     07-2794-cv
     Schwartz v. Twin City


 1
 2                              UNITED STATES COURT OF APPEALS
 3
 4                                 FOR THE SECOND CIRCUIT
 5
 6                                    August Term, 2007
 7
 8
 9       (Argued: June 13, 2008                     Decided: August 19, 2008)
10
11                           Docket No. 07-2794-cv, 07-2818-cv
12
13       - - - - - - - - - - - - - - - - - - - -x
14
15       BERNARD L. SCHWARTZ,
16
17                           Plaintiff-Counter-
18                           Defendant-Appellee,
19
20
21       TWIN CITY FIRE INSURANCE COMPANY,
22
23                           Defendant-Cross-Defendant-
24                           Counter-Claimant-Appellee,
25
26       ROYAL INDEMNITY COMPANY,
27
28                           Defendant-Cross-Defendant,
29
30                      - v.-
31
32       LIBERTY MUTUAL INSURANCE COMPANY,
33
34                           Defendant-Cross-Claimant-
35                           Appellant,
36
37       NORTH AMERICAN SPECIALTY INSURANCE
38       COMPANY,
39
40                           Defendant-Counter-Claimant-
41                           Cross-Claimant-Appellant.
42
43       - - - - - - - - - - - - - - - - - - - -x
44
1        Before:        JACOBS, Chief Judge, POOLER, Circuit
2                       Judge, RESTANI,* Judge.
3
4        Excess insurers appeal from an amended judgment,

5    entered after a jury trial in the United States District

6    Court for the Southern District of New York (Castel, J.),

7    granting damages to their policy-holder and dismissing the

8    bad-faith claims they asserted as subrogees against the

9    primary insurer.   Affirmed.

10                                  EDWARD M. SPIRO, Morvillo,
11                                  Abramowitz, Grand, Iason, Anello
12                                  & Bohrer, P.C., New York, NY
13                                  (Elkan Ambramowitz, Thomas M.
14                                  Keane, Sarah J. North, on the
15                                  brief), for Plaintiff-Counter-
16                                  Defendant-Appellee Bernard L.
17                                  Schwartz.
18
19                                  CATHERINE E. STETSON, Hogan &
20                                  Hartson L.L.P., Washington, DC
21                                  (William J. Bowman, Paul A.
22                                  Werner, Hogan & Hartson LLP, Ira
23                                  G. Greenberg, John F. McCarrick,
24                                  Edwards Angell Palmer & Dodge
25                                  LLP, on the brief), for
26                                  Defendant-Cross-Defendant-
27                                  Counter-Claimant-Appellee Twin
28                                  City Fire Insurance Company.
29
30                                  DAVID J. MARGULES, Bouchard
31                                  Margules & Friedlander, P.A.,
32                                  Wilmington, DE (Sean M.
33                                  Brennecke, of counsel, Joshua


          *
            The Honorable Jane A. Restani, Chief Judge of the
     United States Court of International Trade, sitting by
     designation.
                                     2
 1                                 Dratel, Law Offices of Joshua
 2                                 Dratel, New York, NY, on the
 3                                 brief), for Defendant-Cross-
 4                                 Claimant-Appellant Liberty
 5                                 Mutual Insurance Company.
 6
 7                                 PETER A. STROILI, D’Amato &
 8                                 Lynch, New York, NY (Robert E.
 9                                 Kushner, on the brief), for
10                                 Defendant-Counter-Claimant-
11                                 Cross-Claimant-Appellant North
12                                 American Specialty Insurance
13                                 Company.
14
15   DENNIS JACOBS, Chief Judge:
16
17       The day before he was to testify as a defendant in a

18   securities class action, Bernard L. Schwartz agreed to a $20

19   million settlement.   He later brought suit in the United

20   States District Court for the Southern District of New York

21   (Castel, J.) against the four companies that covered him for

22   directors and officers liability.    He sued the primary

23   insurer, Twin City Fire Insurance Company, for bad faith

24   refusal to settle and breach of contract, and he sued three

25   excess insurers, Royal Indemnity Company, Liberty Mutual

26   Insurance Company, and North American Specialty Insurance

27   Company, for breach of contract.    Liberty and North

28   American, pleading equitable subrogation, asserted cross-

29   claims for bad faith against Twin City.    Twin City and Royal

30   settled with Schwartz in the course of this litigation.


                                    3
1        Liberty and North American appeal from an amended

2    judgment, entered after a jury trial, in favor of Schwartz

3    and Twin City.   See Schwartz v. Twin City Fire Ins. Co., 492

4    F. Supp. 2d 308 (S.D.N.Y. 2007).       The issues on appeal are

5    whether the jury’s verdict in favor of Schwartz was

6    supported by sufficient evidence; whether Schwartz’s

7    entitlement to prejudgment interest (under California law)

8    runs from the date he paid the $20 million or from the date

9    the underlying layers of coverage were exhausted; and

10   whether   the cross-claims against Twin City are governed by

11   New York law (which requires a showing of “gross disregard”)

12   or by California law (which does not).       For the reasons that

13   follow, we affirm.

14

15                            BACKGROUND

16       Schwartz was chief executive officer of Globalstar

17   Telecommunications Ltd., a now-defunct public company in the

18   satellite telephone business.       In that capacity, he was

19   covered by $50 million in directors and officers liability

20   insurance.   The primary layer of $10 million was written by

21   Twin City; Royal, Liberty and North American, the first

22   three excess carriers, each provided $5 million in coverage.


                                     4
1    The remaining layers of coverage were not implicated.

2        In 2001, after Globalstar revealed that its satellite

3    technology had fizzled, a securities class action was filed

4    against Schwartz, Globalstar, and Loral Space &

5    Communications, Ltd. (a Globalstar investor also under

6    Schwartz’s control), alleging violations of sections 10(b)

7    and 20(a) of the Securities Exchange Act of 1934 (the

8    “Globalstar Litigation”).   Globalstar timely notified its

9    insurers of the litigation.   With Twin City’s approval,

10   Schwartz retained Francis Menton to defend him.

11       After Globalstar and Loral filed for bankruptcy in

12   2002, the Globalstar Litigation proceeded against Schwartz

13   alone.

14       Over the following two years, Menton worked with Twin

15   City, Royal, Liberty and North American to negotiate a

16   settlement with the Globalstar Litigation plaintiffs.

17   Counsel to Liberty and North American (the “Excess

18   Insurers”) participated in negotiations at which the

19   plaintiffs offered to settle for $15 million, but warned

20   that the demand would rise to $20 or $25 million once trial

21   began.   Twin City’s counter-offers never rose above

22   $5 million.   Settlement was not achieved.


                                   5
1        Trial of the Globalstar Litigation began on July 6,

2    2005.    Counsel for the Excess Insurers were in the courtroom

3    monitoring all of the proceedings.

4        After two weeks of testimony, the only remaining

5    defense witnesses were Schwartz and his damages expert.

6    Facing the prospect of a jury verdict in the hundreds of

7    millions of dollars, Schwartz decided to settle the case.

8    At 10:04 p.m. on Sunday, July 17, 2005, Menton wrote to the

9    four insurers seeking their consent to settle for

10   $20 million.2   Menton offered to discuss the settlement that

11   night or early the following morning.

