Opinion
7825/07.
Decided September 9, 2008.
CHIERA ASSOCIATES, Attorneys for Plaintiffs, By: Randall J. Chiera, Esq., Scarsdale, New York.
STEINBERG CAVALIERE, LLP, Attorneys for Defendants, By: Kevin F. Cavaliere, Esq., White Plains, New York.
Plaintiffs, attorney Randell J. Chiera and his law firm, Chiera Associates (collectively "Plaintiffs") bring this action seeking a declaration that defendant insurer must defend Plaintiffs against an action brought by Patricia Warren ("Warren"), a former client, and indemnify Plaintiffs from any judgment that Warren might obtain against him. Defendants move for summary judgment, urging that the Court find that there is no obligation to defend or indemnify Plaintiffs with respect to Warren's claims (Seq. No. 1). Plaintiffs cross-move for summary judgment, contending that Defendants must defend and, if necessary, indemnify Plaintiffs with respect to Warren's claims (Seq. No. 2). The motion and cross-motion are consolidated for purposes of decision and disposition.
RELEVANT BACKGROUND AND FACTS
On March 19, 2001, Patricia Warren retained the firm of Chiera Brady to represent her in connection with a potential medical malpractice case. (Affidavit of Kevin F. Cavaliere, sworn to May 6, 2008 ["Cavaliere Aff."], Ex. F). Warren was referred to Randall John Chiera ("Chiera") by her ophthalmologist who opined that medical malpractice may have occurred (Affidavit of Randall J. Chiera, sworn to June 3, 2008 ["Chiera Aff."] at ¶ 3).
The law firm of Chiera and Brady was dissolved as of March 31, 2002 and Warren's representation was continued by the firm of Chiera Associates ("Chiera Associates"). Chiera was the attorney who was to handle the matter personally or to supervise and monitor the associates who worked on the case (Cavaliere Aff., Ex. F).
Chiera Associates, and the attorneys employed by it, obtained professional liability insurance from Liberty Insurance Underwriters, Inc. ("Liberty").
According to Defendants, Liberty was the only entity which issued the liability insurance policies at issue but it has not sought dismissal of any of the other Defendants.
In particular, Liberty issued two claims-made policies; one which covered the period from September 6, 2004 to September 6, 2005 (the "2004-2005 Policy") (Cavaliere Aff., Ex. E); and one which covered the period from September 6, 2005 to September 6, 2006 (the "2005-2006 Policy") (Cavaliere Aff., Ex. D).
A.Service in The Warren Action
On May 20, 2003, more than two years after Warren had retained Chiera's prior firm, Chiera Associates filed an action on behalf of Warren against George Hyman, M.D. ("Hyman") in Supreme Court, Kings County (Index No. 8665/03), entitled Warren v Hyman (the "Warren Action"). The Verified Complaint alleged that Warren had been treated by Hyman in November, 2000 and continuously through January 2001 (Cavaliere Aff., Ex. G., Verified Complaint at ¶ 7). Accordingly, the two year, six months period of limitations applicable to medical malpractice cases ( see CPLR 214-a) would have expired at the end of July 2003.
Chiera retained Tri-State Judicial Services, Inc. ("Tri-State") to effectuate service on Hyman. Chiera received from Tri-State an affidavit of service executed on July 25, 2003 by Alex Shafran, a licensed process server. According to Shafran's affidavit, he served Hyman on July 22, 2003 by delivering a copy of the Summons and Verified Complaint upon "Ms REESE CO-WORKER" at Hyman's actual place of business, 2460 Flatbush Avenue, Brooklyn, New York and by mailing a copy, on July 25, 2003, to the same address. He described Ms. Reese as a brown-skinned female, with brown hair, approximately 21-35 years old, between 5'4" and 5'8" inches tall and weighing between 100 and 130 pounds (Chiera Aff., Ex. 1).
B.The Traverse Hearing
Chiera did not immediately receive an answer to the Verified Complaint but he contends he was not concerned because, in his experience, the process by which an insured defendant refers the papers to the insurer and the insurer assigns counsel rarely occurs within the statutory answer period (Chiera Aff. at ¶ 5). After a number of months went by without an appearance from counsel for Hyman, in February 2004, Chiera Associates moved for a default judgment against Hyman in the Warren Action.
In response to the default motion, Hyman moved to dismiss the Warren Action. In his affidavit, Hyman averred that he was not served with process and that he first learned of the lawsuit in February 2004 when he received the motion for a default judgment in the mail. Hyman swore that he had no "Ms. Reese" in his office and that, of the three women who worked in his office, only one was African-American but her name was not "Reese" and she was 50 years old, 5'2" and weighed 150 pounds. Tthis person went out on disability in June 2003 and did not return to work until July 28, 2003, five days after the papers were allegedly served on "Ms. Reese" (Cavaliere Aff., Ex. H). In an accompanying affirmation, counsel for Hyman argued that the Warren Action should be dismissed because Hyman was never served with the Summons and Complaint within 120 days of filing. While noting that CPLR 306-b permits the Court to extend the time for service "upon good cause shown or in the interest of justice," counsel argued Warren's time to effectuate service should not be extended in this case and further, that the statute of limitations had run.
In response to the motion to dismiss, Chiera Associates: (a) served an Amended Notice of Motion, with supporting papers for a default judgment; and (b) served opposition papers to the Hyman motion. The opposition papers relied upon the affidavit of service of Shafran as evidencing proper service and did not include a cross-motion requesting an extension of time to make service in the event that Shafran's service was found to be invalid. In view of the conflicting factual claims on the issue of service, a traverse hearing was scheduled before Justice Jules Spodek.
