USCA1 Opinion
March 6, 1996 [Not for Publication]
[Not for Publication]
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
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No. 95-1100
FIRST STATE INSURANCE COMPANY,
Plaintiff, Appellant,
v.
UTICA MUTUAL INSURANCE COMPANY,
Defendant, Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
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Before
Cyr, Circuit Judge,
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Bownes, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Myles W. McDonough, with whom Robert H. Gaynor and Sloane and
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Walsh, were on brief for appellant.
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Eugene G. Coombs, Jr., with whom Jeffrey A. Novins and Kilburn,
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Casey Goscinak & Coombs were on brief for appellee.
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STAHL, Circuit Judge. Excess insurer First State
STAHL, Circuit Judge.
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Insurance Company ("First State") sued primary insurer Utica
Mutual Insurance Company ("Utica"), claiming that Utica
unreasonably and in bad faith failed to settle a claim within
the primary policy limits, resulting in a significant payout
by First State on the excess policy. The district court,
sitting without a jury, found that Utica indeed acted
unreasonably and in bad faith, but that First State failed to
prove that the underlying claim could have been settled at
any time for less than the amount actually paid.
Consequently, the district judge ruled that First State
failed to prove that it was harmed by Utica's actions, and
entered judgment for defendant Utica. First State appeals.
Finding no reversible error, we affirm.
I.
I.
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BACKGROUND
BACKGROUND
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We begin by summarizing the facts as found by the
district court, reported in detail in First State Insurance
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Co. v. Utica Mutual Insurance Co., 870 F. Supp. 1168, 1169-74
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(D. Mass. 1994) (Stearns, J.). This dispute between insurers
is a by-product of the tragic 1983 drowning of a five-year-
old boy at a bridge construction site. The boy, attempting
to traverse a plank leading to a bridge support pier, slipped
and fell into the river and drowned. His body was not
recovered for several weeks.
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The bridge contractor had not fenced in the
construction site, which was adjacent to a playground, nor
had it hired security guards or posted the site with warning
or "no trespassing" signs. Prior to the accident, the
contractor was aware that children and vandals were
trespassing on the site. The contractor found more than once
that someone had placed planks to allow access from the shore
to the support piers in the middle of the river.
In November 1983, the parents, represented by the
law firm of Mardirosian & Barber, brought a wrongful death
action against the contractor in Massachusetts state court.
Utica, the primary liability insurer for the
contractor, had provided a $500,000 policy, of which it had
reinsured $300,000 with Prudential Reinsurance, limiting its
actual loss exposure to $200,000. First State had issued an
excess liability policy to the contractor in the amount of
$15,000,000. Utica, as the primary carrier, was obligated to
provide the contractor with a defense, and in late 1983 it
retained the firm of Roche & Heifetz for that purpose.
The wrongful death case proceeded at a leisurely
pace. During the six years following the filing of the
claim, the parties' lawyers had several inconclusive
settlement discussions. On February 6, 1989, two days before
the start of trial, Utica offered its entire $500,000 policy
limit to settle the case. The offer was rejected. Utica
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then tendered its policy to First State, effectively turning
over control of the settlement negotiations to First State.
Trial began on February 8, 1989. On the second day of trial,
First State made a $750,000 settlement offer, but that was
rejected. Subsequent offers of $1,000,000 and $1,100,000
were also rejected. On the fifth day of trial, with the help
of the trial judge, the case was settled for $1,250,000 .
Utica thus paid $500,000 under the primary policy ($300,000
of which was reinsured) and First State paid $750,000 under
the excess policy.
In November 1989, First State brought a diversity
action against Utica in the United States District Court for
the District of Massachusetts, alleging that Utica's refusal
to pursue a reasonable settlement of the wrongful death case
caused First State to lose the $750,000 paid in excess of
Utica's policy limit. After a six-day bench trial, the
district judge ruled that Utica had indeed acted unreasonably
and in bad faith in not seriously pursuing settlement long
before trial. But the district judge found that First State
had failed to prove that the boy's parents would probably
have settled for less than the $1,250,000 actually paid, and
held therefore that First State failed to show it had been
harmed by Utica's actions.
First State asserts on appeal that the judge's
factual finding on the potential for a less-costly settlement
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was clearly erroneous. This is a fact-bound appeal, and we
will focus in some detail on the evidence relevant to the
settlement question. Because appellee Utica has not argued
that the district judge erred in ruling that Utica breached
its duty to pursue settlement reasonably, we accept that
ruling without further analysis. We do note, though, that
the legal issue in this case, the duty of a primary insurer
to an excess insurer, is controlled by Hartford Casualty
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Insurance Co. v. New Hampshire Insurance Co., 628 N.E.2d 14,
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16-19 (Mass. 1994).
