National Surety Corporation v. Hartford Financial Services Group, Inc. et al
Filing
62
MEMORANDUM OPINION signed by Judge Charles R. Simpson, III on 7/8/2011. For the reasons set forth, 57 Plaintiff's MOTION for Summary Judgment will be DENIED, and 57 Defendant's MOTION for Summary Judgment will be GRANTED. A separate order will issue in accordance with this Opinion. cc: Counsel (RLK)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
NATIONAL SURETY CORPORATION
v.
PLAINTIFF
CIVIL ACTION NO. 3:05-CV-119-S
HARTFORD CASUALTY INSURANCE COMPANY
DEFENDANT
MEMORANDUM OPINION
This matter is before the court on the parties’ cross-motions for summary judgment (DNs
56 & 57). For the reasons set forth herein, the plaintiff’s motion will be DENIED and the
defendant’s motion will be GRANTED.
BACKGROUND
This case is an action for breach of contract and common-law bad faith by National
Surety Corporation (“National”) against Hartford Casualty Insurance Company (“Hartford”).
Hartford was the primary liability insurance carrier for a company known as Sufix, while
National provided Sufix with excess liability coverage. The limit of Hartford’s policy was $1
million, while the limit of National’s policy was $10 million.
In 1998, Tommy Cook was injured when a Sufix-made weed trimmer head broke apart
while Cook was using it. In May 1999, Cook sued Sufix in Jefferson County, Kentucky, Circuit
Court, and Hartford hired a defense attorney to litigate on Sufix’s behalf. At one point, Cook
offered to settle the case for $1 million – the limit of Hartford’s policy. Hartford, however,
declined to settle, and the case proceeded to trial.
On May 21, 2002, a jury found Sufix liable for Cook’s injuries and awarded Cook more
than $5.7 million in damages, including nearly $3 million in punitive damages. Because the
award exceeded the limit of Hartford’s policy, National was responsible for paying the portion of
the claim that exceeded $1 million.
National has now sued Hartford,1 arguing that Hartford breached its contract with Sufix
and acted in bad faith because it did not notify National of Cook’s claim until approximately
three weeks before the case was scheduled for trial, because Hartford did not settle the case
within its policy limits when given the opportunity to, and because Hartford allegedly did not
conduct a sufficient investigation into Cook’s claims. Both parties now move for summary
judgment.
ANALYSIS
A court “shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED.
R. CIV. P. 56(a). A genuine dispute of material fact arises when there is “sufficient evidence on
which the jury could reasonably find for the non-moving party.” Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 252 (1985). The evidence presented must be construed in the light most favorable
to the non-moving party. Blakeman v. Mead Containers, 779 F.2d 1146, 1150 (6th Cir. 1985).
I. National’s Claim for Failure to Notify
1
In 2007, the Sixth Circuit Court of Appeals held that National, as an excess insurer, could
“step into the shoes” of Sufix, its insured, and “sue a primary insurer [Hartford] pursuant to the
doctrine of equitable subrogation to enforce the primary insurer’s duty to avoid excessive judgments
against an insured.” Nat’l Surety Corp. v. Hartford Casualty Ins. Co., 493 F.3d 752, 756 (6th Cir.
2007).
-2-
National’s primary argument is that Hartford should be liable for the excess portion of
the judgment against Sufix because Hartford did not notify National of Cook’s claim until
approximately three weeks before the Cook trial began. National claims that by the time it was
informed of the existence of the Cook case, it had no choice but “to ride the horse that Hartford
had saddled up.” Pl.’s Resp. to Def.’s Mot. for Summ. J. (DN 59) at 6. Stated less colorfully,
National argues that being informed of the Cook case at such a late date deprived it of the
opportunity to play a meaningful role in the Cook litigation.
We do not believe National’s “failure to notify” claim to be viable in the subrogation
context. The Sixth Circuit Court of Appeals made clear in its 2007 opinion in this case that the
only cause of action National may assert against Hartford is a cause of action that Sufix could
have brought against Hartford. See Nat’l Surety, 493 F.3d at 760. In the prior National Surety
decision, the Court of Appeals held that National could not assert a claim against Hartford for
Hartford’s purported failure to investigate whether Sufix had an excess liability carrier because
“Sufix, who presumably knows from whom it has obtained insurance, would have had no such
claim against Hartford. Instead, such a claim would presume a direct obligation of the primary
insurer to the excess insurer, a concept rejected by most of those jurisdictions accepting
subrogation of the primary insurer’s obligation to its insured.” Id.
We reach a similar conclusion with respect to National’s claim against Hartford for any
purported failure to notify National of Cook’s lawsuit. National would only have a claim against
Hartford for “failure to notify” if Sufix would. The evidence supports no such claim here.
National does not allege that Sufix was unaware of the lawsuit or was not notified of the
-3-
lawsuit’s existence in a timely fashion. That Hartford failed to send Sufix an “excess letter”2
until March 2002 – approximately three months before trial – is of no moment. National’s claim
is based on the fact that it was unaware of the very existence of the lawsuit – not that it was
unaware that the lawsuit might result in a judgment in excess of Hartford’s policy limits. Sufix
knew about the lawsuit, even if it was not explicitly informed of the likelihood of a verdict
beyond Hartford’s policy limits until three months before trial. Moreover, it was incumbent on
Sufix, pursuant to the terms of its policy with National, to notify National of all claims against it.