The traverse hearing was held on April 28, 2004 and Warren was represented by an associate of Chiera Associates, Andrea S. Nitoiu. At one point during the hearing, Justice Spodek questioned whether Ms. Nitoiu if she had ever done a traverse and she admitted that she had not. Justice Spodek also questioned, at the outset, whether the statute of limitations had run and was informed by defense counsel that it had (Cavaliere Aff., Ex. M at 3).
During the hearing, Justice Spodek's patience with Ms. Nitoiu's apparent inexperience ran thin (see Cavaliere Aff., Ex. M at 5, 24). Of course, it may be that, even if Nitoiu had been more experienced, the result would have been the same as it is clear from the transcript that there were significant inconsistencies within Shafran's testimony.
At the hearing, Shafran testified that he had been serving process for 13 years. He produced his logbook which indicated that he had made service at Hyman's office at 2460 Flatbush Avenue on July 22, 2003. Justice Spodek examined the logbook and noted that "there is something not right" because Shafran's log book indicated that he had served someone in Coney Island 10 minutes before the Hyman service and someone in Bay Ridge 15 minutes later ( id. at 6-8).
Shafran claimed that he went to Hyman's office, announced that he was there to serve Hyman, and left the papers with the secretary who was behind the desk because she told him that Hyman was not available (Cavaliere Aff., Ex. M at 9-10). He said that the woman gave her name as Reese and describe her as being 29 years old, female, light brown skin, brown hair, 5'5", 120 pounds. Justice Spodek noted that some of this description was different from the description on the affidavit of service ( id. at 16-17). On cross-examination, Shafran said that the woman was not African-American and he did not think that the woman was Hispanic ( id. at 19-20). Shafran could not recall what he had to do in order to gain entry to Hyman's office ( id. at 21).
Hyman testified that he was present in the office on July 22, 2003 and that the person at the front desk was "a Russian lady" who was a Caucasian with white skin ( id. at 26-28). He also testified that the only African-American woman was not present that day because she was out on disability ( id. at 30).
At the conclusion of the hearing, Justice Spodek ruled from the Bench that the motion to dismiss for failure to make service was granted and that defense counsel should settle an order. In response, Nitoiu stated "we were diligent enough to try and properly [effectuate] service. We don't know exactly what happened". She asked: "Could we be granted an extension to serve?" Justice Spodek denied the application on the ground that too much time had passed from the attempted service to the time of the application ( id. at 39-41).
On July 14, 2004, Justice Spodek issued the order granting Hyman's motion to dismiss for lack of personal jurisdiction with prejudice, denying Warren's motion for a default judgment as moot, and denying "plaintiff's oral application for an extension of time to serve the defendant with process" (Cavaliere Aff., Ex. O).
C.The Appeal of Justice Spodek's Order
Believing that Justice Spodek's decision was "terribly wrong" (Chiera Aff., ¶ 8), on August 23, 2004, Chiera and Chiera Associates appealed it (Cavaliere Aff., Ex. O). At the time, Warren continued to entrust to Chiera Associates "efforts to reverse what we both viewed as an erroneous decision" (Chiera Aff. at ¶ 10).
In the papers on appeal, the only argument raised was that Justice Spodek had abused his discretion by denying the request for an extension of time to serve process. (Cavaliere Aff., Ex. Q at 8). It was also argued that the interests of justice would be served by an extension because since the statute of limitations had run, Warren "is left without any recourse to recover for the injuries she sustained while under treatment with [Hyman]" ( id. at 11).
On June 13, 2005, the Appellate Division, Second Department (Prudenti, P.J.; Schmidt, Santucci, Luciano, Spolzino, J.J.) sua sponte dismissed the appeal on the ground that the portion of the order appealed from the denial of an extension of time to make service did not result from a motion made on notice and was not appealable as of right. The Appellate Division declined to grant permission to appeal. ( Warren v Hyman ,19 AD3d 481 [2d Dept 2005]).
D.The Policy Renewal
The professional liability insurance coverage then in effect for Chiera Associates, and provided by Liberty, ran from September 6, 2003 to September 6, 2004 (the "2003-2004 Policy") (Chiera Aff., ¶ 9 and Ex.10). On September 4, 2004, in connection with the policy renewal, Chiera completed a Claims Supplemental Application (Cavaliere Aff., Ex. P; Chiera Aff., Ex. 6). In that document, Chiera identified Warren as a claimant or potential claimant arising from failure to serve process. Chiera described the act as: "process server hired by the firm was found at a traverse hearing not to have made proper service. We have filed a Notice of Appeal" ( id.). Chiera explained that, to prevent a recurrence of the incident, a Notice of Appeal had been filed and the client had been advised" ( id.).
The document itself is dated September 5 (Chiera Aff., Ex. 9; Cavaliere Aff., Ex. P).
According to Liberty's counsel, the Claims Supplemental Application was received by Liberty's underwriting agent, JLT Services, on September 8, 2004, and was attached to the application for a renewal application for a lawyer's professional liability policy (Cavaliere Aff. at ¶ 21). While defense counsel would not seem to have personal knowledge of this fact, the copies of the Claims Supplemental Application submitted by both sides reflect a "Received" stamp from "JLTS" on September 8, 2004 (Chiera Aff., Ex. 9; Cavaliere Aff., Ex. P).
On September 29, 2004, Liberty issued the 2004-2005 Policy (Cavaliere Aff., Ex. E). According to Chiera, Liberty did not make any inquiry of him regarding the claim or potential claim of Warren prior to the issuance of the 2004-2005 Policy (Chiera Aff. at ¶ 11). On October 11, 2005, Liberty issued the 2005-2006 Policy (Cavaliere Aff., Ex. D).
