| Franklin Dev. Co., Inc. v Atlantic Mut. Ins. Co. |
| 2009 NY Slip Op 02321 [60 AD3d 897] |
| March 24, 2009 |
| Appellate Division, Second Department |
| Franklin Development Co., Inc., et al., Appellants, et al.,Plaintiff, v Atlantic Mutual Insurance Company,Respondent. |
—[*1] Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, White Plains, N.Y. (Joanna M. Toppingof counsel), for respondent.
In an action, inter alia, for a judgment declaring that the defendant is required to defend andindemnify the plaintiffs in a related action entitled Rodriguez v Franklin Dev. Co., Inc.,pending in the Supreme Court, Westchester County, under index No. 12229/01, the plaintiffsFranklin Development Co., Inc., and William Weinstein Realty Corp. appeal from (1) an order ofthe Supreme Court, Westchester County (Nastasi, J.), entered September 24, 2007, which denied,as academic, their motion, among other things, to vacate the defendant's 90-day demand pursuantto CPLR 3216, granted the defendant's cross motion to declare that the defendant did not have aduty to defend or indemnify the plaintiffs and, upon finding that this action was frivolous withinthe meaning of 22 NYCRR 130-1.1, sua sponte, determined that an award of an attorney's fee tothe defendant and the imposition of a sanction upon the plaintiffs were warranted, and set thematters down for a hearing to fix the amounts, and (2) an order of the same court entered January25, 2008, which denied their motion for leave to renew and reargue.
Ordered that the appeal from so much of the order entered January 25, 2008, as denied thatbranch of the motion of the plaintiffs Franklin Development Co., Inc., and William WeinsteinRealty Corp. which was for leave to reargue is dismissed, as no appeal lies from an orderdenying reargument; and it is further,[*2]
Ordered that on the Court's own motion, the notice ofappeal is deemed an application for leave to appeal from so much of the order entered September24, 2007, as, sua sponte, determined that an award of an attorney's fee to the defendant and theimposition a sanction upon the plaintiffs were warranted, and leave to appeal is granted (seeCPLR 5701 [c]); and it is further,
Ordered that the order entered September 24, 2007 is reversed, on the law, the defendant'scross motion is denied, and the matter is remitted to the Supreme Court, Westchester County, fora determination on the merits of the plaintiffs' motion; and it is further,
Ordered that the appeal from so much of the order entered January 25, 2008, as denied thatbranch of the motion which was for leave to renew is dismissed as academic in light of ourdetermination on the appeal from the order entered September 24, 2007; and it is further,
Ordered that one bill of costs is awarded to the appellants.
The plaintiff Franklin Development Co., Inc. (hereinafter Franklin), leased space in abuilding it owned at 545 Franklin Avenue in Mount Vernon to nonparty Hertlein Special ToolCo., Inc. (hereinafter Hertlein). Pursuant to the terms of the lease, Hertlein obtained acomprehensive general public liability insurance policy for the leased premises, naming Franklinas an additional insured. The defendant was Hertlein's insurer. Nonparty Thomas Rodriguez, anemployee of Hertlein, allegedly fell in a stairwell in the building, sustaining injuries. Rodriguezcommenced an action to recover damages for personal injuries (hereinafter the underlyingaction). The plaintiffs herein were defendants in that action.
Under the doctrine of collateral estoppel, or issue preclusion, "a party is precluded fromrelitigating an issue which has been previously decided against him in a prior proceeding wherehe had a full and fair opportunity to litigate such issue" (Luscher v Arrua, 21 AD3d1005, 1007 [2005]; see D'Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664[1990]). The doctrine of collateral estoppel is "intended to reduce litigation and conserve theresources of the court and litigants and it is based upon the general notion that it is not fair topermit a party to relitigate an issue that has already been decided against it" (Kaufman v EliLilly & Co., 65 NY2d 449, 455 [1985]). "The two elements that must be satisfied to invokethe doctrine of collateral estoppel are that (1) the identical issue was decided in the prior actionand is decisive in the present action, and (2) the party to be precluded from relitigating the issuehad a full and fair opportunity to contest the prior issue" (Luscher v Arrua, 21 AD3d at1007; see Kaufman v Eli Lilly & Co., 65 NY2d 449, 455 [1985]). "The rule in New Yorkis that the 'pendency of an appeal does not prevent the use of the challenged judgment as thebasis of' collateral estoppel" (Anonymous v Dobbs Ferry Union Free School Dist., 19AD3d 522, 522-523 [2005], quoting Matter of Amica Mut. Ins. Co. [Jones], 85 AD2d727, 728 [1981]). However, "collateral estoppel does not prevent relitigation of a ruling that wasan alternative basis for a trial-level decision, where an appellate court affirmed the decisionwithout addressing that ruling" (Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d195, 197 [2008]). Here, contrary to the Supreme Court's determination, the plaintiffs were notbarred from relitigating the issue of whether the stairwell in the building where the plaintiff inthe underlying action fell was an area covered by the additional insured clause in the insurancepolicy. This issue was relevant to the third-party action in the underlying case. Franklin appealedfrom the Supreme Court's denial of its motion for summary judgment on its third-partycomplaint, and Franklin addressed the issue on its appeal before this Court. This Court modifiedthe Supreme Court's order by granting Franklin's motion for summary judgment dismissing thecomplaint and all cross claims insofar as asserted against it [*3]inthe main action, affirmed the Supreme Court's order as so modified, and expressly did not reachany of Franklin's remaining contentions (see Rodriguez v Franklin Dev. Co., Inc., 43AD3d 1134 [2007]). Thus, this case does not present the typical situation where an "alternativebasis" for the Supreme Court's ruling is not entitled to preclusive effect, as the Supreme Court'sruling at issue pertained to the third-party action, which this Court had no reason to address oncewe dismissed the complaint insofar as asserted against Franklin in the main action. Nevertheless,the same rationale as bars the application of collateral estoppel to an "alternative basis" for aruling applies here. Since Franklin appealed from the Supreme Court's denial of its motion forsummary judgment on the third-party complaint, which was based on the issue presented here,Franklin addressed the issue before this Court, but, for the reasons discussed, this Court did notreach the issue. Thus, the issue was not necessarily decided and Franklin did not have "a full andfair chance to overturn the earlier decision" (Tydings v Greenfield, Stein & Senior, LLP,11 NY3d 195, 200 [2008]). Accordingly, the Supreme Court's determination thereof is notentitled to preclusive effect (see generally Tydings v Greenfield, Stein & Senior, LLP,11 NY3d 195 [2008]).
