Free Response to Motion - District Court of Arizona - Arizona

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GREENBERG TRAURIG, LLP ATTORNEYS AT LAW SUITE 700 2375 EAST CAMELBACK ROAD PHOENIX, ARIZONA 85012 (602) 445-8000

John R. Clemency, SBN 009646 Tajudeen O. Oladiran, SBN 021265 Attorneys for Plaintiff, SG NEW YORK.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA SG NEW YORK LLC, a Delaware limited liability company, and the successor-in-interest to Pennysaver News of Brookhaven, Inc. and Carrier Pigeon of Long Island, LLC, Plaintiff v. HARTFORD CASUALTY INSURANCE COMPANY, an Indiana corporation, Defendant.
This Response is filed by Plaintiff, SG New York LLC ("SGNY" or "Plaintiff"), in response to the "Defendant's Motion In Limine Regarding Plaintiff's Evidence Of Insurance Bad Faith," dated July 25, 2005 ("Defendant's Motion in Limine"), filed by Defendant, Hartford Casualty Insurance Company ("Hartford"). Through the motion in limine, Hartford seeks an order from the Court precluding Plaintiff from offering testimony or documentary evidence in support of any alleged "bad faith claims." Defendant's Motion in Limine, pp. 1 and 2. As discussed below, the Defendant's Motion in Limine should be denied summarily, because:

NO. CV 2003-1207-PHX-SMM PLAINTIFF'S RESPONSE TO DEFENDANT'S MOTION IN LIMINE

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Plaintiff does not seek to offer testimony or documentary evidence in support of

any bad faith claims. 2. Plaintiff made a claim for breach of an insurance contract and in connection with

that claim, Plaintiff alleges that Defendant breached its duty to investigate, bargain, and settle the subject Claim,1 as required by the insurance contract. As is outlined below, and as will be shown at trial, as a result of Defendant's breach, Plaintiff is entitled to 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, 285 AD2d 73 (2001).

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I. FACTS

MEMORANDUM OF POINTS AND AUTHORITIES

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This is primarily a breach of contract case. Plaintiff, SGNY, filed a Complaint against Defendant, Hartford, seeking declaratory relief and breach of contract damages for Hartford's failure to pay SGNY the insurance benefits that are due and owing to SGNY under an insurance policy issued by Hartford. In addition, SGNY contends that Hartford undertook a campaign to delay and avoid payment of a just claim, thereby giving rise to consequential damages that may exceed the recovery provided in the insurance policy. For instance, as will be shown at trial, Defendant, Hartford, did not perform as required by the Policy, and Plaintiff is entitled to consequential damages beyond the limits of the policy, because: 1. Hartford's principal claims adjustor, Ellen Murray, testified at her deposition that part of her duty is to reach an agreement with the policyholder or their representative on the amount of the claim.

Unless otherwise indicated, capitalized terms used in this Proposed Form of Order will correspond to the capitalized terms used in the Complaint or in the "Plaintiff, SG New York LLC's Controverting Statement of Support of its response to Defendant's Motions for Summary Judgment."
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2. Ellen Murray testified that Hartford never attempted to calculate the monetary value of SGNY's insurance Claim. Claim. 3. Ellen Murray testified that Hartford never made an offer to settle the

