Court Opinion

ID: 9324870
Source: CourtListenerOpinion
Date Created: 2022-12-13 16:00:49.286194+00
Date Added: 2024-06-11T17:14:58.163616
License: Public Domain

21-1298 (L)
     Great Am. Ins. Co. v. AIG Specialty Ins. Co.

                              UNITED STATES COURT OF APPEALS
                                  FOR THE SECOND CIRCUIT

                                            SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1                 At a stated term of the United States Court of Appeals for the Second Circuit,
 2   held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of
 3   New York, on the 13th day of December, two thousand twenty-two.
 4
 5   PRESENT:
 6               AMALYA L. KEARSE,
 7               MICHAEL H. PARK,
 8               STEVEN J. MENASHI,
 9                     Circuit Judges.
10   _____________________________________
11
12   GREAT AMERICAN INSURANCE
13   COMPANY,
14
15                                Plaintiff-Appellee,
16
17                      v.                                                 21-1298 (L)
18                                                                         21-1803 (Con)
19
20   AIG SPECIALTY INSURANCE COMPANY,
21
22                     Defendant-Appellant.
23   _____________________________________
24
25
 1   FOR PLAINTIFF-APPELLEE:                             JAMES P. RUGGERI (Sara K. Hunkler, on the
 2                                                       brief), Ruggeri Parks Weinberg LLP,
 3                                                       Washington, DC.
 4
 5   FOR DEFENDANT-APPELLANT:                            MARC A. SILVERMAN (Joseph G. Finnerty
 6                                                       III, Eric S. Connuck, on the brief), DLA
 7                                                       Piper LLP (US), New York, NY;
 8                                                       Philadelphia, PA.
 9
10          Appeal from a judgment of the United States District Court for the Southern District of

11   New York (Cote, J.).

12          UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

13   DECREED that the judgment of the district court is AFFIRMED.

14          Defendant-Appellant AIG Specialty Insurance Company (“AIG”) appeals the April 6,

15   2021 opinion and order of the district court granting summary judgment for Plaintiff-Appellee

16   Great American Insurance Company (“Great American”) and denying AIG’s cross-motion for

17   summary judgment. Houlihan/Lawrence (“Houlihan”), a subsidiary of HomeServices America

18   (“HSA”), is a mutual insured of Great American and AIG. Great American filed this suit seeking

19   a declaratory judgment that AIG must contribute to the defense of Houlihan in connection with a

20   pending class-action lawsuit in New York state court (“Underlying Lawsuit”). See Goldstein v.

21   Houlihan/Lawrence Inc., No. 60767 (N.Y. Sup. Ct. 2018). AIG argues it has no duty to defend

22   under New York insurance law because the alleged wrongful acts against Houlihan in the

23   Underlying Lawsuit are not covered by HSA’s AIG policy, having occurred either (1) before

24   Houlihan became an insured “Subsidiary,” or (2) after Houlihan became an insured “Subsidiary”

25   but are “Related Acts” that should be deemed to have occurred before Houlihan became an insured

26   “Subsidiary.” On appeal, AIG contends that the district court erred by holding that the “Related

27   Acts” provision of AIG’s insurance policy does not apply to the provision identifying when

28   coverage for a “Subsidiary” begins. AIG also argues that the district court erred by holding that

                                                    2
 1   the plaintiffs’ claims in the Underlying Lawsuit are not “Related Acts.” We assume the parties’

 2   familiarity with the underlying facts, procedural history of the case, and issues on appeal.

 3           “We review de novo a district court’s decision to grant summary judgment, construing the

 4   evidence in the light most favorable to the party against whom summary judgment was granted

 5   and drawing all reasonable inferences in that party’s favor. Summary judgment is appropriate only

 6   if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a

 7   matter of law.” Bey v. City of New York, 999 F.3d 157, 164 (2d Cir. 2021) (cleaned up).