II.
II.
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DISCUSSION
DISCUSSION
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When, as here, a district court sits as the trier
of fact, its determinations are accorded great respect.
Langton v. Johnston, 928 F.2d 1206, 1218 (1st Cir. 1991).
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Federal Rule of Civil Procedure 52(a)1 dictates that we
review such factual findings only for clear error. The clear
error test is rigorous:
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1. Fed. R. Civ. P. 52(a) provides in pertinent part:
In all actions tried upon the facts
without a jury . . . the court shall find
the facts specially and state separately
its conclusions of law thereon . . . .
Findings of fact, whether based on oral
or documentary evidence, shall not be set
aside unless clearly erroneous, and due
regard shall be given to the opportunity
of the trial court to judge of the
credibility of the witnesses.
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If the district court's account of the
evidence is plausible in light of the
record viewed in its entirety, the court
of appeals may not reverse it even though
convinced that had it been sitting as the
trier of fact, it would have weighed the
evidence differently. Where there are
two permissible views of the evidence,
the factfinder's choice between them
cannot be clearly erroneous.
Anderson v. City of Bessemer City, 470 U.S. 564, 573-74
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(1985). We do not set aside a district court's findings of
fact unless "on the whole of the record, we form a strong,
unyielding belief that a mistake has been made." Cumpiano v.
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Banco Santander Puerto Rico, 902 F.2d 148, 152 (1st Cir.
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1990). Because the record in this case supports two
permissible views of the evidence, we discern no clear error.
A. Was settlement possible within Utica's $500,000 policy
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limit?
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A number of documents presented at trial suggested
that the lawyers for the plaintiff-parents had, at one time,
valued the case in the $200,000 to $250,000 range. A
memorandum to Utica from defense attorney Therese Roche
referred to a statement in 1984 by one of the parents'
lawyers that "he was seeking well over $100,000." That
memorandum, however, indicated that the parents were "not
making a specific demand." A Utica claims manager recorded
in a March 1987 memorandum that he had spoken with the
parents' counsel, who had assessed the "full liability value"
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of the case at $200,000 to $250,000. Another memorandum by
defense attorney Roche to Utica memorialized an April 1988
discussion between Roche and another lawyer for the parents;
that discussion occurred at the courthouse after a scheduled
settlement conference had been canceled. The memorandum
stated that the parents' "current demand was $200,000, which
does not seem too far out of line." While none of these
communications were formal written demands, a factfinder
could reasonably conclude from them that a settlement could
perhaps have been negotiated at roughly $250,000.
Those memoranda did not, however, compel such a
finding; other evidence at trial cast doubt on the
feasibility of settlement in the $250,000 range. The
plaintiffs made no written demands until much later, and
those demands were for a significantly larger amount. The
lawyer who allegedly said he sought "well over $100,000" was
only on the case a short while, and he did not testify in
this trial. His successor, who was not the partner in charge
of the case, did testify; he had purportedly made the
$200,000 demand. He stated that he could not remember
discussing any specific numbers, and he stated that he would
never make a demand without putting it in writing. He also
testified that, based on his personal evaluation of the case
at the time, he would have recommended that his clients
settle for "a figure in the $250,000 range." The partner in
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charge of the parents' case testified that he did not recall
giving any lawyer authority to make a specific demand or to
settle the case, and he also testified that he was not sure
if he would have recommended that his clients accept $500,000
to settle the case. Yet another attorney testified as an
expert that demands are always made in writing. Thus, from
this evidence, the district judge was amply justified in
finding that the parents never authorized a settlement demand
in the $200,000 to $500,000 range. Moreover, the conflicting
evidence about what was said, and when, and what was meant,
justified the district judge's conclusion that First State
failed to prove the likelihood of settlement for less than
$500,000.
That conclusion was reinforced by evidence (and by
First State's arguments) that this wrongful death case had,
from the start, obvious potential for a major verdict, one
well over $500,000, perhaps $1,000,000 or more. That
evidence was critical to the district judge's conclusion that
Utica was unreasonable in not pursuing an early settlement;
that same evidence makes it less likely that the parents and
their lawyers would have settled for $250,000 or even
$500,000. Our careful review of the entire record convinces
us that the district judge did not clearly err in concluding
that First State failed to prove that the parents would
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probably have settled for an amount within the $500,000
primary policy limits.