As to whether the defendant established its entitlement to dismissal of this action bydemonstrating that it had no duty to defend the plaintiffs in the underlying action, "[a]n insurer'sduty to defend is broader than its duty to indemnify, such that an insurer may be obligated todefend its insured even if, at the conclusion of an underlying action, it is found to have noobligation to indemnify its insured" (Global Constr. Co., LLC v Essex Ins. Co., 52 AD3d655, 655-656 [2008]; see Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137[2006]; City of New York v Evanston Ins. Co., 39 AD3d 153, 157 [2007]). "An insurermust defend its insured whenever the allegations of a complaint in an underlying action 'suggest. . . a reasonable possibility of coverage' " (Global Constr. Co., LLC v EssexIns. Co., 52 AD3d at 656, quoting BP A.C. Corp. v One Beacon Ins. Group, 8 NY3d708, 714 [2007]; see Automobile Ins. Co. of Hartford v Cook, 7 NY3d at 137;Bruckner Realty, LLC v County Oil Co., Inc., 40 AD3d 898, 900 [2007]; Shapiro vOneBeacon Ins. Co., 34 AD3d 259 [2006]). "The duty to defend is not triggered, however,when, 'as a matter of law . . . there is no possible factual or legal basis upon whichthe insurer might eventually be held to be obligated to indemnify the claimant under anyprovision of the insurance policy' (Bruckner Realty, LLC v County Oil Co., Inc., 40AD3d at 900; City of New York v Evanston Ins. Co., 39 AD3d at 157-158) or when theonly interpretation of the allegations against the insured is that the factual predicate for the claimfalls wholly within a policy exclusion" (Global Constr. Co., LLC v Essex Ins. Co., 52AD3d at 656; see Automobile Ins. Co. of Hartford v Cook, 7 NY3d at 137; BrucknerRealty, LLC v County Oil Co., Inc., 40 AD3d at 900). The Supreme Court erred in grantingthe defendant's cross motion, as the defendant failed to establish, as a matter of law, that theallegations of the complaint in the underlying action did not suggest a reasonable possibility ofcoverage, that there was no possible factual or legal basis upon which the defendant mighteventually be held to be obligated to indemnify Franklin, or that the only interpretation of theallegations against the insured was that the factual predicate for the claim fell wholly within apolicy exclusion (cf. ZKZ Assoc. v CNA Ins. Co., 89 NY2d 990 [1997]; Jenel Mgt.Corp. v Pacific Ins. Co., 55 AD3d 313 [2008]; Ambrosio v Newburgh Enlarged CitySchool Dist., 5 AD3d 410 [2004]; see generally BP A.C. Corp. v One Beacon Ins.Group, 8 NY3d at 714; Automobile Ins. Co. of Hartford v Cook, 7 NY3d at 137;Global Constr. Co., LLC v Essex Ins. Co., 52 AD3d at 656; Bruckner Realty, LLC vCounty Oil Co., Inc., 40 AD3d at 900; City of New York v Evanston Ins. Co., 39AD3d at 157-158; Shapiro v OneBeacon Ins. Co., 34 AD3d 259 [2006]).
The Supreme Court improperly determined that an award of an attorney's fee to thedefendant and the imposition of a sanction upon the plaintiffs were warranted, as the action wasnot frivolous (see Mancini v Mancini, 269 AD2d 366 [2000]).
The Supreme Court denied the plaintiffs' motion as academic. In light of our determination,we remit the matter to the Supreme Court, Westchester County, for a determination on the meritsof the plaintiffs' motion. Fisher, J.P., Angiolillo, Dickerson and Belen, JJ., concur.