East Ramapo Central School District v. New York Schools Insurance ReciprocalEast Ramapo Central School District v. New York Schools Insurance Reciprocal
Ordered that the appeal from the order entered June 15, 2015, is dismissed, without costs or disbursements; and it is further,
Ordered that the judgment is reversed, on the law, the facts, and in the exercise of discretion, without costs or disbursements, (a) the determination in the order entered February 5, 2014, denying the plaintiff‘s motion pursuant to
The appeal from the intermediate order entered June 15,
These appeals arise out of an insurance coverage dispute between the plaintiff, East Ramapo Central School District (hereinafter the School District), and its insurer, the defendant, New York Schools Insurance Reciprocal (hereinafter NYSIR). The policy issued by NYSIR provided coverage for claims, “made against the Insured and reported to [NYSIR] during the Policy Period and any Extended Reporting Period,” for “Wrongful Act(s) by the Insured in the performance of duties for the School Entity.” The policy defined the term “School Entity” as the School District. The term “Insured” was defined, in relevant part, as “the School Entity, the Board of Education of the School Entity, all present and former members of the Board of Education, officers, trustees, employees . . . but only . . . while acting solely within the course and scope of their duties or employment for the School Entity.” The term “Wrongful Act” was defined under the policy as “any actual or alleged breach of duty, negligent error, misstatement, misleading statement or omission by an Insured solely in the course and scope of the Insured‘s duties or employment for the School Entity.” The policy excluded coverage for claims related to, among other things, “any fraudulent, dishonest, malicious, criminal or intentional wrongful act or omission by an Insured.”
While the policy was in effect, a putative class action entitled Montesa v Schwartz (hereinafter the underlying action) was commenced under Docket No. 12-cv-06057 in the United States District Court for the Southern District of New York (hereinafter the District Court). The complaint in the underlying action alleged that the defendants in the underlying action, who are former and present members, employees, or attorneys of the School District‘s Board of Education, “engaged in numerous schemes to siphon off public money to support private religious institutions in various yeshivas, forcing a large cut in instructional programming in the public schools to a degree that the right of public school children to an education is impugned.” The School District, initially named as a plaintiff in the underlying action, subsequently intervened as a defendant in that action.
The complaint in the underlying action alleged, inter alia, violations of the
After an amended complaint was filed in the underlying action, which was substantially similar to the original complaint in that action, the School District commenced this action against NYSIR. It asserted a cause of action alleging breach of contract, a cause of action alleging breach of the implied covenant of good faith and fair dealing, and a cause of action seeking a declaration that NYSIR had a duty to defend and indemnify it in the underlying action. Thereafter, the School District moved for summary judgment on its cause of action seeking a declaration that NYSIR was obligated to defend it in the underlying action. NYSIR cross-moved for summary judgment declaring that it was not so obligated. By order entered October 22, 2013, the Supreme Court granted the School District‘s motion and denied NYSIR‘s cross motion, concluding that the allegations of the amended complaint in the underlying action, construed liberally, suggested a reasonable possibility of coverage. The court emphasized that the cause of action alleging breach of fiduciary duty was premised on both intentional and negligent conduct and, therefore, found that the allegations of the amended complaint did not fall entirely within a policy exclusion.
“A duty to defend is triggered by the allegations contained in the underlying complaint” (BP A.C. Corp. v One Beacon Ins. Group, 8 NY3d 708, 714 [2007]). “An insurer‘s duty to defend is broader than the duty to indemnify and arises whenever the allegations of the complaint against the insured, liberally construed, potentially fall within the scope of the risks undertaken by the insurer” (Salt Constr. Corp. v Farm Family Cas. Ins. Co., 120 AD3d 568, 569 [2014]; see BP A.C. Corp. v One Beacon Ins. Group, 8 NY3d at 714). “If any of the claims against [an] insured arguably arise from covered events, the insurer is required to defend the entire action” (Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435, 443 [2002], quoting Frontier Insulation Contrs. v Merchants
Nonetheless, “an insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision” (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45 [1991]; see Cumberland Farms, Inc. v Tower Group, Inc., 137 AD3d 1068, 1070 [2016]). Policy exclusions are to be strictly and narrowly construed and are not to be extended by interpretation or implication (see Pioneer Tower Owners Assn. v State Farm Fire & Cas. Co., 12 NY3d 302, 307 [2009]; Seaboard Sur. Co. v Gillette Co., 64 NY2d at 311). “To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint [in the underlying action] cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision” (Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d at 175; see 492 Kings Realty, LLC v 506 Kings, LLC, 88 AD3d 941, 943 [2011]; Exeter Bldg. Corp. v Scottsdale Ins. Co., 79 AD3d 927, 929 [2010]).
