Opinion
04 Civ 4384 (BSJ).
March 3, 2006
Order
This is an insurance coverage action. Plaintiff Westport Insurance Corporation ("Westport") moves, pursuant to FED. R. CIV. P. 56, for an order of summary judgment declaring that it is not obligated to provide defendants in this action with coverage, in whole or in part, including defense or indemnity, for the lawsuit entitled Joanne D. Latona, Individually and as Administratix of the Esate of Angelo Latona, Deceased v. Paul A. Goldberger, Lawrence A. Dubin, Goldberger Dubin, P.C. and Samuel H. Kelner, Esq., filed in Supreme Court for the State of New York, County of New York, Index No. 120655/03. For the reasons stated herein, plaintiff's motion is GRANTED.
Background
The following facts are undisputed unless otherwise noted. In 1999, plaintiff issued a professional liability insurance policy to Goldberger Dubin, P.C. ("GD") for professional malpractice claims against the firm and its individual attorneys (the "1999 Policy"). The 1999 Policy covered claims made between May 12, 1999 and May 12, 2000, and was subsequently renewed for another year (the "2000 Policy"). Although the effective date of the 1999 Policy was May 12, 1999, both the 1999 Policy and the 2000 Policy provided for coverage retroactive to May 12, 1993, subject to certain limitations or exclusions. With respect to retroactive coverage, the 2000 Policy provides:
This Policy does not apply to:
. . .
B. any CLAIM arising out of any act, error, omission, or PERSONAL INJURY occurring prior to the effective date of this policy if any INSURED at the effective date knew or could have reasonably foreseen that such act, error, omission or PERSONAL INJURY might be expected to be the basis of a CLAIM or suit; ("Exclusion B") (emphasis added).
In connection with their purchase of insurance, GD executed a Prior Acts Limitation Disclosure, in which defendant Paul Goldberger answered "no" to the following question:
Is the Applicant, its predecessor firms, or any individual proposed for this insurance aware of any circumstances, act, error, omission or personal injury which might be expected to be the basis of a legal malpractice claim or suit that has not previously been reported to the firm's insurance carrier? (emphasis in original).
Subsequently, on September 22, 2000, GD notified Westport of circumstances related to defendants' representation of Joanne Latona and the estate of her husband in a lawsuit (the "Latona personal injury lawsuit" or "Latona personal injury action") for personal injury and wrongful death sustained in a car accident on Staten Island, New York, on September 22, 1994. Defs.' Rule 56.1 Statement ¶ 19. GD was retained by Joanne Latona to represent her and the estate in connection with the accident. Upon being retained, GD referred the matter to another attorney, defendant Samuel Kelner. In or about August 1998, Kelner advised GD that while he had timely commenced a wrongful death action against the City of New York, he had not commenced a wrongful death action against Chrysler within the applicable statute of limitations. Defs.' Rule 56.1 Statement ¶ 17. According to defendants, shortly after being so advised by Kelner, GD contacted Mrs. Latona's son, Joseph Latona (who had referred the case to GD based on his prior relationship with defendants), and advised him of the error. At that time and during a subsequent meeting with the Latonas, GD informed the Latonas that they should bring a malpractice claim if they thought it was necessary. According to defendants, on each occasion, the Latonas advised GD that a malpractice claim would not be brought. Defs.' Rule 56.1 Statement ¶ 16. It is undisputed that GD did not notify Wesport of the error in the Latona personal injury lawsuit in its answers to questions in the Prior Acts Limitation Disclosure described above.
On December 2, 2003, Mrs. Latona filed a Summons and Verified Complaint in the Supreme Court for the State of New York, County of New York, Index No. 120655/03, against the Goldberger firm and Kelner for legal malpractice (the "malpractice lawsuit" or "malpractice action").
By correspondence dated January 15, 2004, Westport advised the Defendants that it reserved the right to deny coverage for the malpractice action based on Exclusion B. Westport filed this action seeking a declaratory judgment stating that it is not obligated to provide defendants in this action with coverage for the malpractice action. Defendants subsequently counterclaimed seeking: (1) a declaratory judgment stating that the Latona malpractice action is covered by defendants' policy with Westport, and (2) legal fees. Westport now seeks summary judgment.
