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A $15 million verdict in a defamation case in 1999 sparked a new round of litigation in which the defendants who were hit the hardest — Marie Miller’s company, Century 21/Marie Miller & Associates, and one of its agents — accused their insurer and the lawyer it provided of failing to settle the case for a reasonable amount. Miller won the first round of that litigation when a Philadelphia jury awarded $3 million in January 2004, finding that the insurer, Continental Casualty Insurance Co., breached its contract and should pay 70 percent and that attorney Jonathan D. Herbst and his firm, Margolis Edelstein, committed legal malpractice and should pay 30 percent. But now the trial judge has issued his verdict on the non-jury portion of the case — a bad-faith claim under Section 8371 — and has declared that Continental Casualty (also known as CNA) acted reasonably at every step of the case. Although Common Pleas Judge Allan L. Tereshko’s ruling pertains only to CNA and the bad-faith claim, the decision includes strong praise for Herbst and could be the prelude to a second decision by Tereshko to set aside the jury’s verdict. “In summary, CNA’s behavior, through its claims adjusters, claims supervisors and legal representatives during the underlying defamation action was reasonable, informed, professional and in good faith under its contract of insurance and under its implied duty of good faith,” Tereshko wrote in Miller v. Continental Casualty Insurance Co. The ruling is a victory for CNA’s lawyer, Ronald Schiller of DLA Piper Rudnick Gray Cary, and a significant setback for Miller’s lawyers, Michael O. Pansini and Steven Mezrow of Pansini & Mezrow. It is also sure to provide significant fodder for Herbst’s lawyer, George M. Vinci Jr. of Spector Gadon & Rosen, when he files his post-trial motions this week. (Tereshko noted in his decision that he had instructed defense lawyers not to file any post-trial motions from the jury’s verdict until he had rendered his verdict on the bad-faith claim.) In his findings of fact and conclusions of law, Tereshko tracked the events that led to the $15 million verdict and the decisions made at every step by CNA and Herbst about how to handle the case. In the 1999 verdict, a Philadelphia jury deliberated just one hour before finding in favor of American Financial Mortgage Corp., a mortgage company that said it was falsely branded as a financially unsound business on the brink of folding due to a single bounced check that it had covered within hours by wire transfer. Plaintiffs attorney Neil A. Morris told the jury that American Financial Mortgage Corp.’s business was devastated when a minor clerical error set off a rumor mill in which title agents and Realtors faxed memos to each other suggesting that AFMC was unstable and possibly on the verge of dissolving. And while some of the memos were followed by retractions, others were not. Morris said his client’s “nightmare” got three times worse when it learned that Century 21/Marie Miller & Associates was sending out a memo that said AFMC was “in the process of closing.” Morris told the jury that such a memo was “the kiss of death,” especially since it was on Century 21 letterhead, and that its author, Murray Shore, who worked as Marie Miller’s sales director, refused to retract it. Prior to trial, AFMC settled with three title companies — Commonwealth Land Title Insurance Co., First American Title Insurance Co. and T.A. Tile Insurance Co. In its verdict, the jury hit Century 21 and Shore the hardest. After awarding $12 million in compensatory damages, the jury found that each of the three title companies was responsible for 10 percent of the damages while Century 21 and Shore were responsible for the remaining 70 percent, or $8.4 million. Additionally, the $3 million in punitive damages was assessed only against the Century 21 defendants — $2 million against Marie Miller & Associates, which operates three Century 21 offices; and $1 million against Shore. In her legal malpractice and bad-faith suit, Miller argued that the three other defendants had settled prior to trial for sums ranging from $100,000 to $225,000. Miller, who had a $1 million policy, claimed that she, too, wanted to settle but that CNA refused to offer enough. Now, in ruling on the bad-faith claim, Tereshko has rejected Miller’s argument that CNA breached its duty by failing to settle the case prior to trial. Instead, Tereshko found that Herbst and CNA made reasonable decisions at every step, and that the huge verdict was a shock to everyone, including Morris and American Financial Mortgage. Tereshko found that Herbst “met extensively with his clients and formed a reasonable opinion that there might be some truth to the information that American Financial was having some financial difficulties.” Herbst also “reasonably believed that the memo would have caused little damage to American Financial because Miller Realtor Company had never used American Financial for a mortgage transaction,” Tereshko found. In the time leading up to the trial, Tereshko said, CNA, Herbst and Miller “continued to reasonably believe that they had the least exposure to American Financial and that Miller/Shore were not the ‘target’ defendants.” Herbst and CNA, Tereshko found, “continued to keep the clients/insured appropriately informed by letter,” and that there was “no credible evidence that the Miller/Shore defendants ever expressed any concern about how the case was proceeding or about their exposure to a verdict even close to their insurance coverage limits in the underlying trial.” Tereshko also flatly rejected allegations that Herbst ignored his duties during the discovery phase of the case and “read golf magazines” during depositions. “There was no credibility to the claim and it appeared to have been used as a means to inflame the passions of the jury against Mr. Herbst and, therefore, against CNA,” Tereshko wrote. Instead, Tereshko found that Herbst made a strategic decision not to take a lead role at depositions because he and CNA believed that the Miller defendants were the “least culpable” since the other defendants had significant existing business relationships with American Financial, while the Miller defendants had none at all. Under those circumstances, Tereshko found, “it would be appropriate for Mr. Herbst not to take the lead counsel role during discovery depositions. Notwithstanding this, it appears that Mr. Herbst did interject into the depositions of some witnesses in a way to create some heated exchanges between him and Mr. Morris.” On the ultimate issue of whether CNA and Herbst should have settled the case at arbitration or sometime prior to trial, Tereshko found that the decisions were reasonable at every step. “The overwhelming evidence establishes that CNA acted consistent with its good faith belief that it had very limited exposure, [and] that American Financial’s damages were substantially unprovable or highly speculative,” Tereshko wrote. Although the three other defendants had settled, Tereshko found that Herbst and CNA “reasonably believed that this could benefit the Miller defendants because the settling defendants would not be presenting a defense nor would they be represented at trial, although they would remain on the verdict sheet.” Tereshko also found that Herbst had opted on a reasonable strategy of defending the case by arguing that American Financial was actually having financial difficulties, and that little, if any, damages flowed from the Miller/Shore memo. Herbst delivered a “very detailed opening statement,” Tereshko noted, in which he outlined the defense and the evidence he would be presenting. But Tereshko found that through no fault of his own, Herbst was unable to present his planned defense due to a series of rulings by the trial judge. “Both the Miller defendants and CNA had no reason to believe that the defense that they had painstakingly laid out would later be substantially precluded by the trial court just prior to the defense’s presentation of its case in chief,” Tereshko wrote.

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