SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

82 

CA 12-01337 

PRESENT: SMITH, J.P., PERADOTTO, LINDLEY, SCONIERS, AND VALENTINO, JJ.

 

GEORGETOWN CAPITAL GROUP, INC. AND JOSEPH 

CURATOLO, PLAINTIFFS-RESPONDENTS, 

 

V MEMORANDUM AND ORDER

EVEREST NATIONAL INSURANCE COMPANY, 

DEFENDANT-APPELLANT, 

AND ROYAL ALLIANCE ASSOCIATES, INC., DEFENDANT. 

 

SAIBER LLC, FLORHAM PARK, NEW JERSEY (DAVID J. D’ALOIA, OF THE NEW

JERSEY BAR, ADMITTED PRO HAC VICE, OF COUNSEL), LIPPES MATHIAS WEXLER

FRIEDMAN LLP, BUFFALO, FOR DEFENDANT-APPELLANT.

GROSS, SHUMAN, BRIZDLE & GILFILLAN, P.C., BUFFALO (HUGH C. CARLIN OF

COUNSEL), FOR PLAINTIFFS-RESPONDENTS. 

 

Appeal from a judgment of the Supreme Court, Erie County (Gerald

J. Whalen, J.), entered April 20, 2012 in a declaratory judgment

action. The judgment, among other things, granted in part plaintiffs’

motion for partial summary judgment and denied in part the cross

motion of defendant Everest National Insurance Company for summary

judgment. 

It is hereby ORDERED that the judgment so appealed from is

unanimously modified on the law by granting judgment in favor of

plaintiff Georgetown Capital Group, Inc. as follows: 

It is ADJUDGED and DECLARED that Everest National

Insurance Company is obligated to provide a defense to that

plaintiff in the underlying federal actions,

and as modified the judgment is affirmed without costs. 

Memorandum: Plaintiffs commenced this action seeking a

declaration that defendant Everest National Insurance Company (ENIC)

is obligated to defend and indemnify them in two underlying federal

securities actions pursuant to a securities broker/dealer’s

professional liability policy (hereafter, policy) that ENIC issued to

defendant Royal Alliance Associates, Inc. (hereafter, Royal). Royal

is an SEC-registered broker-dealer and investment advisor, and

plaintiff Georgetown Capital Group, Inc. (hereafter, Georgetown) is a

financial services firm that offers securities and financial advisory

services through Royal. Georgetown’s investment advisors are all

registered representatives of Royal. Plaintiff Joseph Curatolo is the
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CA 12-01337 

president and sole shareholder of Georgetown and also a registered

representative of Royal. 

The amended complaints in the underlying actions allege that

Timothy Geidel, a former Georgetown employee and registered

representative of Royal, offered and sold unregistered and fictitious

securities to investors and that Royal and Georgetown failed to

supervise Geidel. Geidel ultimately pleaded guilty in federal court

to wire fraud and structuring.

Plaintiffs moved for partial summary judgment on the first and

second causes of action seeking a declaration that ENIC is obligated

to defend plaintiffs and/or Royal in the underlying actions, and ENIC

cross-moved for summary judgment, contending that it has no duty to

provide a defense in the underlying actions. As relevant to this

appeal, we conclude that Supreme Court properly granted that part of

plaintiffs’ motion with respect to Georgetown, and denied ENIC’s cross

motion in that respect, but erred in failing to declare the rights of

the parties in connection with plaintiffs’ motion (see Alexander v New

York Cent. Mut., 96 AD3d 1457, 1457). We therefore modify the

judgment accordingly.

An insurer’s duty to defend is “ ‘exceedingly broad’ and an

insurer will be called upon to provide a defense whenever the

allegations of the complaint ‘suggest . . . a reasonable possibility

of coverage’ ” (Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131,

137, quoting Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640,

648). “If, liberally construed, the claim is within the embrace of

the policy, the insurer must come forward to defend its insured no

matter how groundless, false or baseless the suit may be” (Ruder &

Finn v Seaboard Sur. Co., 52 NY2d 663, 670). Thus, the duty to defend

exists “ ‘even though facts outside the four corners of [the]

pleadings indicate that the claim may be meritless or not covered’ ”

(Automobile Ins. Co. of Hartford, 7 NY3d at 137, quoting Fitzpatrick v

American Honda Motor Co., 78 NY2d 61, 63).

