# Petition for Writ of Certiorari — National Union Fire Insurance v. Highlands Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 513 U.S. 1112

## Text

SUprems Cost, U:8.
\) FILED

No. 94 915 Nov 171994

IN THE (fff OF IHE CLERK

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

NATIONAL UNION FIRE INSURANCE COMPANY

OF PITTSBURGH, PENNSYLVANIA; AMERICAN

INTERNATIONAL GROUP, INC.; and AMERICAN
ADJUSTMENT COMPANY, INC.,

Petitioners,
Vv.

HIGHLANDS INSURANCE COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
AND APPENDIX

CHARLES T. FRAZIER, JR.
Counsel of Record

B. MICHAEL BENNETT

COWLES & THOMPSON, P.C.

901 Main Street, Suite 4000

Dallas, Texas 75202-3793

(214) 670-1100

(214) 698-0310 (Fax)

ATTORNEYS FOR PETITIONERS

November 17, 1994

PA EM ERE ETL RDS tS i? a 2 ney alee mag wens aon
é i Ai ing : Nee patil ests ‘

Sik wien PERRY pt etait aae ahi Bo Telli

ye

QUESTION PRESENTED
Whether the court of appeals’ refusal to remand
the case for further proceedings, after determining
that the district court mistakenly resolved a
dispositive fact issue as a matter of law, coupled
with the court of appeals’ refusal to review the
correctness of the district court’s ruling, operated

to deprive Petitioners of due process.

PARTIES TO THE PROCEEDINGS BELOW

National Union Fire Insurance Company of Pittsburgh,
Pennsylvania, Petitioner.

American International Group, Inc., Petitioner.

American International Adjustment Company, Inc.,
Petitioner.

Highlands Insurance Company, Respondent.

The parent company of National Union Fire Insurance
Company of Pittsburgh, Pennsylvania, is American
International Group, Inc. The non-wholly owned
subsidiaries of National Union Fire Insurance Company of
Pittsburgh, Pennsylvania, are Asesores Bursatiles Capital
Fund N.V., Asesores Bursatiles Venture Fund N.V.,
Developpement et Finance, American International
Specialty Lines Insurance Company, and Lexington
Insurance Company.

The parent company of American International Group, Inc.
is C.V. Starr & Co., Inc. The non-wholly owned
subsidiaries of American International Group, Inc. are AIG
Financial Products Corporation, General Environment
Management Company, Trade Network International,
Limited, IPC Holdings, Inc., SELIC Holdings, Inc.,
American International Life Assurance Company of New
York, and AIG Life Insurance Company.

The parent company of American International Adjustment
Company, Inc., is American International Group, Inc.
American International Adjustment Company, Inc. has no
non-wholly owned subsidiaries.

TABLE OF CONTENTS

CETIT I PURINE ns vt cc eriweeans i
PARTIES TO THE PROCEEDINGS BELOW ....... ii
De Fie I wreen oo Os bee ee ecw tes iii
ep Be Be 2 a ae Vv
PETITION FOR WRIT OF CERTIORARI ......... 1
Ee oo ke Gh AEE oe Reon ewe 2
JURISDICTION ...........-. ORS aT eee eee 2
CONSTITUTIONAL PROVISIONS AND
a ees 4 oi ds ainda > ate ee ® ue de 2 + 4
STATEMENT OF THE CASE .................. 5
i. Course of Proceedings Below. ........... 5
hs Factual Background. ................. 9
REASONS FOR GRANTING THE WRIT .......... 12

A. The decision of the court of appeals
violated the rule of Saunders v. Shaw,
and thereby deprived Petitioners of due
ES SA Wke Weed Re eens a de see i 12

B. The decision of the court of appeals was
based on other errors, as well. ........ 20

ad The decision of the court of appeals
resulted in harmful error. ........... 23
CONCLUSION ... Cee b eee eee eceecueseeeess 25
I She) Sees pa ete tele ot sor ae 27

A. Opinion of the United States Court of
Appeals for the Fifth Circuit ........ A-|

B. Order of the United States Court of
Appeals Denying Petitioner’s Petition
Sar TS keke Ce ees éS OS B-1

¢. Amended Judgment of the United States
District Court for the Southern District
of Texas, Houston Division ......... C-1

D. Order of the United States District
Court for the Southern District of
Texas, Houston Division ........... D-|

TABLE OF AUTHORITIES
CASES

Butler Bros. v. McColgan,
343 U.S. 501, G2 &. Ch. FOE CIDSE).. ww cer vtawes 17

Consarc Corporation v. Marine Midland Bank, N.A.,
gw e by ie 2: ee ee eee 20

Georgia Railway & Electric Company v. City of Decatur,
(295 U.S. 175, 55 S. Ct. 701 (1935) .....---.... 17

Hamling v. United States,
418 U.S. 110, 94S. Ct. 2887 (1974) ......... 13, 17

Helis v. Ward,
308 U.S. 365, 60 S. Ct. 283 (1939) ......... 13, 17

Highlands Insurance Company v. National Union Fire
Insurance Company, 27 F.3d 1027 (Sth Cir.
eer rer rer sa «ee i ee 7

Hudson-Port Ewen Associates v. Chien Kuo,
78 N.Y.2d 944, 573 N.Y.S.2d 637,

ra are ee ee 20
Jackson State Bank v. King,

992 F.26 256 (10th Cie. 1BBG) 0 kw cette eee 19
Jakobson Shipyard v. Aetna Casualty and Surety Company,

775 F. Supp. 606 (S.D.N.Y. 1991) ............. 20
North Mississippi Communications, Inc. y. Jones,

SOE Fe ee Ge a, Fs 8 6 Cs ee ee caewess 19

Vv

Pullman-Standard v. Swint,
456 U.S. 273, 102 S. Cr. 1781 (1982) ........... 18

RTC Transportation, Inc. v. Conagra Poultry Co.,
ee BF. ff ae | ree 19

Saunders v. Shaw,
244 U.S. 317, 37 S. Ct. 638 (1917) .... 12, 13, 14,17

Scanlon v. Travelers Insurance Company,
849 F. Supp. 836 (N.D.N.Y. 1994)............. 20

Snyder v. Commonwealth of Massachusetts,
291 U.S. 97, 54S. Ct. 330 (1934) ............. 17

W.W.W. Associates v. Giancontieri,
77 N.Y.2d 157, 565 N.Y.S.2d 440,

56h 00.96 O...« bs waw Kaci dbase he 20
STATUTES

UBL OS... wink oho oe oc <1

26 USS. 0 10 8 oss err eh ee 2

ay GE, Meee TY ok kk sc os i vlan Seek ees. 4

Sra CE. SOE. We nk cc ca a ces os WES Re. 4

No.

IN THE
SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1994

NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PENNSYLVANIA; AMERICAN
INTERNATIONAL GROUP, INC.; and AMERICAN
ADJUSTMENT COMPANY, INC.,
Petitioners,
Vv.

HIGHLANDS INSURANCE COMPANY,

Respondent.

PETITION FOR WRIT OF CERTIORARI

National Union Fire Insurance Company of Pittsburgh,

Pennsylvania, American International Group, Inc., and American

Adjustment Company, Inc., respectfully petition that a Writ of

Certiorari be issued to review an opinion and judgment of the
United States Court of Appeals for the Fifth Circuit.

OPINION BELOW
The opinion of the United States Court of Appeals for the
Fifth Circuit, entered July 21, 1994, is reported at 27 F.3d 1027,
and is reprinted in the Appendix hereto as Section A. No separate

opinion was entered by the district court.

JURISDICTION

The Judgment of the Court of Appeals was entered on the
same date as its opinion (July 21, 1994). The Order of the Court
of Appeals denying the Petition for Rehearing was entered on
August 19, 1994, and is reprinted in the Appendix as Section B.
The Amended Judgment of the United States District Court for the
Southern District of Texas, Houston Division, was entered on
August 27, 1992, and is reprinted in the Appendix as Section C.
The district court also entered an Order concerning its award of
attorneys’ fees, which is reprinted in the Appendix as Section D.
This Petition for Writ of Certiorari was filed within ninety (90)
days of the entry of the Order denying the Petition for Rehearing.

Federal subject matter jurisdiction in the district court was
predicated on 28 U.S.C. § 1332(a), in that the parties are citizens
of different states and the matter in controversy exceeds the sum

or value of $50,000, exclusive of interest and costs. Jurisdiction
of this Court to entertain this Petition for Writ of Certiorari is
invoked pursuant to 28 U.S.C. § 1254(1). Petitioners contend that
the action of the Fifth Circuit Court of Appeals in this case is
reviewable pursuant to Rule 10.1(a) of the Rules of this Court, in
that the Court of Appeals “has so far departed from the accepted
and usual course of judicial proceedings .. . as to call for an
exercise of this Court’s power of supervision.” Petitioners contend
further that the action of the Court of Appeals violates the due
process clause set forth in the Fifth Amendment of the United
States Constitution, and that its action is therefore reviewable
under Rule 10.1(c) of this Court, in that the Court of Appeals "has
decided a federal question in a way that conflicts with the

applicable decisions of this Court.”

