Case Name: Town of Massena, Appellant, v. Healthcare Underwriters Mutual Insurance Company, Defendant and Third-Party Plaintiff-Respondent, and Federal Insurance Company et al., Respondents, et al., Defendants. Massena Memorial Hospital et al., Third-Party Defendants-Appellants, et al., Third-Party Defendants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 2002-09-17
Citations: 98 N.Y.2d 435
Docket Number: 
Parties: Town of Massena, Appellant, v Healthcare Underwriters Mutual Insurance Company, Defendant and Third-Party Plaintiff-Respondent, and Federal Insurance Company et al., Respondents, et al., Defendants. Massena Memorial Hospital et al., Third-Party Defendants-Appellants, et al., Third-Party Defendants.
Judges: 
Reporter: New York Reports
Volume: 98
Pages: 435–447

Head Matter:
[779 NE2d 167, 749 NYS2d 456]
Town of Massena, Appellant, v Healthcare Underwriters Mutual Insurance Company, Defendant and Third-Party Plaintiff-Respondent, and Federal Insurance Company et al., Respondents, et al., Defendants. Massena Memorial Hospital et al., Third-Party Defendants-Appellants, et al., Third-Party Defendants.
Argued May 30, 2002;
decided September 17, 2002
POINTS OF COUNSEL
David L. Welch, Massena, for appellant.
I. The Town’s reasonable expectations were violated. (Atlantic Cement Co. v Fidelity & Cas. Co. of N.Y., 91 AD2d 412, 63 NY2d 798; Lavanant v General Acc. Ins. Co. of Am., 79 NY2d 623; I Q Originals v Boston Old Colony Ins. Co., 85 AD2d 21, 58 NY2d 651; Board of Educ., Yonkers City School Dist. v CNA Ins. Co., 647 F Supp 1495, 839 F2d 14; Slayko v Security Mut. Ins. Co., 285 AD2d 875, 97 NY2d 605; Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321; Moshiko, Inc. v Seiger & Smith, 137 AD2d 170, 72 NY2d 945; Rocon Mfg. v Ferraro, 199 AD2d 999; Uniroyal, Inc. v Home Ins. Co., 707 F Supp 1368; Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356.) II. The Appellate Division decision will have a chilling impact on municipalities.
O’Connor, Yoquinto & Ryan, LLP, Troy (Thomas J. O’Connor of counsel), for defendant and third-party plaintiff-respondent.
I. The intentional torts alleged in the underlying action are not within the Healthcare Underwriters Mutual Insurance Company coverages. (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66; Meyers & Sons Corp. v Zurich Am. Ins. Group, 74 NY2d 298; Allstate Ins. Co. v Mugavero, 79 NY2d 153; Allstate Ins. Co. v Zuk, 78 NY2d 41; Messersmith v American Fid. Co., 232 NY 161; Brooklyn Law School v Aetna Cas. Ins. Co., 849 F2d 788; Transportation Ins. Co. v Neu & Sons, 233 AD2d 234; Warrensburg Bd. & Paper Corp. v Unigard Mut. Ins. Co., 143 AD2d 602; Hubert v Lumbermens Mut. Cas. Co., 117 AD2d 964.) II. The amended complaint in the underlying action al leges only intentional injury. (Hampton v Hanrahan, 600 F2d 600; Pangburn v Culbertson, 200 F3d 65.) III. The 42 USC § 1983 First Amendment retaliation claim is an intentional tort requiring specific intent to injure. (Crawford-El v Britton, 523 US 574; Sheppard v Beerman, 94 F3d 823; Blue v Koren, 72 F3d 1075.) IV. The defamation claim alleges intentional injury. (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392.) V. The tortious interference claims are intentional torts alleging intentional injury. (Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183; NBT Bancorp v Fleet /Norstar Fin. Group, 87 NY2d 614; Foster v Churchill, 87 NY2d 744.) VI. Common-law malice infuses each claim in the underlying action. (Sweeney v Prisoners’ Legal Servs. of