Case Title: Fieldston Property Owners Association, Inc. v. Hermitage insurance Company, Inc. / Hermitage Insurance Company, Inc. v. Fieldston Property Owners, Inc.

Citation: 

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2011-02-24T00:00:00Z

Document:
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 19  
Fieldston Property Owners 
Association, Inc.,
            Plaintiff,
        v.
Hermitage Insurance Company, 
Inc.,
            Respondent,
Federal Insurance Company, Sued 
Herein as Chubb Group of 
Insurance Companies, 
            Appellant.
(Action No. 1)
---------------------------------
Hermitage Insurance Company, 
Inc.,
            Respondent,
        v.
Fieldston Property Owners 
Association, Inc., et al.,
            Defendants,
Federal Insurance Company,
            Appellant.
(Action No. 2)
Jonathan A. Constine, for appellant.
Jeffrey B. Gold, for respondent.
CIPARICK, J.:
This appeal involves two declaratory judgment actions
relating to a dispute between two insurers -- Hermitage Insurance
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No. 19
Company, Inc. (Hermitage) and Federal Insurance Company
(Federal)1 -- over their respective responsibility for the cost
of defending Fieldston Property Owners Association, Inc.
(Fieldston), the insurers' mutual insured, against two underlying
actions.  Specifically, we are asked to determine whether the
"other insurance" clauses in the two applicable insurance
policies require Hermitage to bear the entire defense costs in
the two underlying actions against Fieldston.  Based on the
language of the policies, we conclude that Hermitage had the
primary duty to defend Fieldston, to the exclusion of any duty
owed by Federal. 
I.
Hermitage issued a Commercial General Liability (CGL)
policy to Fieldston for the period July 5, 2000 to July 5, 2001. 
The "per occurrence" CGL policy provides coverage for "bodily
injury," "property damage," and "personal and advertising injury"
as defined in the policy, among other things.  The "other
insurance" clause of Hermitage's CGL policy provides, as relevant
here: 
"If other valid and collectible insurance is
available to the insured for a loss we cover
. . . our obligations are limited as
following:
 
(a) Primary Insurance.  This insurance is
primary except when b. below applies.  If
1  Federal was apparently improperly originally named as
"Chubb Group of Insurance Companies" in the first declaratory
judgment action.
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No. 19
this insurance is primary, our obligations
are not affected unless any of the other
insurance is also primary.  Then, we will
share with all that other insurance by the
method described [herein].
 
(b) Excess Insurance.  This insurance is
excess over [certain types of insurance not
relevant here.]"
 
Federal issued an "Association Directors and Officers
Liability" (D&O) policy covering the policy period from February
13, 1999 to February 13, 2002.  The D&O policy is a "claims made"
policy providing coverage for "wrongful acts," as that term is
broadly defined in the policy, committed by the directors and
officers of Fieldston.  The D&O policy also covers certain
enumerated "offenses" committed before or during the policy
period.  The "other insurance" clause of Federal's D&O policy
provides:
"If any Loss arising from any claim made
against the Insured(s) is insured under any
other valid policy(ies) prior or current,
then this policy shall cover such Loss,
subject to its limitations, conditions,
provisions, and other terms, only to the
extent that the amount of such Loss is in
excess of the amount of such other insurance
whether such other insurance is stated to be
primary, contributory, excess, contingent or
otherwise, unless such other insurance is
written only as specific excess insurance
over the limits provided in th[is] policy."
 