CONSTITUTIONAL PROVISIONS AND STATUTES

No person shall be held to answer for a capital, or
otherwise infamous crime, unless on a presentment or indictment
of a Grand Jury, except in cases arising in the land or naval forces,
or in the Militia, when in actual service in time of War or public
danger; nor shall any person be subject for the same offence to be
twice put in jeopardy of life or limb; nor shall be compelled in any
criminal case to be a witness against himself, nor be deprived of
life, liberty; or property, without due process of law; nor shall
private property be taken for public use, without just

compensation.

U.S. Const. amend. V.

In Suits at common law, where the value in controversy
shall exceed Twenty Dollars ($20.00), the right of trial by jury
Shall be preserved, and no fact tried by jury, shall be otherwise re-
examined in any Court of the United States, than according to the

rules of the common law.

U.S. Const. amend. VII.

STATEMENT OF THE CASE

1. Course of Proceedings Below.

This is a diversity case in which the plaintiff asserted three
state-law causes of action: fraud, negligent misrepresentation and
breach of fiduciary duty. It is undisputed that the claims are
governed by New York law. The plaintiff below was Highlands
Insurance Company ("Highlands"), the issuer of an excess policy
of general liability insurance. The defendants were the issuer of
the primary policy, National Union Fire Insurance Company of
Pittsburgh, Pennsylvania ("National Union"), and two related
companies, American International Group, Inc. ("AIG") and
American International Adjustment Company, Inc. ("AIAC").'
The insured under both policies was a general paving contractor,
Naclerio Contracting Company, Inc. ("Naclerio"), which was not
a party to the litigation.

Highlands filed the lawsuit in July 1990, alleging that the
defendants had concealed the existence of a third insurance policy,
which wouid have provided coverage to Naclerio’s co-defendant,
the City of New York, in a previous personal injury lawsuit. The
concealment, it said, had caused Highlands to pay a greater amount

in settlement of the previous lawsuit than it otherwise would have

' National Union, AIG and ALAC will be referred to collectively in this
Petition as “National Union,” in conformance with the terminology employed by
the court of appeals, and may occasionally be referred to as “Petitioners.”

5

paid. R. 124. The defendants claimed that they had, in fact,
disclosed the existence of the policy to Highlands in a timely
manner, and that they did not contribute to the settlement because
there was no coverage. R. 185.

At trial, the parties disagreed over whether the OCP policy
was in the amount of $500,000 or $3,000,000 on the date of the
injury. Tr. 316-20, 573-74. The question was significant because
the amount of compensatory damages recoverable in the action
necessarily was limited to the amount of the policy. The measure
of damages was, by definition, equal to the amount which “would
have been paid” under the OCP policy if the alleged concealment
had not occurred. R. 357, 360; Tr. 648-49. National Union’s
trial counsel argued that the issue should be resolved by the court,
as a matter of law, contending that the policy was unambiguous.
Tr. 474, 483. The district court deferred its ruling until the close
of the evidence, and then decided that the question indeed was one
of law, for the court. Tr. 650. It instructed the attorneys not to
address the point during closing arguments, and instructed the jury
not to consider the policy limits during its deliberations. Tr. 651.

The jury found for Highlands, and assessed the amount of
compensatory damages at $1,100,000. R. 389. National Union
asked that the award be reduced to $500,000, but the trial court
failed to rule on its request. R. 415, 542. Its failure had the

effect of a finding that the policy was in the amount of
$3,000,000, since that was the only conclusion consistent with a
judgment in the amount of $1,100,000. Petitioners argued to the
Fifth Circuit that the district court’s unarticulated legal conclusion
was erroneous, since no rational interpretation of the contract
would support a conclusion that the policy was in the amount of
$3,000,000. Brief for Appellants at 42; Reply Brief for
Appellants at 18; Appellants’ Petition for Rehearing at 8-9.

The court of appeals held that the issue was one of fact.
App. at A-15; Highlands Insurance Company v. National Union
Fire Insurance Company, 27 F.3d 1027, 1033-34 (Sth Cir. 1994).
Because the district court therefore erred in deciding the question
as a matter of law, the court of appeals should have remanded the
case for further proceedings. Instead, however, it affirmed the
judgment, ruling that Petitioners had waived the "issue of fact" by
not requesting that it be submitted to the jury. App. at A-16; 27
F.3d at 1034 ("A party cannot complain that the fact issue ought
to have gone to the jury unless it has requested their (sic)
submission to the jury."). Moreover, the court of appeals refused
even to consider the correctness of the district court’s legal
determination of the policy limits, based on its conclusion that the
issue was one of fact which had been waived. /d.

In their Petition for Rehearing, Petitioners pointed out that

the opinions of the district court and the court of appeals were

inconsistent, in a manner which operated to deprive them of
meaningful review on the issue of the policy limits:

The problem is that National Union is being
faulted, on appeal, for not submitting a jury
question, when it was instructed not to do so at
trial. The trial judge ruled that the question was
one of law, which she would decide, rejecting
Highlands’ argument that an ambiguity existed.
Tr. 474, 481-83, 487 & 650-51. Had the trial
court ruled that there was an ambiguity, National
Union could have requested a jury instruction
prior to the reading of the charge. National Union
was precluded from doing so by the judge’s
determination that the contract was not ambiguous,
only to be told now that the issue was one of fact
for the jury, which it has waived. Under such
conflicting directions, National Union cannot tell,
even now, what it is supposed to have done. The
judgment should be reduced to $500,000, or the
case remanded, so that National Union is not
penalized for arguing successfully to the trial court
that the question was one of law.

Petition for Rehearing at 11. The Petition for Rehearing was
denied by Order dated August 19, 1994. App. at B-i. Petitioners
now seek review by this Court of whether the court of appeals’

refusal either to remand the case for further proceedings or to

review the district court’s construction of the contract deprives

them of due process of law, in violation of the Fifth Amendment.

2. Factual Background.

On June 21, 1985, four young men were riding in a jeep
on Cross Bay Boulevard in Queens, New York. Tr. 21. Their
names were Timothy Gleason (the driver), Robert Steckler,
Timothy Sullivan and Paul Murray. Tr. 21-22. They were
traveling north in the center lane of three lanes of northbound
traffic, when Gleason pulled into the right-hand lane, in an attempt
to pass a tractor-trailer truck. Tr. 104, 107, 536.

Along that stretch of Cross Bay Boulevard, Naclerio
Contracting Company had been installing sewer basins, pursuant
to a construction contract between Naclerio and the City of New
York. Tr. 104; Defendants’ Exhibit ("Dx") 4a. On this particular
day, Naclerio had stacked loose dirt and debris in a pile
approximately thirteen feet high in the right-hand lane. Tr. 21,
104. As Gleason pulled around the tractor trailer, into the right-
hand lane, the jeep ran into the pile of debris and overturned. Tr.
104. Steckler, Gleason and Sullivan were injured severely in the
accident, and Steckler died from his injuries. Tr. 22, 105. In
early 1986, Steckler’s estate, Gleason and Sullivan filed suit in
Queens County against Naclerio and the City, alleging negligence,
failure to warn and "premises liability." Tr. 152; Dx 4a, 4b & 4c.

At the time of the accident, Naclerio was insured against

such occurrences under a general liability policy issued by National

Union, having a policy limit of $1,000,000, and under an excess
liability policy issued by Highlands, having a policy limit of
$5,000,000. Tr. 22-23, 112. Tr. 537. During the litigation,
Naclerio’s attorneys concluded that Naclerio’s liability would
exceed the limits of the primary policy. National Union therefore
tendered the $1,000,000 policy limits to Highlands, for use in the
settlement negotiations. Tr. 120, 498, 545, 562. Highlands’
Claims supervisor then proceeded to negotiate a settlement of the
suit for a total payment of $2,160,000. Tr. 279, 498.

Early in the litigation, National Union and its agents had
informed Highlands repeatedly that it (National Union) had issued
a one-year Owners’ and Contractors’ Protective ("OCP") policy to
the City of New York on June 7, 1984, which had been renewed
by the City for an additional year as of June 7, 1985. Dx 2. The
OCP policy had been purchased for the City by Naclerio, pursuant
to the terms of the construction contract. Dx 2; Tr. 407, 533.
National Union did not tender any settlement amounts under the
OCP policy, since it had concluded that the City had no liability
which was covered under the OCP policy and, in any event, the

City had been indemnified by Naclerio against losses arising out of
the project. Tr. 523-24, 526, 539.

