘to the

insurer was -far less; $10,000 at most, assuming that

Lipsig would accept. $40,000 in setflement. Moreover, that

disposition could have, been achieved by an .additional |

offer of $5,000 to $7,500. While” all of this under the

- €ases already referred to could be evidence: of, bad faith,

’ it_was certainly not conclusive. Were: the inquiry %o stop

there, we would not be inclined to disturb-J udge Dooling’s.

conclusion that Nationwide did not breach its obligations

* Nationwide argues that the.expected verdict ivould be diminished

by reducing to present value the widow's expectaney from Kiely's ”

future, earnings. On the record before us, we cannot tell whether

such a cltarge was given in ihe Kiely action or even requested. As

to the uncertain pradtice in New York on‘such a request, see Com-

mittee on, Pattern Juty Instructions, New York Pattern Jury In-

.. structiong—Civil. 25) Comment pp. 516-18.(1965), °°

proceed nor asked for it.® | It is xe clear from the use

is what transpired between the insurer and its insured,

to which we now turn.

. In his opinion, 266 F. Supp. at 224, Pe Dooling con-

cluded that dt the crucial stage of settlement

plaintiffs, early notified that the case involved a

_claim in excess of. coverage, and advised during

trial of the stages of negotiation and that an ad-

~ verse verdict was possible and could go into excess,

took no action tacitly looking to defendant to

handle the matter. The defendant insurer elected

* # to: go to verdict, and the result was disastrous.

” ‘to plaintiffs; even though the judge may ‘have been ‘unduly

restrictive in assessing the inferences open to him undeg

New York law.* However, ‘the troubling aspect of the case

The judge also made separate findings that the Brock.

steins neither were asked to contribute nor volunteered to

do so, and that they were neither given advice on how to

* The judge charactérized New,York law as

uny ielding i in declining to recognizé any duty-to settle, or to

see “bad faith”-in refusals to settle, or other acts; that, cir-

= cumstantially, suggest that" the insurer pursued its.own inter-

_est and left the insured to take care of his own exposure to

uninsured liability.

266 F. Supp. at 225. That this appears ‘to bé in canflict with this

_-court’s statement in Brown; 314 F. 2d at 678, was recognized by

* District J Port in Bates y. Merchants Mutual Ins. Co., 277 F..

Supp. 308, 312 (N.D.N.Y? 1967). aff'd per curiam, 392 F. 2d 591 |

(28 Cir. 1968).

* The pnly written advice given was a a tae from Nationwide to

the Brocksteins in Janvary 1962—after the key ees in the

case had been taken—which stated :

As you know the accident involving John F.. Kiely pho” Was

killed in an accident on March 7, 1900" lias commenced an:

action against the company gnd against Irving- Bloom. This” ”

matter has been in suit for® time and as you may

- (fodtnote Conginued on next page)

4 “

$7 : . Sa .- .8

. . « tes : . j E .

me the Brocksteins were kept adequately informed

of the ceurse of settlement negotiations, of the realistic

- chances of an adverse verdict about the policy limits, and —

of how high sueh a verdict might be. In particular, it is

not clear whether the Brocksteins were ever told that

“ © $40,000 would settle the case, and that the insurance com-

pany was not willing to-go beyond $35,000. The failure

to keep the Brockstéins informed im this matter could

itself contribute to an inference of. bad faith under the

. authorities discussed above. Moreover, even if it is found

that the Brocksteins were kept and precisely ad-

~ vised, they were never told—either when Nationwide cur-

sorily informed them that they had a right to have their

own separate counsel participate* or when the settlement

negotiations were at their actin they could con-

tribute to a settlement.

The-insurer. argues that it is”* ‘ridjeulous’ ** to assume

’ that the Brocksteins were so willing, but we do not agree.

Perhaps they would not have advanced one cent, but we

P . (footnote continued from previous page)

remember is being handled for you and for Nationwide by

James T. Whalen’s office. We know you have been ‘givifig

him every cooperation possible. We wish to call your atten-

tion to the fact that you have been sued for an amount in '

excess of your policy Jimits. To that extent therefore

have an uninsured .mterest in this action. Lf you- should

@esire to retain your own personal attorney at your own

expense to protect this uninsured interest please feel free to

do so, Understand however that whether.or not you should

do this rest entirely with you.