"Loss" is defined in Federal's D&O policy to mean "the total
amount which the Insured(s) becomes legally obligated to pay on
account of all claims made against it for Wrongful Acts with
respect to which coverage hereunder applies, including . . .
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No. 19
Defense Costs."
By letter dated April 20, 2001, non-party Chapel Farm
Estates (Chapel Farm) informed Fieldston that Fieldston's
officers had been making "false statements and fraudulent claims"
with respect to Chapel Farm's "right to access its property from"
adjacent public streets.  Specifically, Chapel Farm claimed that,
in statements "given broad publication to a number of . . .
community groups and elected officials," including statements
made at a meeting of the Community Board's Land Use Committee,
Fieldston made false claims as to Chapel Farm's ability to access
certain property over "private roads" purportedly owned by
Fieldston for the purpose of a construction project.  Chapel Farm
thereafter commenced an action against Fieldston and its officers
in federal district court asserting several causes of action,
including "injurious falsehood," and seeking damages, among other
remedies.  Some of the facts and events described in the
complaint apparently related to events that occurred during the
D&O policy period, but not during the CGL policy period.  
By letter dated October 30, 2001, Hermitage demanded
that Federal acknowledge its coverage obligations to Fieldston
for defense of the Chapel Farms federal action.  Specifically,
Hermitage stated: "The complaint makes reference to a variety of
alleged wrongful acts which are not covered under [the CGL]
policy.  Seven out of the eight causes of action in the complaint
involve allegations that are clearly related to D&O issues and we
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No. 19
feel that [Federal] has a primary defense obligation under [its]
policy."  The letter also stated that "it appears that only the
cause of action for injurious falsehood might trigger a defense
obligation under" the CGL policy.  Relying on its "other
insurance" clause, Federal refused to provide coverage for
defense costs.  Thereafter, Hermitage agreed to defend Fieldston
in the Chapel Farm federal action under a full reservation of its
rights.     
Shortly after the federal action was dismissed in
August 2003, Chapel Farm -- by then known as Villanova Estates
Inc. (Villanova) -- filed an action in Supreme Court.  Although
the state action included more causes of action, the operative
facts stated therein were nearly identical to the federal action,
except that the new complaint included additional, later-
occurring events.  The eighteenth cause of action set forth an
injurious falsehood claim; the remaining causes of action sought
declaratory and injunctive relief and damages related to
Fieldston's purported interference with Villanova f/k/a Chapel
Farm's property rights, among other things.  As with the federal
complaint, some of the operative events allegedly occurred when
the D&O policy, but not the CGL policy, was in effect. 
By letter dated October 24, 2003, Hermitage reserved
its right to deny coverage for the Villanova action, specifically
advising Fieldston that only the injurious falsehood cause of
action was potentially covered.  However, Hermitage, once again,
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No. 19
agreed to defend Fieldston, subject to a full reservation of its
rights, including the right to seek reimbursement from Federal
for the cost of the defense.  Again relying on its "other
insurance" clause, Federal disclaimed coverage, asserting that
its coverage for the defense costs of the Villanova action was
excess to Hermitage's policy.
In the state action, Fieldston successfully moved to
dismiss certain causes of action, including the injurious
falsehood claim.  After the partial dismissal of the state action
was affirmed on appeal, Hermitage demanded that Federal provide a
defense as to the remaining causes of action.  Federal conceded
and assumed the defense of the state action.
These two declaratory judgment actions ensued, seeking
to establish the respective defense cost responsibilities of
Hermitage and Federal.  Fieldston commenced the first action
against both insurers to establish their obligation to cover the
defense costs of the underlying Chapel Farm federal action. 
Supreme Court granted Federal's motion for summary judgment
dismissing Hermitage's cross claims against it and denied
Hermitage's cross motion for summary judgment.  Supreme Court
concluded, in relevant part, that the "other insurance" clause in
the respective policies rendered Hermitage the primary and
Federal the excess insurer as to the defense costs of the federal
action.  Hermitage appealed.  
The second declaratory judgment action was brought by
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No. 19
Hermitage against Federal seeking reimbursement -- in full or on
an equitable basis -- for the costs incurred in defending the
underlying Villanova action.  In a separate order, Supreme Court
denied Federal's motion and Hermitage's cross motion for summary
judgment.  In relevant part, Supreme Court concluded that neither
Hermitage nor Federal had demonstrated their respective positions
as a matter of law.  Hermitage appealed, and Federal cross-
appealed, from the second Supreme Court order.  
The Appellate Division in the first action, reversed,
on the law, denied Federal's motion for summary judgment, granted
Hermitage's motion for summary judgment, and declared that
Federal is required to reimburse Hermitage for its equitable
share of defending the federal Chapel Farm action.  In the second
action, it modified, on the law, to the extent of granting
Hermitage's motion for summary judgment and declaring that
Hermitage is entitled to recover from Federal its equitable share
of defending the Villanova state action, except to the extent
that those costs related to the injurious falsehood claims
(Fieldston Prop. Owners Assn., Inc. v Hermitage Ins. Co., Inc.,
61 AD3d 185 [1st Dept 2009]).  The Appellate Division rejected