The Steckler suit was tried before a jury in April 1989.
Dx 5. While the jury was in deliberations, Highlands’ claims
supervisor, Edward Varosky, agreed to settle the case for a total

payment to the plaintiffs of $2,160,000. Tr. 120. Of that amount,
the sum of $60,000 was paid by the insurance company which had
issued Gleason’s automobile liability policy. Tr. 112, Dx 5. One
million dollars was paid by National Union under Naclerio’s
primary liability policy, and the remainder ($1,100,000) was paid
by Highlands, as the excess insurer. Tr. 23, 121. Releases were
executed by the plaintiffs, releasing Gleason, Naclerio and the City
from further liability, and the Steckler suit was dismissed. Dx 6.
Highla:ids then initiated the present litigation, ciaiming that

National Union should have contributed additional money to the
settlement, under the OCP policy. R. 123-24.

REASONS FOR GRANTING THE WRIT

A. The decision of the court of appeals
violated the rule of Saunders v. Shaw,
and thereby deprived Petitioners of due

process.

The decision of the court of appeals to render judgment
against National Union, instead of remanding the case, violates the
rule of this Court announced in Saunders v. Shaw, 244 U.S. 317,
37 S. Ct. 638 (1917) (Holmes, J.). As will be demonstrated
below, the rule has been reaffirmed by this Court and other federal
courts on numerous occasions. In Saunders, the petitioner
complained that he had relied on a ruling of the trial court in
deciding not to introduce certain evidence at trial, only to be
faulted by the appellate court for the absence of proof. The
inconsistent positions of the two courts, he claimed, placed him in
a bind which was fundamentally unfair, and for which he had no
adequate remedy in the absence of certiorari. This Court agreed,

and granted the writ.

12

The Saunders case started out in Louisiana state court.?
During the trial of a suit to enjoin the collection of a property tax,
the plaintiff offered evidence to show that the tax did not benefit
his property, and therefore should not be assessed against his
property. The trial court excluded the evidence as being
“inadmissible under the pleadings.” 244 U.S. at 319, 37S. Ct. at
639. The defendant therefore offered no evidence that the land in
question would benefit from the tax. On appeal from a judgment
for the defendant, the Louisiana Supreme Court decided that the
land could not possibly have benefitted from the tax, and therefore
that the collection of the tax was improper. /d.

| It is important to note that, until that point in the
proceedings, no due process violation had occurred. However,
when the Louisiana Supreme Court then rendered judgment for the
plaintiff, and enjoined collection of the tax -- instead of remanding
the case for further proceedings consistent with its correction of the
district court’s ruling -- it placed the defendant/petitioner in an
impossible bind. Essentially, it faulted the defendant for the
mistake of the trial court. The defendant had urged the trial court

2 While the Saunders decision itself concerned an appeal from the state
court system, it is clear that the Saunders rule also applies to due process analysis
under the Fifth Amendment. See, e.g., Helis v. Ward, 308 U.S. 365, 60 S. Ct.
283, 284 (1939) (granting certiorari to construe the application of the Saunders
rule in an appeal from the Fifth Circuit Court of, Appeals); Hamling v. United
States, 418 U.S. 110, 94 S. Ct. 2887 (1974) (in which the majority finds the
Saunders rule inapposite, while the dissent argues for its application, in an appeal
from the Ninth Circuit).

13

to rule as it did and, having prevailed on that point, he was not
required to take action which would have been inconsistent with
his theory of the case: "[W]hen the trial court ruled that it was
not open to the plaintiff to show that his land was not benefitted,
the defendant was not bound to go on and offer evidence that he
contended was inadmissible, in order to rebut the testimony already
ruled to be inadmissible in accordance with his view." 244 U.S.
at 319, 37 S. Ct. at 639. To the contrary, the defendant was
entitled to rely on the trial court’s ruling in fashioning and
presenting his defense. The trial court had taken the issue away
from the jury, at his request, and he was not required to engage in
an inconsistent attempt to create an issue of fact. Jd.

This Court also held that the defendant’s assertion of the
error in his petition for writ of certiorari was timely, since the
error did not occur until the last stage of the appeal below. [I]t
would leave a serious gap in the remedy for infraction of
constitutional rights if the party aggrieved in such a way could not
come here. The defendant was not bound to contemplate a
decision of the case before his evidence was heard, and therefore

was not bound to ask for a ruling or to take other precautions in
advance.” Jd. at 320, 37 S. Ct. at 640.

In the present case, the court of appeals faulted the
defendant, National Union, for not submitting an issue to the jury
as to the proper construction of the contract in question, even

though the district court had taken the issue away from the jury
prior to the reading of the charge. Because National Union did not
tender a jury question, it said, the issue was waived:

National Union did not ask for an instruction on
this defense, waiving its right to complain that the
jury was not guided on it. We will not now let
National Union complain that the judge accepted
the jury’s verdict, when the jury could not have
considered the argument with which National
Union now attacks the verdict. Nor can National
Union complain that the judge denied it a jury trial
on this factual issue, because it had already waived
that right. A judge is presumed to have made all
fact findings necessary in favor of its judgment
entered or a Rule 49 verdict. A party cannot
complain that the fact issue ought to have gone to
the jury unless it has requested their submission to
the jury.

App. at A-16; 27 F.3d at 1034. The court of appeals ignored the
fact that the trial judge instructed the parties that the question was
one of law, to be decided by the court, prior to the submission of
the charge to the jury. Indeed, the trial judge forbade the parties
from arguing the issue to the jury, and then instructed the jury that
“the policy limits were something that I was to determine, not
something for you to determine.” Tr. 650-51. Petitioners’ trial
counsel pointed out to the court at the time that the jury needed to
know the amount of the policy limits in order to apply correctly
the judge’s instructions concerning the measure of damages, should
it reach the damages issue. R. 360; Tr. 648. The trial judge,

15

nevertheless, refused to provide the results of her decision to the
jury prior to its deliberations. Instead, she continued to defer her
own ruling:

I’m not prepared to construe the contract at this
point. I can’t possibly do that at this point. |
don’t know what to do. I’m in kind of in a
quandary here. ... Let’s go with your not
arguing that; and, depending on what the jury
does, after I have looked at the contract, I may
have to grant a new trial.

Tr. 649-50. Despite her promise to resolve the issue as a matter
of law, the judge made no such ruling. Instead, she simply
entered judgment in the amount of the verdict. R. 467.
Petitioners repeatedly requested an express determination of the
policy limits in their post-trial motions, but the judge ignored the
requests. R. 415-452.

Because the trial judge refused to make an express finding,
it must be presumed that she found the limits to be in the amount
of $3,000,000, since that is the only conclusion which would allow
a judgment to be entered in the amount of $1,100,000. Therefore,
on appeal, Petitioners argued to the Fifth Circuit that the trial court
decided the issue wrongly, as a matter of law. Appellants’ Brief
at 42; Reply Brief for Appellants at 18. The court of appeals
refused to review the trial court’s determination, however, on the
unanticipated ground that the question was one of fact, which had
been waived by failure to submit it to the jury. App. at A-16.

16

This is precisely the sort of bind which the Saunders rule
forbids. See, e.g., Helis v. Ward, 308 U.S. 365, 369, 60 S. Ct.
283, 284 (1939) (acknowledging that "the failure to remand for a
new trial" as to “matters which were immaterial to the issues" until
the time of the appellate court’s ruling may violate “the rule of
Saunders v. Shaw"); Butler Bros. v. McColgan, 315 U.S. 501,
510, 62 S. Ct. 701, 705 (1942) (noting that a litigant may be
"denied procedural due process under the rule of Saunders v.
Shaw" where an appellate court’s "innovation" operates as a
“surprise,” depriving the party of "a full opportunity to be
heard"); Hamling v. United States, 418 U.S. 87, 149, 94 S. Ct.
2887, 2923 (1974) (Brennan, J., dissenting) (characterizing the
Saunders rule as establishing that it is a violation of due process
for the appellate court “to reverse a case and render judgment
absolute . . . upon a proposition of fact that was ruled to be
immaterial at the trial").°

In the present case, if the question was one of fact, then
the court of appeals’ refusal to remand the case deprived
Petitioners of due process of law, both by subjecting them to
conflicting rulings in a manner which precluded a full opportunity

> The Sanders rule is also discussed in Georgia Railway & Electric Company
v. City of Decatur, 295 U.S. 175, 171, 55 S. Ct. 701, 703 (1935) (the refusal of
a court to receive evidence on a material issue may violate due process), and
Snyder v. Commonwealth of Massachusetts, 291 U.S. 97, 128, 54S. Ct. 330, 340
(1934) ("the deprivation of the right to present evidence bearing on the issue (has)
been adjudged to deny due process” under the rule of Saunders).