If you have any further questions about this matter please

_® do not hesitate to call this office or the offices of Mr. Whalen

at any time. Our telephone number here is. WHite Plains -

-8-6500.

The first sentence of the letter was, of course, not only obscure but *

inaccurate ini its reference to an action against the company. As-the

Brocksteins found out to their ultimate. dismay, the action was —

agaist them.

* See note 6 supra.

* Appellee’s brief, p. 15."

ast a aid iver?

rn ——

AGO taney Wc

Gas ~ os

connote ve yooh Gate kes ty aah RD enn alll

”

10a

F ‘ : .

simply do not know what plaintiffs would have done if ‘the

subject of contribution, had been discussed with them at.

the crucial time with explicit advice-as to the possible al-. |

ternative course open and the additional amount required

. to settle. At the very least, we think that the trial-judge |

should-make a fitiding on the issue. For the crux of the

matter is this: At the time when the parties Were ‘so close,

the Brocksteins needed what then District Judge Kaufman

in Harris, supra, 191 F. Supp. at 543, n. 10, called the

‘<judgment . . . of an informed expert,” since they could

‘*hardly be expected to make an objective appraisal of the

facts and relevant law in their own éase.’’ This need is’

pointed up by Nationwide’s reliance in this court on tes--

timony of Nathan Brockstein that he did not think that .

Bloom was responsible for the accident and that he would

not be willing to pay money for sométhing he was not -re-

sponsible for. Such a decision by an insured cries out for

the ‘‘judgment of an informed expert’ ‘_for precise infor-

mation and an informed reasonable.prediction rather than -/

cursory information.- In assessing Nationwide’s liability

here, great significance would attach° toa finding whether *

the Brocksteins would have made a contribution to the

settlement had they been properly apprised of the pos-—

‘sibilities of the risk they ran. We note that under Young,

- supra-.at 3390-91, the burden is on Nationwide to show that

-the Brocksteins would not have contributed.

We realize that the situation of the insurer at:that dene

is delicate: If it presses its insured too hard—or even at

all—that may be evidence of bad faith,’ but if it does. abso-

® While there do not seem to be any New York cases directly on

" point, suggestions that the insured contribute to a settlement have

‘ been relied on in a number of jurisdictions: as one indication of bad

“f4ith. See. e.g, American Mut. Liab. Ins. Co. v. Cooper, 61 F. 2d

~446 (5th Cir. 1932), cert. denied, 289 U.S. 736 (1933) Brown &

McCabe. Inc. v. London Guar..c» Acc. Co., 232 F. 298 (D. Ore.

* 1915); Keeton, supra at 1149 n. 32; 7A J. Appleman, Insurance

law and Practice $4711 n. 12 (1962). °

“a

lla

lutely iiothing that too may count against it.’ i Judge

Dooling clearly saw the problem, but apparently concluded

that the insurer, to avoid a findmg of bad faith, need never

engage in conduct in between these two extremes. We do

not agree. The judge aptly recognized the need for-‘‘a con-

trolled arms-length discussion between the assured and the , °

insurer about their tespective interests in thé settlement.””

266 F. Supp. at 227.. We think that this need must be met,

a proposition not. adequately ‘recognized by the judge.”

There is nothing per se improper: in the bare mention By

the insurer that contribution is. possible.'* _Any impro-

priety would seem to arise from insistence upon a con-

tribution’as the price of settlement, particularly where the

‘amount demanded is relatively high compared with what |

the insurer. i : willing to contribute. There is no incon-

sistency in requiring the insurer ‘to inform the insured of

his chance to make’a contribution in order to settle the.

case. .We hold that bad faith may be evidenced by the

‘failure of ‘the insurer even to mention to the insured his.

‘opportunity ‘to make a_ relatively small contribution to.

avoid a large exposure. * Although we find rio. New York

case directly on. point, we believe that this holding is a

correct prediction of what the New York courts’ would '

decide. on the issue.