B. Was settlement possible between $500,000 and $1,250,000?
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First State also argues that the district judge
erred by not addressing whether the case could have settled
for an amount over $500,000, but less than the $1,250,000
eventually paid, had Utica acted reasonably. The district
judge recognized that question to be relevant, however,
framing the dispositive causation question thus: "[I]s it
probable, had Utica reasonably pursued a settlement as it
should have, that the case would have settled within Utica's
$500,000 policy limit and, if not, was the eventual
settlement of $1,250,000 larger than what might reasonably
have been achieved but for Utica's misfeasance?" First State
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Ins. Co. v. Utica Mut. Ins. Co., 870 F. Supp. at 1178.
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Although it is implicit in his judgment that the district
judge answered "no" to both prongs of that question, several
subsequent statements in the judge's opinion suggest that he
did not focus on the second prong. In three separate
statements, the judge explained that his judgment was based
on his finding that First State had failed to prove that the
parents would have settled for $200,000 or an amount within
the $500,000 policy limit. See id. at 1178-79. Although the
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district judge did not expressly find that First State failed
to prove a likelihood of settlement in the $500,000 to
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$1,250,000 range, our review of the record reveals that the
contrary conclusion -- that such a settlement was probable --
lacks evidentiary support.
While we can speculate that a settlement at a
figure between $500,000 and $1,250,000 may indeed have been
likely, First State presented no evidence to that effect.
The finding that First State seeks could be based only upon
speculation and surmise. The only evidence of settlement
discussions in that range was the parents' formal written
demand in August 1988 for $1,000,000. That offer, however,
was expressly based on the belief that the combined insurance
coverage was $1,000,000, as the defendant contractor had
erroneously stated in an interrogatory answer. The demand
was increased to $15,000,000 several months later when the
parents' lawyers learned that the total coverage was actually
$15,500,000.
No other evidence in the record indicates that a
settlement between $500,000 and $1,250,000 would have been
acceptable to the parents and their lawyers. What evidence
there is points to the opposite conclusion. The parents
rejected an offer of $750,000 two days before trial, and
rejected offers of $1,000,000 and $1,100,000 during trial,
but of course those rejections do not negate the prospect of
settlement at like amounts at an earlier point in time. The
district judge found, as First State argued, that the
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$1,250,000 settlement actually negotiated by First State,
after Utica had tendered its policy, was reasonable from an
insurer's perspective.
It appears to us that the district judge focused
his written opinion on the question of the alleged demand for
$200,000 and the potential for settlement in the $200,000 to
$500,000 range, because that was the thrust of First State's
evidentiary presentation. Because there was no evidence that
settlement in the $500,000 to $1,250,000 range was probable,
the district court did not err in omitting an express finding
that First State failed to prove the likelihood of such a
settlement.
C. Other Arguments
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We find no merit in First State's argument that the
district judge erroneously believed that, as a legal matter,
the case turned on whether a formal demand for settlement had
been made by the parents. The lack of a formal demand was an
important factor in the judge's ruling, but the opinion is
expressly clear that the issue was whether settlement for a
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lesser amount was probable, not whether a lower demand was
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made. See First State Ins. Co. v. Utica Mut. Ins. Co., 870
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F. Supp. at 1178.
All of the causes of action advanced by First State
require a showing that Utica's action caused harm to First
State, i.e., that a real opportunity to settle at a lower
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amount was wasted due to Utica's unreasonableness or
subjective bad faith. Because we affirm the district judge's
finding that First State failed to prove that an opportunity
for settlement was lost, we need not address any legal
distinctions between the several causes of action.
First State also claims that the district judge
erred in keeping under seal documents that were subpoenaed
into court from Prudential Reinsurance, Utica's reinsurer.
The documents were withheld from First State because of an
assertion of attorney-client privilege. The district judge
reviewed the documents in camera and determined that they
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were not relevant, thereby foreclosing First State's
challenge to the assertion of privilege.
Having reviewed the record and First State's
arguments on this issue, we find that any relevance the
documents may have had concerned only the issue of Utica's
reasonableness and good faith in pursuing settlement.
Because the district judge found that Utica acted
unreasonably and in bad faith, First State cannot complain
about the sealing of documents relevant to that issue. First
State made no proffer, nor has it argued on appeal, that the
documents contained evidence probative of the dispositive
causation issue, i.e., the likelihood of a settlement at a
lower amount. The critical fact lacking in First State's
case was the parents' willingness to settle for a lower
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amount, and it seems unlikely that correspondence between
Utica and Prudential Reinsurance would contain evidence on
that issue. We conclude that there was no prejudice to First
State and thus there is no reversible error in the judge's
ruling on the disputed documents.
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III.
III.
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CONCLUSION
CONCLUSION
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For the foregoing reasons, the judgment is
affirmed. Costs to the appellee Utica.
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