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3039Bad Faith Litigation - Attorney Disqualification

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  • Lawrence
    Jun 4, 2013
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      PLAINTIFF'S BI ATTORNEY IS DISQUALIFIED FROM BAD 
      FAITH SUIT BECAUSE HE IS A WITNESS RE NEGOTIATIONS


      Vannostrand v New York Cent. Mut. Fire Ins. Co. 
      2013 NY Slip Op 50889(U)
      Decided on May 31, 2013
      Supreme Court, Nassau County
      Feinman, J.
      Edited by Lawrence N. Rogak

      The plaintiff moves for an order quashing the non-party witness subpoena served upon plaintiff's counsel, and an order granting plaintiff a protective order and summary judgment to the plaintiff. The defendant moves for an order disqualifying plaintiff's counsel upon the ground that plaintiff's counsel will be a fact witness or witness in this litigation, and grant defendant summary judgment dismissing plaintiff's action. The parties submit opposition, and reply affirmations.

      The plaintiff initiated this "bad faith" action on the grounds that the defendant refused to engage in good faith settlement discussions to protect its policy holder, Mario Froehlich, in the underlying personal injury action. The plaintiff provides that a "bad faith" letter demanding the policy limits of one hundred thousand and 00/100 dollars, ($100,000.00), was forwarded to the defendant before the damages trial, and the defendant, in response offered three thousand and 00/100 dollars, ($3,000.00). The jury returned with a verdict of five hundred fifty thousand and 00/100 dollars, ($550,000.00), which was reduced by the Appellate Division to three hundred thousand and 00/100 dollars, ($300,000.00). Plaintiff initiated this action to recover the two hundred thousand and 00/100 dollars, ($200,000.00), excess amount, plus approximately ninety-three (93%) percent interest.

      The plaintiff claims that the defendant improperly evaluated the underlying claim, and damages. The defendant's Casualty Manager, Diane Wildey, testified that the claims file reflected that MRI films were to be reviewed in order to properly evaluate the file, and the defendant would not engage in settlement negotiations until the MRI films were reviewed. Ms. Wildey testified that she believed that a jury would only award between five thousand and 00/100 dollars, ($5,000.00) and twenty thousand and 00/100 dollars, ($20,000.00), even if the jury believed plaintiff's claim that she was suffering from a lumbar disc herniation. Plaintiff provides that Ms. Wildey learned, during the trial, that defendant's own IME radiologist confirmed that plaintiff suffered from a lumbar disc herniation, made the offer of three thousand and 00/100 dollars, ($3,000.00), with the understanding that it was possible for a jury to award excess of the one hundred thousand and 00/100 dollars, ($100,000.00), policy limits and never contacted plaintiff's attorney during the trial to discuss settlement. The plaintiff refers to the portions of Ms. Wildey's deposition transcript where Ms. Wildey admitted that the defendant's failure to settle the action within the policy limits before the verdict potentially exposed the policyholder's assets, and she was taking a chance in doing so when she offered only three thousand and 00/100 dollars, ($3,000.00).

      The plaintiff moves to quash the subpoena served on plaintiff's counsel by the defendant's counsel, seeking testimony regarding the negotiations by plaintiff's counsel relating to settlement of the underlying personal injury action, the method, manner and information and documents utilized in evaluating plaintiff's claim in the underlying action, and amounts for which plaintiff was willing to settle. The plaintiff also moves for summary judgment. The defendant moves to disqualify plaintiff's counsel and also seeks summary judgment.

      The plaintiff, Karen Van Nostrand, was the plaintiff in the underlying personal injury action, who retained plaintiff's counsel, to wit, Sanders, Sanders, Block, Woycik, Viener & Grossman, to represent her in the underlying action, after she fired her first attorney. Karen VanNostrand retained Sanders, Sanders, Block, Woycik, Viener & Grossman to represent plaintiff in the instant bad faith action. The defendant, Mario Froehlich, the defendant in the underlying personal injury action, and defendant's insured, assigned all of his rights and interest in a bad faith claim against the defendant, in exchange for an agreement that the plaintiff would release Mr. Froehlich of any liability in respect to the excess judgment. The plaintiff executed a partial satisfaction of judgment acknowledging payment by the defendant in the amount of one hundred nineteen thousand six hundred seventy-six and 76/100 dollars, ($119,676.76), on behalf of the defendant's insureds.

