McWilliams v. Liberty Mutual Insurance Group Inc.

Background

James McWilliams alleged that he developed cancer after working with valve products containing asbestos. In 2018, he sued Jenkins Bros., the valve manufacturer, in New York state court. Jenkins had been dissolved, so Liberty Mutual Group, Inc., one of Jenkins’s insurers, and Resolute Management Inc., Liberty’s claims administrator, handled the defense. Affiliated FM Insurance Company was also alleged to be one of Jenkins’s insurers.

A jury awarded McWilliams $23,000,000, reduced by statutory offsets to a judgment of $18,633,617.67. The opinion states that the judgment remained unpaid. McWilliams alleged that Liberty and Resolute failed to make good-faith settlement efforts, forced the state-court case to trial, and delayed payment after the judgment. He also alleged that Resolute and its corporate parents pursued a strategy of delaying claim payments to maximize investment returns on insurance premiums.

McWilliams asserted claims against Liberty and Affiliated FM under New York Insurance Law § 3420. He also asserted common-law claims against Liberty and Resolute for bad faith, negligence, and tortious interference.

Section 3420 claims against Affiliated FM and Liberty

New York Insurance Law § 3420 permits an injured judgment creditor to sue an insurer, but requires the creditor to serve notice of the judgment’s entry on the insurer and give the insurer 30 days to act before filing suit. McWilliams did not dispute that he had failed to satisfy this condition before filing the federal case. He later served the required papers and proposed filing a second amended complaint alleging compliance.

Affiliated FM agreed that the claim could proceed if McWilliams amended his complaint to plead compliance, and stated that it would withdraw its motion to dismiss if amendment were allowed. The court therefore denied Affiliated FM’s motion to dismiss based on that concession. Liberty made the same concession, so the court denied Liberty’s motion to dismiss as to the § 3420 claim. The court permitted McWilliams to file a second amended complaint by September 3, 2024.

Claims against Liberty

The court rejected McWilliams’s common-law bad-faith claim. Under New York law, the duty to settle in good faith arises from the insurance contract. McWilliams was not Liberty’s insured; Jenkins was. The court held that only the insured, or a third party to whom the insured assigned its contractual rights, could bring this type of bad-faith claim. McWilliams did not allege an assignment. The court also rejected his argument that Liberty’s role in defending Jenkins created an implied assignment. Because his proposed amendment did not cure the defect, the court found further amendment futile.

The court also rejected the negligence claim. It held that McWilliams did not adequately allege that Liberty owed him a duty of care because he was not a party to an insurance contract with Liberty and alleged no other relationship creating such a duty. The court further held that McWilliams did not show injury from the alleged failure to settle: the trial judgment was higher than any settlement would have been, so the alleged conduct did not cause the type of injury he claimed. The court found that these defects could not be cured through further amendment.

The court rejected the tortious-interference claim because the contract identified by McWilliams was Liberty’s own insurance policy. A party cannot tortiously interfere with its own contract, and McWilliams also was not a party to that contract. The court found that this claim could not be cured by amendment.

Claims against Resolute

The court granted Resolute’s motion to dismiss. It applied the same reasoning to McWilliams’s bad-faith and negligence claims: McWilliams was not an insured or an assignee, Resolute owed him no relevant duty of care, and the alleged failure to settle did not injure him in the circumstances described.

The court also rejected the tortious-interference claim against Resolute. McWilliams did not allege that he was a party to a contract with a third party, and his complaint did not adequately allege that he was a third-party beneficiary of the insurance agreement. The court also questioned whether the alleged refusal to pay the judgment constituted tortious interference, particularly because the state judgment’s appellate process apparently had not ended and McWilliams was pursuing the payment available under § 3420 and the insurance policies.

Motion to strike

Liberty moved under Federal Rule of Civil Procedure 12(f) to strike allegations and McWilliams’s requests for punitive damages, exemplary damages, and attorneys’ fees. The court declined to strike the other allegations because Liberty had not shown that they would prejudice it, and discovery would be governed by the federal rules and the court’s procedures.

The court granted Liberty’s motion to strike to the extent McWilliams sought punitive damages, exemplary damages, or attorneys’ fees against Liberty. The court explained that the remaining § 3420 claim against Liberty permits recovery only up to the applicable insurance-policy limit.

Disposition

The court denied Affiliated FM’s motion to dismiss. It denied in part and granted in part Liberty’s motions to dismiss and strike, and granted Resolute’s motion to dismiss. The clerk was directed to terminate Resolute as a defendant. McWilliams was ordered to file a second amended complaint addressing the § 3420 notice requirement, and the parties were directed to submit a proposed case-management plan and scheduling order.