E.The Warren Action
On January 26, 2006, Warren commenced an action against Chiera and Chiera Associates in Supreme Court, Kings County, Index No. 2660/06, entitled Patricia Warren, Plaintiff, against Randall J. Chiera and Chiera Associates, Defendants (the "Warren Action") (Cavaliere Aff., Ex. R). In the complaint, Warren alleges that Chiera and Chiera Associates committed legal malpractice by failing to properly commence a medical malpractice action on Warren's behalf prior to the expiration of the statute of limitations and, thus, deprived Warren of a substantial chance of recovery ( id. at ¶¶ 8,9, 10). Warren seeks damages of $10,000,000 ( id. at ¶ 11).
F.Liberty Assigns Counsel
In February 2006, after Chiera was served with the Summons and Complaint in the Warren Action, he promptly forwarded the papers to Liberty. Liberty acknowledged receipt of the papers and assigned Brenda K. Dorsett as claims representative (Chiera Aff. at ¶ 14, Exs., 5, 6). On February 14, 2006, Dorsett wrote to A. Michael Furman, Esq. of Kaufman Borgeest Ryan (the "Kaufman Firm"), to confirm the retention of that firm to represent Chiera Associates in the Warren Action. Chiera was sent a copy of this letter ( id., Ex. 7). Chiera communicated with Furman and other attorneys with the Kaufman Firm, both orally and in writing ( id.).
On February 20, 2006, Furman wrote to Chiera regarding the matter and, on March 23, 2006, Chiera sent the Kaufman Firm the record on appeal and briefs and stated that the entire file was being copied and would be provided the following week (Chiera Aff., Ex. 9). On May 9, 2006, R. Evon Howard of the Kaufman Firm wrote to Chiera stating that the time to respond to the Warren complaint would expire on May 12, 2006, requesting copies of the medical records of Warren's treatment with Hyman, and requesting the date of his retention by Warren which was necessary to determine the viability of a third-party action against Tri-State. He also asked, in order to frame the answer, whether Chiera Associates was a legal partnership as alleged by Warren ( id.).
G.Liberty Disclaims
It appears that an answer to the Warren Action was not interposed on behalf of Chiera and Chiera Associates by the Kaufman Firm, though Chiera avers that he anticipated that it would be doing so as it had taken over the defense of the Warren Action and was drafting an answer (Chiera Aff. at ¶¶ 14, 15). Instead, on June 6, 2006, Steinberg Cavaliere, LLP, the firm that represents Defendants in this action, wrote to Chiera stating that the Liberty policy did not provide coverage for the claim by Warren (Cavaliere Aff., Ex. C). It was asserted that Chiera had failed to timely notify Liberty of the claim or potential claim by Warren as required by the policy terms.
Chiera and Chiera Associates apparently undertook the defense of the Warren Action, either pro se or through counsel of their own selection. (See Cavaliere Aff., Ex. S, N). The current status of the Warren Action has not been described in the papers submitted.
THE PRESENT LITIGATION
This declaratory judgment action was commenced by Plaintiffs, pro se, by filing on May 9, 2007. The Verified Complaint alleges that timely notice was given to Liberty of the claim brought by Warren and that Defendants are obligated to provide defense and indemnification with respect to the claim (Cavaliere Aff., Ex. A at ¶¶ 14-18). Liberty answered on May 29, 2007, interposing denials of the material allegations of the Verified Complaint and asserting affirmative defenses, including a Second Affirmative Defense based upon lack of timely notice of the Warren claim (Cavaliere Aff., Ex. B). No counterclaim was asserted; as a result, Plaintiffs were not entitled to serve a reply as of right and Defendants' affirmative defenses are deemed denied (CPLR 3011; Albin v First Nationwide Network Mortgage Co., 248 AD2d 417 [2d Dept 1998]).
According to Defendants' counsel, a document demand was served along with the answer and it took Plaintiffs nine months to comply with it (Affidavit of Kevin F. Cavaliere, Esq., sworn to June 18, 2008 ["Cavaliere Reply Aff."] at ¶ 23). There is no indication that Plaintiffs served any discovery demands during this period. After Defendants received the responses to their demands, they prepared and served the present motion for summary judgment ( id.). Only then did Plaintiffs serve discovery demands (Cavaliere Reply Aff., Ex. C.). The discovery demands are boiler-plate, though they do seek copies of the insurance policies at issue and the entire claim file ( id).
THE MOTION AND CROSS-MOTION FOR SUMMARY JUDGMENT
In seeking summary judgment, Liberty argues that Plaintiffs failed to give timely notice of the claim or potential claim of Warren. Liberty urges that the policy requires timely notice, that Plaintiffs were on notice of a potential claim as early as March 2004 when Hyman moved to dismiss the Warren Action and not later than April 28, 2004 when Justice Spodek orally dismissed the Warren Action and refused to extend the time for service, and that a delay of more than four months in giving Liberty any notice of Warren's potential claim is too long as a matter of law. In making this argument, Liberty assumes that the notice given in connection with the renewal application was effective notice.
