
USCA1 Opinion

	




        March 6, 1996           [Not for Publication]                                [Not for Publication]                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 95-1100                            FIRST STATE INSURANCE COMPANY,                                Plaintiff, Appellant,                                          v.                           UTICA MUTUAL INSURANCE COMPANY,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                    [Hon. Richard G. Stearns, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                  Cyr, Circuit Judge,                                       _____________                            Bownes, Senior Circuit Judge,                                    ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Myles W.  McDonough, with  whom Robert  H. Gaynor  and Sloane  and            ___________________             _________________      ___________        Walsh, were on brief for appellant.        _____            Eugene G.  Coombs, Jr., with whom  Jeffrey A.  Novins and Kilburn,            ______________________             __________________     ________        Casey Goscinak & Coombs were on brief for appellee.        _______________________                                _____________________                                _____________________                      STAHL, Circuit Judge.   Excess insurer First  State                      STAHL, Circuit Judge.                             _____________            Insurance Company ("First State") sued primary  insurer Utica            Mutual  Insurance  Company  ("Utica"),  claiming  that  Utica            unreasonably and in bad faith failed to settle a claim within            the primary policy limits,  resulting in a significant payout            by First State  on the  excess policy.   The district  court,            sitting  without  a  jury,  found  that  Utica  indeed  acted            unreasonably and in bad faith, but that First State failed to            prove that  the underlying claim  could have been  settled at            any   time  for   less   than  the   amount  actually   paid.            Consequently, the  district  judge  ruled  that  First  State            failed  to prove that it  was harmed by  Utica's actions, and            entered judgment  for defendant Utica.   First State appeals.            Finding no reversible error, we affirm.                                          I.                                          I.                                          __                                      BACKGROUND                                      BACKGROUND                                      __________                      We begin by summarizing the  facts as found by  the            district court,  reported in detail in  First State Insurance                                                    _____________________            Co. v. Utica Mutual Insurance Co., 870 F. Supp. 1168, 1169-74            ___    __________________________            (D. Mass. 1994) (Stearns, J.).  This dispute between insurers            is a by-product of  the tragic 1983 drowning of  a five-year-            old boy at a  bridge construction site.  The  boy, attempting            to traverse a plank leading to a bridge support pier, slipped            and fell  into the  river  and drowned.    His body  was  not            recovered for several weeks.                                         -2-                                          2                      The  bridge  contractor  had  not   fenced  in  the            construction site,  which was  adjacent to a  playground, nor            had  it hired security guards or posted the site with warning            or  "no trespassing"  signs.    Prior  to the  accident,  the            contractor  was   aware  that   children  and  vandals   were            trespassing on the site.  The contractor found more than once            that someone had placed planks to allow access from the shore            to the support piers in the middle of the river.                       In  November 1983, the  parents, represented by the            law firm of  Mardirosian & Barber,  brought a wrongful  death            action against the contractor in Massachusetts state court.                        Utica,  the  primary  liability insurer  for  the            contractor, had  provided a $500,000 policy, of  which it had            reinsured $300,000 with Prudential Reinsurance,  limiting its            actual  loss exposure to $200,000.  First State had issued an            excess liability policy  to the contractor  in the amount  of            $15,000,000.  Utica, as the primary carrier, was obligated to            provide  the contractor with a  defense, and in  late 1983 it            retained the firm of Roche & Heifetz for that purpose.                      The wrongful  death case  proceeded at  a leisurely            pace.    During the  six years  following  the filing  of the            claim,   the  parties'   lawyers  had   several  inconclusive            settlement discussions.  On February 6, 1989, two days before            the start of trial, Utica offered its entire  $500,000 policy            limit to  settle the case.   The  offer was rejected.   Utica                                         -3-                                          3            then tendered its policy  to First State, effectively turning            over control  of the settlement negotiations  to First State.            Trial began on February 8, 1989.  On the second day of trial,            First State made  a $750,000 settlement  offer, but that  was            rejected.   Subsequent  offers of  $1,000,000  and $1,100,000            were also rejected.  On the fifth day of trial, with the help            of the trial  judge, the  case was settled  for $1,250,000  .            Utica thus  paid $500,000 under the  primary policy ($300,000            of which was reinsured)  and First State paid $750,000  under            the excess policy.                      