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American Automobile Insurance Company v. First Mercury Insurance Company

United States District Court, D. New Mexico

December 6, 2018

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

          MEMORANDUM OPINION AND ORDER

         This matter comes before the Court upon "American Automobile Insurance Company's Motion for Summary Judgment as to First Mercury's Counterclaim for Equitable Indemnity" (Motion for Summary Judgment), filed July 13, 2018. (Doc. 200). Defendant/Counterclaimant First Mercury Insurance Company (First Mercury) filed a response on August 7, 2018, [1] and Plaintiff/Counterdefendant American Automobile Insurance Company (AAIC) filed a reply on September 10, 2018. (Docs. 205 and 208). Having considered the Motion for Summary Judgment, the accompanying briefing, and the undisputed material facts, the Court grants the Motion for Summary Judgment.

         A. Summary of Material Facts[2]

         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.

         1. 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.[3]

         In addition to the Standard Policy, Standard had an excess insurance policy (Standard Excess Policy) issued by First Mercury with a policy limit of $4 million. Id. at 5. The Standard Policy served as the underlying policy for the Standard Excess Policy. Id.

         AAIC also issued Bergstein an insurance policy (Bergstein Policy) with a $1 million policy limit. Id.

         2. 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.

         During the pretrial settlement negotiations, First Mercury offered $2, 250, 000 to settle the case. (Doc. 116-3) at 22. First Mercury specifically offered the $1 million policy 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 combined 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, the case was tried before a jury and "judgment was entered against Standard, Zia, and Bergstein for a total of $58 million...." (Doc. 162) at 7. 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. Id.

         3. This Lawsuit

         AAIC filed this lawsuit against First Mercury and others in May 2013 and filed a first amended complaint in July 2013. (Docs. 1 and 4). In October 2013, First Mercury filed counterclaims against AAIC. (Doc. 13). In February 2014, Standard, Zia, Bergstein, and Pieter Bergstein[4] assigned to First Mercury all rights and claims they may have against AAIC. (Doc. 175-2) at 14-15.

         AAIC alleges in its first 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 ...

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