12       On Monday, July 18, 2005, the district court approved

13   the $20 million settlement and discharged the jury.    In the

14   course of that day and the following week, all the insurers

15   refused consent.

16       Twin City refused consent on the stated ground that the

17   plaintiffs’ evidence was too weak to merit more than “the

18   $5 million average settlement for shareholder class action

19   lawsuits settled in 2004.”


          2
            At that stage of the litigation, $3 million of Twin
     City’s primary layer had been absorbed by defense fees and
     costs, leaving $7 million available for settlement. The
     $20 million figure therefore implicated four layers of
     coverage: Twin City, Royal, Liberty and North American.
                                    6
1        Royal likewise declined to consent.

2        Liberty acknowledged receiving an email from Menton on

3    Saturday, July 16, relaying plaintiffs’ $20 million demand,

4    but said it was unaware of Menton’s request for consent to

5    settle until Monday morning.   Liberty could not “understand

6    why it would be reasonable to settle at $20 million,

7    particularly in light of the positive developments at

8    trial”; in any event, its obligations had not been triggered

9    because the underlying layers of coverage had not yet been

10   exhausted.

11       North American’s position was that the litigation

12   “should have been settled for an amount at or below

13   $15 million”; that an opportunity to do so had been

14   “squandered” through “no fault of North American’s”; that,

15   having “observed the trial closely,” North American had seen

16   nothing “that would justify a $5 million increase in the

17   plaintiffs’ demand”; that it was “not included in the

18   negotiations of the last 5 days,” or “kept apprised of these

19   negotiations in any material way”; and that in any event any

20   demand on it “would appear to be premature,” given that the

21   underlying layers of coverage (Twin City, Liberty and Royal)

22   had not paid out their limits.


                                    7
1        On August 24, 2005, Schwartz wrote a personal check to

2    the Globalstar plaintiffs for $20 million.

3        Schwartz then filed this lawsuit, alleging two causes

4    of action: breach of contract against Twin City, Royal,

5    Liberty and North American; and a bad faith claim against

6    Twin City.    Liberty and North American, as subrogees,

7    brought bad-faith cross-claims against Twin City.   See

8    Commercial Union Assurance Cos. v. Safeway Stores, Inc., 26

9    Cal. 3d 912, 918 (1980) (explaining that under equitable

10   subrogation, an excess carrier “stands in the shoes of the

11   insured and should be permitted to assert all claims against

12   the primary carrier which the insured himself could have

13   asserted”).

14       Before the coverage suit went to trial, Twin City and

15   Royal settled with Schwartz by paying their policy limits

16   ($10 million and $5 million, respectively).

17       On the remaining claims, the jury awarded Schwartz

18   $5 million against Liberty and $4,085,723.11 against North

19   American (the full amounts sought); and on the bad-faith

20   cross-claims against Twin City, the jury awarded Liberty

21   $2 million and awarded North American $3 million.   The

22   district court entered judgment on January 29, 2007.


                                    8
1        After post-trial briefing, the district court denied

2    the Excess Insurers’ motions for judgment as a matter of law

3    (or, alternatively, a new trial), but amended the judgment

4    in two significant ways.     As to the claim against the Excess

5    Insurers, the court awarded Schwartz prejudgment interest

6    measured from the date Schwartz paid the $20 million

7    settlement.   As to the bad-faith cross-claims against Twin

8    City, the court decided a choice of law issue that was

9    raised by the jury’s finding (in response to a special

10   interrogatory) that Twin City had not acted in “gross

11   disregard” of Schwartz’s interests.      “Gross disregard” is a

12   requisite finding under New York law, but not under the law

13   of California.   The court ruled that New York law applied,

14   and amended the judgment accordingly to dismiss the bad-

15   faith cross-claims.

16

17                               DISCUSSION

18       Liberty and North American challenge the amended

19   judgment on three fronts.     First, they seek judgment as a

20   matter of law on the breach of contract claims based on

21   Schwartz’s failure to obtain their consent to settle the

22   Globalstar Litigation.   Second, they contend that


                                     9
1    prejudgment interest (on those claims) should run from the

2    date the underlying layers of insurance were exhausted, as

3    opposed to the date Schwartz paid the $20 million

4    settlement.     Third, they argue that California law (rather

5    than New York law) applies to their cross-claims against

6    Twin City.

7

8                                    I

9        We review de novo the Excess Insurers’ challenge to the

10   denial of their motions for judgment as a matter of law,

11   “viewing the evidence, as the district court was required

12   to, in the light most favorable to the nonmoving party.”

13   Sanders v. N.Y. City Human Res. Admin., 361 F.3d 749, 755

14   (2d Cir. 2004).

15       Several facts and propositions relevant to Schwartz’s

16   claims of breach against the Excess Insurers are not in

17   dispute.     First, it is undisputed that California law

18   applies to those claims.     Schwartz v. Twin City Fire Ins.

19   Co., 492 F. Supp. 2d 308, 318 (S.D.N.Y. 2007).     Second, it

20   is undisputed that the coverage agreements required Schwartz

21   to obtain the Excess Insurers’ consent before settling a

22   claim.     (The wording of the consent clauses is in the


                                     10
1   margin.3 )   Lastly, it is undisputed that Schwartz did not

2   obtain the Excess Insurers’ consent before settling the

3   Globalstar Litigation.

4        On appeal, the Excess Insurers advance a simple

5   argument: Schwartz’s failure to satisfy the condition

6   precedent of consent to settle absolved of them of their

7   contractual duties.    But the jury found that in refusing



         3
             This is the Liberty consent clause:

                    Defense and Settlement: The insureds
                    shall not admit liability for, offer to
                    settle any claim or incur costs of
                    defense, where the liability, settlement
                    and/or costs of defense are reasonably
                    likely to involve the limit of liability
                    of this Policy, without the Insurer’s
                    prior written consent, which consent
                    shall not be unreasonably withheld.

         This is the North American consent clause:

                    This insurance is subject to the same
                    terms, conditions, agreements, exclusions
                    and definitions as the “Underlying
                    Insurance,” except:

                        (1) We will have no obligation under
                        this insurance with respect to any
                        claim or suit that is settled
                        without our consent; and

                        (2) With respect to any provisions
                        to the contrary contained in this
                        insurance.


                                   11
1    consent, the Excess Insurers breached their duties of good

2    faith and fair dealing--duties that are absolute and

3    unconditional under California law.

4

5                                  A

6        “There is an implied covenant of good faith and fair

7    dealing in every contract that neither party will do

8    anything which will injure the right of the other to receive

9    the benefits of the agreement.     This principle is applicable

10   to policies of insurance.”   Comunale v. Traders & Gen. Ins.

11   Co., 50 Cal. 2d 654, 658 (1958) (citation omitted).     “An

12   insurer owes to its insured an implied-in-law duty of good

13   faith and fair dealing that it will do nothing to deprive

14   the insured of the benefits of the policy.”    Fletcher v. W.

15   Nat’l Life Ins. Co., 10 Cal. App. 3d 376, 401 (4th Dist.

16   1970).