In November 1989,  First State brought  a diversity            action against Utica in the  United States District Court for            the District of Massachusetts,  alleging that Utica's refusal            to pursue a reasonable settlement  of the wrongful death case            caused First State  to lose  the $750,000 paid  in excess  of            Utica's  policy  limit.   After  a six-day  bench  trial, the            district judge ruled that Utica had indeed acted unreasonably            and in  bad faith in  not seriously pursuing  settlement long            before  trial.  But the district judge found that First State            had failed  to prove  that the boy's  parents would  probably            have settled for less than  the $1,250,000 actually paid, and            held  therefore that First State  failed to show  it had been            harmed by Utica's actions.                      First  State asserts  on  appeal that  the  judge's            factual finding on the potential for a less-costly settlement                                         -4-                                          4            was clearly erroneous.   This is a fact-bound appeal,  and we            will focus in  some detail  on the evidence  relevant to  the            settlement question.   Because appellee Utica  has not argued            that the  district judge erred in ruling  that Utica breached            its  duty to  pursue  settlement reasonably,  we accept  that            ruling without  further analysis.   We do note,  though, that            the legal issue  in this case, the duty  of a primary insurer            to  an excess  insurer,  is controlled  by Hartford  Casualty                                                       __________________            Insurance Co.  v. New Hampshire Insurance Co., 628 N.E.2d 14,            _____________     ___________________________            16-19 (Mass. 1994).                                         II.                                         II.                                         ___                                      DISCUSSION                                      DISCUSSION                                      __________                      When, as  here, a district court sits  as the trier            of  fact,  its  determinations are  accorded  great  respect.            Langton v.  Johnston, 928 F.2d  1206, 1218  (1st Cir.  1991).            _______     ________            Federal  Rule  of Civil  Procedure  52(a)1  dictates that  we            review such factual findings only for clear error.  The clear            error test is rigorous:                                            ____________________            1.  Fed. R. Civ. P. 52(a) provides in pertinent part:                      In  all  actions  tried  upon  the  facts                      without a jury . . . the court shall find                      the facts specially and  state separately                      its conclusions  of law  thereon . .  . .                      Findings of  fact, whether based  on oral                      or documentary evidence, shall not be set                      aside unless clearly  erroneous, and  due                      regard shall be  given to the opportunity                      of  the  trial  court  to  judge  of  the                      credibility of the witnesses.                                         -5-                                          5                      If  the district  court's account  of the                      evidence  is plausible  in  light of  the                      record viewed in its entirety,  the court                      of appeals may not reverse it even though                      convinced that had it been sitting as the                      trier of fact, it  would have weighed the                      evidence  differently.   Where  there are                      two  permissible  views of  the evidence,                      the  factfinder's   choice  between  them                      cannot be clearly erroneous.            Anderson v.  City  of Bessemer  City,  470 U.S.  564,  573-74            ________     _______________________            (1985).  We do not  set aside a district court's  findings of            fact unless  "on the whole of  the record, we form  a strong,            unyielding belief that a mistake has been made."  Cumpiano v.                                                              ________            Banco  Santander Puerto  Rico,  902 F.2d  148, 152  (1st Cir.            _____________________________            1990).    Because  the  record  in  this  case  supports  two            permissible views of the evidence, we discern no clear error.            A.   Was settlement  possible within Utica's  $500,000 policy            _____________________________________________________________            limit?            ______                      A number of documents  presented at trial suggested            that the lawyers for the plaintiff-parents had, at one  time,            valued  the  case  in the  $200,000  to  $250,000  range.   A            memorandum  to  Utica  from  defense  attorney Therese  Roche            referred  to a  statement  in 1984  by  one of  the  parents'            lawyers that  "he  was seeking  well  over $100,000."    That            memorandum,  however, indicated  that the  parents  were "not            making a specific demand."   A Utica claims  manager recorded            in  a March  1987  memorandum that  he  had spoken  with  the            parents' counsel, who had assessed the "full liability value"                                         -6-                                          6            of the case at  $200,000 to $250,000.  Another  memorandum by            defense attorney  Roche to  Utica memorialized an  April 1988            discussion between Roche and  another lawyer for the parents;            that discussion occurred at  the courthouse after a scheduled            settlement  conference  had  been canceled.    