| Barkan v New York Schools Ins. Reciprocal |
| 2009 NY Slip Op 06494 [65 AD3d 1061] |
| September 15, 2009 |
| Appellate Division, Second Department |
| Michael Barkan et al., Respondents, v New York SchoolsInsurance Reciprocal, Defendant and Third-Party Plaintiff-Appellant-Respondent. Roslyn PublicSchools et al., Third-Party Defendants-Respondents-Appellants; Asenath Anderson, Third-PartyDefendant-Respondent, et al., Third-Party Defendants. |
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Farrell Fritz, P.C., Uniondale, N.Y. (James M. Wicks, Thomas J. Killeen, and Aaron E.Zerykier of counsel), for third-party defendant-respondent-appellant Roslyn Union Free SchoolDistrict, sued herein as Roslyn Public Schools. Spellman Rice Schure Gibbons McDonough & Polizzi, LLP, Garden City, N.Y. (John P.Gibbons, Jr., of counsel), for third-party defendant-respondent-appellant Carol Margaritis. Kushnick & Associates, P.C., Melville, N.Y. (Lawrence A. Kushnick and Vincent T. Pallaciof counsel), for plaintiffs-respondents.
In an action, inter alia, for a judgment declaring that the defendant is obligated to defend andindemnify the plaintiffs in an underlying action entitled Roslyn Union Free School District vBarkan, pending in the Supreme Court, Nassau County, under index No. 05-5946, thedefendant third-party plaintiff appeals (1) from a decision of the Supreme Court, Nassau County(Cozzens, Jr., J.), dated March 22, 2007, and (2), as limited by its brief, from so much of anorder of the same court entered April 26, 2007, as, upon the decision, denied its cross motion forsummary judgment declaring that it is not obligated to defend the plaintiffs and the third-partydefendants Carol Margaritis and Asenath Anderson in the underlying action, and granted thosebranches of the plaintiffs' motion and the separate motions of the third-party defendants RoslynPublic Schools, Carol Margaritis, and Asenath Anderson which were for summary judgmentdeclaring that it is so obligated; the third-party defendant Roslyn Public Schools cross-appeals(1) from the decision dated March 22, 2007, and (2), as limited by its brief, from so much of theorder entered April 26, 2007, as, upon the decision, denied that branch of its cross motion whichwas for an award of an attorney's fee and costs; and the third-party defendant Carol Margaritisseparately cross-appeals (1) from the decision dated March 22, 2007, and (2), as limited by herbrief, from so much of the order entered April 26, 2007, as, upon the decision, denied thosebranches of her separate motion which were for [*2]summaryjudgment declaring that the defendant is obligated to indemnify her in the underlying action andfor an award of an attorney's fee and costs.
Ordered that the appeal and the cross appeals from the decision are dismissed, as no appeallies from a decision (see Schicchi v J.A. Green Constr. Corp., 100 AD2d 509 [1984]);and it is further,
Ordered that the order is modified, on the law, by deleting the provision thereof denying thatbranch of the motion of the third-party defendant Carol Margaritis which was for an award of anattorney's fee and costs and substituting therefor a provision granting that branch of the motion;as so modified, the order is affirmed insofar as appealed and cross-appealed from; and it isfurther,
Ordered that one bill of costs is awarded to the plaintiffs and the third-party defendantsappearing separately and filing separate briefs, payable by the defendant.
The plaintiffs, former members of the Board of the Roslyn Union Free School District, suedherein as Roslyn Public Schools (hereinafter the School District) commenced this action seeking,inter alia, a declaration that the defendant New York Schools Insurance Reciprocal (hereinafterNYSIR) was obligated to defend and indemnify them in an underlying action entitled RoslynUnion Free School District v Barkan, pending in the Supreme Court, Nassau County, underindex No. 05-5946 (hereinafter the underlying action), pursuant to two insurance policies issuedto the School District.
The underlying action involves allegations that during the period from 1998 until 2004,several employees of the School District stole more than $11,000,000 of School District funds.The plaintiffs are alleged to have breached their fiduciary duties as members of the Board ofEducation of the School District and negligently performed their duties, which resulted in theexacerbation of the theft and scandal faced by the School District.