      The plaintiff claims, inter alia, that the defendant failed to contact plaintiff's counsel after receiving the bad faith letter forwarded by plaintiff's counsel, failed to contact plaintiff's counsel, and engage in settlement discussions after receiving defense counsel's "Attorney Opinion and Evaluation" form, only offered three thousand and 00/100 dollars, ($3,000.00), to plaintiff's counsel to settle plaintiff's claim while defendant was aware that the jury could find that plaintiff sustained a "threshold" injury and award more than the policy limits of one hundred thousand and 00/100 dollars, ($100,000.00), failed to contact plaintiff's counsel at any time during the trial to discuss settlement, and lost the opportunity to settle plaintiff's claims for less than the policy limits between the time that the bad faith letter was forwarded and the time the jury rendered its five hundred fifty thousand and 00/100 dollars, ($550,000.00), verdict.

      It has been held that plaintiff's counsel, who represented plaintiff in the underlying personal injury action, was disqualified from trying the bad faith action seeking to recover damages allegedly caused by defendant's bad faith failure to settle the personal injury action within the policy limits. (Zweig v. Safeco Ins. Co. of Am., 125 AD2d 205). Plaintiff's counsel was undoubtedly expected to be called to testify about his strategy and what transpired during the settlement negotiations he personally conducted during the personal injury action on behalf of the plaintiff. Plaintiff's counsel was found to be an essential witness, and when a lawyer learns, or it is obvious that he or a lawyer in his firm ought to be called as a witness on behalf of his client, he shall withdraw from the conduct of the trial and his firm shall not continue representation in the trial. (Id., citing Code of Professional Responsibility, DR 5-102(A)). Plaintiff's counsel has been found to be an essential witness in a bad faith action and ought to be called as a witness, and therefore, it was found to be an improvident exercise of discretion to deny the defendant's motion to disqualify counsel. (Korfman v. Kemper Nat'l Ins. Co., 258 AD2d 508, citing Crawford v. Hospital of Albert Einstein Coll. Of Medicine, 159 AD2d 304; Zweig v. Safe Co. Ins. Co., supra). Negotiations between plaintiff's counsel and defendant insurance company are at the heart of the litigation in a bad faith action, and therefore, plaintiff's counsel must be disqualified as an essential witness. (Korfman v. Kemper National Insurance Co., supra).

      Here, plaintiff's counsel is expected to be called as a witness concerning the settlement negotiations, or lack of settlement negotiations, that transpired during the personal injury action on behalf of the plaintiff's action, in the instant bad faith action. Although the plaintiff testified at her deposition that she did not rely upon the advice of her attorney in deciding how much she wanted to settle, and that she wanted to settle within the policy limits, such testimony is not dispositive as to allegations or defenses, concerning whether the defendant failed to contact plaintiff's counsel and engage in settlement discussions, or failed to contact plaintiff's counsel at any time during the trial, or dispositive as to what transpired, if anything, during settlement negotiations.

      Upon the foregoing, it is hereby

      ORDERED that plaintiff's counsel is hereby disqualified from further representation of the plaintiff in this action, and plaintiff shall have thirty (30) days from service of this Decision and Order upon plaintiff to retain another attorney, and no further action shall be taken against the plaintiff during that thirty (30) day period, and it is hereby further

      ORDERED that the remaining pending motions seeking summary judgment are hereby withdrawn with leave to renew within forty-five (45) days from service of this Decision and Order upon the plaintiff, and it is hereby further

      ORDERED that plaintiff's motion seeking to quash the non-party witness subpoena served upon plaintiff's counsel is denied to the extent that plaintiff's counsel shall appear, within forty-five (45) days of the date of this Decision and Order, to give testimony regarding the negotiations relating to the settlement of the underlying personal injury action, and the method, manner and documentation used to evaluate plaintiff's claims in the underlying action, and it is hereby further

      ORDERED that plaintiff's counsel, at this time, need not respond to defendant's documentation request annexed to the non-party witness subpoena, and defendant shall have leave to renew the documentation request, if appropriate, after testimony is made pursuant to the subpoena.