     14-2773-cv
     Catlin Specialty Insurance Co. v. QA3 Financial Corp.

                               UNITED STATES COURT OF APPEALS
                                   FOR THE SECOND CIRCUIT

                                          SUMMARY ORDER

     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
     CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS
     PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
     PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A
     SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
     CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH
     THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY
     ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
     COUNSEL.

 1           At a stated term of the United States Court of Appeals for the Second Circuit, held at the
 2   Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
 3   3rd day November, of two thousand fifteen.
 4
 5   Present:
 6
 7               DEBRA ANN LIVINGSTON ,
 8               CHRISTOPHER F. DRONEY,
 9                     Circuit Judges,
10               ANALISA TORRES
11                     District Judge.*
12   _____________________________________
13
14   CATLIN SPECIALTY INSURANCE CO.
15
16                         Plaintiff-Counter-Defendant-Appellee,
17
18                  v.                                                  14-2773-cv
19
20   QA3 FINANCIAL CORP.
21
22                     Defendant-Counter-Claimant-Appellant
23   _____________________________________
24
25   For Plaintiff-Appellee:                   Jonathan Harwood, TRAUB LIEBERMAN STRAUS &
26                                             SHREWSBERRY, LLP, Hawthorne, N.Y.


     * The Honorable Analisa Torres of the United States District Court for the Southern District of
     New York, sitting by designation.
                                                   1
 1
 2   For Defendant-Appellant:                     Andrew Bourne, BOURNE & ZAKHEIM LLP, New York,
 3                                                N.Y.
 4

 5           UPON DUE CONSIDERATION WHEREOF it is hereby ORDERED, ADJUDGED,

 6   AND DECREED that the judgments of the district court are AFFIRMED.

 7           On November 23, 2010, Catlin Specialty Insurance Company (“Catlin”), the Appellee in

 8   this case, brought an action in the United States District Court for the Southern District of New

 9   York seeking a declaratory judgment as to the meaning of its insurance contract with QA3

10   Financial Corporation (“QA3”), the Appellant. The parties agree that the pertinent insurance

11   contract in this diversity action is governed by New York law. In particular, Catlin asked the court

12   to determine whether, under the Policy’s Amended Definition of Securities Endorsement (the

13   “Endorsement”), the aggregate limit for claims arising out of all private placements was

14   $1,000,000, or whether, as QA3 contends, this limit applied only to specific, enumerated private

15   placements, and a limit of $7,500,000 applied to private placements more generally. QA3 filed,

16   inter alia, a counterclaim for bad faith, which the district court (Furman, J.) subsequently

17   dismissed on December 19, 2012. After a jury trial, during which QA3 and Catlin presented

18   evidence as to the intended meaning of the Endorsement, the jury found for Catlin. The district

19   court (Schofield, J.) subsequently denied QA3’s motion for a new trial on the basis of erroneous

20   jury instructions. QA3 now appeals from the district court’s dismissal of its counterclaim and from

21   the district court’s denial of its motion for a new trial. As it will prove clearer to do so, we begin by

22   discussing the motion for a new trial and then proceed to the motion to dismiss. We assume the

23   parties’ familiarity with the underlying facts and procedural history in this case.

24           This Court reviews a claim of error in jury instructions de novo, “reversing only where,

25   viewing the charge as a whole, there was a prejudicial error.” Terra Firma Invs. (GP) 2 Ltd. v.

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 1   Citigroup Inc., 716 F.3d 296, 299 (2d Cir. 2013) (quoting United States v. Quattrone, 441 F.3d

 2   153, 177 (2d Cir. 2006)). “A jury instruction is erroneous ‘if the instruction misleads the jury as to

 3   the proper legal standard, or it does not adequately inform the jury of the law,’ but such an error

 4   will not be grounds for reversal unless ‘taken as a whole, the jury instructions gave a misleading

 5   impression or inadequate understanding of the law.’” Owen v. Thermatool Corp., 155 F.3d 137,

 6   139 (2d Cir. 1998) (quoting BAII Banking Corp. v. UPG, Inc., 985 F.2d 685, 696 (2d Cir. 1993)).

7    “Absent fundamental error, we are loath to overturn a jury verdict in a civil case.” Terra Firma,

8    716 F.3d at 298.

9           QA3 argues that the district court committed prejudicial error in two ways: first, by

10   refusing to instruct the jury on contra proferentem, a rule of contract interpretation, generally, and

11   insurance contract interpretation, specifically, see Parks Real Estate Purchasing Grp. v. St. Paul

12   Fire & Marine Ins. Co., 472 F.3d 33, 43 (2d Cir. 2006), and second, in refusing to instruct the jury

13   that Catlin had to meet the heavy burden articulated in Seaboard Surety Co. v. Gillette Co., 476

14   N.E.2d 272 (N.Y. 1984), when an insurer seeks to invoke an exclusion, id. at 275 (“[B]efore an

15   insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears

16   of establishing that the exclusions or exemptions apply in the particular case, and that they are

17   subject to no other reasonable interpretation.” (citations omitted)). We find both arguments

18   unavailing.

19          First, assuming, arguendo, that QA3 is correct that contra proferentem, as a canon of

20   textual or legal construction, is applicable to the jury’s factual analysis of extrinsic evidence, the

21   judge’s refusal to provide QA3’s instruction to the jury did not mislead the jury as to the proper

22   legal standard. Many courts have articulated the contours of contra proferentem, or the

23   “contra-insurer rule,” see McCostis v. Home Ins. Co. of Ind., 31 F.3d 110, 113 (2d Cir. 1994), in


                                                       3
 1   different terms, so we assume, for this analysis, that the text requested by QA3 in its proposed

2    instruction accurately describes the canon: “Where an ambiguity in an insurance policy cannot be

3    resolved by examining extrinsic evidence of the parties’ intent, you must construe the ambiguous

4    language in accordance with the rule of contra proferentem, a rule of contract construction which,

5    in the insurance context, requires you to construe the contract against the drafter.” J.A. 848. The

6    district court refused to give QA3’s requested instruction to the jury, but it nevertheless instructed

7    them that Catlin bore the burden of proving by a “preponderance of the evidence,” J.A. 1959, that

8    Catlin’s “interpretation regarding language limiting coverage [was] the correct one,” J.A. 1964.

9    The court further instructed that if the jury found that the evidence “didn’t tip [the scale] either way

10   . . . then [it] must decide [this] issue against [Catlin].” J.A. 1959. When determining if an

11   instruction misled a jury as to the proper legal standard, “the particular words used in a jury

12   instruction may (depending on the circumstances) be less important than the meaning or substance

13   of the charge as a whole.” Owen, 155 F.3d at 139 n.1. Here, the jury understood that, were it to find

14   that Catlin had not met its burden of proving its interpretation was the correct one, the jury would

15   have to ultimately resolve the presumptively inconclusive extrinsic evidence in favor of QA3.

16   Assuming contra proferentem applied, then, the jury understood the essence of the rule: that if it

17   found the evidence inconclusive, it should find in favor of the Appellant. We thus discern no error

18   in the court’s instruction, even assuming the legal correctness of QA3’s request.

19          As to the second instruction, even if we assume, again arguendo, that the burden

20   articulated in Seaboard Surety is a heightened one (beyond the general civil burden of a

21   preponderance of the evidence) and that it applies not simply when a court determines the meaning

22   of a contract as a matter of law, but also when a jury analyzes extrinsic evidence to discern the

23   parties’ intent as a matter of fact, the burden would be inapplicable here. QA3 concedes that the


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 1   Endorsement is not formally an exclusion, but points to New York case law to suggest that New

 2   York considers any limiting language concerning “the nature and extent of coverage” to

 3   nevertheless constitute a functional exclusion. Appellant Br. at 33 (quoting Elacqua v. Physicians’

 4   Reciprocal Insurers, 21 A.D.3d 702, 705 (N.Y. App. Div. 2005) (quoting Jefferson Ins. Co. of N.Y.

 5   v. Travelers Indem. Co., 92 N.Y.2d 363, 371 (N.Y. 1998)). No case QA3 cites in fact holds as

 6   much, including Elacqua, but we need not speculate as to New York law here: New York’s highest

 7   court recently affirmed that New York law does not construe language limiting the amount or

 8   extent of liability as an exclusion. See Roman Catholic Diocese of Brooklyn v. Nat’l Union Fire

 9   Ins. Co. of Pittsburgh, 21 N.Y.3d 139, 147 (2013) (“[T]he defenses at issue do not relate to an

10   argument of exclusion or disclaimer, but rather, focus on the extent of alleged liability under the

11   various policies. Put simply, they are not subject to the notice requirements of section 3420(d)

12   [regarding exclusions] because they ‘do[ ] not bar coverage or implicate policy exclusions.’”)

13   (quoting Pav-Lak Indus., Inc. v Arch Ins. Co., 56 A.D.3d 287, 288 ((N.Y. App. Div. 2008)). Thus,

14   assuming the Seaboard Surety standard to work precisely as QA3 argues, it would nevertheless not

15   have been proper for the district court to instruct the jury that it was applicable: a limitation of

16   liability is not an exclusion, and New York law does not permit us to find otherwise.

17            Finally, in affirming the district court’s denial for a motion for a new trial, we have a

18   fortiori affirmed the district court’s dismissal of the bad faith counterclaim. Assuming, arguendo,

19   that QA3 sufficiently alleged the existence of a settlement offer, see Pavia v. State Farm Mut.

20   Auto. Ins. Co., 82 N.Y.2d 445, 454 (N.Y. 1993) (“Naturally, proof that a demand for settlement

21   was made is a prerequisite to a bad-faith action for failure to settle.”), QA3 nevertheless concedes

22   that it alleged, at best, a settlement offer within the $7,500,000, rather than the $1,000,000, limit of

23   liability. See Appellant Reply Br. at 21 (“Catlin is correct in asserting that QA3 did not make a


                                                        5
1    settlement demand within the $1,000,000 limit of liability that Catlin believed was applicable.”).

2    Insofar, then, as Catlin refused to settle, it did so in reliance on its interpretation of the

3    Endorsement. “It has been recognized that bad faith cannot be established when the insurer has an

4    arguable basis for denying coverage.” Redcross v. Aetna Cas. & Sur. Co., 260 A.D.2d 908, 913

5    (N.Y. App. Div. 1999); see also Zurich Ins. Co. v. Texasgulf, Inc., 233 A.D.2d 180, 181 (N.Y.

6    App. Div. 1996); Dawn Frosted Meats, Inc. v. Ins. Co. of N. Am., 99 A.D.2d 448, 448 (N.Y. App.

7    Div. 1984). Given that we have affirmed the denial of QA3’s motion for a new trial, the jury

 8   determination that Catlin’s interpretation was in fact correct would preclude QA3 from alleging

 9   that this interpretation was less than arguable. As such, we affirm the district court’s dismissal of

10   the bad faith counterclaim.

11          Accordingly, we AFFIRM the judgments of the district court.

12                                                         FOR THE COURT:
13                                                         Catherine O’Hagan Wolfe, Clerk




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