Liberty seeks to preserve for a later date, if necessary, the argument that the supplying of the information about the Warren matter as part of the renewal process is not effective notice, citing Steadfast Ins. Co. v Sentinel Real Estate Corp. ( 283 AD2d 44 [1st Dept 2001]), in which the Appellate Division, First Department, held that where the claim in question was one of hundreds listed in loss runs given to the insurance carrier on a monthly basis, the listing of the claim in the loss runs was inadequate notice that there was one claim in particular for which coverage might be sought. However, in that case, the claim in question was included among many claims and nothing distinguished the one claim from the hundreds of others. Here, the information provided on the Supplemental Claims Application concerned only a single identifiable situation. While the First Department noted in Steadfast that there are out-of-state authorities which hold that references to a claim in material submitted for purposes other than claims-handling are not to be considered adequate notice of claim to a carrier, the Court did not explicitly adopt that rule as the rule in New York. Further, the Liberty polices do not contain a provision which specifies where notices are to be sent or in what form. Rather, the polices provide that notice is to be sent to "us" and authorized notice to be given to "our agent". As noted previously, Liberty's counsel has stated that JLTS, the entity to which Chiera sent the Supplemental Claims Application, is Liberty's underwriting agent ( see Jeffrey v Allcity Ins. Co. , 26 AD3d 355 [2d Dept 2006] [notice provision in liability insurance policy was ambiguous as to party to whom notice of occurrence was to be sent as it used pronouns "we", "us" and "our" without clearly identifying insurer, such that timely notice to broker would satisfy requirement]).
In opposing Liberty's motion, and in support of the cross-motion, Plaintiffs urge that the policy provisions with respect to notice are ambiguous and did not require that notice be given any sooner than it was, that Plaintiffs had a good faith reasonable basis for believing that Warren was not likely to bring a claim, that Defendants suffered no prejudice by reason of any delay, and that, in view of the nearly two year delay between the notice in September 2004 and the disclaimer of coverage in June 2006, Defendants waived their notice defense or should be estopped from asserting it. Plaintiffs also suggest that Defendants' motion should be denied because Plaintiffs have not yet obtained discovery, citing CPLR 3212(f).
In reply, Defendants contend that the notice provision of the policy is clear, that Plaintiffs could not have had a good faith reasonable belief in non-liability, that lack of prejudice is legally irrelevant, and that the waiver and estoppel arguments are raised for the first time in the opposing papers and are without merit. Defendants also contend that Plaintiffs waited more than one year after the answer was served to seek discovery and requested discovery only after the motion for summary judgment was served and, therefore, they complain that the motion was designed to thwart pending discovery.
THE SUMMARY JUDGMENT STANDARD
The proponent of a motion for summary judgment carries the initial burden of production of evidence as well as the burden of persuasion ( Alvarez v Prospect Hosp., 68 NY2d 320). The moving party must tender sufficient evidence to demonstrate as a matter of law the absence of a material issue of fact. Failure to make that initial showing requires denial of the motion, regardless of the sufficiency of the opposing papers ( Winegrad v New York University Med. Center, 64 NY2d 851, 643-644; St. Luke's-Roosevelt Hosp. v American Transit Ins. Co., 274 AD2d 511 (2d Dept 2000); Greenberg v Manlon Realty, Inc., 43 AD2d 968 [2d Dept 1974]). Once the moving party has made a prima facie showing of entitlement of summary judgment, the burden of production shifts to the opponent, who must now go forward and produce sufficient evidence in admissible form to establish the existence of a triable issue of fact or demonstrate an acceptable excuse for failing to do so ( Zuckerman v City of New York, 49 NY2d 557, 562; Tillem v Cablevision Sys. Corp. ,38 AD3d 878 [2d Dept 1007]; Fleming v Graham , 34 AD3d 525 [2d Dept 2006]).
The court's main function on a motion for summary judgment is issue finding rather than issue determination ( Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395). Since summary judgment is a drastic remedy, it should not be granted where there is any doubt as to the existence of a triable issue ( Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223). Thus, when the existence of an issue of fact is even arguable or debatable, summary judgment should be denied ( Stone v Goodson, 8 NY2d 8; Sillman, supra).
In reviewing a motion for summary judgment, the Court must accept as true the evidence presented by the nonmoving party and must deny the motion if there is "even arguably any doubt as to the existence of a triable issue" ( Baker v Briarcliff School Dist., 205 AD2d 652, 661-662 [2d Dept 1994]).
THE EFFECTIVE DATE OF THE POLICIES AT ISSUE
The 2004-2005 and 2005-2006 Policies each contain a provision entitled "Notice of Claims" and a provision entitled "Discovery Clause." Liberty urges that it properly disclaimed coverage for the Warren Action as Plaintiffs failed to give prompt notice in accordance with the Notice of Claims provision. Liberty contends, in essence, that the "Notice of Claims" paragraph requires Plaintiffs to give notice of "potential claims" and that, as of April 28, 2004, Warren had a "potential claim" against Chiera and Chiera Associates. In response, Plaintiffs argue that the Notice of Claims paragraph does not require that notice be given of "wrongful acts" and that the Discovery Clause makes notice of "wrongful acts" optional. Plaintiffs also assert that the term "potential claims," which appears in the "Notice of Claims" paragraph, is not defined within the policy. Plaintiffs urge that any "wrongful act" could be said to entail the potential for a demand for money and that the insurance policy is inconsistent because it requires that "potential claims, whatever that means," be reported, while making the reporting of wrongful acts optional. Thus, they state "the insurer's efforts to thwart coverage, relying on a patently ambiguous Notice provision, which fails in a very material way to describe the circumstances requiring notice, should not be permitted" (Affirmation of David B. Hamm, Esq., dated June 5, 2008 ["Hamm Aff."] at ¶ 29).