Legal Standard
A court can grant summary judgment only if "the pleadings, depositions, answers to interrogatories, admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party must "demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986). If the moving party does so successfully, the non-moving party must present "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(c). The party opposing summary judgment cannot rely on "conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jang Gan v. City of New York, 996 F.2d 522, 535 (2d Cir. 1993). Nonetheless, the court must draw all reasonable inferences and resolve all ambiguities in favor of the non-movant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348 (1986).
Discussion
I. The Interpretation of Insurance Policy Exclusions
In New York State, an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract. See Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127, 135 (2d Cir. 1986); Ogden Corp. v. Travelers Indem. Co., 681 F.Supp. 169, 173 (S.D.N.Y. 1988). If the provisions are clear and unambiguous, courts are to enforce them as written. See Maurice Goldman Sons, Inc. v. Hanover Ins. Co., 80 N.Y.2d 986, 592 N.Y.S.2d 645, 646, 607 N.E.2d 792, 793 (1992). The threshold question of whether an insurance policy is ambiguous is a question of law for the Court. Christiana General Ins. Co, of N.Y. v. Great Am. Ins. Co., 979 F.2d 268, 274 (2d Cir. 1992); Alfin, Inc. v. Pacific Ins. Co., 735 F.Supp. 115, 118 (S.D.N.Y. 1990).
With respect to the applicability of an exclusion, the insurer bears the burden of proving that a claim falls within the scope of an exclusion. See, e.g., Village of Sylvan Beach, N.Y. v. Travelers Indem. Co., 55 F.3d 114, 115-16 (2d Cir. 1995);Maurice Goldman Sons, Inc. v. Hanover Ins. Co., 80 N.Y.2d 986, 592 N.Y.S.2d 645 (1992). "To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case."Sea Ins. Co., Ltd. v. Westchester Fire Ins. Co., 51 F.3d 22, 26 (2d Cir. 1995) (internal quotation omitted).
Finally, generally, under New York law, if a Court finds that policy language is ambiguous, particularly the language of an exclusion provision, there is a presumption that ambiguity must be interpreted in favor of the insured. See Marino v. N.Y. Tel. Co., 944 F.2d 109, 112 (2d Cir. 1991). However, under the rules of federal procedure, specifically, those relating to summary judgment, the Court must perform a full evaluation of the extrinsic evidence. Thus, in examining an insurance policy on summary judgment, the Court should apply only as a last resort the state law presumption construing an ambiguous policy against the insurer. Alfin, 735 F.Supp. at 118 (citingUniroyal, Inc. v. Home Ins. Co., 707 F.Supp. 1368, 1372-78 (E.D.N.Y. 1988)).
II. Exclusion B
Exclusion B, excerpted above, precludes coverage for a claim if the insured, here, GD, had knowledge prior to the inception of the 2000 Policy of an act, error, or omission that the insured knew or "could have reasonably foreseen . . . might be expected to be the basis of a CLAIM or suit." There is no dispute that GD was aware of the error leading to dismissal of the Latona personal injury lawsuit against Chrysler prior to the effective date of the 2000 Policy. However, defendants argue that, based on the Latonas' verbal assurances, they had no reason to believe, at time of the inception of the policy, that the Latonas intended to file a malpractice claim. Thus, the dispute in this case revolves around whether or not an objective standard — e.g., could a reasonable lawyer foresee that his act or error might form the basis of a claim — or a subjective standard — e.g., did the insured lawyer actually believe that his act or error might give rise to a claim — applies to Exclusion B.