NYSIR counterclaimed to rescind the policies based upon alleged misrepresentations madeby the School District to NYSIR in the 2002-2003 renewal applications for the policies,specifically, that the School District failed to disclose misappropriations allegedly made byPamela Gluckin, the School District's former Assistant Superintendent for Business. In thealternative, NYSIR sought a judgment declaring that it was not obligated to defend or indemnifythe plaintiffs in the underlying action because, inter alia, the insureds failed to timely provide itwith notice of the claims alleged in the underlying action. NYSIR also commenced a third-partyaction against, among others, the School District and former Board members Carol Margaritisand Asenath Anderson seeking rescission and a declaration of no coverage on the same grounds.
The Supreme Court determined that NYSIR was obligated to defend the plaintiffsMargaritis, and Anderson in the underlying action. We agree.
Generally, it is for the insured to establish coverage and for the insurer to prove that anexclusion in the policy applies to defeat coverage (see Consolidated Edison Co. of N.Y. vAllstate Ins. Co., 98 NY2d 208, 218 [2002]; see also Belsito v State Farm Mut. Ins. Co., 27 AD3d 502, 503[2006]). An insurer's duty to defend is broader than the duty to indemnify and arises wheneverthe allegations of the complaint against the insured, liberally construed, potentially fall withinthe scope of the risks undertaken by the insurer (see New York City Hous. Auth. vCommercial Union Ins. Co., 289 AD2d 311, 312 [2001], citing Frontier InsulationContrs. v Merchants Mut. Ins. Co., 91 NY2d 169 [1997]). "[T]he duty of an insurer todefend its insured arises whenever the allegations within the four corners of the underlyingcomplaint potentially give rise to a covered claim" (Physicians' Reciprocal Insurers vLoeb, 291 AD2d 541, 542 [2002]). If any of the claims against the insured arguably arisefrom covered events, the insurer is required to defend the entire action (see Fitzpatrick vAmerican Honda Motor Co., 78 NY2d 61 [1991]). Nonetheless, "an insurer can be relievedof its duty to defend if it establishes as a matter of law that there is no possible factual or legalbasis on which it might eventually be obligated to indemnify its insured under any policyprovision" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45 [1991]; see Continental Cas. Co.v Rapid-American Corp., 80 NY2d 640, 652 [1993]).[*3]
The Supreme Court properly determined that NYSIR hasan obligation to defend the plaintiffs Margaritis, and Anderson in the underlying action. Theplaintiffs Margaritis, and Anderson demonstrated, prima facie, that the allegations of thecomplaint in the underlying action potentially give rise to a claim covered by the policy (seee.g. Belsito v State Farm Mut. Ins. Co., 27 AD3d at 503), and NYSIR failed to raise a triableissue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 563 [1980];Serrano v Republic Ins., 48 AD3d665, 666 [2008]).
In order for a policy exclusion to be enforced, the insurer bears the burden of demonstratingthat the language is clear and unmistakable, and that the exclusion applies in the particular caseand is subject to no other reasonable interpretation (see Seaboard Sur. Co. v Gillette Co.,64 NY2d 304, 311 [1984]; Guishard vGeneral Sec. Ins. Co., 32 AD3d 528, 529 [2006]). On this record, NYSIR failed, primafacie, to satisfy that burden (see JuniusDev., Inc. v New York Mar. & Gen. Ins. Co., 48 AD3d 426, 427 [2008]). Consequently,the Supreme Court also properly denied NYSIR's cross motion for summary judgment (seegenerally Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]; Winegrad v New YorkUniv. Med. Ctr., 64 NY2d 851, 853 [1985]).