It is well settled that a policy requirement that an insured provide notice of any occurrence to the insurance company within a reasonable time is considered a condition precedent to the insurer's obligation to defend or indemnify the insured ( see, e.g., Seneca Ins. Co. v W.S. Distrib., Inc. , 40 AD3d 1068 [2d Dept 2007]; C.C.R. Realty of Dutchess, Inc. v New York Cent. Mut. Fire Ins. Co. , 1 AD3d 304 [2d Dept 2003]; White v City of New York, 81 NY2d 955). An insurer is not required to show prejudice in order to sustain a coverage disclaimer based on late notice ( Argo Corp. v Greater New York Mut. Ins. Co. ,4 NY3d 332, 339; Wilson v Quaranta , 18 AD3d 324 [1st Dept 2005]; DiGuglielmo v Travelers Prop. Cas. , 6 AD3d 344, 346 [1st Dept 2004], lv denied 3 NY3f 608 [2004]; Paramount Ins. Co. v Rosedale Gardens, Inc., 293 AD2d 235, 241 [1st Dept 202]). "There may be circumstances, such as lack of knowledge or reasonable belief in non-liability, that will excuse or explain delay in giving notice, but the insured has the burden of showing the reasonableness of such excuse" ( Seneca Ins. Co., supra, 40 AD3d at 1069, quoting White, supra, 81 NY2d at 957-958).
The earliest of the two policies submitted by Liberty covered the period from September 6, 2004 to September 6, 2005. While the 2004-2005 Policy contains a requirement that written notice of claims be provided as soon as practicable, that Policy was not effective until September 6, 2004, while Chiera gave written notice of Warren issue on September 4, which was received by Liberty's underwriting agent on September 8, 2004. Liberty did not actually issue the 2004-2005 Policy until September 29, 2004, but when it did, it made the 2004-2005 Policy retroactive to September 6, 2004 (Cavaliere Aff., Ex. E).
Liberty has not submitted any policy covering claims made in the 2003-2004 period. While Chiera submits the declarations, or first, page from prior policies (Chiera Aff., Ex. 10), he does not submit the terms of the policies and Liberty did not provide them in its reply papers. In the absence of any showing that as to the terms of a prior policy, there is no apparent basis for Liberty's argument that Chiera was required to give notice of the Warren incident by no later than April 28, 2004, several months before the 2004-2005 Policy was even issued. Further, it is clear that Liberty's underwriting agent had been given notice of the Warren issue by September 8, 2004, yet Liberty went ahead and issued the 2004-2005 Policy anyway on September 29, 2004.
While Plaintiffs do not argue this point, it seems evident to the Court that Liberty cannot disclaim coverage of the Warren matter based on lack of notice when it had notice before it issued the policy. Alternatively, viewing the policy as taking effect on September 6, 2004, Liberty received written notice of the Warren matter two days later and, thus, was given notice within two days of the effectiveness of the policy, which would seem, as a matter of law, to be notice given "as soon as practicable." For this reason alone, Liberty's motion for summary judgment should be denied.
THE DISTINCTION BETWEEN NOTICES OF ACTS OR
OMISSIONS AND NOTICES OF POTENTIAL CLAIM
The Court need not rest its decision solely on an argument not raised by the parties. Because the Notice of Claims provision in the 2004-2005 and 2005-2006 Policies requires only that notice of claims or potential claims be given and does not require that notices of wrongful acts be given in order to obtain coverage of claims made within the policy periods, the Notice of Claims provision, even if applicable, was not triggered merely by awareness, or constructive awareness, on the part of Chiera and/or his law firm that the dismissal of the Warren Action, and denial of an extension of time to make service, could give rise to potential liability on their part to Warren.
Liability insurance policy provisions which require prompt notification be given to the insurer of potential liability exposure have been referred to as provisions that require notice of a "potential claim" ( see White, supra, 81 NY2d at 957). But, actually, the policy provision in question in that case did not require notice of a "potential claim" but notice of an "occurrence" ( White v City of New York Co., 180 AD2d 324 [1st Dept 1992], affd 81 NY2d 955). Thus, it appears that the language employed in the memorandum decision of the Court of Appeals was somewhat inexact. Indeed, the cases cited by the Court of Appeals for the proposition that notification of a "potential claim" operates as a condition precedent all involved policies requiring notification be given of "occurrences" ( see Unigard Sec. Ins. Co. v North River Ins. Co., 79 NY2d 576, 579 [policy required that insurer be given prompt notice of "any occurrence or accident which appears likely to involve this reinsurance"]; Security Mut. Ins. Co. of New York v Acker-Fitzsimons Corp., 31 NY2d 436, 439 [policy required that insurer be given notice "as soon as practicable" after the "occurrence").
While the Second Circuit held that failure to give a prompt notice of claim cannot be excused by the insured's good faith belief of non-liability, the Appellate Division, Third Department, disagreed and held that a good faith belief on the part of the insured of non-liability or non-coverage may, if reasonable, excuse a failure to provide prompt notice of claim ( Reynolds Metal Co. v Aetna Cas. Sur. Co., 259 AD2d 195 [3d Dept 1999]).
There is a difference between a notice of occurrence requirement and a notice of claim requirement. A notice of occurrence requirement focuses on the insured's knowledge of events and reasonable conclusions based on that knowledge; in contrast, a notice of claim provision focuses on the actions of third parties. In particular, all that is required to trigger a notice of claim requirement is the insured's receipt from a third party of an assertion of liability, no matter how meritorious or baseless the assertion might be ( American Ins. Co. v Fairchild Indus., Inc., 56 F3d 435, 439 [2d Cir 1995]).
Most attorneys' professional liability policies have notice of occurrence requirements, i.e. the policies require the giving of prompt notice of "an act or omission which might reasonably be expected to be the basis of a claim or suit" or notice upon receipt by the insured attorney of "information as to which an alleged act, error or omission for which claim is made" ( Giles v St. Paul Fire Marine Ins. Co., 62 AD2d 1138, 1139 [4th Dept 1978]). The Fourth Department explained that the potential for error in a professional context is "pervasive" and then stated "if notification of the circumstances giving rise to potential claims is required under a professional malpractice insurance policy, we are of the view that such requirement must be specifically set forth" ( id.). Notably, in referring to a requirement that the circumstances underlying an act or omission be set forth, the Fourth Department telescoped the preceding references to an "act or omission" into the phrase "potential claims".