A. Plaintiff's Interpretation
Courts interpreting New York law have not yet directly addressed the issue of whether an objective or subjective standard applies to policy language like that found in Exclusion B. For guidance, plaintiff directs the Court to a case from the Western District of Pennsylvania, Mt. Airy Ins. Co. v. Thomas, 954 F.Supp. 1073 (W.D.Pa. 1997), involving a nearly identical insurance policy and fact pattern. The Court in Mt. Airy noted that "the language `knew or could have reasonably foreseen' is phrased in such a way that it refers back to the incident, act, error, or omission language." Id. at 1080. The Court in Mt. Airy, distinguished "between facts, which are known to an attorney, which facts, when viewed by a reasonable person, could give rise to a claim of malpractice, and impressions which lead the attorney to believe that the client will not pursue a claim for malpractice." Id. at 1079. The key question is whether an attorney knows of an act, incident or omission" that reasonably could have been expected to result in a malpractice claim, not whether the attorney actually expected the former client to file a malpractice claim. Id.
The Court also found that there were sound policy reasons for holding that the subjective impressions of an attorney are not relevant to a determination of the applicability of an insurance exclusion. Id. at 1079. Using such a subjective standard would
defeat the ability of an insurance company to assess risk prior to issuing insurance. Clearly, the assessment of risk is a crucial function which affects the determination of whether to issue coverage at all and, if so, at what premium. As a matter of public policy, courts cannot allow the insured to perform this risk analysis function instead of the insurer.Id. Thus, the Court concluded,
if an attorney knows of an act, error, incident or omission and knew or could have reasonably expected that it would result in a malpractice claim, then that incident would have to be disclosed when applying for coverage. If not disclosed, the incident would be excluded from coverage.Id. at 1079-80. Thus, under the language of Exclusion B, the subjective beliefs of the insured are not relevant. See also Westport Ins. Corp. v. Mirsky, No. Civ.A. 00-4367, 2002 WL 31018554 at *12 (E.D.Pa. Sept. 10, 2002).
Although Mt. Airy was clearly decided under Pennsylvania law, the Court finds that its logic in concluding that an objective standard should be applied to an exclusion like the one at issue here is equally compelling under New York law. First, with respect to the interpretation of insurance policies, Pennsylvania law recognizes the same presumptions in favor of the insured that exist under New York law. Pennsylvania and New York are in agreement that when the insurer relies on a policy exclusion as the basis for denying coverage, the insurer bears the burden of proving that the exclusion applies. See Continental Cas. Co. v. County of Chester, 244 F.Supp.2d 403, 407 (D. Pa. 2003);Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 605, 735 A.2d 100, 106 (Pa. 1999). Moreover, as in New York, it is settled in Pennsylvania that when insurance policy language is unclear, the policy must be construed in favor of the insured and against the insurer. See Riccio v. American Republic Ins. Co., 550 Pa. 254, 264, 705 A.2d 422, 426 (Pa. 1997); Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 305; 469 A.2d 563, 566 (Pa. 1983). Thus, Pennsylvania law, like New York law, recognizes strong presumptions in favor of the insured when interpreting policy language and the scope of an exclusion. Nevertheless, in applying Pennsylvania law, the Court in Mt. Airy, applied an objective standard to the policy exclusion at issue.
Second, this Court agrees with the policy justifications articulated in Mt. Airy in favor of an objective standard. To be sure, an insured should not be denied coverage for an act, error, or omission, of which he was unaware or which he reasonably expected could not give rise to a claim. But, having knowledge of such an act, error, or omission, the insured cannot perform his own risk assessment based on a subjective impression as to whether or not the aggrieved client will sue, which would impermissibly usurp the insurance company's role in assessing risk.
B. Defendants' Interpretation
While defendants cite authority from within the Second Circuit applying a subjective standard to insurance policy exclusions containing the phrase "expect or intend," defendants' cases are inapposite. For instance, in City of Johnstown v. Bankers Standard Ins. Co., 877, F.2d 1146, 1149 (2d Cir. 1989), the Second Circuit applied a subjective standard to a comprehensive liability policy containing an exclusion for risks that were "expected" or "intended" by the insured. Distinguishing such intentional risks from accidental ones, the Second Circuit ruled that recovery under that policy would only be barred if the insured "intended the damages." Id. at 1150. The policy at issue in Johnstown excluded coverage for risks that were "expected," which can be read properly as incorporating a subjective standard. But the language in the policy at issue inJohnstown is materially different from the language in the policy at issue here, which excludes coverage for "any act, error, or omission," regardless of whether it was intentional or accidental, that "might be expected" to form the basis of a claim, which suggests an objective standard (emphasis added). Thus, Exclusion B is much broader than the exclusion at issue inJohnstown.