17

to be heard, and by depriving them of their right to trial by jury
of all material issues of fact. If the question was one of law, then
the court of appeals’ refusal to review the district court’s
determination of the issue deprived Petitioners of due process, by
depriving them of the right to meaningful appellate review.

Similar principles have been recognized by this Court in
other cases. For example, in Pullman-Standard v. Swint, 456 U.S.
273, 102 S. Ct. 1781 (1982), it was held as follows: “When an
appellate court discerns that a district court has failed to make a
finding because of an erroneous view of the law, the usual rule is
that there should be a remand for further proceedings to permit the
trial court to make the missing findings. ... Likewise, where
findings are infirm because of an erroneous view of the law, a
remand is the proper course unless the record permits only one
resolution of the factual issue." 456 U.S. at 291, 102 S. Ct. at
1791. The Court in Pullman-Standard went on to conclude as
foliows: "All of this is elementary. Yet the court of appeals, after
holding that the district court had failed to consider relevant
evidence and indicating that the district court might have come to
a different conclusion had it considered that evidence, failed to
remand for further proceedings." 456 U.S. at 292, 102 S. Ct. at
1792. Accordingly, the judgment of the court of appeals was
reversed, and the case was remanded for further proceedings. 456
U.S. at 293, 102 S. Ct. at 1792.

18

Decisions of other federal courts of appeal are analogous.
For example, in Jackson State Bank v. King, 992 F.2d 256, 257
(10th Cir. 1993), it was held that a remand is necessary “where a
state court announces a new rule of law on certification following
a jury trial." In North Mississippi Communications, Inc. v. Jones,
951 F.2d 652, 657 (Sth Cir. 1992), the Fifth Circuit itself
concluded that "[w]hen a trial court has made a fact finding upon
an erroneous view of the law, the factual determination loses all
vitality, requiring a remand." In RTC Transportation, Inc. v.
Conagra Poultry Co., 971 F.2d 368 (9th Cir. 1992), the Ninth
Circuit Court of Appeals ordered that "[i]f the district court avoids
an issue that, on appellate review, becomes dispositive,” the
appellate court should decide the issue, if the question is one of
law and an appropriate record has been developed, or, if not,
should remand it for further proceedings. /d. at 375.

In the present case, the record shows that, during the
progress of the trial, National Union’s counsel repeatedly urged the
district court to resolve the policy limits issue as a matter of law,
stating expressly that “there is no ambiguity” in the contract and
that the only rational conclusion was that the limits were in the
amount of $500,000. Tr. 474, 483. The court deferred its

* Under New York law, "[wJhether a contract's terms are ambiguous is
a question of law decided by the court. . . . If a contract is unambiguous, courts
are required to give effect to the contract as written, and may not consider
extrinsic evidence to alter or interpret its meaning. (Citations omitted.) That is,

19

ruling. Tr. 487. At the conclusion of the evidence, Highlands’

counsel agreed that the issue was one of law, and the judge
announced that she would determine it as such. Tr. 648-51.

Had the trial ‘court ruled that an ambiguity existed,
National Union could have requested a jury instruction prior to the
reading of the charge. National Union was precluded from doing
so by the judge’s determination that the contract was not
ambiguous, only to be told now that the issue was one of fact for
the jury, which it has waived. Under such conflicting directions,
National Union cannot tell, even now, what it is supposed to have
done. The case should be remanded, so that National Union is not
penalized for arguing successfully to the trial court that the

question was one of law.

B. The decision of the court of appeals was
based on other errors, as well.

Further, the court of appeals’ conclusion was based on an
erroneous reading of the record. At page 13 of the slip opinion,

extrinsic evidence may not be used to create an ambiguity in an otherwise
unambiguous agreement.” Consarc Corporation v. Marine Midland Bank, N.A.,
996 F.2d 568, 573 (2d Cir. 1993) (emphasis supplied), citing Hudson-Port Ewen
Associates v. Chien Kuo, 78 N.Y .2d 944, 573 N.Y.S.2d 637, 578 N.E.2d 435
(1991), and W.W.W. Associates v. Giancontieri, 77 N.Y .2d 157, 565 N.Y.S.2d
440, 566 N.E.2d 639 (1990). “This principle applies equally to contracts of
insurance.” Scanlon v. Travelers Insurance Company, 849 F. Supp. 836, 837
(N.D.N.Y. 1994); accord, Jakobson Shipyard v. Aetna Casualty and Surety
Company, 775 F. Supp. 606, 609 (S.D.N.Y. 1991).

20

ee

for example, the court stated that National Union “does not
challenge the judge's legal conclusion about the proper
interpretation of the contract." On that same page, however, the
court stated just the opposite: “National Union argues that the
judgment should be reduced to $500,000, because the judge made
an error of law in interpreting the contract.” (!) Moreover, a
review of National Union’s appellate briefs demonstrates that
National Union did, in fact, "challenge the judge’s legal conclusion
about the proper interpretation of the contract." Among other
things, National Union’s briefs set forth the following statements
and arguments:

The district court also erred in determining, as a
matter of law, that the limits of the OCP policy
were in the amount of $3,000,000.

Brief for Appellants at 8 (emphasis supplied).

[T}he amount of the OCP policy limits . . . was
resolved by the district court as a question of law.
Therefore, the standard of review is de novo.

Brief for Appellants at 38 (emphasis supplied).

Because it did not reduce the jury’s verdict to
$500,000, it might be implied that the court found
the OCP policy limits to have been in the amount
of $3,000,000. If so, however, then it erred as a
matter of law.

Brief for Appellants at 42 (emphasis supplied).

21

Appellants’ position is, and always has been, that
the issue is one of contract construction, which is
an issue of law for the court, where the language
of the contract is unambiguous. It is Appellants’
position, further, that the language of the contract
in this case is unambiguous, and therefore that the
issue is one of law.

Reply Brief for Appellants at 16 (emphasis supplied).

Under New York law, the construction of an
unambiguous contract presents a question of law,
and even the resolution of an ambiguity is a legal
issue, where it does not necessitate reference to
extrinsic evidence.

Reply Brief for Appellants at 16 n.5 (emphasis supplied).

At the conclusion of Highlands’ evidence, out of
the presence of the jury, Appellants’ counsel asked
the court to decide the policy limits issue as a
matter of law. Tr. 474, lines 15-20. Highlands’
counsel responded that there was "confusion" as to
the intent of the parties, and that an unsigned
endorsement appeared to renew the primary term
after the date of the accident. Tr. 481, line 19;
482, line 13. Appellants’ counsel again asked for
resolution of the issue as a matter of law, saying:
"There is no ambiguity." Tr. 483, line 19. The
court deferred its ruling. Tr. 487, lines 4-6.

Reply Brief for Appellants at 17 (emphasis supplied).

On appeal, Appellants have continued to insist that
the question is one of law.

Reply Brief for Appellants at 18 (emphasis supplied).

22

Appellants’ argument on appeal is that the trial

court decided the issue wrongly, as a matter of

law.
Reply Brief for Appellants at 18 (emphasis supplied). Indeed,
Highlands itself admitted that National Union’s position at trial was
that the question was one of law:

At trial, National Union took the position that the

amount of policy limits was a matter of contract

construction and a question of law for the Court.
Appellee’s Brief at 32 (emphasis supplied). Therefore, the court
of appeals’ statement that National Union "does not challenge the
judge’s legal conclusion about the proper interpretation of the
contract" was incorrect. National Union did challenge the
interpretation of the OCP policy, as a matter of law, just as it had
in the trial court. For the court of appeals to refuse to review the
determination of that legal issue, based on the supposed failure of
National Union to submit a jury issue, constitutes a denial of due

process.

C. The decision of the court of appeals

resulted in harmful error.