The memorandum            stated that the parents'  "current demand was $200,000, which            does  not seem  too far out  of line."   While  none of these            communications  were  formal  written  demands,  a factfinder            could reasonably  conclude from them that  a settlement could            perhaps have been negotiated at roughly $250,000.                            Those memoranda  did not,  however,  compel such  a            finding;  other   evidence  at   trial  cast  doubt   on  the            feasibility  of  settlement  in  the  $250,000  range.    The            plaintiffs  made no  written  demands until  much later,  and            those demands  were for a  significantly larger amount.   The            lawyer who allegedly  said he sought "well over $100,000" was            only  on the case  a short while,  and he did  not testify in            this trial.  His successor, who was not the partner in charge            of  the  case,  did  testify;  he had  purportedly  made  the            $200,000  demand.   He  stated  that  he  could not  remember            discussing any specific numbers, and  he stated that he would            never make a  demand without putting it in writing.   He also            testified that, based on his  personal evaluation of the case            at  the time,  he  would have  recommended  that his  clients            settle for "a figure in the  $250,000 range."  The partner in                                         -7-                                          7            charge  of the parents' case testified that he did not recall            giving any lawyer authority  to make a specific demand  or to            settle the case,  and he also testified that he  was not sure            if he would have recommended that his clients accept $500,000            to settle the  case.   Yet another attorney  testified as  an            expert that demands are  always made in writing.   Thus, from            this  evidence, the  district  judge was  amply justified  in            finding that the parents never authorized a settlement demand            in the $200,000 to $500,000 range.  Moreover, the conflicting            evidence about what was  said, and when, and what  was meant,            justified  the district  judge's conclusion that  First State            failed to  prove the likelihood  of settlement for  less than            $500,000.                      That conclusion was reinforced  by evidence (and by            First State's  arguments) that this wrongful  death case had,            from the start,  obvious potential for  a major verdict,  one            well  over  $500,000,  perhaps  $1,000,000  or  more.    That            evidence was critical to the district judge's conclusion that            Utica was  unreasonable in not pursuing  an early settlement;            that  same evidence makes it less likely that the parents and            their  lawyers  would  have  settled  for  $250,000  or  even            $500,000.  Our careful review of the entire record  convinces            us  that the district judge did not clearly err in concluding            that  First State  failed  to prove  that  the parents  would                                         -8-                                          8            probably  have  settled for  an  amount  within the  $500,000            primary policy limits.            B.  Was settlement possible between $500,000 and $1,250,000?            ____________________________________________________________                      First State  also argues  that  the district  judge            erred by not  addressing whether the case  could have settled            for an  amount over $500,000,  but less  than the  $1,250,000            eventually paid,  had Utica  acted reasonably.   The district            judge  recognized  that  question  to be  relevant,  however,            framing the  dispositive  causation question  thus: "[I]s  it            probable,  had Utica  reasonably pursued  a settlement  as it            should  have, that the case would have settled within Utica's            $500,000  policy   limit  and,  if  not,   was  the  eventual            settlement of  $1,250,000 larger  than what  might reasonably            have been achieved but for Utica's misfeasance?"  First State                                                              ___________            Ins.  Co.  v. Utica  Mut.  Ins. Co.,  870  F. Supp.  at 1178.            _________     _____________________            Although it  is implicit  in his  judgment that the  district            judge answered "no" to both prongs of  that question, several            subsequent statements in the  judge's opinion suggest that he            did  not  focus  on the  second  prong.    In three  separate            statements, the  judge explained that his  judgment was based            on  his finding that First State had failed to prove that the            parents would  have settled for $200,000 or  an amount within            the $500,000 policy limit.  See id. at 1178-79.  Although the                                        ___ ___            district judge did not expressly find that First State failed            to prove  a  likelihood  of settlement  in  the  $500,000  to                                         -9-                                          9            $1,250,000 range, our review  of the record reveals  that the            contrary conclusion -- that such a settlement was probable --            lacks evidentiary support.                       While  we  can speculate  that  a  settlement at  a            figure between  $500,000 and $1,250,000 may  indeed have been            likely,  First State  presented no  evidence to  that effect.            The finding that First  State seeks could be based  only upon            speculation  and surmise.   