This same analysis applies to the other case cited by defendants to support their claim that a subjective standard should apply, Stonewall Ins. Co. v. Asbestos Claims Mgmnt. Corp., 73 F.3d 1178, 1205 (2d Cir. 1995).
The mere existence of conflicting interpretations is not sufficient to establish that a policy is ambiguous; rather, the party seeking to establish ambiguity must show that there are at least two reasonable interpretations of the policy. "[A]n ambiguity is not created simply because the parties to an insurance contract put forward different interpretations of its terms, particularly `where one of two competing constructions is strained or unnatural.'" Colson Services Corp. v. Insurance Co. of North America, 874 F.Supp. 65, 68 (S.D.N.Y. 1994) (quotingCounty of Schenectady v. Travelers Insurance Company, 48 A.D.2d 299, 368 N.Y.S.2d 894, 897 (3d Dep't 1975)). As defendants' interpretation of the policy exclusion is untenable, the Court finds that Exclusion B is unambiguous, and that an objective standard applies in construing Exclusion B.
III. Applicability of Exclusion B
Having determined that Exclusion B of the 2000 Policy is unambiguous, the Court must now determine whether or not there is an issue of material fact as to whether it applies to the circumstances of this case.
Defendants contend that there is a dispute of fact as to whether or not it was reasonable for GD to expect that no claim would be brought against them for the error in the Latona personal injury lawsuit. Applying the standard above, GD's subjective belief as to whether or not the Latonas would file an action is irrelevant — the appropriate question is whether or not, under the circumstances, a reasonable lawyer would know or could reasonably foresee that failing to file a claim against Chrysler within the statute of limitations might give rise to a malpractice claim.
Clearly, the answer to this question is yes. It is undisputed that Kelner failed to commence a wrongful death action against Chrysler within the applicable statute of limitations, and that as a result, the claim against Chrysler was dismissed. Like the defendant in Mt. Airy, defendants "knew that [they] had not acted to prosecute [their] client's claim . . . and knew that the court had dismissed the client's complaint on that basis. These facts are undisputed. A reasonable person aware of these facts could reasonably expect that a malpractice claim might result." 954 F.Supp at 1080. Furthermore, according to defendants, they themselves advised the Latonas that they should bring a malpractice claim if they thought it was necessary.
Although defendants, in obtaining coverage from Westport, sought coverage that would be retroactive to May 12, 1993, the Disclosures executed in conjunction with both the 1999 Policy and the 2000 Policy expressly and unequivocally state that coverage is "subject to all policy terms and conditions." The Policy does indeed cover claims arising from acts, errors, or omissions taking place after May 12, 1993, but such coverage is subject to Exclusion B, which, as noted above, clearly applies to the Latona malpractice claim, notwithstanding defendants' expectation of coverage for that claim.
Conclusion
For the forgoing reasons, plaintiff's motion for summary judgment is GRANTED. The Court declares that based on Exclusion B of the Lawyers Professional Liability Renewal Policy, No. NRL-001529-1 for the period of, and for claims between May 12, 2000 and May 12, 2001 (hereinafter referred to as the "2000 Policy"), Plaintiff Westport is not obligated to afford coverage to the Defendants, in whole or in part, including defense or indemnity, for the lawsuit entitled Joanne D. Latona, Individually and as Administratix of the Estate of Angelo Latona, Deceased v. Paul A. Goldberger, Samuel Kelner, Lawrence A. Dubin, Goldberger Dubin, P.C. and Samuel H. Kelner, Esq., filed in Supreme Court for the State of New York, Court of New York, Index No. 120655/03.
The Clerk of the Court is directed to close this case.
SO ORDERED: