Court Opinion

ID: 5836979
Source: CourtListenerOpinion
Date Created: 2022-01-12 22:41:32.588411+00
Date Added: 2024-06-11T08:43:38.629349
License: Public Domain

Birns, J.
(dissenting). I too would affirm. I agree with Justice Kupferman that the "insurance policy involved is one of error and omission” and "that it contemplated the possibility of coverage in the literary property field.” But I would supplement his views. The defendant was obliged to defend the Massachusetts suit wherein liability was sought against the plaintiff here on a number of theories. Those theories included, but were not limited to, willful and malicious misappropriation of an insurance concept, willful interference with the said insurance concept, willful interference with the exclusive right to license others in the use of the insurance concept, and willful and malicious commission of an unfair act of competition through wrongful use of the said insurance concept.
*335The policy provided coverage as follows: "insuring agreement * * * To pay on behalf of the Assured named in the Schedule, all sums which the Assured shall become legally obligated to pay by reason of liability for any error, omission or negligent act committed, or alleged to have been committed by the Assured, whenever or wherever the same was or may have been committed, or alleged to have been committed, on the part of the Assured, or any person who has been, is now, or may hereafter be employed by the Assured, during the period of this insurance, while in the performance of services in the professional capacity of the Assured as (a) Actuaries, (b) Employee Benefit Plan Consultants, and (c) Life Insurance Agents or Brokers provided always that claim therefore is first made against the Assured during the period of this Insurance as stated in the Schedule, or its earlier termination date, if any.”
The policy expressly excluded from coverage to the extent relevant to this appeal as follows:
"III. Exclusions this policy shall not indemnify the assured IN RESPECT OF ANY CLAIM EITHER DIRECTLY OR BY WAY OF indemnity: * * *
"(f) Brought about or contributed to by the dishonest, fraudulent (except if not committed with actual intent to deceive or defraud) or Criminal Act of the Assured, their Employees or their Predecessors in Business * * *
"(j) Brought about or contributed to by any co-mingling of or any inability or failure to pay or collect premium, claim or tax monies.
"(k) That the Assured gained in fact any personal profit or advantage to which the Assured was not legally entitled or for the return by the Assured of any remuneration paid in fact to them if payment of such remuneration shall be held by the courts to have been illegal.”
Particularly significant, in my view, is the fact that the defendant never disclaimed liability under the policy in terms of "coverage”. Defendant, however, in refusing to defend that Massachusetts suit asserts the acts which were the bases of the action fall within certain exclusions of the policy (i.e., [f], (j] or [k]).
In a letter sent by the insurer to plaintiff as assured, Lloyds formally disclaimed coverage and liability relying solely upon exclusions (f), (j) and (k) of the policy.
*336The operative portion of the letter in which defendant disclaimed liability and refused to defend recites:
"Applying the language of the policy to the allegations in the complaint it is our considered opinion that Exclusions (f), (j) and (k) referred to above could be applicable in this case should a judgment be rendered against the assured. Although Exclusion (f) requires a finding that the assured acted with actual intent to deceive or defraud, no such requirement is indicated for the applicability of Exclusion (k). The language of the complaint is based on breach of contract and seeks compensation for the plaintiff for such breach. Other allegations include unjust enrichment which would clearly come within the purview of Exclusion (k) and interference with contractual relations that the plaintiffs had with other brokers including the defendants. The allegations in Count 7 charge intentional interference with a contractual relationship which would be subject to the applicability of Exclusion (f). Since Count 9 charges that the defendants willfully and maliciously committed acts of unfair competition, it is our considered opinion that Exclusion (f) would be applicable here. Throughout the complaint the defendants are charged with having failed to account to the plaintiff for the above of premiúms collected under the so-called Double Dollar plan, which allegations could come under Exclusion (j)-
"In view of the foregoing Underwriters have instructed us to advise you that no coverage will be available to you for any loss that may be incurred as a result of the action brought against you in the Superior Court of the Commonwealth of Massachusetts by Irving A. Backman”.
The defendants now claim that the Massachusetts complaint is not within the insuring clause of the policy. They may not appropriately base this disclaimer on that ground. Nowhere in the letter does the insurer disclaim upon the ground that the allegations in the Massachusetts action are without the insuring clause of the policy. Where an insurance company refuses to pay a loss or disclaims liability under the policy on a particular ground, it may not later assert other grounds for nonpayment. (Littlejohn v Shaw, 159 NY 188, 191; Hubbell v Trans-World Life Ins. Co. of N. Y., 54 AD2d 94, 9899; Beckley v Otsego County Farmers Co-op. Fire Ins. Co., 3 AD2d 190, 194; Jauch v Power Town Tire Corp., 212 App Div 326, 328-329; D'Aquilla Bros. Contr. Co. v Hartford Acc. & Ind. Co., 22 Misc 2d 733, mod on other grounds 15 AD2d 509; 16 *337Appleman, Insurance Law and Practice, § 9260, pp 837-840.)
Review of the present record clearly established the applicability of the above principle. The letter that disclaimed coverage and liability rested upon particular grounds. The insurer’s reliance upon the particular grounds stated, without reservation of other grounds, results in a waiver, precluding the carrier from later asserting other grounds not specified previously. The principle is one which applies generally to all contracts. Thus, the Court of Appeals observed in Littlejohn v Shaw, 159 NY, at p 191: "But, in this case, the defendants placed their rejection of the gambier upon two specific grounds, viz.: that it was not of good merchantable quality and that it was not in good merchantable condition. By thus formally stating their objections, they must be held to have waived all other objections. The principle is plain, and needs no argument in support of it, that if a particular objection is taken to the performance and the party is silent as to all others, they are deemed to be waived.”
There remains for consideration the applicability of the exclusions relied upon by the carrier in disclaiming coverage. Exclusion (f) excludes from coverage any claim brought about or contributed to by the dishonest, fraudulent or criminal act of the assured. Defendants assert that this exclusion applies since the Massachusetts complaint alleges willful, intentional and malicious conduct by plaintiff and others to misappropriate Backman’s sales concept. However, as observed by Special Term, the allegations in the Massachusetts action do not specifically assert dishonest,- fraudulent or criminal conduct. None of the causes of action sound in fraud or seek recovery based upon any criminal conduct. The term "dishonest” implies a disposition to lie, cheat or defraud (Black’s Law Dictionary [rev 5th ed], p 421; see, also, 12A Words and Phrases, p 413).
Exclusion (j) has no apparent relationship to the underlying Massachusetts action, despite appellants’ assertion that the exclusion is designed to prevent the insurer from being required to pay sums improperly earned or retained by the insured. Exclusion (k) is likewise inapplicable here. Although that exclusion applies to any personal profit to which the assured was not legally entitled as found by Special Term, application of the exclusion requires an initial finding by a court that such retention was illegal. This is the specific *338subject involved in the Massachusetts action. Therefore, whether or not exclusion (k) applies cannot be determined until after resolution of the underlying action. Accordingly, . that exclusion may not be relied upon as a ground for the carrier to avoid its duty to defend.
It sufficiently appears on this record that the insurer did not sustain the heavy burden of proof imposed upon it, particularly considering the fact that defendants rely upon exclusions from coverage (American Home Assur. Co. v Port Auth. of N. Y. & N. J., 66 AD2d 269). As this court there observed (p 276): "Moreover, when the issue is the appropriate construction or interpretation to be placed upon an exclusionary clause in a policy, the carrier must establish that its construction or interpretation of the policy is the only construction that can fairly be placed thereon (Sincoff v Liberty Mut. Fire Ins. Co. [11 NY2d 386] p 390; Bronx Sav. Bank v Weigandt [1 NY2d 545] pp 551-552).”
As appears from the foregoing discussion, defendants have not clearly established that any of the exclusions apply as a matter of law to preclude coverage for the underlying action. Nor have they shown that their interpretation of the exclusionary clause is the only construction that can be fairly placed thereon. One exclusion ([j]) has no apparent application to this case. The other two exclusions ([f]) and [k]) may or may not apply, depending upon the outcome of the underlying action. Therefore, it is submitted that this case presents an issue somewhat similar to that which confronted the court in American Home (66 AD2d 269, .supra), wherein the insurer was held obligated to defend the underlying action even though it might not be ultimately liable to indemnify the insured. The duty arises from the nature of the insurance, which although classified as "liability insurance” may be conveniently referred to as "litigation insurance” (International Paper Co. v Continental Cas. Co., 35 NY2d 322, 326). Not without significance is this court’s observation in American Home (supra, at pp 278-279) "Had the insurer intended to exclude the contingency found here to exist, it should have done so by express language and provision therefor in the policy. As was observed by the Court of Appeals in Birnbaum v Jamestown Mut. Ins. Co. (298 NY 305, 313, supra): 'If the defendant intended to limit its liability as drastically as it now claims it did, it should have done a more workmanlike *339job * * * drawn in such "clear and unmistakable terms so that no one could [may] be misled” ’ ”.
Upon the foregoing, the order appealed from should be affirmed.
Murphy, P. J., and Sandler, J., concur with Sullivan, J.; Kupferman and Birns, JJ., dissent in separate opinions.
Order and judgment (one paper), Supreme Court, New York County, entered on February 26, 1979, reversed, on the law, and vacated, and a declaration made that the insurance contracts issued by defendants to Schiff do not extend coverage for the claims asserted against Schiff in the Massachusetts action, and plaintiff’s cross motion denied. Appellants shall recover of respondent $75 costs and disbursements of this appeal.