Government Employees Insurance Company v. Saco et al

Filing 133

MEMORANDUM & ORDER, For the foregoing reasons, Kusulas's Motion for Partial Summary Judgment (Dkt. 117, No. 12-CV-5633; Dkt. 28, No. 15-CV-634) is DENIED. GEICO's Motion for Summary Judgment (Dkt. 115, No. 12-CV-5633; Dkt. 26, No. 15-C V-634) as to its request for declaratory judgment and Kusulas's cross-claims is GRANTED as to GEICO's obligation to pay prejudgment interest; and is DENIED as to GEICO's satisfaction of its duty of good faith. The parties are direc ted to contact the chambers of Magistrate Judge Pollak to schedule the filing of a Joint Pretrial Order in accordance with this court's Individual Rules, to be electronically filed no later than June 1, 2016. The parties are further directed to confer and to contact the court's Deputy at 718-613-2545 to set a trial date. So Ordered by Judge Nicholas G. Garaufis on 3/30/2017. Associated Cases: 1:12-cv-05633-NGG-CLP, 1:15-cv-00634-NGG-CLP (Lee, Tiffeny)

P/F

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK
-X

GOVERNMENT EMPLOYEES INSURANCE

COMPANY,

Plaintiff,

MEMORANDUM & ORDER

12-CV-5633(NGG)
(CLP)

-againstDIANE SACO and SUZANNE KUSULAS,

Defendants.
-X

SUZANNE KUSULAS,as assignee ofthe rights
ofDIANE SACO,

Plaintiff,

15-CV-634(NGG)
(CLP)

-againstGOVERNMENT EMPLOYEES INSURANCE

COMPANY,

Defendant.
-X

NICHOLAS G, GARAUFIS,United States District Judge.
The parties in these two related cases seek the court's determination as to the
Government Employees Insurance Company's("GEICO")obligation to pay certain costs under

its insurance policy issued to Diane Saco ("Saco"). Underlying the actions is a prior state court
trial, in which ajury adjudged Saco to be liable to Suzanne Kusulas("Kusulas")for injuries
sustained in an automobile accident.

Before the court are GEICO's Motion for Summary Judgment as to all claims in both
actions(see GEICO's Mot. for Summ. J.("GEICO Summ. J. Mot.")(Dkt. 115),
1

No. 12-CV-5633),^ and Kusulas's Motion for Partial Summary Judgment as to her counterclaim
for breach ofcontract(see Kusulas Summ. J. Mot.(Dkt. 117), No. 12-CV-5633).

For the following reasons, the court DENIES Kusulas's Motion for Partial Summary
Judgment and GRANTS IN PART and DENIES IN PART GEICO's Motion for Summary
Judgment.
1.

BACKGROUND

A.

The Parties' Statements of Undisputed Facts

The facts in this opinion are drawn, where possible,from the parties' statements of
undisputed facts, submitted pursuant to Local Rule 56.1. (See Kusulas Rule 56.1 Statement
(Dkt. 117-1); GEICO Rule 56.1 Statement(Dkt. 115-1).) See also Holtz v. Rockefeller &
Co.. 258 F.3d 62,73(2d Cir. 2001)(The court "is not required to consider what the parties fail to

point out in their Local Rule 56.1 statements."(intemal quotation marks and citations omitted)).
In addition to submitting their initial statements of"undisputed" facts, the parties both
submitted counterstatements to each other's statements, and GEICO additionally submitted a

reply to Kusulas's coimterstatement. (See GEICO 56.1 Counterstatement(Dkt. 123-1); Kusulas
Rule 56.1 Coimterstatement(Dkt. 121); GEICO Rule 56.1 Reply(Dkt. 128)).) This opinion

relies only on facts in the parties' Rule 56.1 statements that are truly undisputed and notes any
apparent disagreement over any material allegation.
B.

Factual Background

At issue in both ofthese cases is a car accident and subsequent state court case, the facts

of which are undisputed. On February 23,2006, Saco collided with a car in which Kusulas was

'
Unless otherwise noted, all docket citations in this opinion are to the first ofthe two cases filed. No. 12-CV-5633.
The simunary judgment motions also appear on the docket in Kusulas's parallel proceeding. No. 15-CV-634.
(GEICO Summ. J. Mot.(Dkt. 26), No. 15-CV-634; Kusulas Summ. J. Mot.(Dkt. 28), No. 15-CV-634.)

a passenger. (Kusulas Rule 56.1 Statement ^ 2.) At the time ofthe accident, Saco held two
insurance policies issued by GEICO: an automobile policy with a policy limit of$300,000(the
"Automobile Policy") and a personal umbrella policy, with a policy limit of$1,000,000(the
"Umbrella Policy;" collectively, the "Policies"). (See GEICO Rule 56.1 Statement fl 1,5.) The
Umbrella Policy provided cumulative "excess coverage" to the Automobile policy, and so Saco's
coverage as to the accident in question had a combined limit of$1,300,000(the "Policy Limits").
m

In January 2007, Kusulas instituted an action against Saco in the Supreme Court ofthe
State ofNew York,Kings County (the "Underlying Action"). (Id ^ 3.) On June 16,2010,the
state court granted Kusulas's motion for summary judgment as to liability, holding that Saco was

fully liable for Kusulas's injuries resulting from the accident. (See id.^ 16; see also Kusulas
Rule 56.1 Statement ^ 5.) On March 5,2012, ajury considering only the issue of damages
returned a verdict of$3,369,066.75. (GEICO Rule 56.1 Statement ^ 100; Kusulas Rule 56.1

