Jacal Hacking Corp. v American Tr. Ins. Co NY Slip Op 30031(U) January 6, 2017 Supreme Court, New York County Docket Number: /12 Judge:

Transcription

1 Jacal Hacking Corp. v American Tr. Ins. Co NY Slip Op 30031(U) January 6, 2017 Supreme Court, New York County Docket Number: /12 Judge: Joan A. Madden Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication.

2 [* 1]... SSUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART )( JACAL HACKING CORP., Plaintiff, INDE)( NO /12 -against- AMERICAN TRANSIT INSURANCE COMPANY and BAKER, McEVOY, MORRISSEY & MOSKOVITZ, P.C., Defendants )( JOAN A. MADDEN, J.: In motion sequence no. 002, defendant Baker, McEvoy, Morrissey & Moskovitz, P.C. (the "Baker firm") moves for summary judgment dismissing the complaint and plaintiff Jacal Hacking Corp. ("Jacal Hacking") cross-moves for summary judgment against the Baker firm. In motion sequence no. 003, defendant American Transit Insurance Company ("American Transit") moves for summary judgment dismissing the complaint, and plaintiff Jacal Hacking cross-moves for summary judgment against American Transit. The motions and cross-motions are consolidated for determination. In this action, plaintiff Jacal Hacking seeks damages against American Transit for bad faith refusal to settle an action to recover damages for personal injuries entitled Jishan Ahmad v. Bivomi M. Alshorbagi and Jacal Hacking Corp (Index No /08, Supreme Court, New York County) (the "underlying action"). Jacal Hacking also seeks damages against the Baker firm for legal malpractice in connection with its representation of Jacal Hacking in the underlying action. The underlying action involved a motor vehicle accident that occurred on May 11, of 11

3 [* 2] Plaintiff in the underlying action, Ahmad, was standing on the sidewalk at LaGuardia Airport, near the taxi holding area, when a taxi owned by Jacal Hacking and driven by Alshorbagi, jumped the curb and struck him. According to the police accident r~port, Alshorbagi stated that he accidentally pressed the gas and brake pedals at the same time. J acal Hacking was insured by American Transit under a policy providing liability insurance coverage with a limit of $100,000 per person and a maximum of $300,000 per accident. American Transit assigned the Baker firm to defend Jacal Hacking, and assigned separate counsel for Alshorbagi. On April 7, 2010, the Hon. George J. Silver issued a decision and order awarding plaintiff Ahmad partial summary judgment on the issue of liability. The trial on damages commenced on February 16, 2011, and the jury returned a verdict in favor of Ahmad, awarding damages in the total amount of $800,000. Defendants appealed and by a stipulation dated January 24, 2012, the parties agreed to settle the action for $410,000, with American Transit paying Ahmad $250,000 ($100,000 on the policy and an additional $150,000) and the Sheriff $5,000, and Jacal Hacking paying Ahmad $150,000 and the Sheriff $5,000. On July 3, 2012, Jacal Hacking commenced the instant action asserting a cause action against American Transit for bad faith settlement and a cause of action against the Baker firm for legal malpractice. The complaint alleges that as a result of American Transit's refusal to offer the policy limit of $100,000 in a timely manner, Jacal Hacking was ultimately damaged in the sum of $155,000, the amount it paid to settle the action. The complaint also alleges that the Baker firm was negligent in representing Jacal Hacking by communicating solely with its medallion manager and failing to keep its officers personally informed of the following: 1) the status of the underlying action; 2) that Ahmad sought damages in excess of the $100,000 policy 2 3 of 11