The same use of "potential claims" as a short-hand way of referring to a notice of occurrence provision appears in other cases. For example, in Sirignano v Chicago Ins. Co. ( 192 F Supp 2d 199, 202 [SD NY 2002]), the policy required that, when the insured attorney became "aware of any negligent act, error, omission or Personal Injury in the rendering of or failure to render Professional Services which could reasonably be expected to be the basis of a Claim covered hereby," the insured was required to give prompt notice thereof to the insurer. The Court, however, telescoped this language into a "condition requiring timely notice of a potential claim" ( id.). In adopting this language, the Court cited Bellefonte Ins. Co. v Albert ( 99 AD2d 947 [1st Dept 1984]) in which the First Department seemingly applied the phrase notice of "potential claim" to a policy in which the insured attorney was required, like the attorney in Sirignano, to give notice upon "becoming aware of any act or omission which might reasonably be expected to be the basis of a claim or suit. . . ." ( id. at 948). However, the Sirignano Court recognized that this is provision is really better characterized as a "notice of occurrence" provision ( Sirignano, 192 F Supp 2d at 203, citing Rooney v Chicago Ins. Co., 2001 WL 262703 [SD NY 2001], affd 26 Fed Appx 53 [2d Cir 2001]).
See also Wilson v Quaranta ,18 AD3d 324, 325-326 (1st Dept 2005) (no timely notice of a "potential malpractice claim" in case where policy required, like the policy in Sirignano, that the insured give prompt notice upon becoming "aware of any negligent act, error, omission or Personal Injury in the rendering or failure to render Professional Services which could reasonably be expected to be the basis of a Claim. . . .").
Similarly, in Fein v Chicago Ins. Co. ( 2003 WL 21688239 [SDNY 2003]), the Court described the purposes served by "provisions requiring insureds to give timely notice to the insurer of potential claims," but noted that the policy in question, like the policy in Sirignano, required notice of a claim or lawsuit instituted against the insured and notice when the insured attorney became aware of any negligent act, error or omission or Personal Injury in the rendering of, or failure to render, professional services which could reasonably be expected to be the basis of a claim.
See also Cass v American Guarantee Liability Ins. Co., 13 Misc 3d 1238(A), 2006 WL 3359664 (Sup Ct NY County 2006) (policy provision entitled "Notice of a Potential Claim" requiring insured attorneys to give notice immediately if they had "any basis to believe that any Insured has breached a professional duty or to foresee that any such act or omission might reasonably be expected to be the basis of a Claim" was found unambiguous and warranted a declaration that the insurance company was not obligated to defend and indemnify plaintiffs in the underlying action).
THE POLICIES AT ISSUE IN THIS ACTION
Both the 2004-2005 and 2005-2006 Policies issued by Liberty are claims-made policies, providing coverage for claims "first made against you during the policy period" (Cavaliere Aff, Exs. D and E). The relevant provisions of the 2004-2005 Policy are identical to those in the 2005-2006 Policy. Both policies contain two paragraphs with respect to Claims; one is labeled "Notice of Claims", the other is labeled "Discovery Clause."
The policies define claim as meaning "a demand received by you for money or services, including the service of suit or institution of arbitration proceedings against you, or a disciplinary proceeding" (Cavaliere Aff., Exs. D, E at 2) (emphasis added). The relevant portions of the policies dealing with claims state:
1.Notice of Claims. You must give us written notice of any claim(s) or potential claim(s) made against you as soon as practicable. In the event suit is brought against you, you must immediately forward to us every demand, notice, summons, complaint or other process received directly or by your representatives. Written notice of any claim against you, as well as of each demand on or action against us must be delivered to us.
All notices to us must be in writing. Notice given by or on behalf of you, or written notice by or on behalf of any claimant, to our agent shall be considered notice to us.
2.Discovery Clause. Should you first become aware during the policy period or any extended reporting period, if applicable, of a wrongful act for which coverage is otherwise provided hereunder, and should you during the policy period or any extended reporting period, if applicable, give written notice to us of:
a.the specific wrongful act;
b.the injury or damage which has resulted or may result from such wrongful act; and
c.the circumstances by which you first became aware of such wrongful act, then any claim that may subsequently be made against you arising out of such wrongful act shall be deemed for the purposes of this insurance to have been made during the policy period or any extended reporting period, if applicable (Cavaliere Aff., Exs. D, E at 7) (emphasis in original).
The policies define "wrongful act" as "any actual or alleged act, error, omission or personal injury which arises out of the rendering or failure to render professional legal services" (Cavaliere Aff. Exs. D, E at 3) (emphasis in original).
Courts bear the responsibility of determining the rights and obligations of the parties under insurance contracts based upon the specific language of the policies ( Empire Fire and Marine Ins. Co. v Eveready Ins. Co. , 48 AD3d 406, 407 [2d Dept 2008]). As with contracts generally, unambiguous provisions of an insurance contract must be given their plain and ordinary meaning and the interpretation of such provisions is a question of law for the court ( Vigilant Ins. Co. v Bear Stearns Companies, Inc. , 10 NY3d 170, 177). In looking at the language of the policies, the policy should be construed as a whole and in a way that affords a fair meaning to all of the language employed by the parties and leaves no provision without force or effect ( Raymond Corp. v National Union Fire Ins. Co. , 5 NY3d 157, 162); MDW Enter., Inc. v CNA Ins. Co., 4 AD3d 338, 341 [2d Dept 2004]).
