Opinion
94 Civ. 3917 (JSR)
March 31, 1997
MEMORANDUM ORDER
This case arises under the Court's diversity jurisdiction, and presents a dispute between plaintiff insured, a resident of South Carolina, and his insurer, Public Service Mutual Insurance Company ("PSM"), a New York corporation. Following full briefing and argument on the parties' cross-motions for summary judgment, the case was reassigned to this Court on February 26, 1997, which now decides the motions as follows.
BACKGROUND
Plaintiff was a director and officer of a residential cooperative corporation, 96-100 Prince Street, Inc. (the "co-op"), and a beneficiary of a director's and officer's liability policy issued by PSM to the co-op. See Plaintiff's Statement pursuant to Rule 3(g) at ¶¶ 1-3. In 1992, plaintiff was sued by one of the tenant-cooperators, Alexander Milliken, in two state court proceedings. In the first case (the "sublease case"), Milliken sought compensatory and punitive damages over a disputed sublease on co-op property, as well as attorney's fees. In the second case (the "election case"), Milliken sought equitable relief against plaintiff in connection with a contested election of directors, as well as attorney's fees under N.Y. Bus. Corp. § 626. See Plaintiff's Letter-brief of January 6, 1997 at 1-3.
PSM undertook plaintiff's defense in the sublease case, which resulted in a judgment against plaintiff for compensatory and punitive damages.See Milliken v. Hatfield, et al., Index #14799/92, Opinion of Justice Walter Tolub, Supreme Court, New York County, July 14, 1993 (Pl. Ex. E). The claim for attorney's fees in that case was severed and referred to a special referee. The attorneys hired by PSM to undertake the appeal failed to serve and file a timely notice of appeal of the judgment, and plaintiff was eventually forced to satisfy the award of $50,000 in punitive damages against him. As for the related action for attorney's fees before the special referee, plaintiff demanded that he be provided with counsel of his own choosing; and PSM initially refused but eventually reversed itself and provided plaintiff with such counsel. After the testimony and post-hearing briefing in that matter, however, PSM refused to provide any further representation to plaintiff. Eventually, the Special Referee issued a report on May 13, 1996, recommending an award of nearly $110,000 in fees and costs against plaintiff, which he is currently contesting in a proceeding before Justice Tolub, with counsel retained by himself.
In the election case, PSM refused to provide any representation, claiming that the policy specifically excluded claims for non-monetary relief and for attorney's fees. Equitable relief was granted by the trial court, but plaintiff's counsel was successful in having the demand for attorney's fees deleted.
In the instant action, plaintiff seeks a declaratory judgment that PSM is obligated to provide him with an ongoing defense in the sublease case: in effect, a declaration that PSM must pay for counsel of plaintiff's choice to perfect an appeal. He also seeks monetary relief for the costs of his prior representation in the sublease case after PSM refused to continue, for the costs of his prior representation in the election case, and for attorneys' fees incurred in the instant action. Both plaintiff and defendant now seek summary judgment.
Although plaintiff's moving papers sought only partial summary judgment limited to his claims for declaratory relief, his most recent submission seeks summary judgment on all his claims for both equitable and legal relief. See Letter-brief of January 6, 1997.
DISCUSSION
It is well settled that New York public policy precludes insurance indemnification for punitive damages awards. See Home Ins. Co. v. American Home Products, 75 N.Y.2d 196, 200 (1990). However, "the insurer is obligated to defend the insured against lawsuits where compensatory and punitive claims are commingled on the theory that the insurer's duty to defendant its insured is broader than its duty to pay." Parker v. Agricultural Ins. Co., 440 N.Y.S.2d 964, 966 (N.Y. Cty. Sup.Ct. 1981). Thus, PSM was under a duty to defend plaintiff in the trial of the sublease case.Plaintiff, however, now seeks to appeal the judgment of the New York Supreme Court, which awarded $100,000 in punitive damages and $8,500 in compensatory damages that the trial court concluded were the result of extortion. See Pl. Ex. D at 9. Under New York public policy, one may not insure against the risk of being ordered to return funds that have been wrongfully acquired; such awards are not "damages" within the purview of insurance policies. See Reliance Group Holdings v. Nat'l Union Fire Ins. Co., 594 N.Y.S.2d 20, 24 (1st Dept. 1993). Thus, the judgment plaintiff seeks to appeal concerns only monetary awards that are uninsurable as a matter of public policy. PSM therefore cannot be made to prosecute such an appeal. See Sturges Mfg. Co. v. Utica Mutual Ins. Co., 37 N.Y.2d 69, 74 (1975) ("The insurer's duty to defend is, again, not an interminable one, and will end if and when it is shown unequivocally that the damages alleged would not be covered under the policy."). Defendant's motion for summary judgment on the claim for declaratory relief is therefore granted, and plaintiff's motion is denied.