Statement H 8.) Following further proceedings, the state court entered judgment entered
judgment for Kusulas in the amount of$2,857,900.55 on October 10,2014. (GEICO Rule 56.1

Statement^ 106; Kusulas Rule 56.1 Statementf 10.) Significantly for the motions considered
here,thisjudgment included $779,273.26 in interest, calculated at the statutory rate ofnine

percent per annum from the date ofthe June 16,2010,judgment as to Saco's liability for

Kusulas's injury. (Kusulas Rule 56.1 Statement ^ 10.)^

2 On May 12,2012, GEICO paid Kusulas $1,283,500. (Kusulas Rule 56.1 Statement If 9.) Kusulas characterizes
this amount as "partial satisfaction" ofthe judgment, a characterization which GEICO disputes based on the claims
at issue in the present case. (See GEICO 56.1 Counterstatement ^ 9.) The court declines to characterize the
payment at this point and only notes that this payment represented the remaining policy coverage amount not in
dispute as between GEICO and Saco at the time ofthe payment.

From October 2007 through return ofthe jury verdict, the parties engaged in off-and-on
settlement discussions and GEICO developed internal case valuations, reviewed in greater detail
below. (See Section ILC.l, injfra.')

C.

Procedural History

GEICO filed the first ofthe two captioned cases in this court on November 15,2012, and
named both Saco and Kusulas as defendants. (Compl.(Dkt. 1).) That complaint seeks

declaratory judgment that(1)GEICO is not required to make any payments in excess ofthe

Policy Limits;(2)the Policies do not require payment for Saco's personal attorney's fees;
and(3)GEICO is not subject to any claim for bad faith in relation to its obligations to Saco.

(Id. K 41.) In her answer, Kusulas included two counterclaims:(1) GEICO breached its contract

in failing to tender to Saco the full Policy Limits plus preiudsment interest^ on that amount; and

(2)GEICO acted in bad faith towards Saco in its failure to settle the Underlying Action."* (See
Kusulas Answer & Countercl.(Dkt. 51)

21-28; id

29-63.) While, as noted, Saco originally

appeared as a defendant in the case, she assigned her rights against GEICO to Kusulas on
December 23,2014. (GEICO Rule 56.1 Statement ^ 107.)
II.

DISCUSSION

Pending before the court are the parties' cross-motions for summary judgment. GEICO
seeks summaryjudgment as to all claims in both actions. (See Mem.in Supp. of GEICO's Mot.
for Summ. J.("GEICO Summ. J. Mem.")(Dkt. 116)at 1.) Kusulas moves for summary

^ The phrase "prejudgment interesf as it is used in the parties' submissions and this order refers to interest accruing
from the time that liability was determined(June 16,2010)to the time that the jury returned its verdict(March 5,
2012), as this is the reliefrequested by Kusulas in her Motion. (See Kusulas Summ. J. Mem.(Dkt. 120) at 10.)
On November 19,2014,Kusulas withdrew her bad faith claim(Nov. 19, 2014, Min. Entry), which she
subsequently brou^t as a separate action in New York state court(see Kusulas Rule 56.1 Statement 23). GEICO
removed the separate action to this court(see Not. of Removal(Dkt. 1), No. 15-CV-634, 3-4), and the court
consolidated the two actions(Aug.4,2015, Order(Dkt. 99)).

judgment only as to her claim for breach of contract based on GEICO's failure to pay

prejudgment interest on the Policy Limits. (See Mem.in Supp. of Kusulas's Mot. for Partial
Summ. J.("Kusulas Summ. J. Mem.")(Dkt. 120)at 1.) The court concludes that GEICO is
entitled to summary judgment as to its liability for prejudgment interest in excess ofthe Policy
Limits, as extrinsic evidence demonstrates that the parties to the Policies lacked intent for

GEICO to be liable for those payments. Kusulas's Motion for Partial Summary Judgment must
therefore be denied. The court also denies GEICO's request for summary judgment as to

whether it discharged its duty of good faith to Saco in the Underlying Action, as conflicting
evidence presented by the parties gives rise to a genuine dispute of material fact.
A.

Legal Standard

A court must grant summary judgment where "the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter oflaw." Fed.
R. Civ. P. 56(a). "A 'material' fact is one capable ofinfluencing the case's outcome under
governing substantive law, and a 'genuine' dispute is one as to which the evidence would permit
a reasonable juror to fmd for the party opposing the motion." Fiaueroa v. Mazza. 825

F.3d 89,98(2d Cir. 2016)(citing Anderson v. Liberty Lobbv. Inc.. 477 U.S. 242,248(1986)).
"The movant may discharge this burden by showing that the non-moving party has 'fail[ed] to
make a showing sufficient to establish the existence of an element essential to that party's case,

and on which that party will bear the burden ofproof at trial.'" Lantheus Med. Imaging. Inc. v.
Zurich Am.Ins. Co.. —F.Supp. 3d—,No. lO-CV-9371 (KPF),2015 WL 1914319, at *6
(S.D.N.Y. Apr. 28,2015)(citing Celotex Com, v. Catrett. 477 U.S. 317,322(1986)).
"In determining whether an issue is genuine,'[t]he inferences to be drawn from the
underlying affidavits, exhibits, interrogatory answers, and depositions must be viewed in the
light most favorable to the party opposing the motion.'" SCW West LLC v. Westnort Ins. Corp.,

856 F. Supp. 2d 514,521 (S.D.N.Y. 2012)(quoting Cronin v. Aetna Life Ins. Co.,46
F.3d 196,202(2d Cir. 1995)). "[T]he judge's function is not[]to weigh the evidence and
detennine the truth ofthe matter but to determine whether there is a genuine issue for trial."
Redd V. N.Y. Div. ofParole. 678 F.3d 166,173-74(2d Cir. 2012)(quoting Liberty Lobby.477

U.S. at 249). However,"[a] party may not rely on mere speculation or conjecture as to the true
nature ofthe facts to overcome a motion for summaryjudgment," and "[m]ere conclusory

allegations or denials... cannot by themselves create a genuine issue of material fact where
none would otherwise exist." Hicks v. Baines, 593 F.3d 159,166(2d Cir. 2010)(intemal
quotation marks and citation omitted).
B.

