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Columbia Casualty Co. v. Ironshore Specialty Insurance Co.

United States District Court, D. Rhode Island

May 20, 2019

COLUMBIA CASUALTY COMPANY, Plaintiff,
v.
IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.

          MEMORANDUM OF DECISION

          William E. Smith, Chief Judge.

         Before the Court is Plaintiff Columbia Casualty Insurance's (“Columbia”) Motion for Summary Judgment (ECF No. 55) and Defendant Ironshore Specialty Insurance Company's (“Ironshore”) Motion to Preclude Expert Report of Judge Mark A. Pfeiffer (ECF No. 61). At the April 1, 2019, hearing on these motions, the Court denied Columbia's Motion and granted Ironshore's Motion; the Court's reasoning is set forth below.

         I. Factual Background

         This case arises out of a $25.6 million jury verdict awarded on April 29, 2015, in favor of Carl Beauchamp (“Beauchamp”), who suffered severe and permanent brain damage as a result of Rhode Island Hospital's (“RIH”)[1] negligence. At the time, this was the largest negligence verdict in Rhode Island's history. See Pl.'s Answer & Countercl. (“Pl.'s Answer”) 5, ECF No. 14. The case was tried in Providence County Superior Court. Id.; Pl.'s Mem. in Supp. of Summ. J. (“Pl.'s Mem.”) 5, ECF No. 55-1. Lifespan admitted to liability and causation early on and, therefore, the only issue at trial was damages. Id. at 3. After two years of unsuccessful settlement negotiations, the parties entered into a “high-low agreement” on the eve of trial, wherein the “low” was set at $15 million and the “high” was set at $31.5 million, inclusive of prejudgment interest. See Pl.'s Statement of Undisputed Facts (“CSUF”), Ex. 40 (“High-Low Agreement”), ECF No. 56-40. Because the $25.6 million verdict came to approximately $35 million when prejudgment interest was included, it triggered the “high” end of the agreement. CSUF ¶ 125.

         RIH maintained three layers of insurance: Lifespan provided the first $6 million of coverage as its self-insured retention policy; Columbia provided the next layer of coverage with a $15 million policy limit (i.e., Columbia was responsible for liability between $6 and $21 million); and Ironshore provided the second excess layer of coverage with a $11 million policy limit (i.e., Ironshore was responsible for liability between $21 and $32 million); Lifespan remained uninsured and therefore responsible for any liability in excess of $32 million. Id. ¶ 4. As RIH's total coverage was $32 million, the Beauchamp verdict, subject to the High-Low Agreement, completely exhausted its policy limits for the year 2015. See Mem. & Order 7-8, ECF No. 32 (noting that “[t]he gravamen of Ironshore's” allegation was that the “high jury verdict” resulted in the “complete exhaustion of RIH's remaining coverage under Ironshore's third tier excess insurance for the account year”).

         On May 7, 2015, Ironshore wrote a letter to Columbia demanding that it reimburse the $11 million Ironshore paid pursuant to the High-Low Agreement.[2] It argued that Columbia could have settled the case within its policy limits of $21 million and that its failure to do so was in bad faith. On May 8, 2015, Columbia filed the instant Complaint seeking a declaratory judgment that it “fulfilled its payment obligation by paying its limit of liability, that [Ironshore] is obligated to pay that portion of the settlement that exceeds underlying coverage, and that [Ironshore] has no right to recovery from the Plaintiff for such amounts owed[.]” Compl. ¶ 15(B), ECF No. 1. Ironshore filed an Answer and a four-count Counterclaim, of which only Counts 1 (common-law bad faith) and Count 2 (bad faith under R.I. Gen. Laws § 9-1-33) survive.[3] See Pl.'s Answer.

         The crux of the dispute here is whether Columbia's settlement tactics in the Beauchamp action were reasonable and legitimate efforts to reduce Lifespan's exposure to damages, or were executed in bad faith and in reckless disregard of Lifespan's best interests. Ironshore argues that Columbia had several opportunities prior to trial to settle the Beauchamp case within its (Columbia's) policy limits of $21 million - or during trial for $25 million - but that Columbia consistently and unreasonably low-balled Beauchamp. Ironshore's thesis is that Columbia stood to gain from the high-low arrangement because it could take a chance on giving the case to the jury and possibly hit the low end of the High-Low Agreement, without putting more of its own money at risk - that is, Columbia could “gamble with the policyholder's money, for its own benefit, even when it would not take the same gamble with its own money.” Def.'s Mem. in Opp'n to Summ. J. (“Def.'s Opp'n”) 27 n.154, ECF No. 68 (quoting William T. Barker & Ronald D. Kent, 3 New Appleman on Insurance Law § 23.02[1] (Library ed. 2018). According to Ironshore, Columbia's decision to allow the Beauchamp case to go to verdict, rather than make an offer of $21 or $25 million, caused Lifespan reputational harm from all the negative publicity and prevented Lifespan from obtaining excess insurance coverage for the policy year following the verdict. Id. at 45-46; Def.'s Statement of Undisputed Facts (“Def.'s SUF”) Ex. 29 at 7, ECF No. 69-29. Columbia maintains that it engaged in earnest settlement negotiations with Beauchamp's attorney and that, other than one demand in July 2014 for $32 million - which Columbia maintains was patently unreasonable - Beauchamp's attorney never made any formal settlement demands to which Columbia could respond. See generally Pl.'s Mem. As a result, Columbia says it was effectively negotiating against itself throughout the settlement process, not acting in bad faith.

         II. Legal Standard

         “Rule 56(a) of the Federal Rules of Civil Procedure directs courts to ‘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.” Beacon Mut. Ins. Co. v. St. Paul Mercury Ins. Co., 7 F.Supp.3d 155, 161 (1st Cir. 2014) (quoting Fed.R.Civ.P. 56(a)). In assessing a motion for summary judgment, the Court must draw all reasonable inferences in favor of the non-moving party. Id. This case was brought under the Court's diversity jurisdiction, and the parties agree that the substantive law of the State of Rhode Island applies. See Rosciti v. Ins. Co. of Pa., 659 F.3d 92, 96 (1st Cir. 2011).

         III. Discussion

         A. Columbia's Motion for Summary

         Columbia claims that it is entitled to judgment as a matter of law on Ironshore's bad faith counterclaims because: (1) Ironshore has not alleged breach-of-contract, a necessary prerequisite to establish a bad faith claim in Rhode Island; (2) Lifespan never validly assigned its interests in the Beauchamp case to Ironshore and, therefore, Ironshore has no standing to assert these counterclaims; and (3) even if there was a breach of contract and a valid assignment, Ironshore cannot prove bad faith because the undisputed facts demonstrate that Columbia acted in good faith throughout the handling and resolution of the Beauchamp action. See generally Pl.'s Mem.

         As an initial matter, Ironshore has standing to bring its counterclaims. Judge Lisi previously recognized that Ironshore supported its right to pursue its statutory bad faith counterclaims under R.I. Gen. Laws § 9-1-33 based on “the subrogation provision in the policy issued to RIH.” Mem. & Order 9-10. Specifically, she found that Ironshore had “submit[ed] a written assignment” and that Ironshore was “equitably subrogated to RIH's and/or Lifespan's rights of recovery by virtue of the $11 million payment Ironshore ...


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