The National Union policy language is an explicit repudiation of prior law that held that director and officer liability policies do not require reimbursement of legal expenses until the legal liability of the insured had been established.See In re Ambassador Group, 738 F. Supp. 57, 61 (S.D.N.Y. 1990) (describing principle and its supporting precedent). Continental contends that it is under no continuing obligation to pay defense costs since it gave notice to WorldCom that it regarded its policy as void ab initio and rescinded, and advised WorldCom that it "would" return the premium.
When interpreting an insurance policy, the Court must first look to the plain meaning of the policy. Francis v. INA Life Ins. Co. of N.Y., 809 F.2d 183, 185 (2d Cir. 1987); In re Ambassador Group, Inc. Litig., 738 F. Supp. 57, 62-63 (E.D.N.Y. 1990); Maurice Goldman Sons, Inc. v. Hanover Ins. Co., 80 N.Y.2d 986, 987, 592 N.Y.S.2d 645, 646, 607 N.E.2d 792, 793 (1992). The policy includes the following provisions:
Judge Brozman also relied on one decision from this district, PepsiCo, Inc. v. Continental Casualty Co., 640 F. Supp. 656, (S.D.N.Y. 1986), although this decision itself relied on Okada. However, in a recent decision not cited by the bankruptcy court, In re Ambassador Ins. Group, Inc. Litigation, 738 F. Supp. 57 (E.D.N.Y. 1990), Judge Dearie sharply criticized Okada and, applying New York law, held that the D O policy at issue in his case did not imply a duty to advance defense costs. The issue of whether defense costs must be advanced is hardly settled, given the current split among the courts that have considered this issue.
Instead, we give the words of the agreement their ordinary and plain meaning. See In re Ambassador Group, Inc. Litigation, 738 F.Supp. 57, 62 (E.D.N.Y. 1990). Once an insured has come forward with evidence of a loss covered by the insurance policy, the burden shifts to the insurer to show that the loss is excluded from coverage.
The policy does not contemplate ‘unconditional payment of defense costs for potentially covered claims' as the majority suggests, it contemplates payment of defense costs as a loss if indemnification is required. Conspicuously absent from the ... policy is any clause providing that the insurer has the right and the duty to defend.”); accordIn re Ambassador Grp., Inc. Litig. , 738 F.Supp. 57, 61 (E.D.N.Y.1990) (explaining that the Okada majority's result conflicts with the consensus that policies containing similar duty to pay defense cost clauses are not duty to defend policies). Thus, the Policy's plain terms belie the argument that XL was authorized to “control[ ] the disposition of claims against its insured” such that Belsen Getty “relinquish[ed] any right to negotiate on [its] own behalf.”
Plaintiff's argument that Defendant's interpretation is an "absurd[]" "manipulation of the Policy language" because "[i]t would clearly have been impossible to erect the new building within 2 years given the need for a zoning variance and other municipal approvals for parking, water and drainage," (PI. Opp. 7-8, 11) is also without merit: "The fact that [the insured] may have contracted for coverage that was of little use to it at the time [of the loss] does not mean that it is entitled to more beneficial coverage which it did not contract for." In re Ambassador Grp., Inc. Litig., 738 F. Supp. 57, 62 (E.D.N.Y. 1990) (alterations in original) (internal quotation marks and citation omitted). "[I]t is not the function of a court to rewrite insurance policies so as to provide coverage which the court might have considered more equitable."
See Liab. Ins. Coverage Cases, 333 F. Supp. 2d at 127-28. "`[U]nder New York law, the effect of a violation of insurance regulations is determined by carefully balancing the equities of the parties,'" id. at 128 (quoting In re Ambassador Group, Inc. Litig., 738 F. Supp. 57, 65 (E.D.N.Y. 1990)), and the equities do not require me to rewrite the policies. In the present case, judicial rewriting of the bargained-for insurance policy would impose on Zurich an obligation that it expressly rejected and would run directly counter to the admonition in World Trade Center Properties that, in contract interpretation, "the intentions of the parties should control."
See, e.g., In re Ambassador Group, Inc. Litig., 738 F. Supp. 57, 61-62 (E.D.N.Y. 1990) ("in the absence of a policy provision expressly imposing a duty to defend, New York courts will not find such a duty") (citing Henderson v. Aetna Cas. Sur. Co., 434 N.E.2d 247 (N.Y. 1982) and Chrapa v. Johncox, 401 N.Y.S.2d 332 (N.Y.App.Div. 1977)); In re Kenai Corp., 136 B.R. 59, 63 (S.D.N.Y. 1992). Second, even assuming arguendo that Ulico bears a duty to defend the claims brought against the Trustees, it is well established that an insurer's duty to defend vanishes once it becomes clear that the claims raised against the insured are not covered by the policy.
Avant Petroleum, 118 F.3d at 1369 ("the general purpose of an interpleader action is to decide the validity and priority of existing claims to a res"; "interpleader actions do not . . . remove priority from claims which existed when the interpleader commenced"). See also In re Ambassador Group, Inc. Litigation, 738 F. Supp. 57, 65 (E.D.N.Y. 1990) (". . . Congress nowhere indicated that the interpleader statute was intended to alter state contract and insurance law."). Supported by an affidavit from attorney David L Schwarz and a Declaration from attorney Stephen Crimmins (Exs. 2 and 3 to Hannon's motion for summary judgment, #3118), Kevin Hannon asserts that he submitted defense cost claims amounting to $2,633,148 from May 2002 through October 2004 to the AEGIS, EIM, and Federal Insurance layers that were denied by those insurers.
(internal citation omitted)). Thus, Judge Raymond J. Dearie, in In Re Ambassador Group, Inc. Litig., 738 F. Supp. 57, 65 (E.D.N.Y. 1990), in considering an endorsement that failed to provide a required notice under Regulation 107, but otherwise complied with New York public policy, upheld the endorsement. Judge Dearie ruled that "under New York law, the effect of a violation of insurance regulations is determined by carefully balancing the equities of the parties."