Breach of Contract Claim

Both Kusulas and GEICO move for summaryjudgment as to GEICO's obligation to pay

the prejudgment interest that accrued between the June 16, 2010, decision regarding liability and
the March 5,2012,jury verdict on damages. fSee Kusulas Summ. J. Mem.at 10; GEICO
Summ. J. Mem. at 7-10). Kusulas does not claim payment for all prejudgment interest on the
total judgment; rather, she seeks the interest accrued "on the portion ofthe Judgment up to

GEICO's policies' limits (i.e. up to $1,283,500)." (See Kusulas Summ. J. Mem. at 10.)

The parties raise two issues for the court's consideration:(1)Is GEICO required to pay

prejudgment interest in excess ofthe Policy Limits as a matter ofNew York law?(2)If not, do
the Policies' terms require such payment? The court finds that neither state law nor the Policies'
terms obligate GEICO to pay prejudgment interest in excess ofthe Policy Limits and so
concludes that GEICO is entitled to summaryjudgment on the issue.
1.

Obligation to Pay Prejudgment Interest Under New York Law

In the court's previous decision on the parties' cross-motions for judgment on the

pleadings,the undersigned determined that'TMew York regulations do not require that an
6

automobile insurance policy cover prejudgment interest in excess ofthe policy limit."
(Apr. 2,2015, Mem.& Order(Dkt. 90) at 7.) Kusulas urges the court to reconsider its position
and argues that the previous decision misconstrued the applicable cases. (Kusulas Summ. J.
Mem. at 20.) The court finds no support for her argument that New York requires insurers to
pay prejudgment interest.

Kusulas's argument hinges on the New York Court of Appeals' decision in Dingle v.
Prudential Property & Casualty Ins. Co.. 85 N.Y.2d 657(N.Y. 1995). In a bifurcated trial, the
defendant was found to be 100% liable for a car accident. Id at 659. The defendant's insurance

policy did not address payment of interest accrued between the dates on which liability was
adjudged and damages were set in a bifurcated trial, but the insurer agreed to pay interest during
that period on an amount up to the policy limit. Id Following the damages determiaation, the

insurer-defendant paid out the policy limit amount,the interest on the policy amount "accruing
from the date ofthe liability verdict to the date ofthe damages award"(i.e. prejudgment iaterest
on the policv limitsV and interest on the entire verdict from the date ofthe damages award to the
date oftender. Id at 659-60. The issue before the court was thus not the payment ofinterest on

the policy limit, but rather the plaintiff's request for the "difference between the interest on the
entire judgment... and the amount actually tendered." Id at 660.
Dingle therefore takes as a given the precise issue that is in dispute here: the defendantinsurer had already agreed to pay prejudgment interest on the policy limits in addition to the
entire policy limit, exactly what GEICO is refusing to do here. In support ofher contrary
reading ofthe case, Kusulas points to the first "Question Presented" in the Dingle plaintiff's
brief:"Must an insurance carrier... pay interest on the judgment against its insured from the
date ofliability determination to the date ofthe tender ofthe policy?" (Ex.E to Kusulas

Summ.J. Mot. at 1.) However,she presents this argument entirely without context, as the
remainder ofthe cited briefreaffirms that the defendant insurer had already agreed to pay

prejudgment interest and was not contesting that point. (Id, at 3-4.) For the same reason,

Kusulas's citations to broad policy statements in Dinsle do not bind the court here: they were
made without consideration ofthe particular issue here, and it is not the place ofthis court to

determine whether the Court of Appeals would have made the same statements in reviewing

different contract language.^
Stripped of support from Dingle, Kusulas's remaining arguments do not further her

position.^ The court is not persuaded by Kusulas's characterization ofthe holding in Dingle and
reaffirms its prior decision that insurers in New York are not bound by law to pay prejudgment
interest in excess of policy limits.
2.

Obligation to Pav Prejudgment Interest Under Saco's Policies

In the absence of a legal rule requiring insurers to pay prejudgment interest on their

policy limits, the parties dispute whether the Policies' terms require such payments. The court
previously concluded that the Policies were susceptible to "more than one reasonable
inteipretation." (Apr. 2,2015, Mem.& Order at 7.) Due to the resulting ambiguity as to

^ Kusulas particularly relies on the Court of Appeals' statement that "the controlling inquiry should be who has
retained or benefitted from the money belonging to the plaintiff during that period." ("See Kusulas Summ. J. Mem.
at 12(citing Dinele. 85 N.Y.2d at 662).) She argues that, as GEICO retained the money in the prejudgment period,
this language indicates that they "benefitted from the money" in the context ofthis inquiry. (Id.)
^ In addition to Dingle. Kusulas cites two other cases, Sinn v. Nationwide Mut. Ins. Co.666 N.Y.S.2d 89(App.