The insured has the initial burden of establishing coverage under

an insurance policy while the insurer bears the burden of proving that

an exclusion in the policy applies to defeat coverage (see

Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208,

220). “[E]xclusions are subject to strict construction and must be

read narrowly” (Automobile Ins. Co. of Hartford, 7 NY3d at 137). In

order to establish that an exclusion defeats coverage, the insurer has

the “heavy burden” of establishing that the exclusion is expressed in

clear and unmistakable language, is subject to no other reasonable

interpretation, and is applicable to the facts (Continental Cas. Co.,

80 NY2d at 654-655, citing Seaboard Sur. Co. v Gillette Co., 64 NY2d

304, 311). An insurer “will be required to ‘provide a defense unless

it can “demonstrate that the allegations of the complaint cast that

pleading solely and entirely within the policy exclusions, and,

further, that the allegations, [in toto], are subject to no other

interpretation” ’ ” (Automobile Ins. Co. of Hartford, 7 NY3d at 137,

quoting Allstate Ins. Co. v Mugavero, 79 NY2d 153, 159).
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CA 12-01337 

 Here, we conclude that plaintiffs met their initial burden of

establishing that they are entitled to judgment declaring that ENIC

must provide Georgetown with a defense under the policy by

establishing that Georgetown is a party covered by the policy, that

Georgetown has sustained a “Loss” defined by the policy, i.e.,

“Defense Costs,” and that the underlying actions allege that

Georgetown failed to supervise Geidel, which is a “Wrongful Act”

defined by the policy. Contrary to ENIC’s contention, we also

conclude that plaintiffs established that some of the services

provided by Geidel and set forth in the amended complaints in the

underlying actions “potentially” fall within the policy definitions of

“Professional Services” and an “Approved Activity” (BP A.C. Corp. v

One Beacon Ins. Group, 8 NY3d 708, 714), such as advising clients to

sell legitimate investments held by Georgetown and/or Royal and to

invest the resulting money in the fictitious “securities.” Those

allegations are supported by the federal criminal complaint, which

alleges that, “[i]n many instances, victims were directed by [Geidel]

to liquidate their existing investments with Georgetown and Royal . .

. so that their funds could be invested in higher yielding investment

vehicles.” Moreover, in his plea agreement, Geidel admitted that,

“[t]o effectuate [his] fraud, [he] had victims authorize the wire

transaction of funds held by their registered broker dealers and

financial custodial agents.” 

We further conclude that ENIC failed to raise an issue of fact

with respect to Georgetown in opposition to plaintiffs’ motion. ENIC

relies on, inter alia, the policy’s exclusion for “Loss in connection

with any Claim made against an Insured . . . arising out of, based

upon, or attributable to the committing in fact of: any criminal or

deliberately fraudulent act.” We agree with plaintiffs, however, that

ENIC failed to demonstrate that the allegations in the underlying

actions fall “ ‘solely and entirely within th[at] policy exclusion[],

and . . . are subject to no other interpretation’ ” (Allstate Ins.

Co., 79 NY2d at 159; see Automobile Ins. Co. of Hartford, 7 NY3d at

137). As noted above, the underlying actions include allegations that

Georgetown and/or Royal failed to supervise Geidel and that Geidel

advised investors to sell legitimate securities. 

Contrary to ENIC’s further contention, the fact that Royal may be

insured under a separate fidelity bond has no bearing on whether the

allegations in the underlying actions trigger a duty to defend in the

instant case. The coverage sought here is not duplicative of that

furnished by the fidelity bond, which provides that where a loss

“result[s] directly from dishonest or fraudulent acts committed by a

Registered Representative . . . [, s]uch dishonest or fraudulent acts

must be committed by the Registered Representative with the manifest

intent . . . to cause the Insured to sustain such loss” (emphasis

added). Here, there is no claim that Geidel intended to cause a

direct loss to Georgetown or Royal as opposed to his clients (see

generally Ernst & Young v National Union Fire Ins. Co. of Pittsburgh,

Pa., 304 AD2d 410, 410). 

Entered: March 15, 2013 Frances E. Cafarell

Clerk of the Court