Court Opinion

ID: 5869018
Source: CourtListenerOpinion
Date Created: 2022-01-13 01:42:00.640453+00
Date Added: 2024-06-11T08:44:39.042138
License: Public Domain

Harvey, J. (concurring in part and dissenting in part).
We concur with the majority’s decision to affirm the judgment entered September 28, 1982 for counsel fees, but we respectfully dissent from that portion of the decision which would affirm the judgment of September 10, 1981 indemnifying plaintiff for the amount of the settlement of the Federal court action.
The issues created by this appeal are governed by the law of contracts. The underlying action is one for a declaratory judgment to determine the rights and obligations of the parties pursuant to the provisions of a contract of insurance as they relate to the events which have taken place. The initial determination, made pursuant to Servidone Construction Corporation’s motion for summary judgment in that action, was that Security Insurance Company of Hartford had unjustifiably refused to defend and that Servidone was entitled to recover for any damages resulting from that breach. However, Special Term concluded that the motion for indemnification was premature because it had not yet been determined that Servidone was liable for any damages covered by the policy. On a subsequent motion, Servidone demanded reimbursement for counsel fees and disbursements incurred in the defense of the action. That judgment was appealed and we agree with the majority in their affirmance of that award.
We cannot agree that Servidone’s payment of $50,000 to settle the Federal action resulted from Security’s breach of its duty to defend. There is no evidence in the present record, and none referred to by either the majority or by *65Special Term, to support any contention that the settlement became necessary because of Security’s refusal to continue the defense of Servidone. There is no claim that defense counsel acted negligently while they represented Servidone, nor is there any claim that counsel retained by Servidone as substituted attorneys were prejudiced by the manner in which prior proceedings had been conducted. At the time of the settlement, Servidone knew that by prior court order it would be reimbursed for the legal expenses of a trial. Servidone could have demanded a verdict requiring findings of fact on special issues which would have formed the basis for a final determination as to whether Servidone was liable to the United States under any theory of liability within the coverage of the policy. This procedure is recognized by the courts. In fact, it has been stated that a trial is necessary before the ultimate decision as to indemnity can be made (Lionel Freedman, Inc. v Glens Falls Ins. Co., 27 NY2d 364; 511 Main St. Corp. v Fireman’s Fund Ins. Cos., 91 AD2d 830, app dsmd 59 NY2d 805). Servidone freely chose settlement rather than trial. It would appear that its choice was influenced by a reasonable prediction that, should liability be established on its part, it would not be within the coverage of the policy.
Security has taken a strong position that no liability could have been established in the Federal action within the coverage. It contends that New Jersey law, contrary to New York law, does not permit a third-party action by the defendant against a joint tort-feasor unnamed in the original complaint. Guy Haskins, a New Jersey lawyer, was the attorney for Servidone when the settlement was negotiated. He testified at the inquest conducted to determine the amount of allowable defense costs. His testimony was given after Special Term’s decision on indemnification. He stated that his client could not have been held liable under New Jersey law for common-law indemnification in the Federal action. In that respect, it should be noted that the quoted portions of the policy contained in the majority’s opinion specifically point out that the insurer’s duty to indemnify is restricted to sums which the insured is legally obligated to pay. Equally strong is Security’s contention that the policy specifically excludes liability for indemnification contractually incurred by the insured.
*66Relying upon Rosen & Sons v Security Mut. Ins. Co. (31 NY2d 342) and Cardinal v State of New York (304 NY 400), the majority has concluded that where an insurer unjustifiably refuses to defend, the insured may effect a reasonable settlement of the injured party’s claim, after which the insured may then secure reimbursement from the insurer. We believe that their reliance upon those cases for the proposition they state is misplaced. In Rosen, it was undisputed that the cause of action alleged was within the coverage. The insurer’s only contention was that the insured had violated a condition of the policy prohibiting an insured from settling the claim without the insurer’s consent. The Court of Appeals held that if it was found that the insurer did not act in good faith for the insured’s interest when the insured was compelled to make a settlement at his peril, violation of the condition was excusable. In Cardinal, the Court of Appeals found that the insurer, after first disclaiming any duty to defend or indemnify, later retracted its disclaimer and then asserted a nonexistent limit as to the amount of its liability to indemnify. The court determined that the liability was within the coverage of the policy. It should be noted that in each reported case in which indemnification has been allowed for negotiated settlements, a decision was made first, on the facts or the law or both, that the claim was within the coverage of the policy. In no instance was it determined that coverage was created by the breach (see Atlantic Cement Co. v Fidelity & Cas. Co., 91 AD2d 412, apps dsmd 59 NY2d 761; Mitchell & Lindstrom, 12 AD2d 813, mot for lv to app den 9 NY2d 613; Sucrest Corp. v Fisher Governor Co., 83 Misc 2d 394, affd 56 AD2d 564; Joy Bldrs. v Travelers Ins. Co., 19 Misc 2d 786; Butterweich v Goodman & Garson, 12 Misc 2d 786; General Mut. Ins. Co. v Wright, 7 Misc 2d 331).
We believe that the law was correctly stated in Rochester Woodcraft Shop v General Acc. Fire & Life Assur. Corp. (35 AD2d 186). In that case, the Fourth Department recognized that in cases of this nature, two separate and distinct issues are created which require the application of different legal principles. The duty to defend is much broader than the duty to indemnify. An insurer must defend no matter how unreasonable or frivolous the allegations *67might be. On the other hand, the contract of insurance does not create a duty to indemnify unless it is established that the insured’s liability is within the coverage (Lionel Freedman, Inc. v Glens Falls Ins Co., 27 NY2d 364, supra; 511 Main St. Corp. v Fireman’s Fund Ins. Cos., 91 AD2d 830, supra).
The decision being reviewed was for summary judgment in the declaratory judgment action. We conclude that the record does not support the granting of such drastic relief. Issues of fact and law have been created by the pleadings and supporting papers. The judgment of September 10, 1981 should be reversed and remitted to Supreme Court, Rensselaer County, for a plenary trial to determine from the facts and the law whether any duty to indemnify exists.
Kane, J. P., and Mikoll, J., concur with Yesawich, Jr., J.; Main and Harvey, JJ., concur in part and dissent in part in an opinion by Harvey, J.
Judgments affirmed, with costs.