Opinion
2003/10.
Decided September 29, 2010.
The plaintiff is represented by Sperber Denenberg Kahan, P.C. by Jacqueline Handel-Harbour, Esq., of counsel the defendants are represented by Herrick, Feinstein, LLP, by Arthur G. Jakoby, Esq., of counsel.
Upon the foregoing papers, defendant Fidelity National Title Ins. (Fidelity) moves, pursuant to CPLR 3211 (a)(1) and (7), for an order dismissing plaintiff Samir Chopra's complaint.
By deed dated and recorded April 16, 1987, Irene Prusik took title to the property located at 492 6th Avenue in Brooklyn, New York (Block 1029, Lot 34) (the premises). By a no-consideration deed dated September 10, 1996 and recorded August 8, 1987, Irene Prusik conveyed the premises to Thomas Parkin. Thereafter, by instrument dated September 24, 1997 and recorded on December 2, 1997, Thomas Parkin executed a $212,500 mortgage in favor of one Sharon Laskin, among others. Subsequently, Parkin defaulted on the mortgage and, in or about 2000, a foreclosure action was commenced against him in Kings County Supreme Court. On January 9, 2003, Irene Prusik sought to intervene in the foreclosure action and moved to stay the judgment and foreclosure and sale based upon her claim that Parkin had fraudulently obtained title to the premises. Specifically, Prusik alleged that she never executed the no-consideration deed transferring the premises to Thomas Parkin and therefore, Parkin had no ownership interest in the property.
By order dated January 24, 2003, Hon. Martin Schneier granted Prusik's motion to stay the foreclosure proceedings to the extent of referring the case to a Judicial Hearing Officer in order to determine whether a fraudulent transfer took place. However, the stay was subsequently lifted. On July 31, 2003, plaintiff purchased the premises at a foreclosure sale. On this same day, Fidelity issued a title insurance policy which insured plaintiff's fee simple interest in the premises and also insured him against any defect in or lien or encumbrance on the title. The policy contained a schedule of exceptions from coverage. In particular Section 2 of the exceptions from coverage provided that the policy did not insure against "loss or damage (and [Fidelity] will not pay costs, attorney's fees or expenses) which arise by reason of: Rights of tenants and/or persons in possession." Further, Section 7 of the schedule of exceptions provided:
"Proof is required to show that defendants/foreclosed owners THOMAS PARKIN and IRENE PRUSKI [sic] or any parties related thereto are no longer in physical possession of the mortgaged premises. NOTE: In the event that the defendants/foreclosed owners or any parties related thereto remain in possession, then policy excepts all claim, loss, cost or damage by reason of said defendants/foreclosed owners asserting rights to the fee ownership of the premises, including but not limited to seeking to set aside the Referee's Deed, and/or otherwise attacking the regularity and jurisdiction of the foreclosure proceedings. [Fidelity] will not pay loss or damage, cost, attorney's fees or expenses by reason of same."
In or about August 2004, Irene Prusik commenced an action against plaintiff claiming title to the premises and seeking to divest plaintiff's fee interest in the premises. The complaint was based upon Prusik's aforementioned allegation that the transfer of the property to Parkin was fraudulent. Subsequently, plaintiff notified Fidelity of the lawsuit and sought a defense and indemnity pursuant to the Fidelity title insurance policy. In a correspondence dated September 27, 2004, Fidelity agreed to retain counsel to defend plaintiff's title in the Parkin lawsuit. The letter also noted that Fidelity was retaining counsel "subject to our reservation of rights to deny liability for any judgment rendered against you in this matter" based upon Section 7 of the schedule of exceptions in the liability policy. For a period of some five years thereafter, the Fidelity-retained attorney defended plaintiff in the Parkin lawsuit. However, ultimately, Fidelity refused to continue paying for this defense. Thereafter, plaintiff retained his own attorney to defend him in the underlying action.
In or about 2009, it came to light that Ms. Prusik died in September 2003, and that her son, Thomas Prusik-Parkin fraudulently pursued legal actions and took out a mortgage on the premises in his deceased mothers name. Thus, this 2004 action was a sham proceeding.
By summons and complaint dated January 22, 2010, plaintiff commenced the instant action against Fidelity. The complaint alleges that the adverse claims asserted by Prusik were covered under Fidelity's title insurance policy and that Fidelity breached its obligations under the insurance contract when it refused to continue to defend plaintiff in Prusik's underlying action. The complaint further seeks damages for "emotional, mental and physical distress" caused by Fidelity's failure to defend plaintiff in the underlying action. Finally, in addition to the underlying action, the complaint makes reference to "numerous lawsuits and appeals" filed by Ms. Prusik.
