| Federal Ins. Co. v International Bus. Machs. Corp. |
| 2010 NY Slip Op 08061 [78 AD3d 763] |
| November 9, 2010 |
| Appellate Division, Second Department |
| Federal Insurance Company,Appellant-Respondent, v International Business Machines Corporation et al.,Respondents-Appellants. |
—[*1] Jones Day, New York, N.Y. (Thomas H. Sear, Howard F. Sidman, and Victoria Dorfman ofcounsel), for respondents-appellants.
In an action for a judgment declaring that the plaintiff has no obligation to indemnify thedefendants for any amounts, including defense costs or settlement payments, that the defendantsmay have incurred in connection with an action entitled Cooper v IBM Personal PensionPlan (457 F3d 636 [2006], cert denied 549 US 1175 [2007]), the plaintiff appeals, aslimited by its brief, from (1) so much of an order of the Supreme Court, Westchester County(Rudolph, J.), entered June 30, 2009, as denied its motion for summary judgment and grantedthat branch of the defendants' cross motion which was for summary judgment on theircounterclaim alleging breach of contract, and (2) a judgment of the same court (Scheinkman, J.),dated August 24, 2009, which is in favor of the defendants and against it in the principal sum of$25,000,000, and the defendants cross-appeal from so much of the judgment as, upon an order ofthe same court also dated August 24, 2009, in effect, denying their application for an award of anattorney's fee, failed to award them an attorney's fee. The plaintiff's notice of appeal from theorder is deemed also to be a notice of appeal from the judgment (see CPLR 5501 [c]).
Ordered that the appeal from the order entered June 30, 2009, is dismissed; and it is further,
Ordered that the judgment is reversed insofar as appealed from by the plaintiff, on the law,the plaintiff's motion for summary judgment is granted, that branch of the defendants' crossmotion which was for summary judgment on their counterclaim alleging breach of contract isdenied, and it is declared that the plaintiff Federal Insurance Company has no obligation toindemnify the defendants International Business Machines Corporation and IBM PersonalPension Plan for any amounts, including defense costs or settlement payments, that thedefendants International Business Machines Corporation and IBM Personal Pension Plan mayhave incurred in connection with an action entitled Cooper v IBM Personal Pension Plan(457 F3d 636 [2006]), and the order entered June 30, 2009, is modified accordingly; and it isfurther,[*2]
Ordered that the defendants' cross appeal from thejudgment is dismissed as academic; and it is further,
Ordered that one bill of costs is awarded to the plaintiff.
The plaintiff's appeal from the order entered June 30, 2009, must be dismissed because theright of direct appeal therefrom terminated with the entry of judgment in the action (seeMatter of Aho, 39 NY2d 241, 248 [1976]). The issues raised on the appeal from that orderare brought up for review and have been considered on its appeal from the judgment (seeCPLR 5501 [a] [1]).
The plaintiff, Federal Insurance Company (hereinafter Federal), issued an ExecutiveProtection Excess Insurance Policy (hereinafter the Federal Policy) to the defendant InternationalBusiness Machines Corporation (hereinafter IBM). IBM is the sponsor of the defendant IBMPersonal Pension Plan (hereinafter the Plan), a defined benefit plan within the meaning of theEmployee Retirement Income Security Act of 1974 (hereinafter ERISA) (29 USC § 1001et seq.). The Federal Policy provided coverage in excess of and in conformance with theunderlying fiduciary liability policy issued by Zurich American Insurance Group (hereinafter theZurich Policy).
The Zurich Policy's insuring clause provided coverage for "all Loss for which the Insuredbecomes legally obligated to pay on account of any Claim first made against the Insured. . . for a Wrongful Act." The term "Wrongful Act" is defined, in pertinent part, as"any breach of the responsibilities, obligations or duties by an Insured which are imposed upon afiduciary of a Benefit Program by the Employee Retirement Income Security Act of 1974[ERISA], or by the common or statutory law of the United States, or [ERISA equivalent laws] inother jurisdiction[s] anywhere in the world."
A class action was filed in the United States District Court for the Southern District ofIllinois (hereinafter the District Court) against IBM and the Plan, alleging that amendments to thePlan made by IBM in 1995 and 1999 violated various provisions of ERISA (see Cooper vIBM Personal Pension Plan, 2005 WL 1981501, 2005 US Dist LEXIS 17071 [SD Ill 2005],revd in part 457 F3d 636 [2006], cert denied 549 US 1175 [2007]). Specifically,the class action (hereinafter the Cooper action) challenged the amendments to the Plan asviolative of the age discrimination provisions of ERISA. The parties to the Cooper actionultimately reached a settlement, which was approved by the District Court. The settlementprovided, inter alia, for the payment of the Cooper plaintiffs' attorneys' fees by the Plan.Federal denied coverage for the award of attorneys' fees paid to the Cooper plaintiffs'counsel pursuant to the settlement, and commenced this action for a judgment declaring that IBMand the Plan were not entitled to indemnification for any amounts incurred by them in theCooper action.
Contrary to the contention of IBM and the Plan, a breach of a fiduciary duty is required for awrongful act to be committed under the Zurich Policy (see Mary Kay Holding Corp. vFederal Ins. Co., 309 Fed Appx 843, 849 [5th Cir 2009]). This conclusion is supported bythe plain meaning of the definition of wrongful act in the Zurich Policy, which requires that theresponsibility, obligation, or duty that is allegedly breached be imposed upon a fiduciary of abenefit program by ERISA. Here, when IBM allegedly violated the age discrimination provisionsof ERISA by making amendments to the Plan, it was acting in a settlor capacity, not in afiduciary one (see Lockheed Corp. v Spink, 517 US 882, 890 [1996]). The agediscrimination provisions of ERISA, which IBM allegedly violated by enacting the amendments,are not responsibilities, obligations, or duties imposed upon a fiduciary of a benefit program byERISA. Rather, they are obligations imposed on settlors of ERISA benefit plans. Thus, theCooper action did not allege that IBM or the Plan committed a wrongful act, as that termis defined in the Zurich Policy. Federal, therefore, established its prima facie entitlement tojudgment as a matter of law by demonstrating that IBM and the Plan were not entitled tocoverage under the Zurich Policy and therefore, could not recover under the Federal Policy. Inopposition, IBM and the Plan failed to raise a triable issue of fact.
Accordingly, Federal's motion for summary judgment should have been granted, that branchof the cross motion of IBM and the Plan which was for summary judgment on their [*3]counterclaim alleging breach of contract should have been denied,and Federal is entitled to a judgment declaring that it has no obligation to indemnify thedefendants for any amounts, including defense costs or settlement payments, that the defendantsmay have incurred in connection with the Cooper action (see Lanza v Wagner, 11NY2d 317, 324 [1962], appeal dismissed 371 US 74 [1962], cert denied 371 US901 [1962]).
In light of this determination, we need not reach Federal's remaining contentions. Moreover,the defendants' cross appeal from so much of the judgment as failed to award them an attorney'sfee has been rendered academic. Mastro, J.P., Leventhal, Hall and Lott, JJ., concur.