17       In Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973),

18   the California Supreme Court explained that this duty, “the

19   breach of which sounds in both contract and tort,” id. at

20   573, “is unconditional and independent of the performance of

21   [the insured’s] contractual obligations.”     Id. at 578.     The

22   Gruenberg court concluded that the policy-holder’s refusal


                                   12
1    to “submit to an examination under oath and to produce

2    certain documents” as required by the insurance policies was

3    no bar to the policy-holder’s bad-faith action.    Id. at 581.

4    While an insurer and its insured can “define, by the terms

5    of the contract, their respective obligations and duties

6    . . . no matter how those duties are stated, the

7    nonperformance by one party of its contractual duties cannot

8    excuse a breach of the duty of good faith and fair dealing

9    by the other party.”   Id. at 578.   Under California law, an

10   insurer’s duty of good faith and fair dealing is “absolute.”

11   Id.

12         In the context of this appeal, “the implied obligation

13   of good faith and fair dealing requires the insurer to

14   settle in an appropriate case although the express terms of

15   the policy do not impose the duty,” and further, “in

16   determining whether to settle the insurer must give the

17   interests of the insured at least as much consideration as

18   it gives to its own interests.”    Crisci v. Sec. Ins. Co., 66

19   Cal. 2d 425, 429 (1967).   In other words, “the insurer must

20   conduct itself as though it alone were liable for the entire

21   amount of the judgment.”   Johansen v. Cal. State Auto. Ass’n

22   Inter-Ins. Bureau, 15 Cal. 3d 9, 15 (1975).   “Such factors


                                   13
1    as the limits imposed by the policy, a desire to reduce the

2    amount of future settlements, or a belief that the policy

3    does not provide coverage, should not affect a decision as

4    to whether the settlement offer in question is a reasonable

5    one.”   Id. at 16.   This rule recognizes the potential for

6    conflict between the interests of the insurer and those of

7    its insured:

 8             [W]hen a settlement within policy limits is
 9             offered by claimant, the previously parallel
10             interests of the assured and carrier diverge,
11             and a conflict of interest arises, for while
12             it is invariably to the assured’s financial
13             interest to settle within policy limits,
14             settlement is only to the carrier’s financial
15             interest when the relationship between
16             settlement offer and policy limits is
17             mathematically favorable in the light of the
18             probabilities of winning or losing the suit.
19
20   Merritt v. Reserve Ins. Co., 34 Cal. App. 3d 858, 869-70 (2d

21   Dist. 1973).

22       “In determining whether an insurer has given

23   consideration to the interests of the insured, the test is

24   whether a prudent insurer without policy limits would have

25   accepted the settlement offer.”     Crisci, 66 Cal. 2d at 429.

26   A policy-holder seeking recovery for “a judgment in excess

27   of the policy limits” need not show “actual dishonesty,

28   fraud, or concealment” on the part of the insurer.     Id. at


                                    14
1    430.    Rather, “liability may exist when the insurer

2    unwarrantedly refuses an offered settlement where the most

3    reasonable manner of disposing of the claim is by accepting

4    the settlement.”    Id.

5           “Whether the insurer has acted unreasonably, and hence

6    in bad faith, in rejecting a settlement offer is a question

7    of fact to be determined by the jury.”    Cain v. State Farm

8    Mut. Auto. Ins. Co., 47 Cal. App. 3d 783, 792 (1st Dist.

9    1975); see also Allen v. Allstate Ins. Co., 656 F.2d 487,

10   489 (9th Cir. 1981) (“An insurer’s ‘good faith’ is

11   essentially a matter of fact. . . . Thus, due deference must

12   be granted to the trier-of-fact[,] in this case the jury.”).

13   The question is therefore whether the jury verdict in favor

14   of Schwartz was supported by sufficient evidence.    We

15   conclude that it was.

16          At trial, the jury heard testimony from the attorneys

17   who represented Schwartz, Twin City, Royal, Liberty, North

18   American and the Globalstar plaintiffs, and the jury

19   reviewed the emails, letters and notes exchanged throughout

20   the Globalstar Litigation.    Together, that evidence showed

21   that Liberty and North American took an active role in the

22   Globalstar Litigation: monitoring the claims, evaluating


                                    15
1    settlement possibilities, participating in settlement

2    negotiations, and watching the trial unfold.    Specifically,

3    the jury learned about the following series of events.

4        Liberty and North American participated in three

5    mediation sessions with Schwartz, Royal, Twin City and the

6    Globalstar plaintiffs.   All three ended without success

7    after Twin City made settlement offers well below the

8    plaintiffs’ $15 million demand.    Meanwhile, discovery

9    continued and the Globalstar Litigation progressed to trial.

10       At the second mediation session, in January 2005, Twin

11   City asked the other insurers to leave the room so that it

12   could settle the case within the primary layer.    Twin City

13   then offered $3 million in settlement--one fifth the

14   settlement demand of the Globalstar plaintiffs.    The offer

15   was rejected.

16       The plaintiffs’ $15 million offer would have exhausted

17   the layers of Twin City and Royal, while Liberty “would have

18   to pay a small amount,” and North American would pay

19   nothing.   But after the January 2005 mediation session,

20   Menton warned Liberty and North American that Twin City’s

21   “posture in this mediation” was risking exposure of their

22   layers of coverage.   Menton testified to telling Liberty and


                                   16
1    North American: “You need for Twin City to put up all of its

2    layer now; otherwise, the plaintiff will go up and your

3    layers are going to be endangered, and you need to be

4    thinking about and get on top of how you are going to

5    prevent that from happening.”

6        The following month, North American wrote to Twin City,

7    asserting a bad-faith failure to settle:   “Given the damages

8    numbers, the uncertain liability defenses and the

9    plaintiffs’ words and deeds that confirm they will not

10   settle this case for less than $10 million, any reasonable

11   party would settle this case for an amount at or above the

12   remaining [Twin City] limit of liability.”

13       Liberty wrote to Twin City on March 3, 2005, to the

14   same effect:

15            Settlement for an amount up to $12 million is
16            in our estimation reasonable and achievable.
17            Potential damages are, even in a reasonable
18            scenario, far in excess of this amount. We
19            have reviewed the strengths and weaknesses of
20            the Plaintiffs’ claims and the Insured’s
21            defenses and, notwithstanding [Twin City’s]
22            optimism regarding the defensibility of this
23            action, we believe dismissal at summary
24            judgment highly unlikely. . . . [F]urther
25            discovery, including the deposition of Bernard
26            Schwartz, risks revelation of facts adverse to
27            the Insured, thereby driving up the value of
28            the case to the plaintiffs and ensuring that
29            this matter will be tried before a jury.
30

                                     17
1    Liberty reminded Twin City that at the January mediation,

2    the case “appeared capable of settlement” for under

3    $15 million, and warned that a lowball offer from Twin City

4    could “precipitate a move upward by the plaintiffs.”

5        On March 10, Liberty and North American participated in

6    a conference call with Menton and the other insurers’

7    counsel.    Menton presented three possible measures: (1) make

8    an offer between $12 and $13 million; (2) move for summary

9    judgment, with the risk of settling for $20 million (or

10   more) if the motion failed; or (3) divide the cost of

11   settlement among several insurers, each contributing $2 to

12   $3 million.    The second option was chosen.