The  only evidence  of settlement            discussions  in that  range was  the parents'  formal written            demand in August 1988  for $1,000,000.  That  offer, however,            was expressly based on the belief that the combined insurance            coverage  was  $1,000,000,  as the  defendant  contractor had            erroneously stated  in an  interrogatory answer.   The demand            was increased  to $15,000,000  several months later  when the            parents' lawyers learned that the total coverage was actually            $15,500,000.                      No other  evidence in  the record indicates  that a            settlement  between $500,000  and $1,250,000 would  have been            acceptable to the parents  and their lawyers.   What evidence            there  is points  to the  opposite  conclusion.   The parents            rejected  an offer  of $750,000  two days  before trial,  and            rejected offers of  $1,000,000 and  $1,100,000 during  trial,            but  of course those rejections do not negate the prospect of            settlement at  like amounts at an earlier point in time.  The            district  judge  found,  as  First  State  argued,  that  the                                         -10-                                          10            $1,250,000  settlement  actually negotiated  by  First State,            after Utica had  tendered its policy, was reasonable  from an            insurer's perspective.                        It appears  to us  that the district  judge focused            his written opinion on the question of the alleged demand for            $200,000 and the potential for settlement in the  $200,000 to            $500,000 range, because  that was the thrust of First State's            evidentiary presentation.  Because there was no evidence that            settlement in the $500,000  to $1,250,000 range was probable,            the district court did not err in omitting an express finding            that First State  failed to  prove the likelihood  of such  a            settlement.            C.  Other Arguments            ___________________                      We find no merit in First State's argument that the            district judge erroneously believed  that, as a legal matter,            the case turned on whether a formal demand for settlement had            been made by the parents.  The lack of a formal demand was an            important factor  in the judge's  ruling, but the  opinion is            expressly clear that the  issue was whether settlement  for a                                                        __________            lesser  amount was probable,  not whether a  lower demand was                                                               ______            made.  See  First State Ins. Co. v. Utica  Mut. Ins. Co., 870                   ___  ____________________    ____________________            F. Supp. at 1178.                      All of the causes of action advanced by First State            require a  showing that Utica's  action caused harm  to First            State, i.e., that  a real  opportunity to settle  at a  lower                                         -11-                                          11            amount  was  wasted   due  to  Utica's  unreasonableness   or            subjective bad faith.  Because we affirm the district judge's            finding that First State failed  to prove that an opportunity            for  settlement was  lost,  we  need  not address  any  legal            distinctions between the several causes of action.                      First  State also  claims that  the district  judge            erred in  keeping under  seal documents that  were subpoenaed            into  court from  Prudential Reinsurance,  Utica's reinsurer.            The documents  were withheld from  First State because  of an            assertion of  attorney-client privilege.   The district judge            reviewed  the documents  in camera  and determined  that they                                     __ ______            were   not  relevant,   thereby  foreclosing   First  State's            challenge to the assertion of privilege.                        Having  reviewed  the  record  and   First  State's            arguments  on this  issue,  we find  that  any relevance  the            documents may have  had concerned only  the issue of  Utica's            reasonableness   and  good  faith   in  pursuing  settlement.            Because   the   district  judge   found   that  Utica   acted            unreasonably and  in bad  faith, First State  cannot complain            about the sealing of documents relevant to that issue.  First            State  made no proffer, nor has it argued on appeal, that the            documents  contained  evidence probative  of  the dispositive            causation issue,  i.e., the likelihood  of a settlement  at a            lower amount.   The critical  fact lacking  in First  State's            case  was  the parents'  willingness  to settle  for  a lower                                         -12-                                          12            amount,  and  it seems  unlikely that  correspondence between            Utica  and Prudential Reinsurance  would contain  evidence on            that issue.  We conclude that there was no prejudice to First            State  and thus there is  no reversible error  in the judge's            ruling on the disputed documents.                                         -13-                                          13                                         III.                                         III.                                         ____                                      CONCLUSION                                      CONCLUSION                                      __________                      For   the  foregoing   reasons,  the   judgment  is            affirmed.  Costs to the appellee Utica.            ________                                         -14-                                          14