4 [* 3] limit; 3) that Jacal Hacking had a right to hire counsel of its own choosing to protect its interests; and 4) that Jacal Hacking could participate in the trial and the settlement negotiations during trial. The complaint alleges that based on counsel's foregoing omissions, a judgment in excess of the policy limit was entered against Jacal Hacking which could have been avoided if the Baker firm had not been negligent. Ameri~an Transit anq_;the Baker firm are now each moving for summary judgment dismissing the complaint as against them, and Jacal Hacking is cross-moving for summary judgment against both of them. To succeed on a motion for summary judgment, the proponent "must made a prima facie showing of entitlement to judgment as a matter of law, tenderi~g sufficient evidence to eliminate any material issue of fact from the case." Winegrad v. New York University Medical Center, 64 NY2d 851, 852 (1985). Once the proponent has made such a showing, the burden of proof shifts to the party opposing the motion to produce evidentiary proof in admissible form to establish that a material issue of fact exists which requires a trial. Alvarez v. Prospect Hospital, 68 NY2d 320, 324 (1986). First, as to the claim against American Transit, it is "well settled that an insurer may be held liable for damages to its insured for the bad faith refusal of a settlement offer." Smith v. General Accident Insurance Co, 91NY2d648, 652 (1998). "When confronted with a settlement offer within the policy limits, an inherent conflict arises between the insurer's desire to settle the claim for as little as possible, and the insured's desire to avoid personal liability in excess of the policy limits." Id at 653. To establish a prima facie case of bad faith in failing to settle a claim, the insured must show that the "insurer's conduct constituted a 'gross disregard' of the insured's interests - that is, a deliberate or reckless failure to place on equal footing the interests of its 3 4 of 11

5 [* 4] insured with its own interests when considering a settlement offer." Pavia v. State Farm Mutual Automobile Insurance Co, 82 NY2d 445, 453 (1993). "In other words, a bad-faith plaintiff must establish that the defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that an insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted." Id at Although proof that a demand for settlement was made is a prerequisite to a bad-faith action for failure to settle, evidence that a settlement offer was made and rejected "is not dispositive of the insurer's bad faith," as an insurer "cannot be compelled to concede liability and settle a questionable claim." Id at 454. Rather, in a bad-faith action, plaintiff must show that it "lost an actual opportunity to settle the claim at a time when all serious doubts about the insured's liability were removed" (internal citations and quotations omitted). Id. "Bad faith is established only 'where the liability is clear and the potential recovery far exceeds the insurance coverage."' Id (quoting DiBlasi v. Aetna Life & Casualty Insurance Co, 147 AD 93, 98 (2"d Dept 1989). "The bad-faith equation must include consideration of all of the facts and circumstances relating to whether the insurer's investigatory efforts prevented it from making an informed evaluation of the risks of refusing settlement." Id. The court must assess the likelihood of plaintiffs success on the issue of liability in the underlying action, the "potential magnitude" of damages, each party's potential financial exposure as a result of the insurer's refusal to settle, whether the insurer failed to conduct a proper investigation of the claim and any potential defenses, the information available to the insurer when the demand for settlement was made, and "any other evidence which tends to establish or negate the insurer's bad faith in refusing to settle." Id. In addition, an insurer's failure to communicate with the 4 5 of 11

6 [* 5].. ~ insured and keep it informed of the status of settlement offers and negotiations can constitute some evidence of bad faith. See Smith v. General Accident Insurance Co, supra at 653; Transcare New York, Inc v. Finkelstein, Levin & Gittlesohn & Partners, 23 AD3d 250 (1st Dept 2005). Applying the foregoing standards, the issue of American Transit's bad faith cannot be resolved as a matter of law. Contrary to Jacal Hacking' s assertion, the record as a whole, as presented on the motions, does not clearly and conclusively establish bad faith as defined by the Court of Appeals, i.e. that American Transit engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that Jacal Hacking would be personally accountable for a large judgment if a settlement offer within the policy limits were not accepted. Pavia v. State Farm Mutual Insurance Automobile Insurance Co, supra. Although liability was clearly determined against Jacal Hacking in April 2010 when Ahmad was awarded partial summary judgment, the record is otherwise inconclusive as to other factors bearing on the issue of bad faith. Those factors include but are not limited to whether Ahmad would have actually accepted a settlement within the limits of the policy at some time before or during trial, whether it was "highly probable" that the nature of Ahmad's injuries and the specific circumstances surrounding the accident would result in a large verdict in excess of the policy limits, and whether American Transit kept Jacal Hacking informed of the status of settlement offers and negotiations both before and during trial. See Smith v. General Accident Insurance Co, supra; Pavia v. State Farm Mutual Automobile Insurance Co, supra. While American Transit asserts that the record shows that Ahmad never made a "firm demand" within the limits of the policy, the computerized claim notes made by America of 11