Div. 1997)and Raeins v. Hospitals Ins. Co.22 N.Y.3d 1019(N.Y.2013), neither of which supports her contention
that insurers are required to pay prejudgment interest on their policy limits regardless ofthe language ofthe policies.
(See Kusulas's Summ. J. Mem. at 13-14.) While Sinn, considering a policy that was "not more generous than...
required by regulation," awarded interest from the date ofthe liability determination, the opinion offers no
suggestion that the parties contested prejudgment interest or that the court specifically considered that issue. 666
N.Y.S.2d at 89. The Court of Appeals' decision in Ragins offers even less support to Kusulas's position, as the
interest determination is based on the "plain meaning ofthe ... policies" and not an obligation imposed by law. 981
N.Y.2datl023.

8

prejudgment interest, the court invited the parties to submit extrinsic evidence to elucidate the
intent behind the relevant provisions. (Id. at 9-11.)

Kusulas argues again that the Policies unambiguously demonstrate the parties' intent for
GEICO to pay prejudgment interest, including interest in excess ofthe Policy Limits. Both
parties also present extrinsic evidence as to the parties' intent. The court once again finds the
Policies' language to be ambiguous, but concludes that the extrinsic evidence demonstrates that

the parties lacked intent for GEICO to be liable for prejudgment interest payments in excess of
the Policy Limits.

a.

Ambiguity in the Policies

"When a dispute arises involving the terms of an insurance contract, New York insurance
law provides that an insurance contract is interpreted to give effect to the intent ofthe parties
expressed in the clear language ofthe contract." Parks Real Estate Purchasing Grp. v. St. Paul
Fire & Marine Ins. Co.. 472 F.3d 33,42(2d Cir. 2006)(internal quotation marks and citation

omitted). Where "an insurance policy is 'clear and unambiguous,' it is to be given its 'plain and
ordinary meaning,' and courts are to refrain from rewriting the agreement." Duane Reade. Inc.
V. St. Paul Fire and Marine Ins. Co.. 600 F.3d 190,201 (2d Cir. 2010)tquoting Dalton v.

Harlevsville Worcester Mut. Ins. Co., 557 F.3d 88,90(2d Cir. 2009)). Whether or not a contract

is ambiguous is an issue oflaw for the court to assess in view of whether the challenged
language "is reasonably susceptible of more than one interpretation," ajudgment which "the
court makes by reference to the contract." Banque Arabe et Intemationale D'Investissement v.
Md.Nat'lBank. 57 F.3d 146,152(2d Cir. 1995).

Thus,the court is charged with deciding in the first instance whether the Policies

unambiguously demonstrate the parties' intent that GEICO should pay prejudgment interest,
including where that interest is in excess ofthe Policy Limits. The Automobile Policy contains

only one reference to payment ofinterest, contained in a list of"additional payments[GEICO]
will make under the liability coverages": "falll interest accruing on the amount of a judgment
which represents our limit ofliability, until we have paid, offered, or deposited in court that part
of ajudgment not exceeding the limit our liability." (Ex. 9 to Kusulas Summ J. Mot.

(Dkt. 117-10) at ECF pp. 10-11 (emphasis added).) The Umbrella Policy likewise contains only
one reference to interest, contained in a section titled "defense of suits not covered by other

insurance," which states: "[w]hen [GEICO]provide[s] defense, we will...pay interest accruing
after a judgment is entered in a suit we defend; our duty to pay interest ends when we offer to

pay that part ofthe judgment which does not exceed our liability limits." (Ex. 10 to Kusulas

Summ J. Mot.(Dkt. 117-11) at ECF pp. 8-9(emphasis added).)^
Kusulas argues that the wording and placement ofthese policies demonstrate that

GEICO's responsibility for interest payments is not constrained by the Policy Limits. Pointing
particularly to the fact that the Automobile Policy language regarding interest is listed as an

"additional payment," she argues that the Policy Limits apply only to damages and do not affect
GEICO's obligations as to interest on judgments imder the policy. (Kusulas Summ.J. Mem.
at 15-16.) However,this discussion does not resolve the ambiguity identified by the court's

previous decision and reaffirmed here. The policy language is ambiguous as to both:(1) whether
GEICO agreed to pay prejudgment interest or solely post-judgment interest; and(2)in that
event, whether GEICO agreed to pay interest amounts in excess ofthe Policy Limits. While the

'
Additionally, in discussing its "limits of liability," the Umbrella Policy states that "[i]f both primary insurance and
this policy cover an occurrence, we pay only those damages which exceed the liability limits listed in Item V ofthe
declarations, or any applicable primary policy, whichever is greater." (Ex. 10 to Kusulas Summ J. Mot. at ECF p.
8). The "liability limits in Item V ofthe declarations" appears on a separate page ofthe policy, which lists the
"Minimum Required Limits ofPrimaiy Insurance" as "$300,000/300,000/100,000." (Id at ECF p. 2.) This is an
apparent reference to the automobile insurance policy limits. The significance ofthis language is not clear and is
not addressed by the parties.
10

policies clearly envision that some interest payments will exceed the Policy Limits, Kusulas'
arguments do not provide any further information as to whether the interest provisions in each
policy evince intent that GEICO should pay preiudgment interest, or how the different passages
in the Automobile and Umbrella Policies should be read together.

Thus,the court is remains unable to determine from the language ofthe Policies

themselves whether the parties intended that GEICO would pay prejudgment interest and, if so,
whether such pa5nnents could exceed the Policy Limits. Accordingly,the court is unable to mle
on the meaning ofthe Policies based solely on the four comers ofthe contract.
b.