Fidelity now makes the instant pre-answer motion to dismiss plaintiff's complaint pursuant to CPLR 3211(a)(1). In support of its motion, Fidelity points to the language in Section 7 of the title insurance policy, which specifically excepted and excluded from coverage "all claim[s], loss, cost or damage by reason of [Irene Prusik] asserting rights to the fee ownership of the premises, including but not limited to seeking to set aside the Referee's Deed, and/or otherwise attacking the regularity and jurisdiction of the foreclosure proceedings." Here, the underlying action upon which plaintiff's breach of contract claim is premised is based upon Ms. Prusik's claim to fee ownership of the premises. Under the circumstances, Fidelity reasons that documentary evidence in the form of the title insurance policy conclusively establishes that it has no duty to defend plaintiff in the underlying Prusik action. Further, to the extent that "numerous lawsuits" mentioned in the complaint refers to actions related to the eviction of tenants living at the premises, Fidelity notes that section 2 of the title insurance policy explicitly excepted and excluded such actions from coverage.
In further support of its motion, Fidelity argues that its initial appointment of counsel in the Prusik action did not create coverage or defense obligations by waiver or estoppel inasmuch as no such coverage or defense obligations existed in the first instance. In this regard, Fidelity notes that Section 4 of the Conditions and Stipulations in the title insurance policy specifically provides that Fidelity "will not pay any fees, costs, or expenses incurred by the insured in the defense of those causes of actions which allege matters not insured by the policy." Thus, Fidelity maintains that it only had a duty to defend plaintiff in a litigation for which the policy provides coverage. Here, since the policy did not cover plaintiff against Ms. Pusik's claims and/or eviction actions, Fidelity argues that it had no obligation to defend plaintiff in those actions. In addition, Fidelity notes that Section 4 of the title insurance policy specifically provides that Fidelity will only pay for the fees of counsel which it selects. Thus, Fidelity argues that it is not responsible for paying for attorney's fees paid to plaintiff's personally retained attorney.
As a final matter, Fidelity argues that plaintiff's claims for emotional and mental damages must be dismissed pursuant to CPLR 3211(a)(7) inasmuch as such damages are not compensable in a breach of contract action.
In opposition to Fidelity's motion, plaintiff argues that the exclusion/exception set forth in Section 7 of the title insurance policy does not apply to Irene Prusik's underlying claims against him. In particular, plaintiff notes that the subject exclusion/exception only applies to "defendants/foreclosed owners." According to plaintiff, Ms. Prusik was not a party defendant or owner in the foreclosure action. Rather, Ms. Prusik owned the property prior to the foreclosed owner, Thomas Parkin, and claimed an ownership interest in the premises based upon the fraudulent transfer of title to Thomas Parkin long before the premises went into foreclosure. According to plaintiff, this is precisely the type of defect which the title insurance protects against inasmuch as it arises from the rights of a person whose interest appears in the chain of title. Plaintiff further maintains that in the absence of a specific exception for Ms. Prusik's claimed interest that the deed transferred to Thomas Parkin was fraudulent, the Fidelity policy provides coverage as well as defense costs.
Alternatively, plaintiff argues that Fidelity is judicially estopped from maintaining that it was not obligated to defend him in the underlying action. In this regard, plaintiff acknowledges that Insurance Law § 3420 (d) is inapplicable in this case since his claim does not arise out of bodily injury or death. Nevertheless, plaintiff maintains that under common-law principles, Fidelity is estopped from denying him a defense in the Prusik action. Specifically, plaintiff notes that Fidelity never properly disclaimed its defense obligations. To the contrary, Fidelity retained counsel who defended plaintiff for a period of five years. Further, plaintiff argues that he has been prejudiced by Fidelity's actions inasmuch as Fidelity maintained control over the litigation for five years only to withdraw its agreement to defend plaintiff without any resolution in the action.
Finally, plaintiff argues that there is no merit to Fidelity's claim that under the terms of the policy, it has no obligation to pay for plaintiff's personally retained attorney. In particular, plaintiff notes that Fidelity's refusal to continue to pay his defense costs forced him to conduct his own defense.
In reply to plaintiff's opposition papers, Fidelity argues that plaintiff's claim that Irene Prusik was not a defendant/foreclosed owner under the terms of the title insurance policy is baseless. Specifically, Fidelity notes that the insurance policy specifically named and identified Ms. Prusik as a defendant/foreclosed owner. Further, it is undisputed that months prior to the issuance of the insurance policy, Ms. Prusik moved to intervene in the foreclosure action based upon the same claim raised in her subsequent action against plaintiff, namely that the transfer of the deed to Thomas Parkin was fraudulent. Thus, Fidelity avers that Section 7 of the title insurance policy clearly excludes coverage for Irene Prusik's claim.
