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American Automobile Insurance Co. v. First Mercury Insurance Co.

United States District Court, D. New Mexico

April 19, 2018

AMERICAN AUTOMOBILE INSURANCE COMPANY, Plaintiff/Counterdefendant,
v.
FIRST MERCURY INSURANCE COMPANY, Defendant/Counterclaimant, and XL INSURANCE COMPANY LIMITED and HCC INTERNATIONAL INSURANCE COMPANY PLC, Joined Plaintiffs on Counterclaim.

          MEMORANDUM OPINION AND ORDER

          This matter comes before the Court upon “American Automobile Insurance Company's Opposed Motion for Judgment on the Pleadings as to First Mercury's Counterclaim or for Partial Summary Judgment as to First Mercury's Counterclaim” (Motion), filed July 28, 2017. (Doc. 175). Plaintiff/Counterdefendant American Automobile Insurance Company's (AAIC) has presented evidence outside the pleadings. Therefore, the Court will analyze the Motion as a motion for partial summary judgment. See SEC v. Wolfson, 539 F.3d 1249, 1264 (10th Cir.2008) (stating “when a motion for judgment on the pleadings is filed and ‘matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment and disposed of as provided in Rule 56'” (quoting Fed.R.Civ.P. 12(d))). Defendant/Counterclaimant First Mercury Insurance Company (First Mercury) and Joined Plaintiffs on Counterclaim, XL Insurance Company Limited and HCC International Insurance Company, PLC, (collectively, Counterclaimants) filed a response on August 24, 2017, and AAIC filed a reply on September 25, 2017. (Docs. 177 and 178). Having reviewed the Motion, the relevant evidence, and the briefing, the Court grants the Motion, in part, as described below.

         A. Background

         1. Summary of the Facts[1]

         This case involves an insurance dispute arising from a traffic accident in which Monte Lyons, a Standard E&S, LLC (Standard) truck driver, caused the death of Kevin Udy. (Doc. 162) at 2. Lyons was driving a truck and trailer leased to Standard from Zia Transport, Inc. (Zia). Id. Bergstein Enterprises, Ltd. (Bergstein) operated both Standard and Zia. Id.

         a. The Insurance Policies

          Standard had an AAIC insurance policy (Standard Policy) which included Lyons, Zia, and Bergstein as additional insureds under its omnibus clause. (Doc. 4) at ¶ 7. That insurance policy had “primary liability coverage up to $1 million” per accident. (Doc. 162) at 3. This policy also covered punitive damages.[2] In addition to the Standard Policy, Standard had an excess insurance policy issued by First Mercury with a limit of $4 million (Standard Excess Policy). Id. at 5. The Standard Policy served as the underlying policy for the Standard Excess Policy. Id.

         Furthermore, AAIC issued Bergstein an insurance policy with a $1 million limit. Id. Because the tractor and trailer driven by Lyons was not listed on the Bergstein Policy, the policy apparently covers the tractor and trailer as only excess insurance. Id.

         b. The Underlying State Lawsuit

          In March 2011, the Estate of Kevin Udy and Udy family members (collectively, the Udys) sued Standard, Zia, Bergstein, and Lyons in state court for wrongful death, loss of consortium, personal injury, and punitive damages. (Doc. 117-1). AAIC provided a defense to all four defendants in that case while “First Mercury took the lead in settlement negotiations with the Udy plaintiffs.” (Doc. 4) at ¶ 15; (Doc. 162) at 6. In doing so, First Mercury offered $2, 250, 000 to settle the case. (Doc. 116-3) at 22. First Mercury specifically offered the $1 million limit under the AAIC Standard Policy and then, presumably, offered $1, 250, 000 under its Standard Excess Policy. (Doc. 162) at 6. No funds from the Bergstein Policy were offered during the pretrial settlement negotiations. Id. In fact, First Mercury contends that it did not know about the Bergstein Policy at that time. (Doc. 13) at 9, ¶ 18.

         The Udys countered by offering to settle the case for $3.5 million, well within the limits of the Standard Policy and the Standard Excess Policy. (Doc. 116-3) at 20-23. First Mercury apparently did not respond to that counteroffer, so the Udys withdrew the counteroffer and terminated settlement negotiations. Id. at 22-23.

         In March 2013, a jury trial tried the state case and “judgment was entered against Standard, Zia, and Bergstein for a total of $58 million….” (Doc. 162) at 7. Relevant to this Motion, the jury awarded $2.3 million in compensatory damages against Standard and $28 million against Standard in punitive damages. (Doc. 175-2) at 6-8. The jury also awarded $1, 035, 000 in compensatory damages against Zia and $5 million against Zia in punitive damages. Id.

         The case subsequently settled for $43 million, which was paid as follows: $1 million under the Standard Policy; $4 million under the Standard Excess Policy; $1 million under the Bergstein Policy; $4 million under an excess policy to the Bergstein Policy, which is not at issue here; and $33 million by First Mercury and its liability insurers. (Doc. 162) at 7.

         c. Post-Settlement Actions

         On May 9, 2013, AAIC sent a letter to the Udy defendants reserving its rights under the Standard Policy and the Bergstein Policy while it pursues relief in federal court. (Doc. 4-6). That same day, AAIC filed this lawsuit against First Mercury, Standard, Zia, Bergstein, Lyons, and the Udy plaintiffs for declaratory judgment, bad faith, and equitable subrogation. (Doc. 1). AAIC then amended the complaint in July 2013 to bring its claims against only First Mercury, Standard, Zia, and Bergstein. (Doc. 4). The Court since has dismissed the claims against Standard, Zia, and Bergstein, leaving First Mercury as the remaining Defendant. (Doc. 33).

         In October 2013 First Mercury filed counterclaims against AAIC. (Doc. 13) at 10-11. The Court subsequently allowed XL Insurance Company Limited and HCC International Insurance Company PLC to join as plaintiffs on First Mercury's counterclaims. (Doc. 143).

         In February 2014 Standard, Zia, Bergstein, and Pieter Bergstein[3] (collectively, Bergstein entities) entered into an Indemnification Agreement, Assignment and Release with First Mercury. (Doc. 175-2) at 11. First Mercury agreed, inter alia, to fully indemnify the Bergstein entities for the judgment entered against them while the Bergstein entities agreed to release First Mercury from claims related to the Udy lawsuit and its judgment. Id. at 13-14. The Bergstein entities also assigned to First Mercury all rights and claims they may have against AAIC. Id. at 14-15.

         B. The Pleadings

         1. AAIC's First Amended Complaint for Declaratory Judgment, Bad Faith and Equitable Subrogation (Amended Complaint) (Doc. 4)

AAIC contends in its Amended Complaint that [d]espite multiple opportunities to settle within the underlying $1 million policy limit plus First Mercury's $4 million excess policy limit, and despite the warnings of the likelihood of an excess verdict, Defendant First Mercury failed to settle the claims of the Udy Estate and the Udys within the policy limits of its Standard … Excess Policy.

(Doc. 4) at ¶ 17. As result of this alleged conduct, AAIC brings declaratory judgment, bad faith, and equitable subrogation claims against First Mercury. “AAIC seeks $1 million, which represents the amount of the AAIC Bergstein Policy that AAIC paid as a result of First Mercury's failure to settle the Udy Action within the limits of the AAIC Standard Policy and” the Standard Excess Policy. (Doc. 162) at 7.

         2. The ...


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