N.Y., 84 NY2d 786; Mahoney v Adirondack Publ. Co., 71 NY2d 31; Present v Avon Prods., 253 AD2d 183, 93 NY2d 1032; Harte-Hanks Communications v Connaughton, 491 US 657; Prozeralik v Capital Cities Communications, 82 NY2d 466; Liberman v Gelstein, 80 NY2d 429; New York Times Co. v Sullivan, 376 US 254; Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218.) VII. The penal consequences of an insured’s conduct are not necessarily decisive of coverage issues. (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Messersmith v American Fid. Co., 232 NY 161; Miller v Continental Ins. Co., 40 NY2d 675; D’Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659; Matter of Nassau Ins. Co. [Bergen — Superintendent of Ins.], 78 NY2d 888; Allstate Ins. Co. v Zuk, 78 NY2d 41; Slayko v Security Mut. Ins. Co., 285 AD2d 875, 97 NY2d 605; Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769.) VIII. The decision of the Appellate Division is consistent with this Court’s holding in Fitzpatrick v American Honda Motor Co. (78 NY2d 61 [1991]). (A.J. Sheepskin & Leather Co. v Colonia Ins. Co., 273 AD2d 107; Transportation Ins. Co. v Neu & Sons, 233 AD2d 234; Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769; Warrensburg Bd. & Paper Corp. v Unigard Mut. Ins. Co., 143 AD2d 602.) IX. Public policy prohibits indemnification or defense of any of the claims in the underlying action. (Messersmith v American Fid. Co., 232 NY 161; Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; City of Johnstown v Bankers Std. Ins. Co., 877 F2d 1146; Barry v Romanosky, 147 AD2d 605; Miller v Continental Ins. Co., 40 NY2d 675; McGroarty v Great Am. Ins. Co., 36 NY2d 358; Munzer v St. Paul Fire & Mar. Ins. Co., 145 AD2d 193; Allstate Ins. Co. v Zuk, 78 NY2d 41; Fitzpatrick v American Honda Motor Co., 78 NY2d 61.) X. Hospital peer review process does not merit special consideration. (All state Ins. Co. v Mugavero, 79 NY2d 153; Gelbard v Genesee Hosp., 255 AD2d 882, 93 NY2d 916; Patrick v Burget, 486 US 94.)
Stroock & Stroock & Lavan LLP, New York City (Curtis C. Mechling and Mary E. McEachern of counsel), for Federal Insurance Company, respondent.
I. The defamation exclusion bars coverage for all claims of the Franzon action. (High Voltage Eng’g Corp. v Federal Ins. Co., 981 F2d 596; Sloman v First Fortis Life Ins. Co., 266 AD2d 370; Scharfv Federal Ins. Co., 261 AD2d 257; Board of Mgrs. of Yardarm Condominium II v Federal Ins. Co., 247 AD2d 499; New Hampshire Ins. Co. v Jefferson Ins. Co., 213 AD2d 325; Cone v Nationwide Mut. Fire Ins. Co., 75 NY2d 747; McNichol Enters. v First Fin. Ins. Co., 284 AD2d 964; Sphere Drake Ins. Co. v Block 7206 Corp., 265 AD2d 78; Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347; Underwriters at Lloyd’s of London v Cardova Airlines, 283 F2d 659.) II. The accreditation exclusion bars coverage for all claims of the Franzon action. (Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347; New Hampshire Ins. Co. v Jefferson Ins. Co. of N.Y., 213 AD2d 325.) III. The Federal policy’s definition of “loss” bars coverage for the second and third claims of the Franzon action. (Home Ins. Co. v American Home Prods. Corp., 75 NY2d 196; Garcia v Allcity Ins. Co., 244 AD2d 219.) IV. The Federal policy does not cover the Franzon action’s sixth claim for relief because the insureds are not sued for conduct in their insured capacities. (Town of Somers v Titan Indem. Co., 289 AD2d 563.)
James W. Tuffin, Manhasset, and Gabriel Mignella for Physician’s Reciprocal Insurers, respondent.