7 [* 6] Transit's claims adjuster and claims examiners indicate that about two weeks before the trial on damages, Ahmad's attorney reduced his initial demand of $150,000 to $75,000, an amount well within the limits of the $100,000 policy. At that point, however, American Transit was offering only $10,000 based on the "soft tissue" nature of the injuries, which consisted of a cervical spine disc herniation and lumbar spine disc bulge. The claim notes also indicate that after jury selection, Ahmad's counsel suggested a settlement between $50,000 and $100,000, but American Transit increased its offer to only $25,000. On the other hand, the record shows that at the same time, two weeks before trial, Ahmad's own counsel indicated that Ahmad, a taxi driver himself, was a "difficult client" who was seeking a settlement in excess of the policy limit, including Jacal Backing's taxi medallion. Moreover, the transcript of the trial shows that just before summations, Ahmad rejected, on the record, an offer of $35,000 and a high/low settlement of $100,000/$20,000, and stated that he wanted either $1 million or a high/low settlement with a high of $300,000 to $400,000, and a low of $100,000. At the same time, Ahmad acknowledged that his attorney had not only recommended that he accept the offer, but had also advised that his "expectations are entirely unrealistic concerning the nature and extent of your injuries." Based on the foregoing, issues of fact exist as to whether and when Ahmad would have actually accepted a settlement within the limits of the policy. Citing Vecchione v. Amica Mutual Insurance Co, 274 AD2d 576 (2nd Dept 2000), lv app den 96 NY2d 708 (2001 ), American Transit argues that its offer of a high/low settlement of $100,000/$20,000 "negates a finding of bad faith." Vecchione, however, is distinguishable on its facts. In that case, plaintiffs made a demand, eight months before trial, for the tender of the 6 7 of 11

8 [* 7] entire policy "7ithin 48 hours, and in response, the insurer offered a high/low in which plaintiffs would have received the full policy limit of $300,000, if, after the liability phase of the trial, defendant insured was found to be at fault, but the insurer would still pay plaintiffs $100,000 even ifthe jury found no liability. The Second Department determined that the insurer's offer of the high/low agreement in response to plaintiffs' demand "clearly negates a finding that its refusal to tender the policy limits amounted to a deliberate or reckless failure to place the policyholder's interests on an equal footing with its own," and that "[r]ather, the evidence demonstrates that Amica [the insurer] made the proposal for the purpose of protecting the policy holder from a potential excess judgment." In the case at bar, the liability of American Transit's insured, Jacal Hacking, was determined as a matter oflaw, ten months before trial, and American Transit waited until the trial on damages commenced and was nearly over before it offered the high/low settlement. Under these circumstances, the court cannot conclude as a matter of law that American Transit's high/low offer "negates" a finding of bad faith. Thus, since triable issues of fact exist as to whether American Transit acted in bad faith in failing to settle the underlying action, neither American Transit nor Jacal Hacking is entitled to summary judgment on the bad faith claim. Turning to the legal malpractice claim against the Baker firm, Jacal Hacking alleges that the Baker firm failed to keep it personally informed of the status of the settlement negotiations and trial, which resulted in Jacal Hacking's losing the opportunity to settle the underlying action for $75,000, which would have been within the policy limit of $100,000. Jacal Hacking's general manager, Natalia Sorkin, submits an affidavit that "[i]t is Jacal Hacking's position that if we knew this case existed, and were apprized of the offers and demands, we would have 7 8 of 11