Extrinsic Evidence ofthe Parties'Intent

"When a court decides, after examination ofthe contractual language,that an insurance

policy is ambiguous,it looks outside the policy to extrinsic evidence, if any, to ascertain the
intent ofthe parties." Andv Warhol Found,for Visual Arts. Inc.. v. Fed. Ins. Co., 189
F.3d 208,215(2d Cir. 1999). The purpose ofthis examination is to determine the "meaning
intended by the parties during the formation ofthe contract." Morgan Stanlev Grp. Inc. v. New
Eng. Ins. Co.. 225 F.3d 270,276(2d Cir. 2000)(quoting Alexander & Alexander Servs.. Inc. v.
These Certain Underwriters at Llovd*s. London. Eng.. 136 F.3d 82, 86(2d Cir. 1998)).

The meaning of an ambiguous contract is generally an issue offact and so unsuitable for
siraunary judgment. See Fed. Ins. Co. v. Am.Home Assur. Co.,639 F.3d 557,567

(2d Cir. 2011). However,summary judgment may be appropriate "ifthe non-moving party fails
to point to any relevant extrinsic evidence supporting that party's interpretation ofthe language."
Id.(intemal quotation marks and citation omitted). Said differently, a court can determine the
meaning of an ambiguous contract on summary judgment "ifthe extrinsic evidence is 'so one

sided that no reasonable person could decide the contrary.'" Sarinskv's Garage Inc. v. Erie

II

Ins. Co.. 691 F. Supp. 2d 483,486(S.D.N.Y. 2010)rquoting 3Com Corp. v. Banco do Brasil
S.A.. 171 F.3d 739,746(2d Cir. 1999)).

GEICO points to two primary sources of evidence ofthe parties' intent: deposition
testimony ofits own employees stating that its policies do not cover any prejudgment interest in
excess of policy limits (see Ex. AA to GEICO Summ. J. Mot.("Indjeyianms Dep. Tr.")

(Dkt. 151-34)37:15-18; Ex. CCto GEICO Summ. J. Mot.("Feinman Dep. Tr.")(Dkt. 115-36)
at 181:23-183:6; Ex. II to GEICO Summ. J. Mot.("Siegelwax Dep. Tr.")(Dkt. 115-42)

42:14-19), and the undisputed fact that Saco herself has no recollection of obtaining the policies
at issue(GEICO Rule 56.1 Statement K 112). Based on these two pieces ofevidence, GEICO
asserts that "[t]he probative evidence establishes that GEICO never intended to cover

prejudgment [interest] in either policy" and that Saco "cannot refute the evidence regarding
GEICO's intentions regarding prejudgment interest." ISee GEICO Summ. J. Mot. at 9.)

Kusulas attempts to contradict GEICO's assertions as to its intent in several ways. She
notes that, by GEICO's own admission, it pays prejudgment interest where the combined interest
and damages fall within policy limits. (Kusulas Mem.in Opp'n to GEICO Summ. J. Mot.

("Kusulas Opp'n Mem.")(Dkt. 122)at 4-5 (citing Aff. of Byron Wobeter(Dkt. 115-3) H 118).)
From this, she argues that "[ujnless GEICO is in the business of making gratuitous payments to

injured plaintiffs," the only "reasonable conclusion" is that GEICO makes those payments in

recognition ofits obligation to do so.^ (Id) Kusulas also points to statements by the trial lawyer
retained by GEICO in the Underlying Action that, in his understanding, GEICO was responsible
for paying prejudgment interest on the award and that he had discussed the accrual ofthat

® Kusulas appears to argue that the obligation that GEICO is recognizing here is one imposed by New York law.
(Kusulas Opp'n Mem.at 5.) While the court has already held that she fails to establish this obligation, see supra
Section II.B.l, this argument may still be relevant to evaluating GEICO's intent in making those payments.
12

interest with GEICO on several occasions prior to trial. (Id. at 5-6 (citing Ex. J to GEICO

Sunim. J. Mot.("Nelson Dep. Tr.")(Dkt. 115-17) 75:11-76:17; see also Kusulas Summ.J. Mem.

at 6-7,18.) Finally, she offers testimony from an expert witness who was formerly employed by
another large New York state insurer, who testified that his previous employer would have paid

prejudgment interest in similar circumstances "without any second thoughts."^ (Ex. 23 to
Kusulas Summ.J. Mot.(Dkt. 117-24)at ECF p. 8.)

The court concludes that GEICO is entitled to summary judgment on this point. The

point in issue—^the intent ofthe parties—^is best viewed as having two component parts:

(1) whether GEICO was obligated to pay prejudgment interest; and(2) whether this obligation
would cover amounts in excess ofthe Policy Limits. In order to satisfy its burden, either on its

claim for declaratoryjudgment or its defense to Kusulas's counterclaim, GEICO need only show
that the one ofthese two elements is answered in the negative. GEICO's proffered testimony

meets this requirement, as it supports its claim that the contracting parties did not intend for
GEICO to be obligated to pay prejudgment interest in excess ofthe Policy Limits. Kusulas, on
the other hand, would need to demonstrate the parties' affirmative intent as to both ofthe
elements noted above in order to be entitled to relief, and she fails to make any showing as to the

second element. While Kusulas relies heavily on the declarations by GEICO's employees that it

might pay prejudgment interest where its total payment does not exceed the policy limits, this
testimony speaks only to the first element: GEICO's willingness to make prejudgment interest

^ Kusulas also offers testimony from both this expert and a second expert, a former justice ofthe New York State
Appellate Division, that this court erred in its determination that the insurers are not required by state law to pay
prejudgment interest in all cases. (See Ex.23 to Kusulas Summ. J. Mot. at ECF pp. 5-6; Ex. 22 to Kusulas Summ. J.
Mot.(Dkt. 117-23)at ECF pp. 11-13.) In as much as Kusulas's experts testified regarding ofissues oflaw, and not
as to their interpretations ofthe Policies or the practice in the insurance industry, the court does not accord that
testimony any weight. See Pension Comm. of Univ. of Montreal Pension Plan v. Banc of America Sees.. LLC,716