13       Schwartz moved for summary judgment on June 10, 2005.

14   That same day, the parties met for a settlement conference

15   with the district court in New York.     Plaintiffs offered to

16   accept $15 million, but said the demand would rise if the

17   summary judgment motion was denied or the case went to

18   trial.     Twin City counter-offered $5 million.   There was no

19   settlement.

20       Soon after, Menton wrote as follows to Twin City and

21   Royal, with a copy to Liberty and North American:

22               In light of the impending trial, [Twin City]
23               and Royal’s unwillingness to resolve this

                                     18
 1            matter has been prejudicial to both Mr.
 2            Schwartz and the other excess insurers, whose
 3            layers are increasingly at risk. . . . Unless
 4            this matter is settled on June 29, it will
 5            proceed to trial immediately after the July 4
 6            weekend. At that point, plaintiffs’
 7            willingness to compromise the case for $15
 8            million will have been withdrawn and
 9            plaintiffs’ current demand of $25 million or
10            some higher number will have replaced it. . .
11            . [A] return by the plaintiffs to their demand
12            of $25 million combined with our approximately
13            $2 million in legal fees above the deductible
14            would mean that [Twin City], Royal, Liberty
15            and North American would each have to
16            contribute their entire policy limits to
17            settlement, and Starr [the next layer excess
18            insurer] would have to contribute a
19            significant portion of its layer.
20
21   Menton noted that at trial, the Globalstar plaintiffs would

22   “likely seek to prove $600-$800 million in damages,” and

23   warned that it would be “a breach of duty to the insured to

24   subject [Schwartz] to the risk of such mammoth damages when

25   the opportunity to settle within [Twin City] and Royal’s

26   limits has been pending for months.”

27       In a separate letter to Liberty and North American,

28   Menton warned “that it may be necessary” for Liberty and one

29   or more of the excess carriers “to participate in the

30   ongoing effort to settle this matter.”

31       For its part, Liberty wrote to Twin City and Royal,

32   accusing them of acting in bad faith.    Liberty described the


                                  19
1    likelihood of success on Schwartz’s summary judgment motion

2    as “slim,” and noted “that the possibility remains that

3    damages may be awarded in excess of your limits or indeed

4    the Globalstar program in its entirety.”

5        Trial began on July 6, 2005.     Counsel to Liberty and

6    North American monitored the Globalstar trial, attending

7    substantially all of the proceedings and participating in

8    ongoing discussions with Menton and the Globalstar

9    plaintiffs about settling the case.

10       On July 11, Menton alerted all four insurers to “a

11   window of opportunity” to settle the case while the

12   Globalstar plaintiffs felt “vulnerable” about pending

13   motions to exclude plaintiffs’ damages expert and for a

14   directed verdict.   Menton predicted that, after this

15   “watershed moment,” Schwartz would “not have another

16   similarly attractive opportunity to settle this matter.”

17   Menton received no response.

18       The following day, Liberty and North American

19   participated (along with the other parties) in a settlement

20   conference with the court.     The trial judge advised that the

21   case would likely reach the jury, and that a plaintiff’s

22   verdict could be eight or nine figures.     Twin City again


                                     20
1    offered $3 million.   The plaintiffs passed.

2        On Friday, July 15, after two weeks of testimony, two

3    defense witnesses remained: Schwartz and his damages expert.

4    At Royal’s behest, Menton asked the Globalstar plaintiffs

5    whether the $15 million settlement figure was still on the

6    table.   Plaintiffs’ counsel responded the following day:

 7             The $15 million number was [what] we would
 8             have settled for prior to trial. In a good
 9             faith effort to reach a settlement, even
10             though the trial was already underway, I
11             expressed to you . . . that we still would
12             accept $15 million at that time, before any
13             ruling on the “directed verdict” motion.
14             There was no interest from your side after
15             that discussion. Since it is clear that the
16             directed verdict motion is not going to be
17             granted in full . . . the $15 million number
18             is off the table. I reaffirmed this to you
19             and certain representatives of the carriers on
20             Thursday afternoon, stating that we were at
21             $25 million to settle but it was not a firm
22             $25 million. . . . We would accept $20 million
23             to settle at this time; as the case progresses
24             towards a verdict, that number will only
25             increase.
26
27       Menton forwarded the message to counsel for Twin City,

28   Royal and Liberty on Saturday, July 16, adding:   “My

29   observation is that you gentlemen, by making ridiculously

30   low bids, waiting until the last possible minute, and

31   bidding against yourselves repeatedly, have completely

32   undermined your insured’s position in this matter.      Please


                                   21
1    advise by tomorrow about what you want to do.”   Menton

2    received no response.

3        On Sunday, July 17, Menton forwarded the full email

4    exchange to North American and advised:   “It looks like this

5    has now become your problem as well.   If you don’t mind my

6    saying it, ‘I told you so.’”

7        The same day, Menton and the Globalstar plaintiffs

8    agreed to settle the case for $20 million.   Menton formally

9    sought consent from Twin City, Royal, Liberty and North

10   American at 10:04 p.m. that night.   Menton offered to

11   discuss the reasonableness of that figure later that night

12   or between 8:45 and 9:00 a.m. on Monday, July 18 at the

13   courthouse.   Over the next days, all four insurers denied

14   consent.

15       The jury that heard this evidence could find (and

16   evidently did) that Liberty and North American had an

17   adequate opportunity to consider and evaluate the settlement

18   opportunities; that $20 million was a reasonable sum; and

19   that Liberty and North American unreasonably withheld

20   consent.   We therefore decline to disturb the jury verdict.

21

22



                                    22
1                                   B

2        Notwithstanding the evidence supporting the jury’s

3    verdict, Liberty and North American contend that Schwartz

4    forfeited any right to coverage as a matter of law.     We are

5    unpersuaded.

6        A consent clause entitles an insurer “to notice of a

7    proposed settlement and an opportunity to determine, before

8    the settlement, whether it will grant or withhold consent.”

9    Travelers Indem. Co. v. Eitapence, 924 F.2d 48, 50 (2d Cir.

10   1991).   Here, the excess insurance contracts unambiguously

11   (and without exception) required that Schwartz obtain the

12   consent of Liberty and North American before entering into a

13   settlement.    Schwartz did not get his insurers’ consent to

14   settle, and gave them mere hours (over a Sunday night and

15   Monday morning) to decide whether to consent.    So, the

16   argument goes, Schwartz forfeited his right to coverage.

17       In support of this argument, Liberty and North American

18   cite several cases in which California state courts enforced

19   consent clauses notwithstanding claims of excuse.    See,

20   e.g., Gribaldo, Jacobs, Jones & Assocs. v. Agrippina

21   Versicherunges A. G., 3 Cal. 3d 434, 449 (1970) (“[I]t is

22   only when the insured has requested and been denied a


                                    23
1    defense by the insurer that the insured may ignore the

2    policy’s provisions forbidding the incurring of defense

3    costs without the insurer’s prior consent, and under the

4    compulsion of that refusal undertake his own defense at the

5    insurer’s expense.”); Low v. Golden Eagle Ins. Co., 110 Cal.