Finally, the district court’s determination -- which the court
of appeals refused to review -- was arbitrary and capricious.
There simply is no principle of law which would cause: the OCP
policy to be in the amount of $3,000,000 on June 21, 1985. By

23

its own terms, the policy, as renewed by the signed endorsement,
was in the amount of $500,000 on that date. The only argument
asserted by Highlands to contradict the clear language of the policy
and endorsement is that a second, unsigned endorsement was
subsequently issued. Dx 10, p. 8. However, the unsigned
endorsement offered by Highlands also was in the amount of
$500,000. Not only that, but the unsigned endorsement offered by
Highlands purported only to "renew" the OCP policy as of July 1,
1985. Dx 10, p. 8; Brief for Appellants at 39. The unsigned
renewal is redundant of the signed renewal, except on terms less
favorable to the insured -- it purports only to renew the coverage
in the amount of $500,000 (the same as the signed renewal) as of
July 1, 1985 (as opposed to June 7, 1985). There is no
reasonable rationale whatsoever which reconciles these documents
in such a way as to result in coverage in the amount of $3,000,000
on June 21, 1985. Therefore, the trial court erred as a matter of
law in finding that coverage existed in the amount of $3,000,000
on the date of the accident, no matter which endorsement it
considered or may have considered, or what factors went into its
unarticulated decision-making process. If the signed endorsement
renewed the policy, then the coverage was in the amount of
$500,000; if the unsigned endorsement renewed the policy, then
the coverage also was in the amount of $500,000. If neither
endorsement renewed the policy, then there was no coverage on

24

the date of the accident. In any event, it is fundamentally unfair
for the trial court, without giving any reasons or making any
findings, to hold that a policy which expired by its own terms on
June 7, and was not renewed except by an instrument or
instruments in the amount of $500,000, was in effect on June 21
in the amount of $3,000,000. The court of appeals’ refusal to
review the decision therefore constituted harmful error.
Accordingly, the court of appeals’ refusal to consider the issue
should be reversed, and the case should be remanded so that the

trial court’s decision can be reviewed.

CONCLUSION

If the court of appeals was correct in its conclusion that the
issue was one of fact for the jury, then the district court erred in
deciding that it was a question of law. In that event, the court of
appeals should be instructed to remand the case to the district court
so that the issue may be resolved by a jury. If the court of appeals
was incorrect, and the question was one of law, then the court of
appeals’ refusal to review the issue was erroneous, and the court
of appeals should be instructed to review the trial court's legal
determination of the policy limits under the appropriate standard
of review. In either event, National Union requests that this Court
reverse the decision of the court of appeals that the issue was
waived, and asks that the principal amount of the judgment be

25

reduced to $500,000, or that the consideration of the amount of
damages be remanded to the court of appeals or the district court

for further proceedings.

WHEREFORE, Petitioners respectfully pray that their

Petition for Writ of Certiorari be granted; that this Court reverse

the decision of the court of appeals; that this Court reduce the
principal amount of the judgment to $500,000 or, in the
alternative, that this Court remand the case to the lower courts for
further proceedings; and that Petitioners be awarded such other and
further relief to which they may justly be entitled.

Respectfully submitted,
COWLES & THOMPSON, P.C.

By:

CHARLES T. FRAZIER, JR.
Counsel of Record
State Bar of Texas No: 07403100
B. MICHAEL BENNETT
State Bar of Texas No. 02137500

901 Main Street, Suite 4000
Dallas, Texas 75202-3793
(214) 670-1100

(214) 698-0310 (Fax)

ATTORNEYS FOR PETITIONERS

26

APPENDIX

27

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 92-2933

HIGHLANDS INSURANCE COMPANY,
Plaintiff-Appellee,
versus

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, ET AL.,

Defendant-Appellants.

Appeal from the United States District Court
for the Southern District of Texas

Before GOLDBERG, HIGGINBOTHAM, and EMILIO M.
GARZA, Circuit Judges.
HIGGINBOTHAM,, Circuit Judge:

This is an appeal from a judgment in favor of an excess
insurance carrier and against the primary carrier for failure to
disclose the full extent of its primary coverage for an automobile
accident. Victims of a car accident sued a construction company

and the City of New York. National Union carried the primary

A-1

coverage for both defendants. Highlands, the excess Carrier for
the construction company, contributed $1,100,000 to a settlement.
Highlands later sued National Union and two of its affiliated
agents, claiming that not disclosing that National Union insured the
City led Highlands to contribute too much to the settlement. The
trial court found the defendants liable under New York law and
entered judgment for Highlands. We hold that New York law does
not support the trial court’s award of attorney fees for common law
fraud. We affirm the judgment in all other respects.
I.

In 1985, a Jeep carrying four young men collided with
construction debris left on a New York City bridge by Naclerio
Contracting Company. Two of the men suffered severe injuries
and a third died. The two men and the estate of the third sued
Naclerio and the City of New York for damages in early 1986.

Naclerio was insured by a general liability policy issued by
National Union, with a policy limit of $1,000,000, and an excess
liability policy issued by Highlands, with a policy limit of
$5,000,000. National Union had also issued an Owners’ and
Contractors’ Protective policy to the City of New York. The
City’s policy insured its vicarious liability for the acts of Naclerio,

and also against liability arising from its negligent supervision of

the construction activity.

The tort suit against Naclerio and the City settled in 1989
before the jury’s verdict on liability was returned. National Union
contributed its Naclerio policy limits of $1,000,000 while
Highlands contributed $1,100,000. The driver’s automobile
insurer contributed its policy limits of $60,000.

In 1990, Highlands sued National Union and two of its
affiliated agents, American International Group and American
International Adjustment Company, alleging that they withheld the
existence of the OCP policy from Highlands during settlement
negotiations.’ As a result, Highlands argued, it paid funds from
its excess policy in settling the Naclerio litigation that National
Union should have paid from primary coverage. A jury returned
a verdict for Highlands in 1992 for $1,100,000, finding that
Highlands had proven fraud, negligent misrepresentation, and
breach of fiduciary duty under New York law.

Il.

National Union argues that no reasonable jury could have
found’ that Highlands justifiably relied on any fraudulent or
negligent misrepresentation because Highlands had notice of the
OCP policy. On April 10, 1986, National Union’s broker sent a
letter to National Union, on which the broker copied Highlands,

'This opinion refers to the three defendants collectively as “National Union.”

*See Boeing Co. v. Shipman, 411 F.2d 365, 374 (Sth Cir. 1969).

A-3

Saying to “[bJe aware Nat’! Union also insured the City of N.Y.
under OCP Policy #GLA169666." The broker copied Highlands
again on May 27, 1986 with a second letter containing a similar
warning. A some point, Highlands also received copies of the
City’s letter notifying National Union of the auto accident and
National Union’s reply, which both referenced the OCP policy.
Highlands counters by focusing on the context in which it
sought information. With days to go before trial, a law firm that
worked exclusively for National Union took over as the City’s trial
counsel from the City’s in-house counsel.’ Highlands’ claims
supervisor and Highlands’ attorney called National Union to find
out why this change occurred. They spoke to National Union’s
Naclerio file manager and his supervisor but neither called back
with the requested information.‘ Highlands’ supervisor also spoke
to the new City counsel, who said he believed he was on the case
because the City was an additional insured on the Naclerio
policy.’ In the absence of contrary indication from National

*The City appears to have represented itself for most of the litigation,
although lawyers employed by National Union answered for the City.

“Evidence showed that the two conferred and decided not to return Highlands’
calls. The supervisor felt that the OCP policy did not cover the accident, and was
concerned that revealing information about the OCP policy would breach a duty
to the City.

‘Testimony conflicted on this point. Highlands’ claims supervisor
remembered the lawyer making this Statement, but the lawyer did not remember
it.

A-4

Union, and wanting to act before the jury returned its. verdict,
Highlands settled the case on the assumption that Naclerio’s policy
was the only primary coverage available.

Highlands also pointed out that its file contained other
information about National Union’s coverage of the City. A report
prepared by Naclerio’s attorney indicated that the City was self-
insured. The file also contained a November 17, 1987 letter from
a National Union litigation manager indicating that "we do not
insure the City of New York."® While conceding that it did not
review its file before settling the case, Highlands argues that it
would still have needed clarification had it done so.

These facts provide an adequate foundation on which to
uphold the jury verdict. National Union correctly states that a line
of New York cases holds that a plaintiff’s reliance is not justifiable

when it has the means to find the truth on its own,’ as Highlands

*Testimony also conflicted about the meaning of this letter. Because the letter
only referenced National Union's Naclerio policy, it could be read as accurately
saying that the City was not insured under that policy. On the other hand, it
could be read as inaccurately stating that only the Naclerio policy was relevant
to the case, particularly since the letter suggested that the author had the power
to make decisions about the City’s defense and was thus aware of the OCP

policy.

"See Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737
(2d Cir. 1984) (buyer had unlimited access to seller's plants, personnel, and
documents); Marine Midland Bank v. Palm Beach Moorings, Inc., 403 N.Y .S.2d
15, 17 (N.Y. App. Div. 1978) (guarantor had “unlimited access to the relevant
financial records” before guaranteeing note).