Here, the Liberty policies are "claims-made" policies which, as set forth in the declarations on page 1, affords coverage only for claims first made within the policy or extended reporting period. The Notice of Claims provision and the Discovery Clause address two distinct issues. The Notice of Claims paragraph requires that prompt notice be given of any "claim(s) or potential claims(s) made against the insured." By complying with this requirement, the insured attorney may obtain coverage for claims asserted against the insured during the policy period.
The Discovery Clause, on the other hand, has a different mission. Since the Liberty policies are claims-made policies, the insured would not have coverage for a claim which is first made after the policies expire. However, the Discovery Clause permits the insured to obtain coverage for a claim first asserted post-policy by notifying the insurer of a wrongful act.
Plaintiffs argue that the Discovery Clause makes disclosure of wrongful acts committed during the policy period optional. In one sense, this is true; an insured need not make the disclosure, though the consequence would be that no coverage would be afforded if a claim is first brought after the expiration of the policy for a undisclosed wrongful act first brought to the insured's attention during the policy period. In another sense though, the disclosure is mandatory; if the insured wants coverage for claims first made after the expiration of the policy, the insured must make the disclosure.
Nevertheless, it remains that the Notice of Claims provision requires notice of claims or potential claims, as to which the insured would be entitled to coverage, while the Discovery Clause permits notification of wrongful acts so that coverage will be provided should a claim be made later, after the policy expires.
Liberty would have this Court read the term "potential claim" in the Notice of Claims provision as the functional equivalent of "occurrence" or, as used in the Discovery Clause, "wrongful act". Indeed, Liberty elides over the distinction between notice of claim and notice of occurrence when it cites Sirignano as authority explicating the purposes of "notice-of-potential claim conditions" (Defendants' Mem. at 7). Sirignano, in the passage cited by Liberty, actually expounded on the purpose of "notice of occurrence" provisions, such purpose being to enable insurers to make a timely investigation, to seek a pre-litigation settlement, to take steps to avoid similar occurrences, and to establish more accurate renewal premiums and maintain adequate reserves ( Sirignano, supra, 192 F Supp 2d at 203).
This Court cannot rewrite or vary the terms of the policy ( Kenyon v Newton, 144 AD2d 901 [4th Dept 1988]; see Marshall v Tower Ins. Co. of New York , 44 AD3d 1014 [2d Dept 2007]). The Court cannot, and will not, ignore the obvious: Liberty chose to define the term "wrongful act" and to use that term in the Discovery Clause; Liberty chose to define the term "claim" and to use that term, and the term "potential claim," in the Notice of Claims provision.
The policies define "claim" as a demand received by the insured for money or services, including the institution of an action or proceeding. While the phrase "potential claim" is not defined, it clearly means a claim which, though not yet asserted, is capable of developing into an actual claim ( see Merriam-Webster On-Line Dictionary [2008] [defining potential as "existing in possibility: capable of development into actuality"]; see also Black's Law Dictionary [8th Ed. 2004] [capable of coming into being]). This is because, unless the policy provides a definition, words and phrases are to be understood in their plain, ordinary and popularly understood sense ( Tower Ins. Co. of New York v Corlette , 34 AD3d 792, 793 [2d Dept 2006]). The test is based upon "common speech" and the "reasonable expectation and purpose of the ordinary" business person ( MDW Enter., Inc., supra, 4 AD3d at 340).
Most important, the term "potential claim" cannot be read isolation from its context ( see Albany Medical Center v Preferred Ins. Co. of New York, 19 Misc 3d 209, 213 [Sup Ct Albany County 2008]). The term "potential claim" is immediately followed by the phrase "made against you", the insured. The Court cannot adopt an interpretation which would make any phrase meaningless. Under Liberty's view, if "potential claim" meant "wrongful act", then the phrase "made against you" would be meaningless. Since "claim" is specifically defined as a demand received by the insured, the phrase "made against you" clearly relates only to "potential claim."
The term "claim" is specifically defined to mean a demand for money. The phrase "potential claim" is intended to prevent an insured from not giving notice of a real, concrete claim simply because the claimant did not articulate an explicit demand. Thus, the Court reads the entire phrase "potential claim made against you" as meaning a demand for money or services which, though not actually yet asserted, as been impliedly articulated by a third party, such as by a letter from the client indicating that a claim might be forthcoming, a letter expressing dissatisfaction with the insured's performance, a letter inquiring as to the attorney's insurance coverage, or other, similar circumstances. Cf. Avery Avery, P. C. v American Ins. Co. ( 51 AD3d 695 [2d Dept 2008]) (insured became aware of potential claim by fact that family of injured party had taken photographs of the scene).
This construction is consistent with the well recognized distinction between notice of claim provisions and notice of occurrence provisions. The term "potential claim" appears in the Notice of Claims provision, which focuses on the action of a third party in asserting possible liability of the insured. "Wrongful act", like a "notice of occurrence" provision, relates to the insured's knowledge of events and reasonable conclusions based on that knowledge ( American Ins. Co., supra, 56 F3d at 439).
Further, even if the term "potential claim" was capable of both the construction that Liberty would put on it as well as the construction adopted by the Court, the policy term would be ambiguous and, therefore, would be construed against the insurer who drafted the policy ( City of New York v Evanston Ins. Co. , 39 AD3d 153, 156 [2d Dept 2007]; see also Hudson v Allstate Ins. Co. , 25 AD3d 654, 656 [2d Dept 2006]). Where a policy term is susceptible of two reasonable interpretations, it must be construed in favor of the insured ( Lee v Otsego Mut. Fire Ins. Co. ,49 AD3d 863, 864 [2d Dept 2008]). Thus, in order for the insurer to prevail, it must show not just that its interpretation is reasonable, but that it is the only fair interpretation ( City of New York, supra, 39 AD3d at 156, citing Primavera v Rose Kiernan, Inc., 248 AD2d 842, 843 [3d Dept 1998]). This Liberty has failed to do.