The fact that PSM undertook an unsuccessful appeal in the past does not estop them from denying responsibility for the appeal now. "What public policy proscribes, estoppel cannot require." Hartford Accid. and Indem. Co. v. Village of Hempstead, 48 N.Y.2d 218, 221 n. 3 (1979).
PSM is liable, however, for the costs of prosecuting plaintiff's appeal of the accompanying Special Referee's award of attorneys' fees in the sublease case. While PSM relies on the language of the policy itself to exclude liability for attorneys fees, an insurer can be released from its duty to defend "only if it can be determined as a matter of law that there is no possible basis in law or fact upon which the insurer might be held to indemnify [the insured]." Avondale Indus. v. Travelers Indem. Co., 887 F.2d 1200, 1205 (2d Cir. 1989). Moreover, exclusionary clauses in insurance contracts will be construed against the insurer; such exclusions will be enforced only when drafted in "clear and unmistakable language." See Seaboard Surety Co. v. Gillette Co., 64 N.Y.2d 304, 310 (1984). Against this background we turn to paragraph 4 of the policy, which states in pertinent part:
PSM shall not be liable to make payment for Loss or defend any claim made against the Insured alleging, based upon or arising out of any one or more of the following:
* * * * *
(d)(1) claims, demands or actions seeking relief, or redress, in any form other than money damages,
(2) For fees or expenses relating to claims, demands or actions seeking relief, redress, in any form other than money damages
Although PSM claims that paragraph 4(d)(2) excludes its liability to defend actions for attorneys' fees, the language therein falls far short of the "specific and clear" language necessary to enforce such an exclusionary clause. Indeed, the plain meaning of paragraph 4 excludes actions for "fees or expenses relating to claims, demands or actions seeking relief, redress, in any form other than money damages." The sublease case was an action for damages. As a result, PSM was under a duty to defend in the attorneys' fee portion of the sublease case, and summary judgment is granted to plaintiff on its claims for costs related to that appeal, and denied to defendant.
Plaintiff is also entitled to counsel of his choice. See Utica Mutual Ins. Co. v. Cherry, 358 N.Y.S.2d 519, 524 (App.Div.2d Dept. 1974).
By contrast, the election case was an action for equitable relief, and accompanying attorneys' fees. Accordingly, PSM had no duty to defend in that case, and summary judgment is granted to defendant and denied to plaintiff on plaintiff's claim for reimbursement for the costs of defending that action.
Finally, New York law provides that, as a general rule, an insured cannot recover his legal expenses in a lawsuit with a carrier concerning coverage, even if the carrier is ultimately held liable. See Employers Mut. Cas. Co. v. Key Pharmaceuticals, 75 F.3d 815, 824 (2d Cir. 1996). The case at bar does not fall into the "narrow exception" to this rule for situations where the insured has been cast into a "defensive posture" by legal actions taken by an insurer to free itself from its obligations under a policy. Id. Indeed, PSM did instigate this suit, and thus plaintiff is in an offensive, not defensive, posture. See Aetna Cas. Surety Co. v. Dawson, 84 A.D.2d 708 (1st Dep't 1981) Plaintiff's motion for attorneys' fees arising from the instant action is denied.
In summary, the Court holds that (1) summary judgment is granted to defendant and denied to plaintiff on the claim for declaratory relief; (2) summary judgment is granted to plaintiff and denied to defendant on the plaintiff's claim for costs related to the litigation of the attorneys' fees in the sublease case; (3) summary judgment is granted to defendant and denied to plaintiff on plaintiff's claim for reimbursement for the costs of defending the election case, and (4) plaintiff's motion for attorneys' fees arising from the instant action is denied. Plaintiff is directed to submit documentation of its unreimbursed attorneys' fees to date in connection with the appeal of the Special Referee's award in the sublease case by no later than April 15, 1997 and defendant is directed to respond by April 30, 1997, after which the Court will enter judgment for the appropriate amount.
SO ORDERED.