East Ramapo Central School District v. New York Schools Insurance Reciprocal
150 A.D.3d 683
| N.Y. App. Div. | 2017Background
- East Ramapo Central School District (School District) sued its insurer, New York Schools Insurance Reciprocal (NYSIR), seeking a declaration and damages after NYSIR disclaimed defense/indemnity for a federal putative class action (Montesa v. Schwartz) implicating board members and employees.
- NYSIR's policy covered wrongful acts by insureds while acting in the course and scope of school duties but excluded coverage for fraudulent, dishonest, malicious, criminal, or intentional wrongful acts.
- The federal complaint alleged misuse of district funds, Establishment Clause and Equal Protection claims, breach of fiduciary duty, and fraud; the School District intervened as a defendant and notified NYSIR.
- The state Supreme Court (Oct 22, 2013) held NYSIR had a duty to defend because some allegations (e.g., negligent fiduciary breach) arguably fell within coverage.
- After the federal court dismissed most claims on Sept 30, 2013 (leaving only claims premised on intentional misconduct), NYSIR sought renewal of summary judgment; the state court (Feb 5, 2014) held NYSIR had no duty to defend after Sept 30, 2013. Subsequent motions produced conflicting orders about whether NYSIR’s duty extended to March 12, 2014.
- The Appellate Division: affirmed that NYSIR owed a defense through Sept 30, 2013; reversed extensions beyond that date; remanded for discovery/bad-faith issues and a hearing to determine reasonable fees and damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NYSIR had a duty to defend based on the amended federal complaint | Allegations (including negligent fiduciary breach and mishandling funds) arguably implicated covered wrongful acts | Exclusion for intentional/malicious acts or acts outside course and scope removes duty | Court: Duty to defend was triggered initially because some allegations (e.g., negligent fiduciary breach) potentially fell within coverage |
| Whether NYSIR’s duty to defend ended on Sept 30, 2013 or extended to March 12, 2014 | School Dist.: later federal proceedings (March 12 order) extended or revived covered allegations, so duty continued | NYSIR: after Sept 30, 2013 remaining claims allege only intentional misconduct within the exclusion; later reconsideration did not revive dismissed claims | Court: Duty to defend ended Sept 30, 2013; March 12 reconsideration did not revive claims or extend NYSIR’s obligation |
| Whether School District waived attorney-client privilege and whether discovery on bad-faith disclaimer was properly denied | School Dist.: did not waive privilege by suing for indemnity; discovery on bad faith is appropriate and privilege need not be invaded | NYSIR: privilege waived and discovery into communications justified to assess fees and bad faith | Court: No waiver of privilege; denial of discovery on bad-faith claim was erroneous and remand for proper discovery ordered |
| Whether trial court correctly calculated contract damages (attorney’s fees) and whether a new damages hearing is required | School Dist.: sought over $2.2M for fees; argued fees reasonable | NYSIR: fees excessive and results not favorable; trial court awarded $187,500 | Court: Trial court miscalculated and improvidently exercised discretion; remand for hearing to determine reasonable fees limited to defense through Sept 30, 2013 |
Key Cases Cited
- BP A.C. Corp. v. One Beacon Ins. Grp., 8 N.Y.3d 708 (establishes duty-to-defend standard tied to underlying complaint allegations)
- Frontier Insulation Contractors v. Merchants Mut. Ins. Co., 91 N.Y.2d 169 (insurer bears heavy burden to show pleadings fall wholly within an exclusion)
- Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435 (if any claim arguably covered, insurer must defend entire action)
- Allstate Ins. Co. v. Zuk, 78 N.Y.2d 41 (insurer can be relieved of duty to defend only when no possible factual/legal basis for indemnity exists)
- Seaboard Surety Co. v. Gillette Co., 64 N.Y.2d 304 (duty to defend arises whenever complaint allegations fall within policy risks)
- Amato v. Nat’l Specialty Ins. Co., 134 A.D.3d 966 (intentional-misconduct exclusion can bar duty where allegations are solely intentional)
- Matter of Aho, 39 N.Y.2d 241 (right of direct appeal ends with entry of final judgment)