F. Supp. 2d 220,223-24(S.D.N.Y. 2010)("It is[] well-established that expert witnesses are not permitted to testify
about issues oflaw—^which are properly the domain ofthe trial judge and jury.").
13

pa5anents in at least some cases. From this, she asks the court to assume GEICO's further intent
as to prejudgment interest in excess of policy limits. However,this would require the court to

inappropriately engage in "speculation or conjecture as to the true nature ofthe facts" rather than
properly evaluating the evidence that is actually before it. Hicks. 593 F.3d at 166(internal
quotation marks and citation omitted). The testimony from an employee of a different insurance
company and an outside attorney employed by GEICO as to their own expectations offers no
additional assistance to Kusulas's case, as it does nothing to demonstrate the parties' intent at the

time of contracting. Accordingly, GEICO's Motion for Summary Judgment as to prejudgment
interest is granted and Kusulas's Motion for Partial Summary Judgment is denied.
C.

Bad Faith

GEICO also moves for summary judgment on its claim that it did not violate its duty of

good faith during settlement discussion in the Underlying Action. rSee generallv GEICO Summ.
J. Mem. at 10-24.) GEICO contends that, at all times prior to the trial, it valued the settlement at
an amount below the Policy Limits and so did not violate its good faith obligation by offering

less that the Policy Limits. QdJ Kusulas disputes this characterization, arguing that GEICO was

on notice ofthe significant potential that ajury would return a verdict in excess ofthe Policy
Limits, and that its failure to settle for an amount equal to the Policy Limits evinces bad faith.

Kusulas argues that, ifthe court deteimines that the contract language is ambiguous, it is obligated to interpret any
ambiguities in favor ofKusulas. (Kusulas Summ. J. Mem. at 16.) Under the doctrine ofcontra proferentem.
ambiguity in an insurance policy "'must be resolved against the insurer which drafted the contract.'" Catlin Spec.
Ins. Co. V.0A3 Fin. Corp.. 36 F. Supp. 3d 336,341 (S.D.N.Y. 2014)(quoting State v. Home Indem. Co..66 N.Y.2d
669,671 (N.Y. 1985)). However, contra proferentem only applies where a court is unable to determine the meaning
of a contract even after considering extrinsic evidence. S^id. at 342("Where the words of a contract are
ambiguous, but there is evidence of parties' intent, the 'fundamental, neutral precept' of contract interpretation still
must apply, and fact-finders must determine the parties' intent.") Here, the court finds that the one-sidedness ofthe
extrinsic evidence resolves the ambiguity, and so it does not apply the doctrine of contra proferentem.
"Kusulas also separately moves for summary judgment as to GEICO's alleged continuing accrual of interest.
(Kusulas Summ. J. Mem.at 22-25.) Plaintiff argues that, because GEICO was required to pay prejudgment interest
and failed to do so,that unpaid amount has itself accrued interest. The court also denies the motion for summary
judgment as to this additional, derivative amount ofinterest.
14

Because ofthe fact-intensive nature of a bad faith claim,the court discusses GEICO's

consideration and attempted negotiation ofa settlement in the Underlying Action in detail, noting
both the facts upon which the parties agree and those in dispute. The court then reviews New
York law on insurers' good faith obligations in settlement. The court concludes that Kusulas
presents multiple factual issues that go to the heart ofthe issue. Summaryjudgment must
therefore be denied.
1.

Relevant Factual History

Following Kusulas's institution ofthe Underlying Action, but prior to the judgment
holding Saco entirely liable for the car accident, Kusulas's then-attorney "demanded that
[GEICO]tender its full policy limits of$1.3 million to settle the underlying action." (GEICO

Rule 56.1 Statement K 5.) From that time up until September 15, 2011, Kusulas did not formally
deviate from this demand.

fSee id.^ 61.1

Following Kusulas's initial demand letter, GEICO retained the law firm of Morris Duffy
Alonso & Faley("Morris Duffy")to defend Saco in the Underlying Action. (Id.^ 7.) Shortly
thereafter, Morris Duffy provided GEICO with a report(the "First Morris Duffy Report")

reviewing the potential damages in the case. (Id H 17.) This report assessed that Kusulas's

claimed injuries had a "settlement value" of$600,000 to $800,000 and a "potentialjury verdict
value" of$850,000 to $1,000,000(id H 21-22; Ex. O to GEICO Summ. J. Mot.(Dkt. 115-22)

at 11), predictions that were based in part based on potential issues with the causal link between
the accident and Kusulas's two spinal surgeries. (See GEICO Rule 56.1 Statement

19-20.) A

The parties dispute whether, following a January 2011 mediation session that recommended a settlement amount
below the Policy Limits, Kusulas would have that lowered figure. (See, e.g.. Kusulas Rule 56.1
Counterstatement ^41.) Kusulas does not present any evidence to suggest that either she or her attorney made direct
statements expressing a willingness to settle at a lower amount. (Id.') As such, the court assumes for purposes of
this motion that Kusulas never made a formal offer to settle for less than the Policy Limits.
15

subsequent report(the "Second Morris Duffy Report")provided summaries of cases involving
plaintiffs with "similar injuries [to those] sustained by [Kusulas]." (Ex.P to GEICO Summ. J.
Mot.(Dkt. 115-23)at 1.) The report included awards and settlements both above and below the
Policy Limits and highlighted that"many ofthe jury verdicts involving one cervical fusion
surgery resulted in excess ofthe [policy amount]in the instance [sic] case." (Id at 2.) Roughly
a year after receiving the two Morris Duffy reports, GEICO retained a second law firm to

independently analyze the case. (GEICO Rule 56.1 Statement ^ 63.) That firm concurred with
the Morris Duffy reports, finding both the estimated settlement and jury verdict amounts to be
"sound and reasonable." (Ex. X to GEICO Summ. J. Mot.(Dkt. 115-31) at 11.)