In the order entered October 22, 2013, the Supreme Court properly determined that NYSIR had a duty to defend the School District in the underlying action. The amended complaint included allegations that the defendants breached their fiduciary duty “[b]y failing to ‘take reasonable steps to ascertain the value’ of certain properties that were sold by the School District ‘and not utilizing a method of sale, which is apt to bring in the best price.‘” Those allegations, liberally construed, suggest a reasonable possibility of coverage, and therefore, triggered NYSIR‘s duty to defend in the underlying action (see Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d at 175; GMM Realty, LLC v St. Paul Fire & Mar. Ins. Co., 129 AD3d 909, 910 [2015]; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061 [2009]). In addition, the court
Our analysis, however, does not end here. On September 30, 2013, in the underlying action, the District Court dismissed 8 of the 10 causes of action asserted in the amended complaint, including the cause of action alleging breach of fiduciary duty. Thereafter, NYSIR moved for leave to renew its cross motion for summary judgment. By order entered February 5, 2014, the Supreme Court granted leave to renew, and upon renewal, in effect, vacated the order entered October 22, 2013, and thereupon, awarded NYSIR summary judgment declaring that it was not obligated to defend the School District after September 30, 2013.
Initially, we reject the School District‘s contention that the Supreme Court erred in granting NYSIR‘s motion for leave to renew. The parties’ prior motions for summary judgment were fully submitted to the court on September 9, 2013, and the new facts were not in existence at that time. Accordingly, NYSIR established a reasonable justification for failing to present the new facts on its prior cross motion (see Ramos v City of New York, 61 AD3d 51 [2009]; see also Davi v Occhino, 116 AD3d 651, 652 [2014]).
Moreover, upon renewal, the Supreme Court properly determined that NYSIR was not obligated to defend the School District after September 30, 2013. The two remaining causes of action in the underlying action, set forth in a third amended complaint, alleged violations of the
Thereafter, in the underlying action, the District Court reconsidered the prior motions of the defendants therein and issued an order dated March 12, 2014, which directed the dismissal of one of the two remaining causes of action, leaving only the Establishment Clause cause of action. The School District then moved in the instant action for leave to reargue and renew its prior motion for summary judgment and its opposition to NYSIR‘s prior motion for leave to renew. By order entered March 28, 2014, upon reargument and renewal, the Supreme Court determined that NYSIR was obligated to defend the School District in the underlying action through March 12, 2014, rather than September 30, 2013, as it had determined in its order entered February 5, 2014, and vacated so much of that earlier determination. Subsequently, in an order entered June 18, 2014, upon granting NYSIR leave to reargue, the Supreme Court adhered to the determination in the order entered March 28, 2014. We agree with NYSIR that this was error.
The District Court‘s determination on March 12, 2014, did not have the effect of extending NYSIR‘s duty to defend the School District in the underlying action through March 12, 2014. As stated above, the Supreme Court properly determined that there was no possible factual or legal basis on which NYSIR might eventually be obligated to indemnify the School District in the underlying action after September 30, 2013, when the District Court dismissed all of the causes of action in the amended complaint in the underlying action, except the causes of action alleging a violation of the
Furthermore, in the order entered February 5, 2014, the Supreme Court denied the School District‘s motion to compel discovery relating to its cause of action alleging breach of the
Contrary to NYSIR‘s contention, however, the School District did not waive the attorney-client privilege by commencing an action against NYSIR for indemnification (see Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 43 AD3d at 63-66; Occidental Chem. Corp. v Hartford Acc. & Indem. Co., 184 AD2d 1038, 1038-1039 [1992]; see also Bovis Lend Lease LMB, Inc. v Seasons Contr. Corp., 2002 WL 31729693, *16, 2002 US Dist LEXIS 23322, *47 [SD NY, Dec. 5, 2002, No. 00 Civ 9212 (DF)]). Although the School District placed the reasonableness of its attorneys’ fees at issue, it did not place at issue any legal advice it received from its attorneys in connection with the underlying action, its attorneys’ work product, or their private mental impressions, conclusions, opinions, or legal theories (see Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 43 AD3d at 65). Moreover, NYSIR failed to demonstrate that invasion of the privilege was necessary to assess the reasonableness of the School District‘s attorneys’ fees in the underlying action (see Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 62 AD3d 581, 582 [2009]; Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 43 AD3d at 64-65; see also Microsoft Corp. v Federal Ins. Co., 2003 WL 548758, *3, 2003 US Dist LEXIS 2683, *7-8 [SD NY, Feb 25, 2003, No. M8-85 (HB)]; Prudential Ins. Co. of Am. v Coca-Cola Enters., Inc., 1993 WL 276065, *1, 1993 US Dist LEXIS 9993,*2-3 [SD NY, July 21, 1993, No. 93 Civ 1456 (KMW)]). Rather, the reasonableness of the attorney‘s fees can be determined by, inter alia, an examination of the invoices of the School District‘s attorneys for the work performed in the underlying action, all documents filed in the District Court in the underlying action, and all correspondence exchanged among the parties’ counsel in the underlying action (see Microsoft Corp. v Federal Ins. Co., 2003 WL 548758, *3, 2003 US Dist LEXIS 2683, *7-8; Prudential Ins. Co. of Am. v Coca-Cola Enters., Inc., 1993 WL 276065, *1, 1993 US Dist LEXIS 9993,*2-3).
NYSIR‘s contentions with respect to the denial of its discovery requests by order entered September 2, 2014, are without merit. The parties’ remaining contentions either are without merit or have been rendered academic in light of our determination.
Leventhal, J.P., Maltese, LaSalle and Brathwaite Nelson, JJ., concur.