 8           We need not decide whether the district court correctly held that AIG failed to show that

 9   the “Related Acts” provision applies to the provision identifying when coverage for a “Subsidiary”

10   begins because, in any case, AIG has failed to escape its duty to defend.

11           “In New York, an insurer’s duty to defend is exceedingly broad, and an insurer will be

12   called upon to provide a defense whenever the allegations of the complaint suggest a reasonable

13   possibility of coverage.” 1 Brooklyn Ctr. for Psychotherapy, Inc. v. Phila. Indem. Ins. Co., 955

14   F.3d 305, 310 (2d Cir. 2020) (cleaned up). “Thus, an insurer may be required to defend under the

15   contract even though it may not be required to pay once the litigation has run its course.” Id.

16   (citation omitted). A “defendant has no obligation to defend only if it can be concluded as a matter

17   of law that there is no possible factual or legal basis on which [the] defendant might eventually be

18   held to be obligated to indemnify plaintiff under any provision of the insurance policies.” Id.

19   (cleaned up). “If the allegations of the complaint are even potentially within the language of the

20   insurance policy, there is a duty to defend.” High Point Design, LLC v. LM Ins. Corp., 911 F.3d

             1
               In their briefs, AIG and Great American assume that New York law governs. “Under New York
     choice-of-law rules, where the parties agree that a certain jurisdiction’s law controls, this is sufficient to
     establish choice of law.” Alphonse Hotel Corp. v. Tran, 828 F.3d 146, 152 (2d Cir. 2016) (cleaned up).

                                                           3
 1   89, 95 (2d Cir. 2018) (quoting Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 779

 2   N.E.2d 167, 170 (N.Y. 2002)).

 3          As a preliminary matter, AIG has a presumptive duty to defend because there is “a

 4   reasonable possibility of coverage.” Brooklyn Ctr. for Psychotherapy, 955 F.3d at 310. Even

 5   accepting AIG’s view that “Wrongful Acts” resulting from a single scheme are always “Related

 6   Acts,” the state court in the Underlying Lawsuit may conclude that the alleged “Wrongful Acts”

 7   on May 22, 2017 (occurring after HSA’s acquisition of Houlihan) did not result from a coordinated

 8   scheme by Houlihan but from agents breaching duties in distinct sales. These sales would not be

 9   “Related Acts” under any definition. This prospect alone means there is a reasonable possibility

10   of coverage, thus triggering AIG’s presumptive duty to defend Houlihan.

11          In any event, to escape its duty to defend, AIG must show that there is no “possible factual

12   or legal basis” for ever concluding that Houlihan’s post-acquisition property sale was not a

13   “Related Act,” but we believe there is such a basis. Id. Plaintiffs’ claims in the Underlying

14   Lawsuit share some similarity in that each involves alleged dual agency, but the claims are

15   different in other respects. Plaintiffs allege “Wrongful Acts” relating to transactions that occurred

16   in different years and featured different Houlihan representatives, and the plaintiffs allege different

17   injuries arising from the dual agency. Moreover, some plaintiffs were sellers and others were

18   buyers in the relevant transactions. Given the disparate facts, the acts across the transactions

19   cannot be deemed to be the “same.” The acts are not “continuous” because the negligent acts or

20   misleading statements associated with one transaction do not continue over time. The acts do not

21   arise from a common nucleus of facts because the common-sense meaning of that term is facts

22   clustered around a common core, such as a single transaction. Acts in separate transactions, even

23   if prompted by an alleged overall policy, are not part of the same nucleus of facts. Acts connected

                                                       4
1    to a single property sale may be “Related Acts” under the insurance policy, but acts connected to

2    different sales are not. We agree with the district court that a closer connection is required for the

3    alleged “Wrongful Acts” here to be “related.” Indeed, cases applying New York law have typically

4    involved a closer factual nexus when events are “Related Acts” under similar provisions of

 5   insurance agreements. 2 We thus disagree with AIG that the property sales at issue in the

 6   Underlying Lawsuit are the “same, related or continuous” or arise from a “common nucleus of

 7   facts.” App’x at A-98.