A-5

did here for some time before trial.* Those cases, however,
involved arms’ length transactions between plaintiff and
defendant.’ The key is that here, as a primary carrier, National
Union owed Highlands the same fiduciary obligation it owed its
insureds.'° Under these circumstances, having told the defendants
of its confusion and its need for a quick answer, Highlands could
justifiably rely on them to clarify the situation."

National Union urges that Rotanelli v. Madden"? defines
the insured-insured relationship differently. Rotanelli dismissed a

claim against a representative of an insurance company for

‘Testimony indicated that data about insurance coverage was public
information available from the broker who sold the policy.

*See Leasco Corp. v. Taussig, 473 F.2d 777, 783 (2d Cir. 1972); Loag Island
Lighting Co. v. Transamerica Delaval, Inc., 646 F. Supp. 1442, 1452 (S.D.N.Y.
1986) (both holding that a plaintiff cannot sue for misrepresentaticns occurring
after the defendant has made truthful representations, in arms-length transactions).

"See Hartford Accident & Indemnity Co. v. Commercial Union Ins. Co. , 772
F. Supp. 741, 743 (E.D.N.Y. 1991), aff'd, 962 F.2d 1 (2d Cir. 1992) (table);
Hartford Accident & Indemnity Co. v. Michigan Mutual Ins. Co., 463 N.E.2d
608, 610 (N.Y. 1984); Zurich Ins. Co. v. State Farm Mut. Auto. Ins. Co., 524
N.Y.S.2d 202, 203 (N.Y. App. Div. 1988).

''See Brown v. Lockwood, 423 N.Y.S.2d 186, 193-94 (N.Y. App. Div. 1980)
(noting that "a fiduciary or confidential relationship warrant{s) the trusting party
to repose his confidence in the defendant"). See also Benson v. RMJ Securities
Corp., 683 F.Supp. 359, 377 (S.D.N.Y. 1988) (holding that “[rjeliance on the
representations of fiduciaries would certainly be reasonable"). See generally
United States v. Chestman, 947 F.2d 551, 568-69 (2d Cir. 1991), cert. denied,
112 S. Ct. 1759 (1992).

"569 N.Y.S.2d 187 (N.Y. App. Div. 1989).

A-6

negligently representing there was coverage, reasoning that an
insured is presumed to have read its policy." We read Rotanelli
as applying the presumption that a person understands the contracts
he executes. That presumption does not extend to contracts
executed by others and does not control this case.

The same analysis holds for negligent misrepresentation.
As this court has recently noted, it is not clear that justifiable
reliance is an element of negligent misrepresentation under New
York law.'* Whether it is, or whether New York employs a
more flexible analysis focusing on the relationship between the
parties, the standard is not more demanding than that for fraud, so
our finding on the fraud issue disposes of this one as well."

Ill.

National Union next attacks the jury’s finding of a breach
of fiduciary duty, arguing that no causal link connected any act by
National Union to the money Highlands paid. We note initially
that National Union enjoyed the benefit of an incorrect standard for
causation. The jury was told that the measure of damages for

"Jd. at 188.

“See Humble Oil & Ref. ;Co. v. Jaybert Esso Serv. Station, 294 N.Y.S.24
190, 192 (N.Y. App. Div. 1968) (cited by Rotanelli, 569 N.Y.S.2d at 188).

Thomas v. N.A. Chase Manhattan Bank, | F.3d 320, 327 (Sth Cir. 1993)
(citing White v. Guarente, 401 N.Y .S.2d 474, 478 (N.Y. 1977)).

"See id.

A-7

breach of fiduciary duty was the difference between the amount
Highlands paid in settlement and the amount they “would have
paid” absent a breach of fiduciary duty. Under New York law,
however, the question is not whether the plaintiff has shown but
for causation,’ but whether the plaintiff has satisfied a less
demanding "substantial factor” standard."*

Regardless, there is sufficient evidence to sustain the
verdict under either standard. When the case settled, the
bifurcated trial had just finished the liability phase. The jury had
announced, but not returned its verdict on liability. Highlands’
representative testified that if he had known about the OCP policy
at this point, he would have let the jury come back instead of
settling. The argument continues that the risk of verdict would
have been quite different with a second primary carrier at risk. If
the City’s share was large enough, Highlands’ excess policy would
be reached only at higher verdict levels or perhaps not at all.
There is little question but that the jury could have found the City
liable, and for the City’s own negligence. That is, Highlands
argues its exposure was much less than it thought--as a result of
defendants’ failure to disclose.

"Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537, $43 (2d Cir.
1994); Northwestern Nat'l Ins. Co. v. Alberts, 769 F. Supp. 498, 506 (S.D.N.Y.
1991).

"“Diduck v. Kaszycki & Sons Contractors, Inc., 914 F.2d 270, 284 (2d Cir.
1992).

A-8

National Union also argues that if it had disclosed before
settlement, Highlands would still have paid the same amount of
money because Naclerio, Highlands’ insured, had a contractual
obligation to indemnify the City for the City’s losses. The
evidence showed that Naclerio’s obligation was limited to
indemnifying the City for its vicarious liability for Naclerio’s torts.
Ample testimony addressed the distinction between vicarious
liability and liability for the City’s own negligence in supervising
Naclerio, which fell outside Naclerio’s indemnity obligation.

IV.

National Union next makes several challenges to the jury
charge for the first time on appeal. In the context of Federal Rule
of Criminal Procedure 52(b), the Supreme Court has recently
announced that for an appellant in a criminal case to prevail with
a new argument on appeal, he must show: (1) that an error
occurred; (2) that the error was plain, which means clear or
obvious; (3) the plain error must affect substantial rights; and (4)
not correcting the error would "seriously affect the fairness,
integrity or public reputation of judicial proceedings."'® Federal

Rule of Civil Procedure 51” is even more restrictive than

"United States v. Olano, 113 S.Ct. 1770, 1779 (1993).

"Federal Rule of Civil Procedure 51 states: “No party may assign as error
the giving or the failure to give an instruction unless that party objects thereto
before the jury retires to consider its verdict, stating distinctly the matter objected
to and the grounds of the objection.”

A-9

Criminal Rule 52(b);”' indeed, one circuit holds that it allows no
new attacks on instructions on appeal.” We thus agree with the
Sixth Circuit that "{t}he principles and decision enunciated in
Olano apply a fortiori in the civil context where courts pay less
Strict attention to procedural protocol.“ Olano augments this
court's longstanding rule that reversal for plain error is "not a run-
of-the-mill remedy" and will occur "only in exceptional
circumstances to avoid a miscarriage of justice."™

Olano’s requirement of an “obvious” error is stringent.
The Court said that “at a minimum" an alleged error must be
"clear under current law."% United States y. Frady,* an
opinion cited by Olano, required error so clear that "the trial judge

and prosecutor were derelict in countenancing it, even absent the

"Federal Rule of Criminal Procedure 52(b) states: “Plain errors or defects
affecting substantial rights may be noticed although they were not brought to the
attention of the court."

2Hammer v. Gross, 932 F.2d 842, 847 (9th Cir.) (declining to recognize a
plain error exception in civil cases because of Rule 51's plain language), cert.
denied, 112 S. Ct. 582 (1991). The language of Rule 51 offers powerful support
for this view, but this panel is not free to adopt it. Olano pulls this circuit back
from its drift from Rule 51, but it did not free this panel to follow the 9th Circuit.

™Smith v. Gulf Oil Co., 995 F.2d 638, 646 (6th Cir. 1993).

“Peveto v. Sears, Roebuck & Co., 807 F.2d 486, 489 (Sth Cir. 1987).

113 S. Ct. at 1777.

456 U.S. 150 (1982).

‘A-10

defendant’s timely assistance in detecting it."” It is the unusual
case that will present such an error.

These claimed errors must meet all of the Olano elements.
They meet none of them. We discuss them only to give guidance
to the bar on what Olano requires, first observing that each are
subtle legal arguments and emphasize isolated portions of the
charge. There is nothing obvious about these errors so much co
that a contrary contention borders on the frivolous.

Few jury charges in cases of complexity will not yield
“error” if pored over, long after the fact in the quiet of the library
-- if such an enterprise is to be allowed. It is not. The reality is
that must such “errors” will be washed away if the trial court is
given a fair opportunity to consider them. In short, so long as the
trial judge gives counsel a fair opportunity to object, we will listen
to unobjected to rulings only in those handful of cases that can
meet the exacting requirements of plain error. Olano and Rule 51
do not interpose technical barriers or lay traps. These rules
vindicate powerful interests in orderliness and finality. They also
reflect the central order of the United States District Court. It is
not a way station or entry gate. Rather, trials are the heart of the
system. Trial, not appeal, is the main event. The rules we
enforce today tether these statements to reality.

"Id. at 163.

A-Il

National Union first argues that the instructions fail to say
that New York law requires proof of deceitful intent as an element
of a claim for breach of fiduciary duty. The case on which it
relies, Horn v. 440 E. 57th Co. ,™ does not support its argument.
Horn found that the elements of a claim under the Martin Act, a
New York securities law, paralleled the elements of negligent
misrepresentation and breach of fiduciary duty because "both these
causes of action omit the element of a deceitful intent." It went
on to dismiss the plaintiffs’ common law claims as preempted
because of their similarity to the statute, not because of any failure
of proof on the part of the plaintiffs” The correct statement of
New York law is that a plaintiff alleging a breach of fiduciary duty
can recover for loss “regardless of the existence of deceitful

intent. "?!

$47 N.Y.S.2d 1 (N.Y. App. Div. 1989).
Id. at 120.

"See id. See also id. at 4 (assuming that the Martin Act did not forbid the
defendants from making the representations on which the lawsuit focused).
National Union also cites Flickinger v. Harold C. Brown & Co., 947 F.2d 595
(2d Cir. 1991). Flickinger cites only Horn as authority for the proposition for
that breach of fiduciary duty claims under New York law require proof of
deceitful intent. Jd. at 599. As that is not Horn’s holding, we do not find
Flickinger persuasive.

"Eagle Tenants Corp. v. Fishbein, $82 N.Y.S.2d 218, 219(N.Y. App. Div.
1992). See also Brown v. Lockwood, 432 N.Y.S.2d 186, 193-94 (N.Y. App.
Div. 1980).

A-12

National Union next argues that part of the fiduciary duty
instruction presupposed National Union’s liability and invaded the
province of the jury. The contested part begins: "If you find that
defendants’ failure to provide Highlands with correct information

. ., your verdict will be for the plaintiff." The next sentence,
however, gives the jury an alternative, stating that "if the correct
information was provided to Highlands by defendants . . . or if
defendants acted in good faith and in the exercise of honest
discretion, you are to find for defendants." This instruction did
not have a plainly erroneous tendency to confuse or mislead the
jury.”

National Union finally complains that the fiduciary duty
instruction allowed the jury to award damages without finding
causation. The language it challenges reads: "If you find that
there was damage to Highlands, your verdict will be for Highlands
and in such an amount as you find to be actual pecuniary loss it
suffered, that is . . . the amount of money Highlands would have
paid had the defendants not breached their fiduciary duties to
Highlands.” The first sentence says that Highlands was damaged
if "the amount of money it paid . . . is greater than the amount of
money it would have paid if Highlands had been aware of the type

and amount of insurance available to the city of New York."

"Wells v. Hico Indep. School Dist., 736 F 2d 243, 250 (Sth Cir. 1984), cert.
dismissed, 473 U.S. 901 (1985).

A-13

Reading these two sentences in conjunction, we find no plain
error.” -
V.

During closing arguments, the Parties disagreed over
whether the jury should consider the OCP policy limits. The
district judge ruled that she would decide the OCP policy limits,
and would grant a new trial if the verdict was inconsistent with her
determination. She then instructed the jury to not determine the
OCP policy limits. After the jury returned its verdict, the judge
entered judgment without making a finding on policy limits.

National Union argues that the judgment should be reduced
to $500,000 because the judge made an error of law in interpreting
the contract. The argument is that this court should deem the
judge to have found a $3,000,000 policy limit, the only limit
Suggested by the evidence that is consistent with the $1,100,000
verdict.“ National Union then argues that the judge erred in
making this finding because the $3,000,000 limit lapsed when the
original contract term expired several days before the accident.
The correct limit at the time of the accident, contends National
Union, was $500,000, the limit in an endorsement the parties

"See id.

“FED. R. Civ. P. 49(a).

A-14

executed when they agreed to extend the life of the original
contract.

The flaw in National Union’s argument is that it does not
challenge the judge’s legal conclusion about the proper
interpretation of the contract, but rather challenges the judge’s
factual finding that the contract had two relevant endorsements
rather than one.’ Highlands points to a second endorsement,
which took effect a few days after the first, that maintained the
$3,000,000 policy limit for a short period that included the date of
the accident. The parties adopted this endorsement, Highlands
contends, because the City wanted to maintain $3,000,000 of
coverage while shifting $2,500,000 to a different carrier. When
the new carrier had difficulty preparing the policy on time,
Highlands contends that the City came back to National Union and
kept the original policy in force until the new one was ready.
National Union contends that this endorsement was not signed and
did not become part of the contract, while Highlands contends that
industry practice was to only sign one copy of the endorsement.
In other words, National Union attempts to challenge the judge’s
implicit factual finding that Highlands’ witnesses about the effect
of signatures were more credible and that the contract included the

second endorsement.

22 John Alan Appleman et al., Insurance Law & Practice § 12851 (1979 &
1993 Supp.).

A-15

iiieenieenteneenens itera

National Union waived this factual challenge. New York
law places the burden on an insurer to prove the existence of limits
on liability, and National Union pled policy limits as an
affirmative defense before the trial court. Despite having and
recognizing this burden, National Union did not ask for an
instruction on this defense, waiving its right to complain that the
jury was not guided on it.” We will not now let National Union
complain that the judge accepted the jury’s verdict, when the jury
could not have considered the argument with which National Union
now attacks the verdict. Nor can National Union complain that the
judge denied it a jury trial on this factual issue, because it had
already waived that right. A judge is presumed to have made all
fact findings necessary in favor of its judgment entered or a Rule
49 verdict. A part cannot complain that the fact issue ought to
have gone to the jury unless it has requested their submission to
the jury.*8

VI.

National Union argues that the district court had no basis

for awarding $133,185.17 in attorneys fees to Highlands. The

“See Burroughs Wellcome Co. v. Commercial Union Ins. Co., 632 F. Supp.
1213, 1223 (S.D.N.Y. 1986); Emons Indus. v. Liberty Mut. Fire Ins. Co., 544
F. Supp. 185, 189 (S.D.N.Y. 1982).

"Pep. R. Civ. P. $}.

“PED. R. Civ. P. 49.

A-16

court held that New York law allows recovery of attorneys fees
when a suit seeks to overcome the consequences of fraud. Noting
that “there is clear evidence supporting the jury’s finding of
fraudulent misrepresentation," it awarded the plaintiff its attorneys
fees.

The district court erred. The New York rule is that
counsel fees are incidents of litigation which a prevailing party
may not collect unless an award is authorized by agreement
between the parties, statute, or court rule.”? No general exception
to the "American Rule” exists for common law fraud.” The
cases Highlands cite involve a statute allowing fee awards for
fraudulent property transfers to defraud creditors.*' Another says
that where a defendant’s fraud has caused a plaintiff to spend
money defending other lawsuits, those legal expenses are
compensable as damages.“ None establish a general rule

allowing recovery of fees for common law fraud.

AFFIRMED IN PART AND REVERSED IN PART.

*Cross v. Zyburo, 587 N.Y.S.2d 670, 672 (N.Y.App. Div. 1992).

See id. See also 60 N.Y. Jur. 2d, Fraud and Deceit § 244 (1992) ("The
general rule that, in actions for torts, counsel fees and other expenses in
conducting the suit cannot be taken into consideration in assessing damages,

' applies to actions for fraud and deceit.").

“Fred v. Grabowsky, 552 N.Y.S.2d 415, 416 (N.Y. App. Div. 1990);
Bagnall v. Dahajorn, Inc., 452 N.Y .S.2d 658, 659 (N.Y. App. Div. 1982) (both
applying N.Y. Debt. & Cred. Law § 276-a).

“ Penn-Ohio Steel Corp. v. Allis-Chalmers Mfg. Co., 184. N.Y.S.2d 58 (N.Y.
App. Div. 1959).

A-17

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 92-2933

HIGHLANDS INSURANCE COMPANY,
Plaintiff-Appellee,
versus
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, ET AL.,
Defendants- Appellants.

Appeals from the United States District Court for the
Southern District of Texas

ON PETITION FOR REHEARING

( August 19, 1994 )
Before GOLDBERG, HIGGINBOTHAM and EMILIO M.
GARZA, Circuit Judges
PER CURIAM:

IT IS ORDERED that the petition for rehearing
filed in the above case is denied.