6    App. 4th 1532, 1546-47 (1st Dist. 2003) (holding that, in

7    “the rare case where the insured tenders the defense and

8    then negotiates a settlement on its own, leaving the insurer

9    in the dark,” the insured’s breach “relieved the insurer of

10   posttender costs, too, including the settlement”); Jamestown

11   Builders, Inc. v. Gen. Star Indem. Co., 77 Cal. App. 4th

12   341, 346 (4th Dist. 1999) (“[I]nsureds cannot unilaterally

13   settle a claim before the establishment of the claim against

14   them and the insurer’s refusal to defend in a lawsuit to

15   establish liability. . . . In short, the provision protects

16   against coverage by fait accompli.”).

17       Based on these cases, Liberty and North American argue

18   that, under California law, the failure to obtain consent

19   can be excused only where the insurer breaches a contractual

20   duty to defend, Gribaldo, 3 Cal. 3d at 449, or “where the

21   previous payments were made involuntarily because of

22   circumstances beyond [the insured’s] control” (such as


                                  24
1    inability or exigency), Jamestown, 77 Cal. App. 4th at 348.

2    Here, the Excess Insurers have no duty to defend, and though

3    Schwartz’s payment was made under the pressure of an ongoing

4    jury trial, it was not “involuntary” within the narrow

5    meaning of California law.   Ergo, Schwartz’s breach of the

6    consent clause was unexcused as a matter of contract law.

7        Liberty and North American also point to Eitapence, in

8    which we affirmed a ruling that an insured lost her coverage

9    by settling a lawsuit without first obtaining her insurer’s

10   consent.   We wrote:

11              The insurer, having insisted on the [consent]
12              clause, is entitled to notice of a proposed
13              settlement and an opportunity to determine,
14              before the settlement, whether it will grant
15              or withhold consent; the fact that in some
16              circumstances its withholding of consent can
17              be successfully challenged as lacking good
18              faith ought not to mean that it should be
19              deprived of the opportunity of assessing the
20              circumstances before the settlement occurs.
21
22   924 F.2d at 50.

23       None of these cases helps the Excess Insurers.     In

24   Jamestown, Low and Gribaldo, the insurers had a duty to

25   defend; here, Liberty and North American had no such duty.

26   And in each of the cases cited by the Excess Insurers, the

27   insured either failed to provide notice of the claim or left

28   its insurer in the dark about a proposed settlement.    And

                                   25
1    there was no allegation that the insurers had acted in bad

2    faith.   Here, Liberty and North American participated in

3    three mediation sessions and a settlement conference; sent

4    several letters urging Twin City and Royal to settle in

5    light of the risk that the plaintiffs would demand far more

6    than $15 million at trial; and monitored the trial in the

7    courtroom.    The record certainly does not require a finding

8    that Liberty and North American were blindsided by

9    Schwartz’s request for consent to the $20 million

10   settlement.

11

12                                  C

13       North American challenges the jury charge on the ground

14   that it allowed the jury to consider the facts and

15   circumstances set out above in deciding whether Schwartz

16   complied with the condition precedent of seeking (and

17   obtaining) his insurers’ consent before settlement.     Thus,

18   argues North American, the district court failed to instruct

19   the jury on the principle that an insurer must be given

20   “notice of a proposed settlement and an opportunity to

21   determine, before the settlement, whether it will grant or

22   withhold consent.”    Id. at 50.


                                    26
1        We review jury instructions “as [a] whole to determine

2    if they provide a misleading impression or inadequate

3    understanding of the law,”    Phillips v. Bowen, 278 F.3d 103,

4    110 (2d Cir. 2002) (internal quotation marks omitted), “and

5    will reverse on this basis only if the []appellants can show

6    that in viewing the charge given as a whole, they were

7    prejudiced by the error.”    Anderson v. Branen, 17 F.3d 552,

8    556 (2d Cir. 1994).

9        We see no error in the jury charge given here.

10   According to North American, the jury’s attention should

11   have been focused exclusively on the eleven hours (starting

12   at 10:04 p.m. on Sunday night) that Menton gave the insurers

13   to decide whether to consent to the $20 million settlement,

14   as though that was the interval in which the Excess Insurers

15   had to assess--for the first time--the risks, opportunities

16   and settlement demands at play in the Globalstar Litigation.

17   But the insurers’ opportunity to consider settlement

18   extended over a prolonged course of consultation, monitoring

19   and negotiation, so that the settlement was in the nature of

20   anticlimax rather than surprise.    The Excess Insurers had

21   participated in mediation sessions at which the parties were

22   expected to respond to settlement offers, accepting or


                                    27
1    rejecting them on the spot.   And at those sessions, the

2    Excess Insurers learned that the plaintiffs’ demands would

3    rise to $20 million or more at trial.    The jury was properly

4    allowed to consider this, and much else, in deciding whether

5    the eleven-hour interval of time was sufficient.

6

7                                  II

8        The district court awarded Schwartz prejudgment

9    interest to run from the date Schwartz paid the $20 million

10   settlement.   The Excess Insurers argue that Schwartz’s right

11   to prejudgment interest vested only when Twin City and Royal

12   exhausted the underlying layers of coverage several months

13   later.   The issue is affected by choice of law.

14       The district court was sitting in diversity, and so it

15   properly applied the choice of law rules of New York, the

16   forum in which it sits.   See Klaxon Co. v. Stentor Elec.

17   Mfg. Co., 313 U.S. 487, 496-97 (1941).     “[U]nder New York

18   choice of law principles, the allowance of prejudgment

19   interest is controlled by the law of [the state] whose law

20   determined liability on the main claim.”    Entron, Inc. v.

21   Affiliated FM Ins. Co., 749 F.2d 127, 131 (2d Cir. 1984).

22   California law applied to Schwartz’s claims against the


                                   28
1    Excess Insurers; so the district court applied the

2    California statute on prejudgment interest:

 3            Every person who is entitled to recover
 4            damages certain, or capable of being made
 5            certain by calculation, and the right to
 6            recover which is vested in him upon a
 7            particular day, is entitled also to recover
 8            interest thereon from that day, except during
 9            such time as the debtor is prevented by law,
10            or by the act of the creditor from paying the
11            debt.
12
13   Cal. Civ. Code § 3287(a).

14       California appellate courts review de novo a trial

15   court’s award of prejudgment interest under § 3287(a).     See

16   State Farm Fire & Cas. Co. v. D & G Autosound, Inc., 2007 WL

17   4442881, at *7 (2d Dist. Dec. 20, 2007) (“When the facts are

18   not in dispute, a trial court’s determination as to whether

19   and when damages were certain or capable of being made

20   certain by calculation is reviewed de novo.”); Sukumar v.

21   Wise, 2006 WL 1134771, at *6 (4th Dist. Apr. 28, 2006) (“We

22   therefore may appropriately review on a de novo basis the

23   trial court’s application of [§ 3287(a)] to the facts as

24   established by the trial court.”); Worthington Constr., Inc.

25   v. L.A. Contractors Corp., 2004 WL 2677088, at *14 (4th

26   Dist. Nov. 24, 2004) (“[W]e disagree with [defendant’s]

27   assertion that the abuse of discretion standard applies in


                                  29
1    cases involving an award of prejudgment interest under

2    [§ 3287(a)].   This is the standard of review to be used in

3    cases dealing with discretionary prejudgment interest for

4    unliquidated claims under [§ 3287(b)], or when there is a

5    breach of an obligation not arising from contract, which by

6    statute is a matter for the jury’s discretion.” (internal

7    quotation marks and citation omitted)); KGM Harvesting Co.