I. The endorsement and policy must be read together. (Birnbaum v Jamestown Mut. Ins. Co., 298 NY 305; Thompson-Starrett Co. v American Mut. Liab. Ins. Co., 276 NY 266; County of Columbia v Continental Ins. Co., 83 NY2d 618; Hubert v Lumbermens Mut. Cas. Co., 117 AD2d 964; Matter of Knickerbocker Ins. Co. v Faison, 22 NY2d 554.) II. The insurance contract must be enforced in accordance with its plain and unambiguous meaning. (Breed v Insurance Co. of N. Am., 46 NY2d 351, 940; Teichman v Community Hosp. of W. Suffolk, 87 NY2d 514; Government Empls. Ins. Co. v Kligler, 42 NY2d 863; Matter of Mostow v State Farm Ins. Cos., 88 NY2d 321; Metzger v Aetna Ins. Co., 227 NY 411.) III. Franzon’s claims for defamation and business torts do not come under the insuring agreements of Physicians’ Reciprocal Insurers’ policies. IV. The endorsement is not illusory. (Rocon Mfg. v Ferraro, 199 AD2d 999; Bush v St. Clare’s Hosp., 192 AD2d 772, 82 NY2d 738; Byork v Carmer, 109 AD2d 1087; Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356; Shapiro v Glens Falls Ins. Co., 39 NY2d . 204; Allstate Ins. Co. v Mugavero, 79 NY2d 153; Breed v Insurance Co. of N. Am., 46 NY2d 351, 940; Elletson v Bonded Insulation Co., 272 AD2d 825.)
Nixon Peabody LLP, Rochester (William S. Brandt of counsel), for Massena Memorial Hospital and others, third-party defendants-appellants.
I. The well-established rules governing the interpretation of insurance contracts were recognized and properly applied by the Trial Justice. (Matter of Hanover Ins. Co. [Saint Louis], 119 AD2d 529, 68 NY2d 751; Goldberg v Lumber Mut. Cas. Ins. Co., 297 NY 148; Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663; Campanile v State Farm Gen. Ins. Co., 161 AD2d 1052, 78 NY2d 912; Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66; Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 NY2d 419; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Spoor-Lasher Co. v Aetna Cas. & Sur. Co., 39 NY2d 875; Atlantic Cement Co. v Fidelity & Cas. Co. of N.Y., 91 AD2d 412, 63 NY2d 798.) II. Hospital defendants are entitled to a defense under each of the three insurance policies issued by Healthcare Underwriters Mutual Insurance Company. (Federal Ins. Co. v Cablevision Sys. Dev. Co., 637 F Supp 1568, 836 F2d 54; Lavanant v General Acc. Ins. Co. of Am., 79 NY2d 623; Messersmith v American Fid. Co., 232 NY 161.) III. Federal Insurance Company is obligated to defend the hospital defendants. (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392.) IV. The Appellate Division misapplied and improperly expanded “public policy.” (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Nortek, Inc. v Liberty Mut. Ins. Co., 858 F Supp 1231; Federal Ins. Co. v Cablevision Sys. Dev. Co., 637 F Supp 1568; Home Ins. Co. v Perlberger, 900 F Supp 768.) V. The Appellate Division confused public policy with policy terms. (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392; Federal Ins. Co. v Cablevision Sys. Dev. Co., 637 F Supp 1568; Messersmith v American Fid. Co., 232 NY 161; Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640; Valley Improvement Assn. v United States Fid. & Guar. Corp., 129 F3d 1108; Dilorio v National Union Fire Ins. Co., 262 AD2d 347; Royal Indem. Co. v Love, 165 Misc 2d 890; New Madrid County Reorganized School Dist. v Continental Cas. Co., 904 F2d 1236; Allstate Ins. Co. v Mugavero, 79 NY2d 1153; Allstate Ins. Co. v Zuk, 78 NY2d 41.) VI. Conclusory allegations of malice should not be treated as an allegation of intent to injure. (Shapiro v Health Ins. Plan of Greater N.Y., 7 NY2d 56; Foster v Churchill, 87 NY2d 744; Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169; Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390; Allstate Ins. Co. v Mugavero, 79 NY2d 153; Bassim v Howlett, 191 AD2d 760; Cosme v Town of Islip, 63 NY2d 908; Fitzpatrick v American Honda Motor Co., 78 NY2d 61; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304.) VII. Physicians’ Reciprocal Insurers is obligated to defend Dr. Schwam, Dr. Bakirtzian and Dr. Jhaveri. (Johnson v Nyack Hosp., 964 F2d 116; Bassim v Howlett, 191 AD2d 760; Giannelli v St. Vincent’s Hosp., 160 AD2d 227; Shapiro v Health Ins. Plan, 7 NY2d 56; Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356; Clarostat Mfg. Co. v Travelers Indem. Co., 115 AD2d 386; Madawick Contr. Co. v Travelers Ins. Co., 307 NY 111; Uniroyal, Inc. v Home Ins. Co., 707 F Supp 1368; IBM Poughkeepsie Empls. Fed. Credit Union v Cumis Ins. Socy., 590 F Supp 769; Hartford Acc. & Indem. Co. v Wesolowski, 33 NY2d 169.)