4. Although Hartford's advance payment, $100,000, did not cover the sums billed by the insured's cleaning and restoration company, Shamrock, Ellen Murray testified that Hartford did not attempt to determine whether Shamrock's bills were reasonable or not. 5. Hartford did not respond when SGNY's public adjuster, NFA, filed the insurance Claim with Hartford. 6. Hartford did not respond when SGNY's public adjuster, NFA, sent a letter to Hartford requesting a settlement offer. 7. During her visit to Pennysaver after the Flood, Ellen Murray told Pennysaver's Publisher, Richard Megenedy that "he needed to do whatever he needed to do to minimize his damages and to lessen his business interruption." 8. Hartford's equipment expert, Steven H. Mazer testified that he has no technical ability to assess water damage to electronics; that he was not retained to provide a technical assessment of the insured's Electronic Equipment; that he did not provide a technical assessment of the insured's Electronic Equipment; and that he relied on Hartford's electronic equipment expert, Anthony Sementilli, to provide him with a technical assessment of Plaintiff's Electronic Equipment. 9. Hartford's electronic equipment expert, Anthony Sementilli, testified that he was retained to provide a technical assessment of the insured's telephone system, and that he did not provide a technical assessment of the insured's Electronic Equipment. However, Defendant based its denial of the insured's claim for damage to its Electronic Equipment on the technical assessment allegedly provided by its experts (Mazer and Sementilli). 10. On June 9, 2003, nearly two years after the Flood, without consulting the Hartford's primary claim adjuster, Ellen Murray, Hartford's outside counsel, Speyer & Perlberg, LLP, denied the Claim. 11. Ellen Murray admits in her deposition that the Denial Letter is based upon a number of false statements that are contrary to her observations of the actual damage sustained. 12. As admitted by Ellen Murray and Harry Beltrani (an independent insurance adjuster hired by Hartford), the erroneous factual bases for Hartford's denial of the Claim, as stated in the Denial Letter, includes, but is not limited to the following allegations: that water did not seep into the office areas; that Shamrock completed its work prior to the Hartford's original inspection; that there was water damage in only three locations totaling 480 square feet; and that there was no need for the scope of cleaning and repairs performed by Shamrock.
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13. Ellen Murray admitted that she has not read, and does not use the regulations that govern the adjustment of insurance claims in the state of New York. 14. As a result of Ellen Murray's initial inspection of the damages, Hartford set up an initial reserve in the amount of $140,000 just to cover property damage caused by the Flood. 15. On July 31, 2001, Ellen Murray visited the Premises for a second time. During this visit, Ellen Murray received several Flood related bills from the insured, totaling $121,659. Hartford received an additional $136,000 in bills and estimates from Shamrock. 16. During Ellen Murray's visit to the Premises, she observed extensive damage to Pennysaver's personal property. 17. Hartford's electronic equipment expert, Anthony Sementilli, does not dispute that the levels of humidity present in the Computer Room after the Flood could lead to condensation on and in the insured's telephone system. 18. Hartford's electronic equipment expert, Anthony Sementilli did not note any corrosion in the telephone system during its inspection of in June 2002; Sementilli first noted corrosion in the telephone system in March 2003. 19. On August 31, 2001, Pennysaver contacted Hartford and informed Hartford that its telephone system had been inoperable for a total of 35 hours, beginning almost immediately after the Flood. 20. Between July 2, 2001, and the date of Pennysaver's replacement of its telephone system damaged by the Flood, Pennysaver News employees maintained a log of all telephone service interruptions of over ten minutes. This log shows eight-six (86) hours of telephone system interruption as a direct result of the Flood. 21. During the 86 hours of telephone system interruption, Pennysaver could not conduct its normal business operations, and the Pennysaver employees could not perform their usual business functions. 22. After Ellen Murray's initial inspection of the Premises, Hartford reserved $50,000 for business income loss and extra expenses. II. ARGUMENT This is a breach of contract claim. However, under New York law, if an insured can show that the insurer breached its duty to investigate, bargain, and settle the subject insurance claim, as

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required by the insurance contract, the insured can claim damages beyond the amounts specified in the insurance policy: We are unwilling to adopt the widely-accepted tort cause of action for "bad faith" in the context of a first-party claim, because we recognize that to do so would constitute an extreme change in the law of this State. Essentially, we accept the more conservative approach adopted by the minority of jurisdictions that "the duties and obligations of the parties [to an insurance policy] are contractual rather than fiduciary". . . . However, as this Court has recently acknowledged, "an insured should have an adequate remedy to redress an insurer' bad faith refusal of benefits under its s policy" . . . Providing such a remedy cannot be accomplished where a policyholder who makes out a claim of bad faith avoidance of a valid insurance claim may only obtain a judgment for the face amount of the policy. Therefore, in order to ensure the availability of an appropriate and sufficient remedy, we adopt the reasoning of the Beck court that there is no reason to limit damages recoverable for breach of a duty to investigate, bargain, and settle claims in good faith to the amount specified in the insurance policy. Nothing inherent in the contract law approach mandates this narrow definition of recoverable damages. Although the policy limits define the amount for which the insurer may be held responsible in performing the contract, they do not define the amount for which it may be liable upon a breach. (Beck v. Farmers Ins. Exch., 701 P.2d 795, 801, supra.) We consider the need for this form of damages to be apparent. The problem of dilatory tactics by insurance companies seeking to delay and avoid payment of proper claims has apparently become widespread enough to prompt most states to respond with some sort of remedy for aggrieved policyholders. To term such a claim "unique to these parties" as the dissent does, and therefore not warranting a remedy beyond that traditionally available for an insurer' failure to pay on a claim, is to utterly ignore this fact. s Acquista, 730 N.Y.S.2d 272, 278, 285 AD2d 73, 81 (emphasis added) (citations omitted). Plaintiff claims that it is owed the following sums by Defendant: (1) costs of decontamination, restoration, and cleaning of the Premises and personal property, $121,152.33;