8    v. Fresh Network, 36 Cal. App. 4th 376, 390-91 (6th Dist.

9    1995) (“As the facts are not in dispute, we independently

10   review whether and when buyer’s damages were certain or

11   capable of being made certain by calculation.    It is from

12   that day that buyer’s entitlement to prejudgment interest

13   commences.” (footnote omitted)); see also North Oakland Med.

14   Clinic v. Rogers, 65 Cal. App. 4th 824, 828 (1st Dist. 1998)

15   (stating that under § 3287(a) “the court has no discretion,

16   but must award prejudgment interest upon request, from the

17   first day there exists both a breach and a liquidated

18   claim”).

19

20                                 A

21       Section 3287(a) applies where the dispute is over

22   liability rather than the amount of damages.    See Canavin v.


                                   30
1    Pac. Sw. Airlines, 148 Cal. App. 3d 512, 524 (4th Dist.

2    1983) (explaining that prejudgment interest is mandatory

3    “where there is essentially no dispute between the parties

4    concerning the basis of computation of damages if any are

5    recoverable but where their dispute centers on the issue of

6    liability giving rise to damage” (internal quotation marks

7    omitted)).   The so-called “‘certainty requirement of [§

8    3287(a)] has been reduced to two tests: (1) whether the

9    debtor knows the amount owed or (2) whether the debtor would

10   be able to compute the damages.’”   Polster, Inc. v. Swing,

11   164 Cal. App. 3d 427, 434-35 (2d Dist. 1985) (quoting

12   Chesapeake Indus., Inc. v. Togova Enter., Inc., 149 Cal.

13   App. 3d 901, 911 (2d Dist. 1983)); see also Wisper Corp. v.

14   Calif. Commerce Bank, 49 Cal. App. 4th 948, 960 (4th Dist.

15   1996) (“Thus, where the amount of damages cannot be resolved

16   except by verdict or judgment, prejudgment interest is not

17   appropriate.” (emphasis added)).

18       The Excess Insurers concede that Schwartz is entitled

19   to prejudgment interest under § 3287(a).    Our only appellate

20   work on this score is to determine when Schwartz’s

21   prejudgment interest clock began to tick.    Schwartz says his

22   damages were “certain” on August 24, 2005, when he wrote a


                                   31
1    check for twenty million dollars and no cents.   The Excess

2    Insurers say that Schwartz’s right to damages did not “vest”

3    until January 5, 2007, when Twin City and Royal settled the

4    coverage litigation and the underlying policy limits were

5    thus exhausted.   This factual scenario appears to be one of

6    first impression under California law.

7        Prejudgment interest under § 3287(a) “runs from the

8    date when the damages are of a nature to be certain or

9    capable of being made certain by calculation and when the

10   exact sum due to the plaintiff is made known to the

11   defendant.”   Levy-Zentner Co. v. S. Pac. Transp. Co., 74

12   Cal. App. 3d 762, 798 (1st Dist. 1977); see also Polster,

13   164 Cal. App. 3d at 434-35 (citing Levy-Zentner test).      Put

14   differently, § 3287(a) mandates prejudgment interest “from

15   the first day there exists both a breach and a liquidated

16   claim.”   North Oakland, 65 Cal. App. 4th at 828; 23 Cal.

17   Jur. 3d Damages § 98 (2008) (“This prejudgment interest on

18   damages runs from the date when the damages are certain or

19   are capable of being calculated to a certainty.”)

20       On the day Schwartz wrote the check, there was a

21   breach: as the jury found, Liberty and North American had

22   unreasonably withheld consent to the settlement.    And there


                                   32
1    was a liquidated claim: Liberty and North American owed

2    Schwartz their share of his covered losses (and litigation

3    costs)--$5 million and $4.085 million, respectively.    This

4    would seem to require interest from that date.

5        The Excess Insurers emphasize, however, that

6    prejudgment interest under § 3287(a) does not begin to run

7    until the “right to recover” damages has “vested,” Cal. Civ.

8    Code § 3287(a), and that “[l]iability under an excess policy

9    attaches only after all primary coverage has been

10   exhausted.”   N. River Ins. Co. v. Am. Home Assurance Co.,

11   210 Cal. App. 3d 108, 112 (2d Dist. 1989).

12       The Excess Insurers rely on wording from Hartford

13   Accident & Indem. Co. v. Sequoia Ins. Co., 211 Cal. App. 3d

14   1285 (5th Dist. 1989), a case in which several policies

15   covered the loss, and in which the chief issue under the

16   “other insurance” clauses was which insurance was primary

17   and which was excess.   After Hartford paid the full amount

18   to settle the underlying tort litigation in that case, it

19   sued Transamerica and Sequoia.     The California appellate

20   court determined that Transamerica and Sequoia were excess

21   to Hartford’s primary layer, and (as to Hartford’s claim for

22   prejudgment interest) that “the amount of damages


                                   33
1    recoverable” by Hartford against Transamerica and Sequoia

2    “was ‘certain, or capable of being made certain by

3    calculation’ and was ‘vested’ in Hartford on . . . the day

4    Hartford exhausted its primary policy limit”; prejudgment

5    interest began to accrue on that day.    Id. (quoting Cal.

6    Civ. Code § 3287(a)) (emphasis added).    The Excess Insurers

7    cite this wording for the proposition that an excess insurer

8    in a coverage dispute is not exposed to prejudgment interest

9    until after the underlying coverage is exhausted.    But this

10   interpretation overreads Hartford.   Hartford was an easier

11   case than ours because the settlement payment simultaneously

12   fixed the damages at sums certain and effected “vesting” by

13   the exhaustion of the primary layer.

14       In our case, unlike in Hartford, it becomes necessary

15   to allocate the loss caused by the time value of money in

16   the interval between settlement of the underlying claim and

17   exhaustion of underlying coverages--the interval in which

18   the policy-holder successfully litigated his claims for

19   coverage.

20       The jury’s finding that the Excess Insurers breached

21   their duties of good faith and fair dealing simplifies the

22   allocation in this case.   The covenant of good faith and


                                   34
1    fair dealing “is a contract term that aims to effectuate the

2    contractual intentions of the parties.”   Cates Constr., Inc.

3    v. Talbot Partners, 21 Cal. 4th 28, 43 (1999).   Although

4    “compensation for its breach has almost always been limited

5    to contract rather than tort remedies,” Foley v. Interactive

6    Data Corp., 47 Cal. 3d 654, 684 (1988), California law

7    recognizes one notable exception: “tort remedies are

8    available for a breach of the covenant in cases involving

9    insurance policies,” Cates, 21 Cal. 4th at 43; see also

10   Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 575 (1973)

11   (explaining that “when [an] insurer unreasonably and in bad

12   faith withholds payment of [a] claim of its insured, it is

13   subject to liability in tort”).   That includes damages for

14   emotional distress, see id. at 580-81, as well as punitive

15   damages, see Betts v. Allstate Ins. Co., 154 Cal. App. 3d

16   688 (4th Dist. 1984).