Donohue, Sabo, Varley & Armstrong, P.C., Albany (Fred J. Hutchison of counsel), for Christine Rowe-Button, M.D., third-party defendant-appellant.
I. Healthcare Underwriters Mutual Insurance Company is obligated to provide a defense of Dr. Rowe-Button since the claims asserted fall within the coverage purchased. (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304; Altamore v Aetna Cas. & Sur. Co., 238 AD2d 455; Muhlstock & Co. v American Home Assur. Co., 117 AD2d 117; Pennsylvania Millers Mut. Ins. Co. v Rigo, 256 AD2d 769; Lavanant v General Acc. Ins. Co. of Am., 79 NY2d 623; Messersmith v American Fid. Co., 232 NY 161; Fitzpatrick v American Honda Motor Co., 78 NY2d 61; Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66.) II. A denial of coverage to Dr. Rowe-Button and the other physicians in this action would have a chilling effect on peer review and quality assurance, to the detriment of public health.
Donald R. Moy, Lake Success, for Medical Society of the State of New York, amicus curiae.
I. Congress has adopted a policy to improve the quality of medical care by encouraging professional peer review. (Mathews v Lancaster Gen. Hosp., 87 F3d 624.) II. New York State laws both mandate hospital peer review and quality assurance activities and protect individuals engaged in such activities. (Shapiro v Central Gen. Hosp., 251 AD2d 317; Shapiro v Health Ins. Plan of Greater N.Y., 7 NY2d 56.) III. The decision below will undermine federal and state policy to encourage good faith professional peer review and hospital quality assurance activities.
O’Connell and Aronowitz, Albany (Jeffery J. Sherrin and Rafael A. Olazagasti III of counsel), for Healthcare Association of New York State, amicus curiae.
The Appellate Division decision undermines the strong public policy to enhance and protect the quality assurance and peer review processes. (Matter of S-88-08-1940A, 151 Misc 2d 769; Feliciano v State of New York, 175 Misc 2d 671; Logue v Velez, 92 NY2d 13, Katherine F. v State of New York, 94 NY2d 200; Golub v St. Luke’s-Roosevelt Hosp. Ctr., 226 AD2d 118; Bryan v James E. Holmes Regional Med. Ctr., 33 F3d 1318.)

Opinion:
OPINION OF THE COURT
Smith, J.
The issue here is whether the defendant insurers have a duty to defend Massena Memorial Hospital and related litigants in an underlying federal lawsuit. We conclude that one insurer has a duty to defend, and we, therefore, modify the order of the Appellate Division.
Olof Franzon is a duly licensed physician and the sole shareholder in his practice, Women's Medical & Surgical Health Care, P.C. Franzon and Women's Medical brought the underlying federal action for damages against Massena Memorial Hospital, its Board of Managers, its Medical Executive Committee and a number of physicians and hospital executives, alleging a conspiracy to deprive Franzon of his civil rights as guaranteed by the First and Fourteenth Amendments to the United States Constitution and 42 USC § 1983, and alleging that he is entitled to attorneys' fees pursuant to 42 USC § 1988. More specifically, Franzon alleged that he publically advocated that the hospital provide nurse-midwifery services and further alleged that the hospital had not previously provided such services for anticompetitive reasons. Franzon alleged that in response, the hospital engaged in a concerted campaign of harassment designed to punish him for exercising his right to free speech. The campaign consisted of defendants' (1) "overt and malicious acts" designed to "excommunicate him from, and ruin him in, the Massena medical community," (2) disparagement in internal reviews and to his patients and (3) refusing to renew his hospital privileges. Franzon alleged that this harassment caused him to suffer various injuries, including "extreme emotional distress." Franzon also alleged defamation, tortious interference with business relations and tortious inference with contract pursuant to the common law of New York State.
