Opinion
605910/01.
Decided March 31, 2003.
Motions and cross motion under sequence numbers 002, 004, 006, 007 and 008 are consolidated for disposition and are disposed of in accordance with the following memorandum decision.
In motion sequence 002, defendant Royal Indemnity Company (Royal) moves, pursuant to CPLR 3211 (a) (7) or 3212, for an order dismissing plaintiffs' First Amended Complaint (the Complaint), and all cross claims asserted against it; or, pursuant to CPLR 2201, staying this action.
Royal has "reconsidered" (Reply Br. at 3-4) its motion with respect to any claims asserted by Zurich against Royal to the extent that such claims pertain to any dispute amongst the primary insurers of BBA with respect to any eventual defense or indemnity expenses for BBA arising out of the underlying products litigation, but only to the extent that this motion pertains to any claim related to Zurich's status as a primary insurer of BBA.
In motion sequence 004, defendant Liberty Mutual Insurance Company (Liberty Mutual) moves, pursuant to CPLR 3211(a)(1) and (7), for an order dismissing the Complaint and all cross claims asserted against it by defendant Zurich American Insurance Company (Zurich).
In motion sequence 006, plaintiffs, International Flavors Fragrances, Inc. (IFF) and Bush Boake Allen Inc. (BBA), move, pursuant to CPLR 3212, for an order granting partial summary judgment as to defendants' duty to defend.
In motion sequence 007, defendant Zurich moves for a declaratory judgment as to its duty to defend, and for an order sealing confidential matters in the file.
In motion sequence 008, defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union) moves for a declaratory judgment as to its duty to defend. Defendant Liberty Mutual cross-moves, pursuant to 22 NYCRR Part 130, for sanctions against IFF and BBA.
Background
This is an action for a declaratory judgment as to the obligation, if any, of the insurer defendants to defend and/or indemnify IFF and/or BBA in a purported class action product liability lawsuit, captioned Benavides, et al. v. International Flavors Fragrances, et al., in the Circuit Court, Jasper County, Missouri, No. 01CV683025 (the Benavides Action), which was filed on September 7, 2001. The plaintiffs are or were employees of Gilster Mary Lee, a company which owns and operates a microwave popcorn packaging plant in Jasper, Missouri, and their spouses. They allege that they suffered bodily injury, including lung damage, as a result of inhaling butter flavoring products that were produced at the plant since 1986. They allege that the natural and artificial butter flavorings contained diacetyl and other chemical compounds that allegedly caused their bodily injuries, and that the flavorings were designed, manufactured and marketed by IFF and BBA.
The class action petition in the Benavides Action was amended in March 2002 to add allegations that IFF's products injured the plaintiffs therein. The original petition, which named IFF, but not BBA, as a defendant, had alleged that "IFF and/or its predecessor in interest Bush Boake [sic] Allen designed, manufactured, marketed and/or distributed BBA butter flavoring" that caused plaintiffs' alleges injuries. This action was commenced on December 13, 2002.
All of the insurance policies that the insurance companies sold to IFF and BBA contain explicit promises to defend and pay defense costs in any suit seeking damages because of "bodily injury." The insurance companies sold primary comprehensive general liability insurance policies to IFF and BBA as summarized below:
Insurance Company Policyholder Policy Period
Zurich IFF May 1, 1999 to May 1, 2002
Zurich BBA Dec. 15, 2000 to May 1, 2002
Royal BBA Dec. 15, 1997 to Dec. 15, 2000
Liberty Mutual BBA Dec. 15, 1985 to Dec. 15, 1997
National Union IFF May 1, 1985 to May 1, 1997
American Home IFF May 1, 1997 to May 1, 1999
All of the insurance policies at issue require the insurance companies to provide a defense. For example, the Zurich policies obligate Zurich to defend any potentially covered claims against the Policyholders:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But: (1) The amount we will pay for damages is limited as described in Section III — Limits of Insurance; and
(2) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages [for bodily injury and property damage]. . . .
(emphasis added).
The insurance provided in the Zurich Policies applies to "bodily injury" that "is caused by an 'occurrence' that takes place in the 'coverage territory,'" and if the "bodily injury" could have occurred "during the policy period." The Zurich Policies define "bodily injury" as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." Thus, allegations of injury taking place during the policy period activate all of these policies. These "occurrence" policies apply irrespective of when the actual claim is made against the policyholder.