See DN 57-8 (Ex. 16 to Byrnes Depo.). Sufix apparently did not do so, but Sufix’s failure to
comply with its insurance contract with National should not and does not create liability for
Hartford.3
National attempts to bolster its case by pointing out that Hartford’s internal claims
handling manual states that claim handlers should investigate the existence of other insurance
coverage. However, National points to no authority for the proposition that Hartford’s internal
“best practices” procedures created a legal duty with respect to investigating the existence of
Sufix’s other insurance carriers or informing National of the Cook claim. Summary judgment for
Hartford is appropriate on this aspect of National’s claim.
II. National’s Bad Faith Claim Against National
2
This “excess letter” informed Sufix that Hartford believed it was “possible” a jury might
award a verdict of more than $1 million.
3
National asserts that because Sufix’s owner is a Korean national “who needed a translator
during proceedings in this case,” Hartford should have been aware that the owner “was not a
sophisticated insured, who knew that [sic] distinction between primary and excess insurance.” Pl.’s
Reply (DN 61) at 12. The court rejects this claim for two reasons. First, National cites no authority
for the proposition that insurers of companies owned by non-English speakers owe a heightened
duty to their insureds. Second, the implication that the owner of a multi-national company like Sufix
– regardless of his native language – would be unable to comprehend basic insurance concepts
strains credulity.
-4-
Summary judgment is also appropriate with respect to National’s claims of bad faith
against Hartford. “Liability for bad faith will arise only in those instances where an insurer acts
with some degree of conscious wrongdoing, reckless or in a manner which reveals an unjustified
gamble at the stake of the insured.” Matt v. Liberty Mut. Ins. Co., 798 F. Supp. 429, 434 (W.D.
Ky. 1991); see also Winburn v. Liberty Mut. Ins. Co., 8 F. Supp. 2d 644, 647 (E.D. Ky. 1998)
(“[b]ad faith . . . is not simply bad judgment. It is not mere negligence. It imports a dishonest
purpose of some moral obliquity. It implies conscious doing of wrong . . . . It partakes of the
nature of fraud.” (quoting Matt, 798 F. Supp. at 433)).
National spends a great deal of time in its briefs pointing out what it perceives as
deficiencies in Hartford’s handling of the Cook matter. It claims that Hartford failed to comply
with its own internal policy manuals and deadline; that Hartford did not thoroughly investigate
Cook’s claim for the first two years it was in litigation; that Hartford failed to timely advise
Sufix that there was a possibility that the plaintiff sought damages above the policy limits; that
Hartford leaned too heavily on its defense counsel to investigate and handle the case; that
Hartford failed to consider the possibility of punitive damages in the case; that Hartford made
only “lowball” offers in its attempts to settle; that Hartford did not take into account a disparity
between what its defense counsel believed its liability to be and what Hartford’s internal
estimates of its liability were; that Hartford misjudged the evidence in the case; and that Hartford
knew Cook had suffered from “debilitating” injuries, but, in National’s view, apparently did not
handle the case accordingly. Nowhere in this litany of complaints, however, does National
present any evidence that Hartford acted with “a dishonest purpose of some moral obliquity” or
engaged in a “conscious doing of wrong.”
-5-
Nor has National presented any evidence of recklessness on Hartford’s part. Although
National cites many aspects of the Cook case it wished Hartford had handled differently, and
although National points out a number of apparent weaknesses in Hartford’s investigation, it has
not shown that Hartford acted in bad faith. As the Kentucky Court of Appeals has explained:
The evidentiary threshold [for bad faith] is high indeed. Evidence must
demonstrate that an insurer has engaged in outrageous conduct toward its insured.
Furthermore, the conduct must be driven by evil motives or by an indifference to
its insureds’ rights. Absent such evidence of egregious behavior, the tort claim
predicated on bad faith may not proceed to a jury. Evidence of mere negligence or
failure to pay a claim in timely fashion will not suffice to support a claim for bad
faith. Inadvertence, sloppiness, or tardiness will not suffice; instead, the element
of malice or flagrant malfeasance must be shown.
United Servs. Auto Ass’n v. Bult, 183 S.W.3d 181, 186 (Ky. App. 2003).
Even taken as true and construed in National’s favor, the evidence National cites is, at
best, evidence of “mere negligence . . . . [i]nadvertence, sloppiness, or tardiness.”4 Despite
National’s allegations of deficient performance on Hartford’s part, Hartford nonetheless
attempted settlement negotiations and mediation with Cook’s counsel, evaluated the case in a
not-unreasonable manner, and went on to defend Sufix at trial. That Hartford was unsuccessful
in its negotiations, was wrong in its evaluation of Cook’s claims, and ultimately failed to secure
a victory for Sufix at trial does not mean that it is liable for bad faith. Accordingly, we will grant
Hartford’s motion for summary judgment with respect to National’s bad faith claims and deny
National’s motion.
A separate order will issue in accordance with this opinion.
July 8, 2011
4
In making this statement, the court makes no judgment as to the actual quality of Hartford’s
handling of the Cook claim other than to conclude that it was not done in bad faith.
-6-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?