Indeed, thé’situation of the insurer’s lawyer is even more deli-

gate, See Keeton, supra at 1157-73. Keeton stggests various changes

in policy forms to remove potential conflict. Jd. at 1183-86.

11 Thus, the judge stated, 206 F. Supp. at 227, that-at the critical

point the insurer's. lawyer Re

deals with the. personal-i injury plaintiff not as representing

the assured but as representing the insurer to the extem of

its. interest, and without, apparently a duty even to report the

~ settlement ‘discussion to Its nominal client, the assured.

'* Keeton, supra at ah 50 n. 32,

oper SEA Bi gh PEre Ondene Pal emriy a

he pee es

ai bb a bd i's Sat ot

f) pee

Accordingly, we remand the case) to Judge Dooling to

make further findings—on this record if he can or on a

reopened record if necessary—as to (1) precisely what the

Brocksteins were told or knew regarding the amount needed

to settle the Kiely action, the.amount the insurer was will-

ing to contribute, and what their potential pérsonal liabil-—

ity was, and (2) what they were then willing to contribute

themseves.* Thereafter, the court should again decide

upon the entire record whether Nationwide acted in bad.

faith under the principles set forth herein. Judgment re-

manded for further proceedings ‘consistent with this opin-

ion.

"We do not preclude-the judge ‘trom reopening the record to -

ascertain other facts, see, e.g., note 4 supra, .

| Sa,

° o

Opinion of United States Court of Appeals for the Sonal

— Cireuit After Remand Dated September 21, 1971

| UNITED STATES COURT OF APPEALS

For THE Seconp Ci1rcurr

No.:849-—September Term, 1970.

(Argued J une 28, 1971 ; Decided September 21, 1971).

Docket No. 71. 1071 eee <7

. i

Naruan Brocksterx and Manver Brocksres, doing

business as Cuurcn Av ENUE Property,

Mt Plaintiff s-A ppellants

against | :

Navionwive Murua Lxsurance Company,

Defendant-Appelee a

. Before:

_ Moore, Feixpenc AND MANSFIELD,

Circuit Juilpin,

FeinserG, Circuit J udge:

In the prior appeal in this case, Brockstein .. Nation-

wide Mutual Insurance Co., 417 F.2d 703 (2d Cir. 1969),

with which familiarity will be assumed, wA remanded to

the district court to: determine again whether the Broch- -

‘stems, plaintiffs-insureds, were entitled to. recover dam-

“4a:

. . . .

. . ‘ 7 ° " - -

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é are .

‘ ages from their insurer because of its failure to settle an

i _action ‘brought against plai tiffs by the administratrix of

: John F. Kiely (Kiely). As a result of that mistake in

E judgment, Kiely recoveréd $95,000 against the Brochsteins,

| $453000 more than-the amount of the poli¢y provided by

$ defendant. The Brochsteins’ excess liability to Kiely was

z ultimately settled for $25,000, for which they sued defend-

j ant-insurer. In our earlier decision, we held, among .

{| other. thingsthat the bad faith of an insurer in Seats

to settle a om against the insured

——_—

4 ay ts evidenced by the failure of the insurer even

: (ib mention to the insured his opportunity to make a

: relatively small contribution to, avoid a large ex-

| 417 F.2d at 709: We sought further findings as to

‘a . (1) precisely what the’ Brocksteins. were told or

Kiely action, the amount the insurer was willing to

, contribute, and what their potential person liability

3 : was, and (2) what they were then willing to con-

4 tribute themselves. | Footnote: omitted.

4 | and directed the trial court again to oe) lon

decide upon the entire record’ whether Nationwide |

. acted in bad faith — the principles set forth

. herein.

On remand, J udge ‘Dooling made extensive further find-

: ings of fact, including the key finding that:

fl 3 The inference of : constructive bad faith that

might be drawn in somé circumstances from the

-. failure/ ofthe insurer to mention to the insured-his -

| opportunity to make a contribution to the settle-

We a ~ ment ip order to avert the risk of a verdict in ex-

a loa

. 2 ig

cess ‘of the policy limit is’ insufficient, on the. facts —

of the present case to establish bad faith in fact.

The judge again found for defendant-insurer, and this ap-

peal followed.