The other insurance policies, in comparable language, similarly obligate Royal, Liberty Mutual, American Home and National Union to defend any potentially covered claims. Through the defense provisions, the Insurance Companies explicitly promised to pay defense costs if there is any allegation that IFF or BBA is liable for damages because of bodily injury that could have taken place during the applicable policy periods.
Royal issued policy number PTS 457493 to BBA, a wholly-owned subsidiary of IFF, for three consecutive policy periods: December 15, 1997-1998; December 15, 1998-1999; and December 15, 1999-2000. The Royal policies included coverage for damages for "bodily injury." Liberty Mutual issued five comprehensive general liability insurance policies to an entity known as Union Camp Corporation (which is not a party hereto), which policies listed BBA as an additional Named Insured. IFF was not named as an insured or an additional named insured on any of the relevant Liberty Mutual policies.
IFF fully acquired BBA on or about November 2000.
The original class action complaint in the Benavides Action was filed on September 7, 2001, and named only two parties as defendants: IFF and a local Missouri physician named Dr. Richard Scacewater. The complaint alleged, in essence, that IFF had sold a butter flavoring made by BBA to the plaintiffs' employer, and that exposure to the product had resulted in serious injuries to plaintiffs. Thereafter, IFF requested that Royal defend the action. By letter dated November 20, 2001, Royal rejected this request, noting that IFF was not listed as an "insured" or "additional insured" on the policy issued to BBA, a legally separate entity.
Both National Union and American Home sold to IFF primary insurance policies with a duty to defend. They have informed IFF that it may select its own counsel but they will not pay for defense costs incurred by IFF prior to the March 2002 amendment of the petition in the Benavides Action, even though IFF had been named a party defendant therein in the original petition in September 2001. They contend that, prior to the amendment of the petition in the Benavides Action, only products manufactured by BBA, not by IFF, were alleged to have injured the class action plaintiffs. Zurich has agreed to defend IFF under a reservation of rights.
On March 5, 2002, the plaintiffs in the Benavides Action moved for leave to serve an amended petition, adding BBA as a named defendant. On March 6, 2002, Royal sent a letter to BBA acknowledging its duty to defend BBA in the Benavides Action, and stating that it would arrange for BBA's representation, in consultation with Liberty Mutual. On March 6, 2002, Liberty Mutual sent a letter to BBA acknowledging its duty to defend BBA in the Benavides Action. After quite a bit of motion practice and oral argumentation before this court, it was agreed that Royal/Liberty Mutual would defend and indemnify BBA in the Benavides Action, except for any award of punitive damages.
Procedural Posture of This Action
The First Amended Complaint in this action alleges four causes of action, as follows: (1) breach of contract by Royal, Zurich and Liberty Mutual, for refusal to defend IFF and BBA in the Benavides Action; (2) a declaratory judgment as to the refusal of Royal, Zurich and Liberty Mutual, to defend IFF and BBA in the Benavides Action; (3) a declaratory judgment that all defendants must defend and indemnify IFF and BBA in the Benavides Action; and (4) compensatory and exemplary damages for bad faith refusal by Royal and Zurich to defend plaintiffs based on the pollution exclusion contained in their primary policies. Zurich, National Union and American Home all have served answers to the Complaint and to cross-claims asserted against them by their co-defendants. Zurich has asserted a cross-claim against Royal and Liberty Mutual and National Union to determine Zurich's proper allocable share of defense costs for the Benavides Action. Zurich seeks contribution from the cross-claim defendants. National Union and American Home have also asserted cross-claims against Royal, Liberty Mutual and Zurich for contribution or indemnity.
Dismissal Standards
On a motion to dismiss a complaint for failure to state a cause of action, the complaint must be liberally construed in the light most favorable to the plaintiff ( Guggenheimer v. Ginzburg, 43 NY2d 268, 275). The court must accept each and every allegation, and reasonable inferences therefrom, as true, and, if plaintiff is entitled to recovery based upon any reasonable view of the stated facts, the complaint as a pleading is legally sufficient ( 219 Broadway Corp. v. Alexander's, Inc., 46 NY2d 506, 509; McGill v. Parker, 179 AD2d 98, 104 [1st Dept 1992]). The court's inquiry is limited to ascertaining whether the pleading states any cause of action, not whether there is evidentiary support for the complaint ( Guggenheimer v. Ginzburg, supra).