In the present action, the Town of Massena, the owner of Massena Memorial Hospital, and the hospital (collectively, the hospital) seek a declaration that three of their insurers— Healthcare Underwriters Mutual Insurance Company (HUM), Federal Insurance Company (Federal) and Physicians' Reciprocal Insurers (PRI) — owe them a defense in the federal action. Supreme Court held that "each insurer owes their insureds a defense in the underlying lawsuit" because each policy did not exclude coverage of all of the underlying claims as a matter of law. The Appellate Division modified by reversing the denial of summary judgment. It concluded that the alleged acts were either intentional, and therefore excluded as a matter of public policy, or specifically excluded under the applicable policies' provisions (281 AD2d 107 [2001]). We granted leave to appeal to the hospital and to third-party defendant Dr. Rowe-Button. We conclude that HUM is obligated to defend the federal action and we, therefore, modify the order of the Appellate Division.
"[T]he duty to defend is broader than the duty to indemnify" (Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65 [1991]; see also Goldberg v Lumber Mut. Cas. Ins. Co., 297 NY 148, 154 [1948]). "[A]n 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, 78 NY2d at 65). If the allegations of the complaint are even potentially within the language of the insurance policy, there is a duty to defend (see Technicon Elecs. Corp. v American Home Assur. Co., 74 NY2d 66, 73 [1989]; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 669-670 [1981]). "If any of the claims against [an] insured arguably arise from covered events, the insurer is required to defend the entire action" (Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169,175 [1997]). Indeed, "[t]he duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer [and, it is immaterial] that the complaint against the insured asserts additional claims which fall outside the policy's general coverage or within its exclusory provisions" (Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310 [1984] [citations omitted]). When an exclusion clause is relied upon to deny coverage, the burden rests upon the insurance company to demonstrate that the allegations of the complaint can be interpreted only to exclude coverage (see International Paper Co. v Continental Cas. Co., 35 NY2d 322, 325 [1974]; Technicon, 74 NY2d at 73-74). The merits of the complaint are irrelevant and, "[a]n insured's right to be accorded legal representation is a contractual right and consideration upon which his premium is in part predicated, and this right exists even if debatable theories are alleged in the pleading against the insured" (International Paper, 35 NY2d at 325).
HUM contracted with the hospital for coverage under three policies — the Personal Injury Liability (PIL) policy, the Hospital Professional Liability (HPL) policy, and the Comprehensive General Liability (CGL) policy. The plain language of the PIL policy obligates HUM to provide a defense to plaintiff. Specifically, the PIL policy covers all personal injury damages arising out of various offenses including "the publication or utterance of a libel or slander" or of other defamatory or disparaging material. The complaint contains allegations that the hospital "intentionally and maliciously made false statements to Franzon's patients, potential patients, and the community at large in an effort to damage his reputation as a doctor." The complaint additionally alleges that the statements are untrue.
HUM relies on its exclusion for defamatory statements made within a business enterprise with knowledge of their falsity. Defamation is defined as a false statement that exposes a person to public contempt, ridicule, aversion or disgrace (see Foster v Churchill, 87 NY2d 744, 751 [1996]). A party alleging defamation must allege that the statement is false (see Immuno AG. v Moor-Jankowski, 77 NY2d 235, 245 [1991], cert denied 500 US 954). In addition, where the party is a public figure, that party must allege that the statement was made with "actual malice," defined as either knowledge of the false hood or recklessness as to the falsehood (see New York Times Co. v Sullivan, 376 US 254, 279-280 [1964]). Where the party alleging defamation is not a public figure, a showing of common-law malice, or ill will, is necessary (see Liberman v Gelstein, 80 NY2d 429, 437 [1992]). Even though a statement is defamatory, a qualified privilege exists where the communication is made to persons who have some common interest in the subject matter (see id. at 437-439).
The District Court in the underlying action held that Franzon was a limited public figure who must prove actual malice, namely that the statements were false and were made with knowledge of the falsity or recklessness as to their falsity (see Franzon v Massena Mem. Hosp., 89 F Supp 2d 270, 278 [ND NY 2000]). Even if the allegedly defamatory statements concerned the "business enterprise" of Franzon's practice of medicine, and even if the statements were intentionally and maliciously made, there was no allegation that the statements were made with knowledge of their falsity. Moreover, because Franzon is a limited public figure, actual malice requires only recklessness as to the truth of the statement, and not knowledge of the falsity. Thus, defense coverage is proper based on the policy terms.