9 [* 8] demanded that American Transit meet the demands of plaintiff to settle at $75,000, within the policy limit." Sorkin further states that "[d]ue to their failure to communicate and the failure of Baker McEvoy, the attorneys they appointed to represent our interests, we had no opporttinity to resolve a case that should have been settled within policy limits." Jacal Hacking also submits an expert affidavit from attorney Thomas 0. Rice, stating that the Baker firm, including trial counsel Kevin Barry, "completely failed in their obligations as lawyers for Jacal and did not competently represent their client," as they "knew or should have known, that the Plaintiff had demanded $75,000 to settle, a figure within the policy limits but did not convey that fact to Jacal or advocate on its behalf and settle for that sum." Attorney Rice additionally states that the Baker firm violated several rules of professional conduct when it breached its duty to communicate with and promptly inform Jacal Hacking of "all material developments" in the underlying action, including the status of settlement negotiations and the pendency of the trial. A plaintiff seeking to recover damages for legal malpractice "must demonstrate that the attorney 'failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession' and that the attorney's breach of this duty proximately caused plaintiff to sustain actual and.ascertainable damages." Rudolf v. Shayne, Dachs, Stanisci. Corker & Sauer, 8 NY3d 438, 442 (2007) (quoting McCoy v. Feinman, 99 NY2d 295 [2002]). "To establish causation, plaintiff must show that it "would have prevailed in the underlying action or would not have incurred any damages, but for the lawyer's negligence." Id. The failure to demonstrate proximate cause mandates dismissal of a legal malpractice claim regardless of whether the attorney was negligent. See Leder v. Spiegel, 31 AD3d 266 (1st Dept 2006), aff d 9 NY3d 836 (2007), cert den 552 US 1257 (2008). 8 9 of 11

10 [* 9] With respect to negligence, Jacal Hacking relies on the opinion of its legal expert, attorney Rice, that the Baker firm violated several provisions of the Code of Professional Responsibility. It is well settled, however, that a violation of the rules of professional conduct, by itself, is insufficient to support a claim for legal malpractice. Fletcher v. Boies, Schilller & Flexner, LLP, 140 AD3d 587 (1st Dept 2016); Cohen v. Kachroo, 115 AD3d 512. In any event, even assuming without deciding that the Baker firm was negligent in failing to communicate directly and personally with Jacal Hacking as to the status of the settlement negotiations and trial, Jacal Hacking cannot establish that such negligence was a proximate cause of the loss sustained, i.e. that but for the attorney's negligence, the underlying action would have settled for $75,000 and Jacal Hacking would not have sustained any damages. While Jacal Hacking asserts that it lost an opportunity to settle the underlying action for $75,0000, the undisputed record shows that American Transit was solely responsible for making the decisions as to the amounts offered in settlement and the timing of each settlement offer. Notably, Jacal Backing's general manager, Natalia Sorkin, admits as much when she states that if they had 1 known about the underlying action and the settlement offers and demands, "we would have demanded that American Transit meet the demands of plaintiff and settle at $75,000." Under the circumstances presented, the alleged malpractice relates to allegations of bad faith on the part of the insurer. As noted above, an insurer's failure to communicate with its insured and keep it informed of the status of settlement offers and negotiations can constitute some evidence of bad faith. See Smith v. General Accident Insurance Co, supra at 653. Thus, given 9 10 of 11

11 [* 10] the absence of causation, Jacal Hacking cannot maintain a claim for legal malpractice and the Baker firm is entitled to summary judgment. See Leder v. Spiegel, supra. Accordingly, it is ORDERED that the motion by defendant Baker, McEvoy, Morrissey & Moskovitz, P.C. (motion sequence no. 002), for summary judgment is granted and the legal malpractice claim is severed and dismissed, and the Clerk is directed to enter judgment dismissing the complaint as against defendant Baker, McEvoy, Morrissey & Moskovitz, P.C.; and it is further / ORDERED the cross-motion by plaintiff Jacal Hacking Corp. for summary judgment against defendant Baker, McEvoy, Morrissey & Moskovitz, P.C., is denied; and it is further ORDERED that the motion by defendant American Transit Insurance Company (motion seq. no. 003) for summary judgment is denied; and it is further ORDERED that the cross-motion by plaintiff Jacal Hacking Corp. for summary judgment against American Transit Insurance Company is denied; and it is further ORDERED that the remaining parties shall proceed directly to mediation. ENTER: HON. JO of 11