"On a motion to dismiss pursuant to CPLR 3211, the . . . complaint is to be afforded a liberal construction. The facts as alleged in the . . . complaint are accepted as true, the plaintiff is accorded the benefit of every possible favorable inference, and the court's function is to determine only whether the facts as alleged fit within any cognizable legal theory" ( Goldfarb v Schwartz , 26 AD3d 462 , 463).Furthermore, "[a] party seeking dismissal on the ground that its defense if founded on documentary evidence under CPLR 3211 (a)(1) has the burden of submitting documentary evidence that resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim'" ( Sullivan v State, 34 AD3d 443, 445, quoting Nevel v Laclede Professional Prods., 273 AD2d 453).
As a preliminary matter, to the extent that plaintiff's complain asserts a claim against Fidelity sounding in intentional or negligent infliction of emotional distress, said claim must be dismissed. Such a claim must be supported by allegations of extreme and outrageous conduct that go beyond all possible bounds of decency ( Stangle v Chen, 74 AD3d 1050; Tartaro v Allstate Indem. Co. , 56 AD3d 758 , 759). The allegations in the complaint fall well short of this requirement.
Turning to plaintiff's breach of contract claim, the documentary evidence submitted by Fidelity in the form of the title insurance policy conclusively demonstrates that the policy does not cover against Irene Prusik's claims to fee ownership in the premises. In particular, Section 7 of the policy specifically identifies Ms. Prusik as a defendant/foreclosed owner and states that the policy "excepts all claim, loss, cost or damage by reason of said defendants/foreclosed owners asserting rights to the fee ownership of the premises." Further, it is undisputed that prior to the issuance of the policy, Ms. Prusik moved to intervene in the foreclosure action based upon the same fraudulent title conveyance claim that served as the basis for her action against plaintiff.
Nevertheless, Fidelity's motion to dismiss plaintiff's breach of contract claim must be denied inasmuch as Fidelity's evidence fails to resolve all factual issues so as to conclusively dispose of the plaintiff's claim. In particular, there are factual issues as to whether or not Fidelity is estopped from denying plaintiff a defense against Ms. Prusik's claims some five years after initially agreeing to provide such a defense. In this regard, it is true, as Fidelity contends, that the doctrine of waiver may not be invoked so as to create insurance coverage where none exists under the policy ( Albert J. Schiff Assoc. v Flack, 51 NY2d 692, 698). However, the same does not hold true with respect to the doctrine of estoppel. In fact, it is well-settled that where an insurer assumes and controls the defense of an action on behalf of an insured without properly reserving its rights to deny coverage, the insurer is estopped from denying coverage at a later time if this would result in prejudice to the insured. This is true even if no coverage is afforded under the insurance policy ( id., Serio v United States Fire Ins. Co. , 41 AD3d 459 , 461; Utica Mut. Ins. Co. v 215 West 91st St. Corp., 283 AD2d 421, 422-423; Sisco v Nations Title Ins. of New York, 278 AD2d 479, 481).
In its correspondence to plaintiff dated September 27, 2004, Fidelity reserved its right "to deny liability for any judgment" rendered against plaintiff based upon the language set forth in Section 7 of the title insurance policy. However, the instant case involves defense costs, not indemnity. Fidelity's correspondence did not specifically notify plaintiff that it was reserving its right to refuse to defend plaintiff against Ms. Prusik's claim, or that it was reserving its right to withdraw from defending plaintiff after controlling the litigation for several years. Nor can it be said that Fidelity's reservation of its right to refuse to pay for any judgment against plaintiff was sufficient to reserve its rights with respect to defense costs. In this regard, an insurer's obligation to defend is considerably broader than its obligation to indemnify ( Bovis v Crab Meadow Enter., LTD., 67 AD3d 846, 848). In addition, given the fact that Fidelity retained counsel for plaintiff and controlled his defense for some five years, and then withdrew this defense prior to any resolution of the underlying claims, there are issues as to whether plaintiff suffered prejudice. Finally, there is no merit to Fidelity's argument that plaintiff's breach of contract claim is barred inasmuch as the insurance contract precluded plaintiff from retaining his own attorney. In this regard, it was Fidelity's own actions in withdrawing its agreement to defend plaintiff that necessitated his retention of private counsel.
Accordingly, that branch of Fidelity's motion which seeks to dismiss plaintiff's intentional/negligent infliction of emotional distress claim is granted. That branch of Fidelity's motion which seeks to dismiss plaintiff's breach of contract claim is denied.
This constitutes the decision and order of the court.