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(2) costs for replacement of personal property damaged by the flood, $218,847.03; (3) lost business income and other consequential damages, $1,048,148.00; (4) reasonable attorneys' fees (in an amount to be shown at trial); costs of suit, including costs of experts (in an amount to be shown at trial); cost of public insurance adjusters, $131,018.50; and prejudgment interest on the attorneys' fees and costs of suit at the legal rate. The sums claimed by Plaintiff may exceed the limit of benefits under the Policy. However, as will be shown at trial, Plaintiff's contract

damages were caused by the insurer's breach of its duty to investigate, bargain, and settle the subject insurance claim. The New York Regulations, Rules and Regulations of the State of New York, Title 11, Chapter IX, Part 216, that Plaintiff seeks to introduce expressly provide that "claim practice rules which insurers must apply to the processing of all first-and third-party claims arising under policies subject to [the New York Regulations]."2 This portion of the New York Insurance Department Regulations is relevant to determining whether Hartford's conduct justifies consequential damages beyond the limits of the Policy for the claimed breach of contract. Defendant's failure to follow the New York Insurance Regulations, which provide "certain minimum standards" that Defendant "must apply to the processing of all first-and thirdparty claims arising under policies subject to [the New York Regulations], may show that Defendant failed to properly investigate, bargain, and settle the subject insurance claim. See New York Regulations, Rules and Regulations of the State of New York, Title 11, Chapter IX, Part 216, Preamble, p. 1. These facts are relevant to proving Plaintiff's damages and, therefore, are relevant under Rule 401, Federal Rules of Evidence.
See New York Regulations, Rules and Regulations of the State of New York, Title 11, Chapter IX, Part 216, Preamble, p. 1 (emphasis added). Plaintiff seeks to introduce Title 11, Chapter IX, Part 216 at trial; a copy is attached hereto as Exhibit "A."
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Plaintiff has not alleged an insurance bad faith claim, and Plaintiff will not attempt to prove the elements of such a claim. However, in order to recover its full damages, Plaintiff should be allowed to show, as outlined above, that Defendant did not duty to investigate, bargain, and settle the subject insurance claim as required by the contract. Plaintiff's attempt to recover damages in excess of the limits in the Policy does not constitute an insurance bad faith claim. Although the New York Insurance Regulations may shed a negative light on Defendant's actions, the probative value of these regulations is not substantially outweighed by the danger of unfair prejudice, the regulations are relevant, and Plaintiff should not be prevented from recovering its full damages. Lastly, Plaintiff has not, and does not intend to offer testimony or documentary evidence in support of any alleged "bad faith claims." In order to claim damages beyond the amounts specified in the insurance policy, as is allowed under New York law, Plaintiff should be allowed to show that Defendant breached its duty to investigate, bargain, and settle the subject insurance claim, as is required by the insurance contract. Plaintiff has not alleged or argued insurance bad faith, and Defendant's Motion in Limine is baseless. III. CONCLUSION Defendant's Motion in Limine incorrectly states that Plaintiff seeks to offer testimony or documentary evidence in support of any alleged "bad faith claims." Defendant did not reference any pleading filed by Plaintiff in which Plaintiff claims damages for insurance bad faith. In fact, Plaintiff has not filed an insurance bad faith claim, and Plaintiff does not intend to prove a bad faith claim. However, as allowed under New York law, Plaintiff is claiming damages beyond the amounts specified in the insurance policy. Plaintiff should be allowed to show that Defendant's failure to properly investigate, bargain, and settle Plaintiff's insurance claim is a breach of its duty
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under the Policy. As shown above, Defendant's Motion in Limine is based upon an incorrectly allegation, is baseless, and should be denied in its entirety.

RESPECTFULLY SUBMITTED this 2nd day of August, 2005. GREENBERG TRAURIG, LLP By: /sTajudeen O. Oladiran
John R. Clemency Tajudeen O. Oladiran Attorneys for Plaintiff

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ORIGINAL and two copies of the foregoing filed this 2nd day of August, 2005. A COPY of the foregoing forwarded via e-mail ([email protected]) and mailed, this 2nd day of August, 2005 to: Eric A. Mark, Esq. THE MARK LAW FIRM 14210 West Piccadilly Goodyear, Arizona 85338 (623) 210-4600 office (623) 547-0105 fax Attorneys for Defendant Insurance Company Casualty Company /sDana N. Troy

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