Between receipt ofthe Morris Duffy reports and the beginning ofthe damages trial,

GEICO made Kusulas two separate settlement offers—one for $200,000 and one for $300,000
(GEICO Rule 56.1 Statement

27,39)—^both of which Kusulas rejected(id

28,42). The

parties also appeared before a mediator, who recommended settling the case for $1.15 million.
(Id K 29.) During this period, GEICO gradually increased Morris Duffy's settlement authority
firom $200,000 to $450,000. (Id

27, 30,65.) However,the Morris Duffy attomey handling

the matter, Greg Nelson fTSfelson"), never made an offer at the maximum authorized amount.
(Id Hlf 34,65-66.)

In the final months before damages-only trial, Kusulas's attorneys made one final offer to
settle the case for the Policy Limits. (Id 161.) The offer letter provided a firm cutoff date, after

which point it stated Kusulas would seek both the Policy Limits and prejudgment interest. (Id.)
GEICO does not appear to have taken any action in response to this offer.

While Kusulas agrees that Nelson never made an offer at the upper limit of his settlement authority, she argues
that he did not do so because of his beliefthat the settlement authority was inadequate, pointing to the deposition

testimony offered by the GEICO employee responsible for overseeing Saco's case. (See Kusulas Rule 56.1
Counterstatement If 66(citing Indjeyiannis Dep. Tr. 145:3-10).)
16

The trial began on February 29, 2012. On March 2,2012, GEICO authorized Nelson to
offer a "control contract"^^ that would provide Kusulas with a minimum of$300,000 and a
mayimnm of$1,283,500. (Id. 190.) Following trial developments on the same day, GEICO
increased Nelson's settlement authority, permitting him to offer $1,283,500 vrithout the control

contract restrictions. (Id.^ 94.) Nelson and the GEICO employee responsible for overseeing the
case, Helen Indjeyiaimis ("Indjeyiannis"), offered Kusulas first the control contract and then the
full Policy Limits. (Id. ^ 95,97.) Kusulas refused both offers, and the jury subsequently
returned its verdict of more than $3.3 million. (Id

96,98-99.)

Much ofthe parties' disagreement centers on whether Nelson put GEICO on notice
during settlement negotiations that the jury verdict could be considerably higher than the amount
reflected in the First Morris Duffy Report. It is undisputed that Morris Duffy never provided
written revisions to its damages estimates,(id

26,33, 36-37,46-48, 51-53, 57, 59-60);

however, evidence developed during discovery suggests that Nelson had concerns that any jury
verdict would exceed the Policy Limits and may have communicated these concerns to GEICO.
Nelson testified that he verbally cautioned Indjeyiannis that, in hisjudgment, Kusulas's claims
would resxilt in ajury verdict in excess ofthe Policy Limits(see, e.g.. Nelson Dep. Tr. 23:3-14;
29:10-31:2; 32:3-17; 35:5-36:4), and requested that GEICO settle the matter for the Policy

Limits Csee. e.g.. id 36:11-17).'^ Kusulas also points to entries in GEICO's internal case-

While the parties do not clarify their use of"control contract," they appear to be referring to a so-called "high-low
agreement," which is a "'[a] settlement in which a defendant agrees to pay the plaintiff a minimum recovery in
return for the plaintiffs agreement to accept a maximum amount regardless ofthe outcome ofthe trial.'" Richard
Lorren Jolly, Note,Between the Ceiling and the Floor: Making the Case for Required Disclosure of High-Low
Agreement to Juries. 48 U. Mich. J.L. Reform 813,814 & n.3(2015)Cquoting Black's Law Dictionary(Pth ed.
2009).

For purposes ofthe summary judgment motion, GEICO does not dispute that Nelson informed Indjeyiannis that a
jury would likely return a verdict in excess ofthe Policy Limits. (GEICO Summ. J. Mem.at 22 n.l3.) However,
GEICO notes that this testimony is contradicted by Indjeyiannis' deposition testimony. (Id.)
17

tracking logs referencing communications with Nelson in which he made similar warnings—
including statements that "This Is A Very Big Case" and that he believed their defenses would
not be "Enough to a Brooklyn Jury To Come Back With Less Than the Policy"—and conveyed
his assessment that Kusulas would not settle her claims for less than the $1.15 million

recommended by the mediator. tSee, e.g., Kusulas 56,1 Counterstatement 26(listing entries in

GEICO's activity log(Ex. Q to GEICO Summ. J. Mot.(Dkt. 115-24)).)^^
2.

The Dutv of Good Faith in Settlements

Under New York law,insurers who take charge of defending a claim against one oftheir

policy holders are subject to a duty to act in good faith in deciding whether to settle those claims.
Greenidge v. Allstate Ins. Co.. 446 F.3d 356, 361 (2d Cir. 2006). Plaintiffs in "bad faith" actions
"must show that the insured lost an actual opportunity to settle the claim at a time when all
serious doubts about the insured's liability were removed," and "the potential recovery far

exceed[ed] the insurance coverage." Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445,

454(N.Y. 1993)(internal citations, alterations, and quotation marks omitted). Plaintiffs are also
required to show that "the insurer's conduct constituted a 'gross disregard' ofthe insured's
interests—^that is, a deliberate or reckless failure to place on equal footing the interests ofits
insured with its own interests when considering a settlement offer." Id. at 453 (internal citation
omitted).