 8           AIG’s arguments to the contrary are unavailing. First, AIG contends in a Fed. R. App. P.

 9   Rule 28(j) letter that the certification of the plaintiffs’ class in the Underlying Lawsuit supports

10   “the conclusion that the Underlying Litigation asserts Related Acts that first occurred before HSA

11   acquired Houlihan.” Appellant’s Rule 28(j) Letter at 1-2. But AIG points to no authority

12   supporting this proposition. Although plaintiffs’ claims may present “questions of law or fact

13   common to the class which predominate over any questions affecting only individual members”

14   and “the claims or defenses of the representative parties are typical of the claims or defenses of

             2
               See, e.g., Quanta Lines Ins. Co. v. Inv. Cap. Corp., No. 06-CIV-4624, 2009 WL 4884096, at *14
     (S.D.N.Y. Dec. 17, 2009) (holding that wrongful acts are related where a single representative sold
     securities in the same company to different parties); Zahler v. Twin City Fire Ins. Co., No. 04-CIV-10299,
     2006 WL 846352, at *7 (S.D.N.Y. Mar. 31, 2009) (holding claims raised in ERISA litigation and separate
     securities litigation were sufficiently related where they arose from the same “alleged misstatements” by
     the same corporate officers); Seneca Ins. Co. v. Kemper Ins. Co., No. 02-CIV-10088, 2004 WL 1145830,
     at *9 (S.D.N.Y. May 21, 2004) (holding that claims were not factually or legally distinct where plaintiffs
     shared numerous similarities on at least eleven bases, including their similar interactions with the defendant
     and defendant’s lawyer, their similar business models, and their identical antitrust injuries); Greenburgh
     Eleven Union Free Sch. Dist. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 758 N.Y.S.2d 291, 294 (App. Div.
     1st Dep’t 2003) (holding that claims were related where they alleged improper disciplinary actions by a
     school and teachers’ union against the teachers and school staff members all in relation to “the same 1994
     disturbances”); Zunenshine v. Exec. Risk Indem., Inc., No. 97-CIV-5525, 1998 WL 483475, at *5 (S.D.N.Y.
     Aug. 17, 1998), aff’d, No. 98-9251, 1999 WL 464988 (2d Cir. June 29, 1999) (holding shareholders and
     noteholders raised related claims where they alleged “virtually identical false statements in reports, press
     releases, and other public statements” by mostly the same executives during a similar time period).

                                                           5
1    the class,” their claims are nonetheless “unrelated” for purposes of AIG’s insurance policy because

2    they do not arise from the “same” transaction. N.Y. C.P.L.R. § 901(a).

3           Second, AIG raises a policy argument, asking this Court to reverse the district court’s

4    judgment on fairness grounds. We decline to do so. According to AIG, the duty to defend

5    Houlihan as to the May 22, 2017 claim has obligated AIG to pay half of Great American’s defense

6    costs in the Underlying Lawsuit, which involves claims arising from before Houlihan became

7    AIG’s insured. Under New York law, “if any of the claims against the insured arguably arise from

8    covered events, the insurer is required to defend the entire action.” High Point Design, 911 F.3d

9    at 95 (cleaned up). But the duty to defend is distinct from the duty to indemnify, and “an insurer

10   may be required to defend under the contract even though it may not be required to pay once the

11   litigation has run its course.” BP Air Conditioning Corp. v. One Beacon Ins. Grp., 8 N.Y.3d 708,

12   714 (2007) (citation omitted).

13          We have considered the remainder of AIG’s arguments and find them to be without merit.

14   For the foregoing reasons, we AFFIRM the judgment of the district court.

15                                                FOR THE COURT:
16                                                Catherine O’Hagan Wolfe, Clerk of Court

                                                     6