While it may be that Chiera and his law firm could reasonably have expected a claim might eventuate from Warren as of April 28, 2004, neither Warren or anyone on her behalf ever communicated any claim or expressed anything that could be construed as an intention to make a claim, or even anything at all, until the institution of the Warren Action in early 2006. As Warren had done nothing and said nothing regarding any possibility of a claim by the time that Chiera submitted the Supplemental Claims Application on September 4, 2004, there is no basis for denying him the "claims made" coverage that Liberty extended, and Chiera paid for, effective September 6, 2004, with Liberty having awareness of the wrongful act at issue. Indeed, to the extent that it is said that notice of occurrence provisions enable insurers to price policy renewals, Liberty had the opportunity as its renewal department knew of the Warren issue when Liberty issued the 2004-2005 Policy. If Liberty wanted its insured to give notice of an occurrence arising during the policy period as a condition for providing coverage, then it could have drafted its policy to expressly so state in accordance with the provisions found in previously cited cases ( see Giles v St. Paul Fire Marine Ins. Co., 62 AD2d 1138 [4th Dept 1978]).
Liberty relies upon an unreported decision in Peters, Berger, Koshel Goldberg, P.C. v Liberty Int. Underwriters Inc. (Sup Ct NY County 2007). There, the Court found that coverage was barred by a policy exclusion which denied coverage to any claim which arises out of a wrongful act occurring prior to the policy period which the insured had a reasonable basis to believe involved a breach of professional duty or commission of a wrongful act or which the insured could foresee that a claim would be made against them. While it is true, as Liberty contends, that the Peters, Berger Court also held, in the context of a Notice of Claims provision like the one at bar, that the insured failed to give notice of a potential claim, that holding was an alternative reason for the result reached. Further, in ruling that a "potential claim" means that the insured was required to notify Liberty "when they reasonably might be expected to be the subject of a malpractice claim," the Peters, Berger Court cited Bellefonte Ins. Co. v Albert ( 99 AD2d 947 [1st Dept 1984]). However, the policy in Bellefonte, as previously noted, involved different language language which required the insured to give notice upon becoming aware of any act or omission which might reasonably be expected to be the basis of a claim. No such language appears in the Notice of Claims provision in this policy and, to the extent that Peters, Berger construed "potential claims made against you" as meaning the same thing as awareness of any act or omission that might reasonably be expected to be the basis of a claim, this Court respectfully disagrees with that construction.
Similarly, the Court declines to rely upon the oral decision of the New Jersey Superior Court in Jaworowski v Guerin (Hudson County, Docket #004881-06-05), affirmed in an unreported decision of the New Jersey Appellate Division (Docket No. A-4881-06T3). Of some moment, the New Jersey Appellate Division perceived the Liberty policy involved there as defining "claim or potential claim" as "a demand received by you for money or services, including the service of suit . . ." Further, the decisions involved whether New York law or New Jersey law applied and, while it was concluded that New York law applied, there is no indication that the New Jersey courts were presented with an argument as to the difference in New York law between a notice of claim requirement and a notice of occurrence requirement.
It is undisputed that Warren never communicated to Chiera or to Chiera Associates any express or implied demand for money until the Warren Action was instituted on January 26, 2006, during the policy period of the 2005-2006 Policy. It is also undisputed that Chiera forwarded the suit papers to Liberty promptly after he was served with the papers. Thus, the Court finds that, when Warren did make a claim, Chiera and Chiera Associates gave prompt notice thereof to Liberty.
In view of this determination, it is unnecessary to consider the waiver and estoppel issues raised by Plaintiffs.
Accordingly, Liberty's motion for summary judgment should be denied and Plaintiffs' cross-motion for summary judgment should be granted.
CONCLUSION
For the reasons set forth above, it is hereby
ORDERED that the motion of Defendants, including Liberty Insurance Underwriters, Inc. for summary judgment: (a) declaring that Defendants are not obligated to defend or indemnify Plaintiffs Randall J. Chiera and Chiera Associates with respect to an action in the Supreme court of the State of New York, County of Kings, captioned Patricia Warren v Randall J. Chiera and Chiera Associates (Index No. 2660/06); and (b) dismissing the Verified Complaint herein (SEQ #1) is denied; and it is further
ORDERED that the cross-motion of Plaintiffs Randall J. Chiera and Chiera Associates for summary judgment declaring that Defendants are obligated, under and pursuant to the policy of insurance issued to Plaintiffs, to defend and, if necessary, indemnify Plaintiffs with respect to an action in the Supreme Court of the State of New York, County of Kings, captioned Patricia Warren v Randall J. Chiera and Chiera Associates (Index No. 2660/06) (SEQ # 2) is granted as to Defendant Liberty Insurance Underwriters, Inc.; and is otherwise denied; and it is further
ORDERED, ADJUDGED, DECLARED AND DECREED that Defendant Liberty Insurance Underwriters, Inc. is obligated to defend and, if necessary, indemnify Plaintiffs Randall J. Chiera and Chiera Associates with respect to an action pending in the Supreme Court of the State of New York, County of Kings, captioned Patricia Warren v Randall J. Chiera and Chiera Associates (Index No. 2660/06), such defense and indemnification to be provided under and pursuant to the policy of insurance issued by said Defendant to said Plaintiffs.
The foregoing constitutes the Decision and Order of this Court.