ENTERED FOR THE COURT:

PATRICK E. HIGGINBOTHAM
UNITED STATES CIRCUIT JUDGE

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

HIGHLANDS INSURANCE
COMPANY
Plaintiff,

§

§

§

3

vs. §

§ CIVIL ACTION

NATIONAL UNION FIRE § NO. H-90-2959

INSURANCE COMPANY §

OF PITTSBURGH, §

PENNSYLVANIA; §

AMERICAN INTER- §

NATIONAL GROUP, INC. §

and AMERICAN INTER- §

NATIONAL ADJUSTMENT §

COMPANY,INC. §
Defendants. §

AMENDED JUDGMENT

On the 25th day of August, 1992, came on for
consideration the Plaintiff's Motion and Brief for Amended
Judgment. The Court, after considering said Motion and Brief, the
verdict of the Jury, including evidence on file in this case, is of the
opinion and finds that an Amended Judgment should be entered for

the Plaintiff, as follows:

1. Plaintiff should be awarded damages in the amount
of $1,100,000;

a Plaintiff should be awarded prejudgment interest on
those damages in the amount of $285,361.61; calculated at the rate
of 9% simple interest on the sum of $500,000 from the date that
sum was paid, April 21, 1989; and an additional 9% on the
amount of $600,000, from the date that amount was paid, January
30, 1990;

3. Postjudgment interest at the rate of 9% per annum,
simple interest; and,

4. Costs of Court expended.

For the above sums, let execution issue if the same be not

timely paid.
SIGNED this 25th day of August, 1992, at Houston, Texas.

U.S. DISTRICT JUDGE

C-2

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

HIGHLANDS INSURANCE
COMPANY
Plaintiff,

vs.
CIVIL ACTION
NATIONAL UNION FIRE NO. H-90-2959
INSURANCE COMPANY
OF PITTSBURGH,
PENNSYLVANIA;
AMERICAN INTER-
NATIONAL GROUP, INC.
and AMERICAN INTER-
NATIONAL ADJUSTMENT
COMPANY,INC.

§
§
§
§
§
§
3
8
§
§
8
§
8
§
§
Defendants. §

ORDER

Pending before the Court in the above referenced cause in
which New York law controls is prevailing Plaintiff Highlands
Insurance Company’s motion for Court to award attorney’s fees
(instrument #89). At a hearing on October 30, 1992 counsel
stipulated that while the right to recover fees, costs, and expenses
under New York law was contested, if the Court determined that

these were recoverable, the parties agreed that the amounts set

D-|

forth in Plaintiff's application were correct, necessary, and
reasonable. Specifically Plaintiff requests the following:

i Legal fees $123,500.00
2. Expenses 26,587.15
3. Expert fees 38,710.05
4. N.Y. counsel fees 9,685.17
5.__Deposition costs __ 5,967.92
TOTAL $204,450.29

After reviewing the record and the applicable law, the Court
concludes that the motion should be granted.

The American rule regarding fee shifting is that absent a
contractual or statutory provision to the contrary, each party to a
suit pays its own attorney’s fees and costs. See Alyeska Pipeline
ite Co. v. Wilderness Society, 421 U.S. 240, 245, 247 (1975);
A.P. Ship Maintenance Corp. v. Lezak, 511 N.Y.S.2d 216, 218
(N.Y. 1986). Plaintiff argues that New York recognizes two
exceptions, both applicable here, to the rule: (1) when the
opponent acts in bad faith, especially where there is an obligation
(0 pay money, and continues to deny and conceal after its
misconduct has been exposed, and (2) when the suit is to overcome

D-2

the consequences of fraud. In support of the first exception
Plaintiff cites Sierra Club v. United Army Corp. of Engineers, 590
F. Supp. 1509 (S.D.N.Y. 1980), Republic of Cape Verde v. A&A
Partners, 89 F.R.D. 14, 19 (S.D.N.Y. 1980), and White v. Blue
Cross & Blue Shield of Greater New York, 549 N.Y.S.2d 598
(N.Y. Sup. Ct. 1989). For the fraud exception Plaintiff refers the
Court to Gantell v. Friedman, 197 N.Y.S.2d 605 (N.Y. Sup. Ct.
1959), Fread v. Grabowski, 159 A.D.2d 550, 552 N.Y.S.2d 415
(N.Y. App. Div. 1990), and Bagnall v. Daharjon, Inc., 89
A.D.2d 612, 452 N.¥.S. 2d 658 (N.Y. App. Div. 1982).°
Plaintiff argues that the jury found Defendants’ conduct in
breaching its fiduciary duty and wrongfully denying its claim and
in concealing information about an insurance policy and the type
and amount of its coverage available to the City of New York to

be in bad faith and to constitute common law fraud.

“© Although copies of additional cases were submitted by Defendants at the
hearing, they were inapplicable to the situation here because the fee awards were
based on statutes or rules or on common-law exceptions not relied upon by
Plaintiff. One pertained to frivolous appeals. Accordingly the Court finds that
they were not on point.

D-3

Referring to the Plaintiff's first three authorities,
Defendants National Union Fire Insurance Company of Pittsburgh,
Pennsylvania, American International Group, Inc., and American
International Adjustment Company, Inc. contend that Plaintiff has
misconstrued the bad faith exception, which applies only to a claim
entirely without color and wantonly or vexatiously asserted for
harassment, delay, or other oppressive purposes. Defendants insist
such is not true of their defenses in this suit. They further urge
that the fraud exception requires a simultaneous claim for punitive
damages. At the hearing Defendants challenged recovery of expert
fees as costs under New York law, but provided no authority for
their stance.

Plaintiff responds that it is not seeking fees based on
Defendants’ conduct of this litigation but for their denial of claims
and their coverups prior to litigation, as supported by Sierra Club
and Cape Verde. Furthermore Defendants cite no authority for the
proposition that the failure to request one type of relief, here

punitive damages, when multiple kinds of relief are available,

D-4

precludes an award of attorney’s fees. In White, Plaintiff argues,
the Court determined that the defendants’ fraudulent conduct
warranted an award of both attorney’s fees and punitive damages.

After reviewing the law cited in Plaintiff's brief, the Court
concludes that an award of fees and costs is appropriate here on
the basis of the fraud exception to the American rule.

Sierra Club and Cape Verde make clear that the bad faith
exception applies to prelitigation, willful misconduct in the face of
a plaintiff's obvious rights, as well as to that during pendency of
a suit. 590 F. Supp. at 1513; 89 F.R.D. at 20-21. Moreover the
Court concurs with the jury’s finding of bad faith conduct by
Defendants, which imposed on Plaintiff, despite its clear rights, the
expenditure of time and money in this litigation. However, New
York requires that there be clear evidence that Defendants’
defenses are "entirely without color,” as well as that they be made
for reasons of harassment, delay or other improper purpose.

Sierra Club, 590 F. Supp. at 1514, citing Browning Debenture

Holders’ Committee v. DASA Corp., 560 F.2d 1078, 1088 (2d Cir.

D-5

1977). "A claim is colorable, for the purpose of the bad faith
exception, when it has some legal and factual support, considered
in light of the reasonable beliefs of the individual making the
claim." Sierra Club, 590 F. Supp. at 1514. Because these
defenses might well have constituted the reason for prelitigation
denial of Plaintiff's claim, this test should be applicable. No
motion for summary judgment was filed by Plaintiff in this action,
nor was there a directed verdict. This Court is hesitant to find that
the defenses were entirely without color.

However, there is clear evidence Supporting the jury’s
finding of fraudulent misrepresentation warranting an award of
legal expenses. See Gantell, 197 N.Y.S. 2d 605; Fread, 552
N.Y.S.2d 415. The Court reads White, 549 N.Y.S. 598, as
permitting recovery for attorney’s fees in a breach of contract suit
for public policy reasons when punitive damages are sought for
morally reprehensible conduct directed toward the public, rather
than merely a private injury. Significantly, the White court

characterized the fees as a part of the punitive damages rather than

as a separate award. 7d. It did not hold that a plaintiff must seek
punitive damages as the sole means of obtaining legal expenses
from the opponent. -

Neither side has provided any authority on whether expert
fees are included within costs in any insurance claim case rooted
in the common law. The Court’s own research leads it to conclude
that the general rule barring taxation of expert witness fees beyond
ordinary witness fees should apply here. Allied Chemical Corp. v.
Town of Geddes, 386 N.Y.S.2d 810, 813-14 (N.Y. Sup. Ct.
1976). Accordingly, Plaintiff needs to make adjustments to its

request in this category.

Conditioned upon the above modification, the Court
ORDERS that Plaintiff's motion to award attorney’s fees
is GRANTED.

SIGNED this 11th day of November, 1992 at Houston, Texas.

MELINDA HARMON
UNITED STATES DISTRICT COURT

D-7

Rags sh is bt ph ge a ae a eee oa

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0856%3A1. Public record. Not legal advice.