HUM also argues, and the Appellate Division agreed, that it had no duty to indemnify because the allegations of malice were equivalent to allegations of intentional wrongdoing. This Court has stated that "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]). As a matter of policy, conduct engaged in with the intent to cause injury is not covered by insurance (see Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 399-400 [1981]; Messersmith v American Fid. Co., 232 NY 161, 163-165 [1921]). As we have stated, because of Franzon's status as a limited public figure, he could recover on his defamation claim if he established that defendants' defamatory statements were made with reckless disregard of their truth. Such defamatory statements would be covered by HUM'S policy and would not be precluded by public policy. Because HUM has a duty to defend the defamation claims under the HUM PIL policy, it consequently has a duty to defend the entire action brought under any of the HUM policies (see Frontier Insulation Contrs. v Merchants Mut. Ins., 91 NY2d at 175 ["If any of the claims against the insured argu ably arise from covered events, the insurer is required to defend the entire action"]). We therefore hold that HUM necessarily has a duty to defend all of the claims. Since HUM is obligated to defend the action under the PIL policy, it is unnecessary for us to discuss the HPL and the CGL policies.
Federal Insurance Company has no duty to defend the hospital. Its Executive Liability and Indemnification Insurance Policy provides coverage for "all Loss" that the insured is "legally obligated to pay" for any "Wrongful Act." A wrongful act is "any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed by any Insured Person, individually or otherwise, in his Insured Capacity, or any matter claimed against him solely by reason of his serving in such Insured Capacity." "Insured Capacity" means as a director or officer. The policy limits this coverage by excluding, among other things, any loss "arising out of' or otherwise related to "bodily injury libel, slander, defamation of character" or similar torts. The policy also excludes any loss resulting from performance of "professional services," including services on "a formal medical accreditation or similar medical professional board or committee of an Insured." This broad exclusionary language negates coverage for all but the tortious interference claim in the Franzon complaint.
The hospital has not, however, met its burden of showing that the tortious conduct is covered. Franzon's tortious interference claims against the hospital are centered around three physicians' failure to refer patients to him. This conduct could only occur in the doctors' respective roles as members of an insurance network. Franzon's complaint, however, does not allege whether the doctors' conduct in question occurred while they were acting in their "insured capacity" as officers or directors or otherwise. Federal argues that the conduct surrounding the tortious interference claim occurred outside the doctors' insured capacity, or in the alternative, in the excluded performance of "professional services" category. Once the insurance company asserted the exclusion, the hospital defendants had the burden of showing that the conduct alleged was covered and they have failed to make that requisite showing. Federal therefore has no duty to defend under the policy.
Physicians' Reciprocal Insurers is also under no duty to defend the individual doctors. Under the PRI policy, the insurer was obligated to pay "all sums which you become legally obligated to pay for a claim," excluding punitive damages, and to defend every "claim" arising from the insured's performance of "professional services." "Professional services" includes "services as a member of a formal accreditation board or any committee of a hospital where" the insured is "engaged in accreditation review and standards review." The policy's exclusions are extensive including "any willful, fraudulent or malicious civil act"; any claim resulting from "defamation, libel, slander" and similar torts; and any claim for interference with contract or with prospective business advantage. The policy stated that the exclusions applied even after the amendment of the definition of professional services to include accreditation review and standards review. These exclusions eliminate any duty PRI could have to defend the hospital against Franzon's claims.
Accordingly, the order of the Appellate Division should be modified, without costs, by reinstating so much of Supreme Court's order as declared a duty to defend by HUM and, as so modified, affirmed.
Judges Levine, Ciparick, Wesley, Rosenblatt and Graffeo concur; Chief Judge Kaye taking no part.
Order modified, etc.
The complaint also specifies that Dr. Jhaveri told another patient that Franzon "was going to be booted out of Massena"; that it was "bull" that a patient had an ultrasound in Franzon's office as the patient "should not have any ultrasounds done in Franzon's office"; and that Dr. Maresca told a resident during a repeat mammogram that "if you were Dr. Franzon's patient, I wouldn't even be talking to you."