Federal's argument, reasoning: 
"With the possible exception of the injurious
falsehood claims, all the other losses
(including defense costs) that could result
from the other causes of action are not
insured under the CGL policy but at least
some of them are insured under the D&O
policy.  Accordingly, the 'other insurance'
clause [in the D&O policy] is inapplicable to
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No. 19
the risks of all other such losses, and the
D&O policy thus provides primary coverage
with respect to some of those risks.  In
other words, putting aside that possible
exception, the CGL and D&O policies do not
provide concurrent coverage as they do not
insure against the same risks" (id. at 191).
The Appellate Division granted Federal leave to appeal
to this Court, certifying the following question: "Was the order
of this Court . . . properly made?"  We now reverse and answer
the certified question in the negative.
II.
In resolving insurance disputes, we first look to the
language of the applicable policies (see Raymond Corp. v National
Union Fire Ins. Co. of Pittsburgh, Pa., 5 NY3d 157, 162 [2005]). 
If the plain language of the policy is determinative, we cannot
rewrite the agreement by disregarding that language (see id.). 
Here, the parties have conceded at least the possibility that
both Hermitage's CGL and Federal's D&O policies cover the
injurious falsehood claims in the two underlying actions.  Thus,
based on the "other insurance" clauses, Hermitage's CGL policy is
primary to Federal's D&O policy as they relate to defense costs. 
The question presented distills to whether the Hermitage policy's
primacy on the injurious falsehood claim triggers a primary duty
to defend against the remaining causes of action in the two
complaints, thus preempting any obligation by Federal.  We say it
does.
An insurer's duty to defend is liberally construed and
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No. 19
is broader than the duty to indemnify, "in order to ensure [an]
adequate . . . defense of [the] insured," without regard to the
insured's ultimate likelihood of prevailing on the merits of a
claim (General Motors Acceptance Corp. v Nationwide Ins. Co., 4
NY3d 451, 456 [2005]; see also Automobile Ins. Co. of Hartford v
Cook, 7 NY3d 131, 137 [2006]).  As we have explained on multiple
occasions, the insurer's duty to defend its insured "arises
whenever the allegations in a complaint state a cause of action
that gives rise to the reasonable possibility of recovery under
the policy" (Fitzpatrick v American Honda Motor Co., 78 NY2d 61,
65 [1991]; see also BP A.C. Corp. v One Beacon Ins. Group, 8 NY3d
708, 714 [2007]).  Moreover, 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 Mut. Ins. Co., 91
NY2d 169, 175 [1997] [emphasis added] [brackets omitted]).  It is
"immaterial that the complaint against the insured asserts
additional claims which fall outside the policy's general
coverage" (id. [citation, quotation marks and brackets omitted]). 
In the context of primary and excess insurance, we have
explained that a "primary insurer 'has the primary duty to defend
on behalf of its insureds'" (General Motors, 4 NY3d at 455,
quoting General Acc. Fire & Life Assur. Corp. v Piazza, 4 NY2d
659, 669 [1958] [brackets omitted]), and it generally has no
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No. 19
"'entitlement to contribution from an excess insurer'" (id.,
quoting Fireman's Ins. Co. of Washington, D.C. v Federal Ins.
Co., 233 AD2d 193 [1st Dept 1996], lv denied 90 NY2d 803 [1997]). 
Although an excess insurance carrier may elect to participate in
an insured's defense to protect its interest, it has "no
obligation to do so" (id.).
As relevant here, Federal's D&O policy provides that
its coverage is excess where "any Loss arising from any claim
made against the Insured is insured under any other valid
policy(ies)." "Loss" as defined in the D&O policy includes
"defense costs."  Based on the broad duty to defend, and upon the
conceded possibility that Hermitage's CGL policy covers at least
one cause of action in each of the two underlying complaints,
Hermitage has a duty to provide a defense to the entirety of both
complaints (see e.g. Town of Massena, 98 NY2d at 443-444).  Thus,
under the terms of Federal's D&O policy, there does exist "other
insurance" which would cover the "loss" arising from the defense
of the two underlying actions.   Accordingly, Hermitage had an
obligation to defend both of the underlying actions without
contribution from Federal (see Firemen's Ins. Co., 233 AD2d at
193; Sport Rock Intl., Inc. v American Cas. Co. of Reading, Pa.,
65 AD3d 12, 21 [1st Dept 2009], citing State Farm Fire & Cas. Co.
v LiMauro, 65 NY2d 369, 373 [1985]), notwithstanding the fact
that Federal would appear to have an obligation to indemnify
Fieldston for a greater proportion of the causes of action, if
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No. 19
successfully prosecuted. 
We acknowledge that the result reached by the Appellate
Division has much equitable appeal.  If the policies were drafted
using different language, we might hold differently, but we may
not judicially rewrite the language of the policies at issue here
to reach a more equitable result (see e.g. Raymond Corp., 5 NY3d
at 162). 
Accordingly, the order of the Appellate Division should
be reversed, with costs; in Action No. 1, the judgment of Supreme
Court should be reinstated, in Action No. 2, defendant Federal
Insurance Company's motion for summary judgment should be
granted, and the certified question should be answered in the
negative.
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order reversed, with costs, in Action No. 1 judgment of Supreme
Court, New York County, reinstated and in Action No. 2 defendant
Federal Insurance Company's motion for summary judgment granted. 
Certified question answered in the negative.  Opinion by Judge
Ciparick.  Chief Judge Lippman and Judges Graffeo, Read, Smith,
Pigott and Jones concur.
Decided February 24, 2011
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