17        The California Supreme Court has explained that “tort

18   recovery in this particular context is considered

19   appropriate for a variety of policy reasons”:

20            Unlike most other contracts for goods or
21            services, an insurance policy is characterized
22            by elements of adhesion, public interest and
23            fiduciary responsibility. In general,
24            insurance policies are not purchased for
25            profit or advantage; rather, they are obtained

                                  35
 1            for peace of mind and security in the event of
 2            an accident or other catastrophe. Moreover,
 3            an insured faces a unique “economic dilemma”
 4            when its insurer breaches the implied covenant
 5            of good faith and fair dealing. Unlike other
 6            parties in contract who typically may seek
 7            recourse in the marketplace in the event of a
 8            breach, an insured will not be able to find
 9            another insurance company willing to pay for a
10            loss already incurred.
11
12   Cates, 21 Cal. 4th at 44 (internal citations omitted).

13       The same policy considerations justify taxing the

14   insurer with prejudgment interest for the period in which

15   the policy-holder successfully litigates a bad-faith claim

16   against it, notwithstanding an otherwise valid contract

17   defense based on unexhausted underlying limits.   It follows

18   that Schwartz is able to recover prejudgment interest as for

19   a tort when his damages became fixed and known--the day he

20   wrote a personal check for $20 million.

21       We need not consider whether an excess insurer would

22   begin to accrue responsibility for prejudgment interest

23   under California law prior to the exhaustion of underlying

24   coverages if it withholds payment based on that condition

25   precedent and not upon grounds found to have been asserted

26   in bad faith.   It is enough in this case to predict that the

27   California Supreme Court would hold that § 3287(a) entitles

28   Schwartz to recover prejudgment interest from the Excess

                                   36
1    Insurers from the date his losses were certain and

2    ascertainable, notwithstanding that the underlying layers of

3    coverage had not yet been exhausted.

4

5                                 III

6        Liberty and North American challenge the district

7    court’s choice of New York State law (as opposed to

8    California law) to govern their cross-claims against Twin

9    City.   At trial, the district court instructed the jury on

10   the elements of bad faith that are common to California law

11   and New York law, and then instructed the jury to decide

12   (separately) whether the Excess Insurers proved that Twin

13   City acted with “gross disregard” for the interests of the

14   Excess Insurers, a showing that is required for recovery

15   under New York law but not under the law of California.    The

16   jury awarded Liberty $2 million and North American $3

17   million, but found that Twin City did not act with “gross

18   disregard.”   The district court initially entered judgment

19   in favor of Liberty and North American, but then considered

20   the choice of law issue, decided that the law of New York

21   applied to the Excess Insurers’ cross-claims, and filed an

22   amended judgment in favor of Twin City.


                                   37
1        We review the district court’s ruling on a motion to

2    amend the judgment under Rule 59(e) for abuse of discretion.

3    Devlin v. Transp. Commc’n Int’l Union, 175 F.3d 121, 131-32

4    (2d Cir. 1999).    We review the district court’s choice of

5    law determination de novo.     IBM v. Liberty Mut. Ins. Co.,

6    363 F.3d 137, 143 (2d Cir. 2004).

7

8                                    A

9        The district court had subject matter jurisdiction

10   based on diversity; therefore, “we must determine the body

11   of substantive law that applies here with reference to New

12   York’s choice of law rules.”     Booking v. Gen. Star Mgmt.

13   Co., 254 F.3d 414, 419 (2d Cir. 2001) (citing Klaxon Co. v.

14   Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941)).     Under

15   those rules, “[t]he first step . . . is to determine whether

16   there is an actual conflict between the laws of the

17   jurisdictions involved.”     In re Allstate Ins. Co., 81 N.Y.2d

18   219, 223 (1993).

19       New York law recognizes that “[i]nsurers owe a duty to

20   their insureds . . . to act in good faith when deciding

21   whether to settle . . . a claim, and . . . may be held

22   liable for breach of that duty.”     New England Ins. Co. v.


                                     38
1    Healthcare Underwriters Mut. Ins. Co., 295 F.3d 232, 241 (2d

2    Cir. 2002) (internal quotation marks omitted).    This duty is

3    also owed to excess insurers, and requires a primary insurer

4    to “giv[e] as much consideration to the excess carrier’s

5    interests as it does to its own.”     Id. (citing Pinto v.

6    Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000); Pavia

7    v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445, 453

8    (1993); St. Paul Fire & Marine Ins. Co. v. U.S. Fid. & Guar.

9    Co., 43 N.Y.2d 977, 978-79 (1987)).

10       To establish a prima facie case of bad faith, an excess

11   insurer must show that the primary insurer’s conduct

12   constituted a “gross disregard” of the excess insurer’s

13   interests.   See Pavia, 82 N.Y.2d at 453.   Under this New

14   York standard, the conduct must involve “a deliberate or

15   reckless failure to place on equal footing the interests of

16   [the excess insurer] with its own interests when considering

17   a settlement offer.”   Id.   Such showing is satisfied by

18   demonstrating that the primary insurer engaged in behavior

19   evincing a conscious or knowing indifference to the

20   probability that the excess insurer would also be held

21   accountable for a judgment if a settlement offer within the

22   primary insurer’s policy limits were not accepted.     See id.


                                    39
1        Under California law, by contrast, “gross disregard” is

2    not an element of a breach of the covenant of good faith and

3    fair dealing.    See, e.g., Love v. Fire Ins. Exch., 221 Cal.

4    App. 3d 1136, 1151 (4th Dist. 1990) (“[T]here are at least

5    two separate requirements to establish breach of the implied

6    covenant: (1) benefits due under the policy must have been

7    withheld; and (2) the reason for withholding benefits must

8    have been unreasonable or without proper cause.”).

9        This “actual conflict” between the laws of New York and

10   California requires a choice.        New York applies a “grouping

11   of contacts” theory to contract claims, Auten v. Auten, 308

12   N.Y. 155, 160-62 (1954), looking to a “spectrum of

13   significant contacts--rather than a single possibly

14   fortuitous event,” In re Allstate, 81 N.Y.2d at 226.       “The

15   purpose of grouping contacts is to establish which State has

16   ‘the most significant relationship to the transaction and

17   the parties.’”    Zurich Ins. Co. v. Shearson Lehman Hutton,

18   Inc., 84 N.Y.2d 309, 317 (1994) (quoting Restatement

19   (Second) of Conflict of Laws § 188(1) (1971)).       Along with

20   “the traditionally determinative choice of law factor of the

21   place of contracting,” the New York Court of Appeals has

22   endorsed the following factors (identified in the


                                     40
1    Restatement): “the places of negotiation and performance;

2    the location of the subject matter; and the domicile or

3    place of business of the contracting parties.”    Zurich, 84

4    N.Y.2d at 317.   In the insurance law context, New York

5    recognizes the precept that a court should apply “the local

6    law of the state which the parties understood was to be the

7    principal location of the insured risk . . . unless with

8    respect to the particular issue, some other state has a more

9    significant relationship . . . to the transaction and the

10   parties.”   Restatement (Second) of Conflict of Laws § 193

11   (1971); see, e.g., Zurich, 84 N.Y.2d at 318 (considering

12   “what the parties understood to be the location of the

13   risk”).   However, “[i]t is commonplace for courts applying

14   New York choice-of-law rules to disregard (or at least

15   discount) the location of the insured risk when the risk is

16   located in two or more states.”    Maryland Cas. Co. v. Cont’l

17   Cas. Co., 332 F.3d 145, 153 (2d Cir. 2003); see also

18   Restatement (Second) of Conflict of Laws § 193 cmt. b

19   (1971).   New York further recognizes that sometimes “the

20   policies underlying conflicting laws in a contract dispute

21   are readily identifiable and reflect strong governmental

22   interests, and therefore should be considered.”    In re


                                   41
1    Allstate, 81 N.Y.2d at 226.    In such cases, a court “may

2    properly consider State interests to determine whether to

3    apply New York law.”    Id. at 227.