Determination of whether an insurer has violated their duty of good faith is "highly case

specific, and '[n]o pat formula applies to the wide variety offact patterns that occur, or readily
resolves whether an insurer acted in good faith.'" Schwartz v. Twin Citv Fire Ins. Co.,492

GEICO filed the relevant activity log entries under seal. (S^ Apr. 5,2016, Order(granting motion to file certain
exhibits under seal).) For present purposes,the court refers only to those portions ofthe activity log that are quoted
in the parties' 56.1 statements, as Ae parties do not contest that the entries are accurately reflected.
18

F. Supp. 2d 308,330(S.D.N.Y. 2007)rouoting Pinto v. Allstate Ins. Co.. 221 F.3d 394,399
(2d Cir. 2000)). Instead, courts use a multifactor analysis to assess what the insurer knew about
their insured's potential liability and damages at the time a settlement offer was made.
Greenidge,446 F.3d at 362(citing New England Health Ins. Co. v. Healthcare Underwriters
Mut. Ins. Co.,295 F.3d 232,241-42(2d Cir 2002)). The Pattern Jury Instructions used by New

York courts suggest several considerations that may be used to inform this inquiry, including:
(1) "the probability . . . that the jury would find [against the
insured]";

(2) "the probability...that a verdict[ against the insured]
would ... exceed the policy limit";

(3) "whether the [insurer] investigated the circumstances of the
accident... sufficient to be able to evaluate the probability ofa
verdict against [the insured]";

(4) "what attempts [the insurer] made to settle [the] claim[ and] at
what point in the trial such attempts were made";
(5) "what recommendation concerning settlement had been made to
[the insured] by the attorney [retained] to defend the action";
(6) "whether [the insurer] informed [the policy holder] of the
amount for which [the injured party] was prepared to settle";

(7) "whether [the insurer] suggested to [the policy holder] of the
advisability of obtaining an independent attorney";
(8) "whether [the insurer] offered [the policy holder] the chance to
contribute to [the] settlement"; and
(9) "the financial risk involved for [the policy holder] if the
settlement was not made as compared with the risk in relation
to the limit ofits policy which [the insurer] ran ifthe settlement
was not made."^^

In their respective briefe, the parties list factors that are substantially similar to those noted in the pattern jury
instructions. (Compare GEICO's Summ. J. Mem.at 10-11 with Kusulas Summ. J. Opp'n at 11-12.)
19

N.Y. Pattern Jury Instr. 4:67. "In weighing these factors, the touchstone inquiry is whether there

was a high probability that the [party claiming bad faith]'would be subject to personal liability
because ofthe [] insurer's actions, and whether an excess verdict reasonably could have been
predicted.'" Scottsdale Ins. Co. v. Indian Harbor Ins. Co.. 994 F. Supp. 2d 438,452(S.D.N.Y.
2014)(quoting Pinto. 221 F.3d at 399).

Evaluating the parties allegations in the context ofthe factors listed above,the court
readily concludes that Kusulas raises sufficient factual allegations to overcome summary

judgment. GEICO relies heavily on the First and Second Morris Duffy reports as evidence that it
valued Kusulas's claims at less than the Policy Limits and argues that Nelson's failure to

challenge causation as to Kusulas's injuries at trial undercut the company's assumptions about
the value ofthe case. However, both Nelson's testimony and the "activity log" notes provide a
reasonable basis for concluding that"an excess verdict reasonably could have been predicted"
even before the trial and at a time when an offer at the Policy Limits amount was still available.

Pinto, 221 F.3d at 399. In particular. Nelson testified that he informed GEICO directly that he
believed the jury verdict would come in above the Policy Limits and urged the company to settle
at or within the Policy Limits. (Nelson Dep. Tr 23:3-14; 29:10-31:2; 32:3-17; 35:5-36:4;
36:11-17.) This testimony fits squarely into the second and fifth considerations listed above.
Likewise,ajury could reasonably view GEICO's settlement offers and the authority given to
Nelson—all of which fell considerably below Kusulas's Policy Limits demand—^as indicative

that GEICO improperly considered its own interests ahead of Saco's in attempting to settle the
case. Accordingly, GEICO's motion for summary judgment with respect to its duty of good
faith is denied.

20

III.

CONCLUSION

For the foregoing reasons, Kusulas's Motion for Partial Summary Judgment(Dkt. 117,
No. 12-CV-5633; Dkt. 28, No. 15-CV-634)is DENIED. GEICO's Motion for Summary

Judgment(Dkt. 115, No. 12-CV-5633; Dkt. 26, No. 15-CV-634)as to its request for declaratory
judgment and Kusulas's cross-claims is GRANTED as to GEICO's obligation to pay

prejudgment interest; and is DENIED as to GEICO's satisfaction ofits duty of good faith.

The parties are directed to contact the chambers of Magistrate Judge Pollak to schedule
the filing of a Joint Pretrial Order in accordance with this court's Individual Rules, to be
electronically filed no later than June 1,2016. The parties are further directed to confer and to
contact the court's Deputy at 718-613-2545 to set a trial date.
SO ORDERED.

s/Nicholas G. Garaufis

Dated: Brooklyn,New York
March

MCHOLAS G. GARAUFiS

,2017

United States District Judge

21