Free Order on Motion in Limine - District Court of Arizona - Arizona

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Case 2:03-cv-01207-SMM Document 82 Filed 08/10/2005 Page 1 of 6

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

) ) ) Plaintiff, ) ) v. ) HARTFORD CASUALTY INSURANCE) ) CO., ) ) Defendant. ) SG NEW YORK LLC,

No. CV-03-1207-PHX-SMM ORDER

On August 8, 2005, the Court held a Final Pretrial Conference. This Order details certain oral rulings made in those proceedings, and sets forth rulings on those deferred issues which will not be ruled upon in the course of trial. A. Plaintiff's Motions in Limine to Use Depositions & to Exclude References At the Conference, the Court issued oral rulings on two of the four pending motions in limine. [Doc. Nos. 69, 70, 71, 72] Specifically, the Court granted Plaintiff's Motion in Limine to Allow Plaintiff to Use the Deposition Testimony of Its Former Employees [Doc. No. 69]. However, the Court indicated it will rule upon any objections raised by Defendant to particular portions of the depositions during trial. The Court also granted Plaintiff's Motion in Limine to Exclude Any and All References to Wells Fargo Bank from the Trial [Doc. No. 70]. In addition to excluding any references to Wells Fargo at trial, during voir dire, through elicited testimony, or otherwise, the Court ruled that the parties shall redact any references to Wells Fargo Bank in any exhibits or related documents which will be submitted

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into evidence. The oral rulings are to be construed as discussed in the Conference and set forth in the record. B. Plaintiff's Motion in Limine to Reject Certain Jury Instructions The Court decided to defer ruling on Plaintiff's Motion in Limine to Reject Certain Jury Instructions Proposed by the Defendant [Doc. No. 71] until trial. Accordingly, this Motion shall be denied as premature. The Court will rule upon any objections to proposed jury instructions in the course of trial. Until then, the Court encourages the parties to resolve objections between themselves, and stipulate to a set of jury instructions to be used at trial. The Court will also defer ruling on whether a June 7, 2002 email from Bryn Sarvis to Bruce Schlosser is admissible into evidence for the truth of the matters asserted therein or whether the correspondence is inadmissible hearsay without exception. Bryn Sarvis was an HR Generalist for Marks-Ferber Communications, LLC, the company which formerly owned Pennysaver, which was the named insured in the insurance policy at issue in this case, and which was Plaintiff's predecessor-in-interest. Bruce Schlosser is an employee of Plaintiff's public insurance adjuster. The electronic correspondence, among other things, indicates that Pennysaver's phone lines were out for 10 days following the terrorist attacks of September 11, 2001, because of damage to the telephone carrier's equipment housed near the World Trade Center. Although at first blush this email appears to fit the definition of hearsay, the Court notes without deciding that the email also appears to fall within an exception to the rule against hearsay. A statement is not hearsay if it is offered against a party and is a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship. FED. R. EVID. 801(d)(2)(D). Ultimately, as the Court indicated during the Final Pretrial Conference, the admissibility of the email will turn upon the nature of Sarvis's relationship with Plaintiff at the time the email was sent and the scope thereof. FED. R. EVID. 801(d)(2). If Defendant can establish that Sarvis was either Plaintiff's servant or agent, and that Sarvis's email concerned -2Case 2:03-cv-01207-SMM Document 82 Filed 08/10/2005 Page 2 of 6

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a matter within the scope of Sarvis's employment, then the email will be admitted into evidence for the purposes of proving the truth of the matter asserted. See United States v. Chang, 207 F.3d 1169, 1176 (9th Cir.) (explaining that party proffering evidence pursuant to Rule 801(d)(2)(D) bears the burden of establishing an adequate foundation), cert. denied, 531 U.S. 860 (2000); see also Sea-Land Serv., Inc. v. Lozen Int'l, LLC, 285 F.3d 808, 821 (9th Cir. 2002). C. Defendant's Motion in Limine Re: Plaintiff's Evidence of Insurance Bad Faith Finally, the Court decided to defer, until now, a ruling on the remaining motion, Defendant's Motion in Limine Regarding Plaintiff's Evidence of Insurance Bad Faith [Doc. No. 72]. The Court now explains the reasoning behind the disposition of this motion. Defendant moves the Court to preclude Plaintiff from offering testimony or documentary evidence in support of any alleged "bad faith" claims, because Plaintiff has not asserted any claim for bad faith and New York law does not recognize first-party bad faith as a cause of action. Under Rules 401, 402, and 403 of the Federal Rules of Evidence, Defendant argues any testimony or exhibits along these lines is irrelevant and unfairly prejudicial. Consequently, Defendant contends this evidence should be excluded. Plaintiff counters that (1) it does not seek to offer testimony or documentary evidence in support of any bad faith claims; and (2) it has alleged that Defendant breached its duty to investigate, bargain, and settle the subject claim, in addition to breaching the insurance contract, and therefore is entitled to consequential damages beyond the limits of the Policy. [See Doc. No. 78] New York does not recognize a tort of bad faith denial of a first-party claim for insurance coverage as an independent cause of action. See Rocanova v. Equitable Life Assurance Soc'y of the United States, 634 N.E.2d 940, 944-45 (N.Y. 1994); New York Univ. v. Cont'l Ins. Co., 662 N.E.2d 763, 768 (N.Y. 1995). Under New York law, an insurer's failure to make payments or provide benefits to a first-party in accordance with a policy of insurance constitutes merely a breach of contract, remedied by contract damages. See -3Case 2:03-cv-01207-SMM Document 82 Filed 08/10/2005 Page 3 of 6