4        With these principles in mind, we turn to the Excess

5    Insurers’ bad-faith cross-claims against Twin City.

6        Some factors suggest that “the location of the insured

7    risk” under Globalstar’s directors and officers insurance

8    was New York, Maryland Cas., 332 F.3d at 153:    At all

9    relevant times, Schwartz lived and worked in New York, and

10   all but one of Globalstar’s corporate officers worked in New

11   York.   Other factors point to California:   The primary

12   policy (of Twin City) was issued into California and

13   contained endorsements intended to conform to California

14   law, and most of Globalstar’s 900 employees worked at the

15   company’s facility in San Jose, California, making it

16   (arguably) the company’s principal place of business.      Since

17   Globalstar’s directors and officers insurance “cover[ed] a

18   group of risks that are scattered throughout” both New York

19   and California, the “location of the insured risk” is not

20   determinative here.    Restatement (Second) of Conflict of

21   Laws § 193 cmt. b (1971).

22       However, “the location of the subject matter” of the


                                    42
1    bad-faith cross-claims points strongly toward New York.

2    Zurich, 84 N.Y.2d at 317.   The Globalstar Litigation was

3    filed, tried and ultimately settled in New York.     Prior to

4    settlement, the parties participated in a mediation session

5    and a settlement conference in New York.   (The other two

6    mediation sessions occurred in Washington, DC.)    The

7    underlying class action was tried in New York, and Twin

8    City’s alleged misconduct was the refusal in New York to

9    settle that New York litigation.   None of these events took

10   place in California.

11       New York policy considerations also militate in favor

12   of applying New York law.   That state’s “gross disregard”

13   standard reflects a policy of affording insurers latitude

14   “in investigating and resisting unfounded claims.”       Pavia,

15   82 N.Y.2d at 454.   As a consequence, “there remains a strong

16   presumption in New York against a finding of bad faith

17   liability by an insurer.”   Hugo Boss Fashions, Inc. v. Fed.

18   Ins. Co., 252 F.3d 608, 624 (2d Cir. 2001).   To apply

19   California law to the Excess Insurers’ cross-claims, based

20   on an insurer’s conduct that took place chiefly in New York,

21   would offend New York’s policy choice.

22       The Excess Insurers plead (in their words) that “it


                                   43
1    would be unduly confusing to apply the laws of one state to

2    bad faith claims and the laws of another state as to the

3    underlying breach of contract claims.”    This kind of

4    selectivity, called depecage, “permits a more nuanced

5    handling of certain multistate situations and thus forwards

6    the policy of aptness.”    Corporacion Venezolana de Fomento

7    v. Vintero Sales Corp., 629 F.2d 786, 794 n.8 (2d Cir.

8    1980).   And it is not altogether uncommon.4   Moreover, there

9    is no reason to think that the jurors were confused by the

10   application of California law to some claims and New York

11   law to others.    After all, the verdict form covered less

12   than two pages.

13       According to North American’s brief, the district



          4
           See, e.g., Fieger v. Pitney Bowes Credit Corp., 251
     F.3d 386, 397 n.1 (2d Cir. 2001) (“There is no conflict in
     applying New York law to one claim and Connecticut law to
     another. Under the doctrine of depecage as applied by New
     York courts, the rules of one legal system are applied to
     regulate certain issues arising from a given transaction or
     occurrence, while those of another system regulate other
     issues.” (internal quotation marks omitted)); Babcock v.
     Jackson, 12 N.Y.2d 473, 484 (1963) (“[T]here is no reason
     why all issues arising out of a tort claim must be resolved
     by reference to the law of the same jurisdiction. . . . [I]t
     is more than likely that it is the law of the place of the
     tort which will be controlling but the disposition of other
     issues must turn . . . on the law of the jurisdiction which
     has the strongest interest in the resolution of the
     particular issue presented.”).
                                    44
1    court’s choice of New York law “denied the excess carriers

2    the same right that [Schwartz] had under California law to

3    recover in bad faith against Twin City.”    “Under the

4    doctrine of equitable subrogation,” the argument goes, “the

5    duty owed an excess insurer is identical to that owed the

6    insured,”   Peter v. Travelers Ins. Co., 375 F. Supp. 1347,

7    1350 (C.D. Cal. 1974), and so the Excess Insurers “stand[]

8    in the shoes” of Schwartz to assert his rights under

9    California law against Twin City, Commercial Union Assurance

10   Cos. v. Safeway Stores, Inc., 26 Cal. 3d 912, 918 (1980).

11       But Twin City settled with Schwartz before any choice

12   of law issue was litigated or decided.     If Schwartz and Twin

13   City litigated under California law, it may be that each

14   thought it applied, or did not choose to contest it, or

15   thought it offered one or another advantage.    In any event,

16   it is far from clear that the doctrine of equitable

17   subrogation requires that an excess insurer standing in the

18   shoes of its policy-holder gets the benefit (or detriment)

19   of the litigation choices its policy-holder made or chose to

20   accept.

21       Finally, North American argues that the district court

22   “improperly” invoked Federal Rule of Civil Procedure 59(e)


                                   45
1    “to reverse the jury’s award” in its favor.    (The text of

2    the rule is set out in the margin.5 )   We see no merit in

3    this argument.

4        “[D]istrict courts may alter or amend judgment ‘to

5    correct a clear error of law or prevent manifest

6    injustice.’”     Munafo v. Metro. Transp. Auth., 381 F.3d 99,

7    105 (2d Cir. 2004) (quoting Collision v. Int’l Chem. Workers

8    Union, Local 217, 34 F.3d 233, 236 (4th Cir. 1994)).

9    “Rule 59(e) covers a broad range of motions, and the only

10   real limitation on the type of the motion permitted is that

11   it must request a substantive alteration of the judgment,

12   not merely the correction of a clerical error, or relief of

13   a type wholly collateral to the judgment.”     11 Charles Alan

14   Wright et al., Federal Practice & Procedure § 2810.1 (2d ed.

15   2008) (footnote omitted).

16       Here, the district court substantively altered the

17   judgment to correct a clear error of law: New York law (as

18   opposed to California law) applies to the Excess Insurers’




          5
            “A motion to alter or amend a judgment must be filed
     no later than 10 days after the entry of the judgment.”
     Fed. R. Civ. P. 59(e).
                                     46
1   bad-faith cross-claims.   The district court acted well

2   within its discretion.

3                             CONCLUSION

4       For the foregoing reasons, we affirm.




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