Appellants ities: that the judge did not follow our direc-

tions and that defendant acted in bad-faith as a matter of |

law. As to the former contention, Judge Dooling reopened

the record, as our opinion authorized, heard testimony

from five witnesses, including one -of the plaintiffs and

the lawyer who defended the Kiely action against them,

and carefully reconsidered the question of the imsured’s

- bad, faith in refusing to settle that action. There is no

doubt at all-in our minds that the judge attempted to and

did comply «with our. directions in all respects..

Appellants’ altérnative argument is that, in any event,

the findings of the judge on remand required a conclusion

as a matter of law that the insurer acted in bad faith. Ap-.

pellants base their claim principally on. the findings’ that

tion to the settlement of even $10,000, but were not re-

quested to do so and were not told that a relatively smal]

contribution on their part would avoid a large exposure or

that such’ a course was possible.

The judge did make the findings to which plaintiffs

‘refer. .But he also characterized as ‘“necessarily hypo-

_thetical and not adequate as the basis for a finding’’ the

-testimony of one of the plaintiffs that he would have con-

tributed from $5,000 to $12,500 to a settlement if defendant

plaintiffs had cash on hand sufficient to make. a contribu- *

had ‘advised him he could: The judge also found that

O'Neill (trial counsel for the Brochsteins and the insurer)

did advise the Brochsteins that the outeome was not pre-’

dictable, that the verdict could bein excess of ‘the policy - -

limits, what the ‘‘posture of the settlement discussiéns

as they. progressed during nic canons which the.

& ORSON Re Ore Oe etre Com

so et ei nd Se

pis

MAMA) veriar tit

pias

Ra ee eae

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difference between offer nud demand ‘was ev ident,’ > aml

‘what amount the insurer was willing to offer. The jade

also found that the Brochsteins ‘‘uff€erstood that [if a

verdict were rendéred in excess of the policy limit] in

stich ease the liability would be their firny’s.’’. F-nally, the -

judge pointed out that if there had béen a*negotiation:

between the Brochsteins, the insurer and’ the Kiely inter-

ests, all sorts of eventualities might have, occurred; e.g.,

_Kiely could hav (increased the demand upon learning that

further sums were available or the Brochsteins might not

have been willing to make a substantial contribution un-

less the insurer made a ‘similar increase.

As we pointed out in. our earlier opinion, 417 F.2d at

105, the ultimate issue before the judge was whether the

insurance company dealt fairly and adequately with its

insured under New York law.' A finding of good faith or.

“lack of bad faith is merely-a shorthand way of resolving

the. series of issues embodied in that concept. When the _

trier of fact is convinced that under the applicable law the —

insurer on all the evidence did deal properly with its in- '

- sured, we are not disposed to overrule that judgment. It — :

_ is true-that the insurer made no mention of the possibiligy

that the Brochsteins might make a contribution; the in-

" surer _ apparently thought - that doing, so. would have

_ been improper. As we noted in the first appeal, 417 F.2d

at 708-09, its concern at that time is understandable. But

- now that we have spoken out on the subject, insurers are

put on notice and should act accordingly .in the future.

Thrs means that they must tread the narrow and difficult

line oer merely informing the insured in a proper

case. ‘‘of his chance to make a contribution in order to -

settle the case’” and insisting ‘‘upon a contribution as the .

1We note that- some jurisdictions apparently ‘impose a_ stricter

standard: of Jiability upon.the insurer than New York ‘does.- See

generally Note, Recent Developmeats in the Excess Judgment -Suit,

- 36 Bklyn L. eit 464. (1970) ; 64 De Paul LL. Rev. 604-(-1970).

oie enews. ert

price of settlement.’ ’* 417 F.2d at 709.. Insurers must be

_ particularly careful not to do the latter or to use the pos-

" evading their own responsibilities. — = _*

_. We do not suggest that this is- au) ‘open and shut case or

that the problem it illumines can be dealt with easily. The

, contrary is ‘the fact. As Judge Dooling pointed out:

[T]he limited coverage situation becomes. atly -un-:

satisfactory i in the final settlement s

sured has not retained counsel to ‘epresent. him in

his role as> ‘self-insurer on the excess risk. |

We ggree and point wut as we did before, 417 F.2d at 709 |

n.10, that the insuret’s lawyer at that stage is ina ‘‘deli-

eate’” situation.2 For the future, we suggest that an in-

surer must be careful to give an insured full-and accurate

information as to settlement possibilities not only in the

early, but also in.the late, stages. of negotiation, including -

the advice that to the extent. that there is an uninsured

interest, the insured has the option of being. represented

by separate counsel. -But on this record and after the care-

ful sifting of the evidence by the district judge, we should -

reverse his finding ‘of na, bad faith only if the rule is that —

failure to notify an insured of his opportunity to con- -

tribute always requires a finding of bad faith. But: this

court did. not go that far in our prior opinion er in the

‘ cases upon \which we relied, e.g., You ig -v. American Casu-

alty Co., 416, F. 2d 906 (2a Cir, 1969); ene v. United

States Fidelity, & Guaranty Co., 314. 5 (2d Cir.

_ 1963). And. we ‘decline to adopt such a rule now:

2 Cf. Lysick Vv. Wadom, 65 Cal. Rptr.. 406 (Ct. App. 1968). dis- «

cussed in Sevier, Beyond, the “Bad Faith‘ Rule: New Exctss Liabil-

ity for Insurance Carriers, and Their Attorneys, Proceedings,. ABA

Section of Insurance, Ne ligence, and. Com ensation L Ww. 391,

‘396-99 (1969). ex :

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Saaity in ithe Been ca wae

5 Moor Circuit Judge (dissenting }:

. —settled ‘for less than: $50,000 is clear:’’

a ee,

At oral argument appellants: called to our attention two

regent decisions which cite. our, prior opinion. - But both |

- support the view that the decision. here is essentially for |

‘the trier of fact. .In Ging v. American Inberty Insurance

Co., 423 F.2d 115 (5th Cir. 1970), summary judgment, for

the insurer was reversed ‘so that a trial. could be had ‘on

the issue of good faith. ‘Tn Board of. Education A. Lum-

- berniens Mutual. Casualty Co.; 419 F.2d 837 (3d Cir: 1969), ‘<4

the trier of fact found against the insurance company, and ~

the appellate court affirmed.

J udgment affirmed.

; re “aes

Because i in my opinion the result reached. by tlie majority ’

is quite epntrary to our previous statement on the first

agg of the ‘principles applicable to this case, Brockstein

Nationwide Mutual Insurance Company, 417 PF. 2d 703 .

(4969) and the fact hitherto found which I beliey re to be

determinative, I must dissent.

There i is little. ‘need ‘to search beyond ovr earlér opinion

and J udge Dooling’ s finding's on remand. The background

of fact has been adequately stated. Suffice it to say that

_| the Brochsteins: held a $50,000 accident insurance: policy

__ issued by Nationwide. An accident occurred and they were

sued in an action referred to as ‘the ‘Kiely ease. At this

point we must consider the only operative facts: as found

‘by this, court.

- “That the Kie ly adtinn pre = e. been:

and almost was

* Judge Dooling (on the first trial) found that tlre sanly

‘ demand of Lipsig. (Kiely? s lawyer) was for $100,000 ‘‘but

. that, well before. trial, ae told O'Neil (Nationwide’s

. __aéted ‘tin bad faith,”’

: a : | _ .

_ was], Lipsig would recommend settlement for, $45,000, that *

this offer was repeated by Lipsig at.a later pre-trial con-

ference and at trial, and finally, that during the trial the

. . presiding judge told O’Neill. that the cas Gould be settled .

~~ for $40,000.’” 417 F.2d.at 706. Thus the proof is incontes-

table that the case could have been settled within the policy |

limits and the Brochsteins completely relieved of the lia- --

bility from which they were. protected under the policy "°

which “they had ‘purchased for this purpose. Nationwifle-

failed to make the available settlement. Instead it

ceeded to trial and a $95,000 verdict was returned, Ax a-

result the Brochsteiny instead of being fully protecte

found themselves subjected to a $45,000 excess polict judg-\

“ment which-.they ultimately settled for $25,000. Upon these

facts and the law, Nationwide’s liability would appear to

have | been clear. How then does. a contrary result occur? .