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Rocanova, 634 N.E.2d at 945. In its Complaint, Plaintiff did not allege a tort of bad faith independent from its two counts for declaratory judgment and breach of contract, and does not seek to allege such a cause of action now. Instead, Plaintiff relies on a recent New York case to argue it is entitled to consequential damages beyond the limits of the Policy for the claimed breach of contract. The First Department of the Appellate Division of the Supreme Court of New York has held that a first-party's allegations of bad faith conduct on the part of an insurer "may be employed to interpose a claim for consequential damages beyond the limits of the policy for the claimed breach of contract." Acquista v. New York Life Ins. Co., 730 N.Y.S.2d 272, 278-79 (N.Y. App. Div. 2001). In order to recover these consequential damages, Plaintiff argues it will have to show that Defendant allegedly breached its duty to investigate, bargain, and settle the claim as required under New York Regulations. However, as Defendant pointed out at oral argument, Acquista has been roundly criticized as inconsistent with New York Court of Appeals precedent, specifically Rocanova and New York University. The criticism has come, to date, only in unpublished opinions. See Core-Mark Int'l Corp. v. Commonwealth Ins. Co., 2005 WL 1676704 *4 (S.D.N.Y. July 19, 2005); Globecon Group, LLC v. Hartford Fire Ins. Co., 2003 WL 22144316 *4 (S.D.N.Y. Sep. 17, 2003); Cont'l Info. Sys. Corp. v. Fed. Ins. Co., 2003 WL 145561 *3 (S.D.N.Y. Jan. 17, 2003); Brown v. Paul Revere Life Ins. Co., 2001 WL 1230528 *5 (S.D.N.Y. Oct. 16, 2001); Manning v. Utilities Mut. Ins. Co., 2004 WL 235256 *4 (S.D.N.Y. Feb. 9, 2004); Udell v. Berkshire Life Ins. Co. of Am., 2005 WL 1243497 *7 n.7 (E.D.N.Y. May 25, 2005). As of the date of this writing, no New York state court has overruled, rejected, or criticized Acquista. Nevertheless, the Court finds that Acquista is an outlier opinion, and the weight of authority cautions against reliance on its holding. Moreover, the Court is persuaded by the decisions of the Southern and Eastern Districts of New York and finds that Acquista is inconsistent with the holdings of Rocanova and New York University.

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Because the Court finds that Plaintiff's reliance on Acquista for consequential damages beyond the limits of the Policy in a breach of contract claim is misplaced, the Court will not permit Plaintiff to introduce testimony or exhibits at trial demonstrating any alleged bad faith on Defendant's part, or that Defendant breached its duty to investigate, bargain, and settle the insurance claim as required either by the Policy or by New York Insurance Regulations. Such evidence would be irrelevant under Rule 401 of the Federal Rules of Evidence, and inadmissible under Rule 402. See FED. R. EVID. 401 & 402. As a result, the Court will grant Defendant's Motion in Limine Regarding Plaintiff's Evidence of Insurance Bad Faith [Doc. No. 72] D. Conclusion Accordingly, for the reasons set forth above, IT IS ORDERED that Plaintiff's Motion in Limine to Allow Plaintiff to Use the Deposition Testimony of Its Former Employees [Doc. No. 69] is GRANTED. The Court shall rule upon any objections raised by Defendant to particular portions of the depositions during trial. IT IS FURTHER ORDERED that Plaintiff's Motion in Limine to Exclude Any and All References to Wells Fargo Bank from the Trial [Doc. No. 70] is GRANTED. The parties shall redact any references to Wells Fargo Bank in any exhibits or related documents which will be submitted into evidence. IT IS FURTHER ORDERED that Plaintiff's Motion in Limine to Reject Certain Jury Instructions Proposed by the Defendant [Doc. No. 71] is DENIED as premature. The Court shall rule upon any objections to proposed jury instructions during trial. The parties are encouraged to resolve any differences over jury instructions between now and the date of trial, and eventually stipulate to a set of jury instructions to be used at trial. IT IS FURTHER ORDERED that Defendant's Motion in Limine Regarding Plaintiff's Evidence of Insurance Bad Faith [Doc. No. 72] is GRANTED.

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IT IS FURTHER ORDERED that, no later than Friday, February 3, 2006, the parties shall file with the Court a stipulated, written Description of the Case to be read to the jury at trial. IT IS FURTHER ORDERED that, no later than Friday, February 3, 2006, the parties shall file with the Court a stipulated, written form of verdict to be given to the jury at the end of the trial. IT IS FURTHER ORDERED that a three-week jury trial shall begin on Tuesday, February 14, 2006 before the Honorable Stephen M. McNamee in Courtroom 605, on the sixth floor of the Sandra Day O'Connor United States Courthouse, 401 W. Washington Street, Phoenix, Arizona. Starting this date, the Court has reserved two trial weeks (i.e., eight days) on its calendar for this trial, with proceedings lasting from 9:00 a.m. to 4:00 p.m., Tuesday through Friday each week. If counsel for the parties find these dates and times to be unavailable or otherwise problematic, they shall notify the Court promptly about the scheduling conflict and propose a new date and time for the start of this trial.

DATED this 10th day of August, 2005.

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