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Great American Insurance Co. v. Granite State Insurance Co.

United States District Court, D. Massachusetts

March 29, 2019




         The plaintiff, Great American Insurance Company, brought suit against the defendant, Granite State Insurance Company, contending that Granite State mishandled a lawsuit by failing to settle it before a jury returned a multi-million dollar verdict against an entity insured by both parties, causing Great American to pay the insured its policy maximum amount of $5 million. The Court conducted an eleven-day bench trial on the plaintiff's claim.[1] After the trial, the parties submitted proposed findings of fact and conclusions of law. Having considered the evidence and arguments of the parties, the Court now finds and concludes as follows.

         I. Findings of Fact

         Granite State Insurance Company provided Parkview Condominium Trust, the owner of a 318-unit high-rise residential condominium, with a general liability insurance policy of $1 million for the period January 1, 2007, through January 1, 2008. Great American provided excess liability insurance to Parkview for losses up to $5 million above the Granite State policy for the same time period. Parkview's policy with Granite State gave the insurer both the duty and the right to defend Parkview against lawsuits for personal injury, as well as the duty to indemnify Parkview in the event of a judgment or settlement.

         On July 11, 2007, Amadeo Gallotto, a boiler repairman, was called to Parkview to service its boiler. While performing his work, he was severely injured when he was scalded by hot water and steam exploding from a pressurized tank containing superheated water and steam. Represented by Attorney Robert Feinberg, he and his wife and son brought suit for negligence against Parkview in the Massachusetts Superior Court. As Parkview's primary liability insurer, Granite State was responsible for the defense of the Gallotto lawsuit. Christopher Flanagan, from the law firm of Wilson, Elser, Moskowitz, Edelman & Dicker LLP, was chosen by Granite State to serve as Parkview's defense counsel.

         The case was tried to a jury in the spring of 2011, and the Gallottos prevailed on their claims against Parkview. The jury found that both Parkview and Gallotto were negligent in the happening of the accident, and that the proper allocation of comparative fault was 90% to Parkview and 10% to Gallotto. The jury awarded $5, 750, 000 in damages to Gallatto, which was reduced by 10% to $5, 175, 000. It also found in favor of his wife and son on their loss-of-consortium claims, awarding them $250, 000 and $200, 000 respectively. With applicable interest added, the final judgment against Parkview was in the sum of just under $7.5 million.

         The verdict against Parkview exceeded the limits of both the Granite State and Great American insurance policies. Granite State paid its policy limit of $1 million, and Great American also paid the $5 million limit of its policy to satisfy the judgment against Parkview.

         Great American thereafter brought the present suit alleging that Granite State breached its contractual and common law duty owed to its insured, Parkview, and therefore also to Great American which stands in the insured's shoes, by failing to settle the Gallotto case prior to the jury's verdict.

         The record evidence at trial in this Court includes documentary evidence of Granite State's assessment of the likelihood of an adverse verdict, consisting principally in communications between its claims handling staff and Flanagan. The record also includes a similar history of Great American's review of the Gallotto claim and of Granite State's handling of it.

         A. Flanagan's Pretrial Evaluation

         About a year before the trial, Feinberg, the Gallottos' lawyer, made a formal settlement demand of $2.5 million in a letter to Flanagan. In a letter to Granite State's claims staff, Flanagan estimated a potential jury verdict amount of $1, 500, 000 to $2, 000, 000, given the severity of Gallotto's injuries. However, he noted that two factors could substantially reduce or even bar such damages. Because on the information known about the accident, the injury occurred when Gallotto himself opened a valve without taking certain prior safety precautions, Flanagan was of the opinion that there was a better than even chance of a defense verdict. Even if there were a verdict for the plaintiffs, however, the damage award would likely be reduced by a substantial percentage in light of what a jury might reasonably conclude was Gallotto's comparative negligence. Accordingly, Flanagan opined the case had a settlement value of $500, 000 to $700, 000. But he was pessimistic that the plaintiff would settle the case for less than $1, 000, 000. He adhered to those views in a later report in August 2010.

         In a litigation report dated October 27, 2010, Flanagan adjusted his assessment of settlement value to a range of $500, 000 to $1, 000, 000. He again expressed pessimism that the plaintiffs would agree to a settlement in that range because there was a large worker's compensation lien that would have to be satisfied from any insurance recovery by the plaintiffs.

         At the end of the year, Flanagan notified the Granite State claims staff that a trial date had been set for March 28, 2011, and he recommended that a mediation should be held in “late-January/early-February.” (Trial Ex. 36 at 7.) His assessment of the settlement value and likelihood of settlement remained the same. In a report submitted to Granite State in February 2011, Flanagan assessed the likelihood of a defense verdict to be 70%. In a conference call with claims staff, Flanagan expressed his opinion that “7 times out of 10 a jury should find the plaintiff 51% or more at fault” in the accident, defeating recovery, and in the other three times “the jury will find in favor of the plaintiff but certainly assess some comparative fault on his part.” (Trial Ex. 4 at 17.)

         A pretrial mediation session took place between the parties shortly before trial, but it was completely fruitless. According to Granite State staff activity notes, the plaintiff demanded (as before) $2.5 million, and Granite State countered with an offer of $100, 000. Neither party moved significantly toward the other's position. The plaintiff's demand never went below $2, 150, 000, and ...

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