Contrary to NYSIR's contentions, NYSIR failed to demonstrate its entitlement to summaryjudgment based on a material misrepresentation in the renewal applications for the insurancepolicies (see generally Winegrad v New York Univ. Med. Ctr., 64 NY2d at 853; seeCarpinone v Mutual of Omaha Ins. Co., 265 AD2d 752 [1999]). "[T]o establish its right torescind an insurance policy, an insurer must demonstrate that the insured made a materialmisrepresentation. A misrepresentation is material if the insurer would not have issued the policyhad it known the facts misrepresented" (Zilkha v Mutual Life Ins. Co. of N.Y., 287AD2d 713, 714 [2001]; see Insurance Law § 3105 [b]). Materialmisrepresentations, if proven, would void the insurance policy ab initio (see Taradena vNationwide Mut. Ins. Co., 239 AD2d 876 [1997]). However, whether a misrepresentation ismaterial is generally a question of fact for the jury (see Parmar v Hermitage Ins. Co., 21 AD3d 538, 540 [2005];see also Process Plants Corp. v Beneficial Natl. Life Ins. Co., 53 AD2d 214, 216 [1976],affd 42 NY2d 928 [1977]). To establish materiality as a matter of law, the insurer mustpresent documentation concerning its underwriting practices, such as underwriting manuals,bulletins, or rules pertaining to similar risks, which show that it would not have issued the samepolicy if the correct information had been disclosed in the application (see InsuranceLaw § 3105 [c]; Parmar v Hermitage Ins. Co., 21 AD3d at 540-541; Curanovicv New York Cent. Mut. Fire Ins. Co., 307 AD2d 435, 437 [2003]; Tuminelli v FirstUnum Life Ins. Co., 232 AD2d 547 [1996]). Conclusory statements by insurance companyemployees, unsupported by documentary evidence, are insufficient to establish materiality as amatter of law (see Parmar v HermitageIns. Co., 21 AD3d 538 [2005]). Having failed to offer any of the aforementioneddocuments, NYSIR has failed to meet its evidentiary burden.
We reject the further contention by NYSIR that late notice of the claims of the underlyingaction was provided. "When the facts of an occurrence are such that an insured acting in goodfaith would not reasonably believe that liability on his part will result, notice of the occurrencegiven by the insured to the insurer is given 'as soon as practicable' if given promptly after theinsured receives notice that a claim against him will in fact be made" (Merchants Mut. Ins.Co. v Hoffman, 56 NY2d 799, 801-802 [1982]). An insured's good faith belief innonliability, when reasonable under the circumstances, may excuse a delay in notifying hisinsurer (see White v City of New York, 81 NY2d 955, 957 [1993]). NYSIR could haveestablished its entitlement to summary judgment on this issue by demonstrating as a matter oflaw, that the insureds' belief that a claim would not be asserted against them was unreasonable(see SSBSS Realty Corp. v Public Serv. Mut. Ins. Co., 253 AD2d 583, 584 [1998], citingMighty Midgets v Centennial Ins. Co., 47 NY2d 12 [1979]). We find that the record doesnot support such a conclusion.
With respect to the recovery of an attorney's fee and costs for the third-party defendants,Margaritis was cast in a defensive posture by virtue of NYSIR's third-party action against her.Implicit in this declaratory judgment action is the dispute over whether NYSIR has a duty todefend and indemnify Margaritis in the underlying action. Further, Margaritis successfullydefended against NYSIR's summary judgment motion on the issue of the duty to defend.Accordingly, Margaritis is entitled to recover an attorney's fee and costs incurred in thisdeclaratory judgment action (see U.S.Underwriters Ins. Co. v City Club Hotel, LLC, 3 NY3d 592 [2004]; Mighty Midgetsv [*4]Centennial Ins. Co., 47 NY2d 12 [1979]). As inU.S. Underwriters, "[Margaritis's] recovery of attorneys' fees is incidental to the insurer'scontractual duty to defend" (U.S. Underwriters Ins. Co. v City Club Hotel, LLC, 3 NY3dat 598). However, contrary to the School District's contentions, it is not entitled to recover anattorney's fee and costs. "The reasoning behind Mighty Midgets is that an insurer's dutyto defend an insured extends to the defense of any action arising out of the occurrence, includinga defense against an insurer's declaratory judgment action" (U.S. Underwriters Ins. Co. vCity Club Hotel, LLC, 3 NY3d at 597-598). Here, the question of NYSIR's duty to defendthe School District in the underlying action was not raised in this action.
The parties' remaining contentions either are without merit or need not be reached in light ofour determination. Mastro, J.P., Skelos, Dillon and Eng, JJ., concur.