* This “gourt’s previous opinion points to the answer. It

spoke in terms of ‘‘bad faith’’, failure of Nationwide: to

advise the Brochsteins of their. opportunity to make a con--

- tribition to a’ settlement (a factor wholly irrelevant to the

issue) and whether .the Brochsteins would ‘have made a°*

contribution to a settlement even if so advised by: Nation-

_ wide of any such possibility (equally irrelevant). How-_

- ever, this court remanded the case to Judge Dooling to

make findings (and on further testimony if necessary) as °

to. what was told to the Brochsteins by Nationwide reélat- ’

ing to the amount needed to settle the Kiely action, the

amount Nationwide would contribute and the Brochgtein’s:

potential liability—all to determine whether Nationwide

In my opinion J udge Decking’ s further findings Ende: at

our. behest do not meet the controlling legal issues Thus

‘he finds (#86,306a) that ‘‘There is: no evidence that there

Was | penne bad faith on N ationwide’ s part {acting thr oligh

—_:

hn as F

O'Neill or other representative than .0’ weully* "ee 0

. Again in Finding +87 he stresses-eontribution and failure

- by Nationwide to mention this \possibility -to <the Broch-

steins as leading to- an ‘inference of constructive bad ;

faith."*~ Hérein lies the error in the approach of Judge

Dooling and the majority opinion. It is unnecessary un-

Jer the law, to find “thad mene" ‘ix evidenced by facts -

showing evil motive or purpose: . . +a

In Young x. ‘American C. asualty Company, of Reading, ;

#., 6 F.2d 906 (1969), Judgé Limbard (then Chief

Judge) said at page 910 that “‘a finding of bad faith on ~

the part of the insurer -may be hased such factors as

these; * "3 °(2) The refusal of the indurer to acce a

; of any necessity to couch “‘bad faith’ ‘in terms of

evil pul appears from Judge Lambard’s further com-

_Anents that in the usiial case, to establish bad faith by the

insurer an ingured should demonstrate that thé elaim could

have been settled within the policy Mmits, * * a Here

‘the majority Aay that in this case this fact (settlement

Yowithin the init of the policy) is “clear.” Judge Lum-

hard continua) ‘““Whére an insurer receives an offer of

settlement ue ex -of the coverage of its. policy. it acts

fx, bad faith if it fails to make an-attempt * * * (to seeure

a reduction) andj* *.* (fails to advise the insured of

"settlement opport iTres) ** *" An & fortiori case is

presented where, ax here, the hasie fact ix conceded that a

s<eltlement could have been effected within the sree of

the policy. :

Even in Judge Wyait ’s dissenting opinion in Youug,.it

- Was stated that “the core of the actionahle wreng is the

failure or refusal of the insurance carrier to settle when

sftlement within the policy limit could have been, and

should have been, effected.’ Young. pp. 92. The ‘*exsen- ve

m4)

tial clespent of the case for the insured [was] that othe

claim could have been settled within the policy limit.”’

Again here that fact is not disputed.

A somewhat similar’ situation arose in Brown vy. United

States Fidelity and. Casualty Company, 314 F.2d 675 (1963)

in which this court reversed the dismissal of a complaint

im an action by.an insured against an insurance ¢ompany

for failure to settle. In that opinion-Judge’ Kaufman writ-

ing for the court said that “we are convinced that the

good-faith settlement standard controls in New York in

cases of an assured + personal liability resulting from the

insurer's, faiture to settle within the policy limits."

Brown

“at :

4 SE If ton 5 may be evidenced by the failure of the

; rer even to mention to the insured his opportunity to

: bare a relatively small contribution to avoid a larger ex-

posure,”’ as held in Brockstein, supra, at 709, -how much

the more is it evidenced by the established fact that a

settlement could have been effected within the policy limits

| wiring even a small contribution.

Since the Upinion of the majority to me seems _ con-

PP tg our previous decisions ang to the views of oa

judges of thix conrt, I, would reverse the jetguent di

_ missing the action on the merits.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.