Although the court has discretion, under CPLR 3211 (c) to go beyond the face of the complaint by treating the motion as though it were one for summary judgment, the court must first give the parties notice of its intention to so treat the motion ( Mihlovan v. Grozavu, 72 NY2d 506, 508; Four Seasons Hotels, Ltd. v. Vinnik, 127 AD2d 310, 311 [1st Dept 1987]). There are three exceptions to the requirement of notice: (1) If the action involves no issues of fact, but only issues of law fully appreciated and argued by both sides, such as in an action for a declaratory judgment; (2) when a request for CPLR 3211 (c) treatment is specifically made by both sides; and (3) when both sides make it unequivocally clear that they are laying bare their proof and deliberately charting a summary judgment course ( Four Seasons, 127 AD2d at 320-321). Documentary evidence, proved or conceded to be authentic, may be considered by the court for fact finding purposes prior to joinder of issue ( id. at 318).
It is well-settled that a defense based upon documentary evidence can succeed if the documents submitted resolve all of the factual issues as a matter of law ( Gephardt v. Morgan Guaranty Trust Co. of NY, 191 AD2d 229 [1st Dept], appeal denied 82 NY2d 656). A motion to dismiss a complaint pursuant to CPLR 3211 (a) (1) is inappropriate if the documents do not "definitively dispose of the claim" ( Devlin v. Video Services Acquisition, 188 AD2d 370, 370 [1st Dept 1992], quoting Demas v. 325 West End Ave. Corp., 127 AD2d 476, 477 [1st Dept 1987]). To warrant dismissal, a defense grounded on documentary evidence must be a complete one, leaving no genuine triable issues of fact ( Expocorp v. Hyatt Management Corp. of NY, 134 AD2d 234 [2nd Dept 1987]).
Declaratory Judgment
The purpose of an action for a declaratory judgment is to serve some practical end in quieting or stabilizing an uncertain or disputed jural relation either as to present or prospective obligations ( James v. Alderton Dock Yards, 256 NY 298, 305, rearg denied 256 NY 681). An action for a declaratory judgment is not subject to dismissal merely because the plaintiff is not entitled to the declaration that it seeks ( Lanza v. Wagner, 11 NY2d 317, 334, appeal dismissed 371 US 74, cert denied 371 US 901). In such a case, rather than dismiss the complaint, the court should make an appropriate declaration of the rights and obligations of the parties with respect to the subject matter of the litigation ( Sweeney v. Cannon, 30 NY2d 633). However, there must be a justiciable controversy between adverse parties, so that a declaration of rights will have some practical effect; where there is no dispute as to the plaintiff's rights, a declaratory judgment action will be dismissed ( Downe v. Rothman, 215 AD2d 716, 717 [2nd Dept 1995]).
Royal and Liberty Mutual
As previously noted, Royal and Liberty Mutual move to dismiss under CPLR 3211 (a) (7) or 3212, for failure to state a cause of action against them. Plaintiffs argue that the court should limit itself to the well-pleaded allegations contained in the four corners of the Complaint because Royal has not yet served its answer, and, since issue has not been joined, summary judgment treatment is inappropriate. This argument is without merit. Issue has been joined by the other parties. The parties — including plaintiffs — have clearly indicated their desire to have the court treat this as a motion for summary judgment and, more importantly, this case falls within the recognized exceptions to the notice requirement set forth in Four Seasons. Plaintiffs have not demonstrated the existence of factual issues which need to be developed in order for the court to address the ultimate legal issues.
In motion sequence 006, plaintiffs, themselves, have moved, pursuant to CPLR 3212, for partial summary judgment as to defendants' duty to defend, asserting that summary judgment is appropriate here because the duty to defend and pay costs can be determined as a matter of law (Pl. Br. at 17 et seq.). A party should not be permitted to "eat with the hounds and run with the hares" ( In re Cox, 175 BR 266, 274 [CD IL 1994]).
Paragraph 1 of the Complaint alleges that this is an action for breach of contract against Royal, Zurich and Liberty Mutual, and for declaratory relief against all defendants.
Breach of Contract
The essential elements to pleading a cause of action for breach of contract are as follow:
(1) the making of an agreement; (2) due performance by plaintiff; (3) breach thereof by defendant; and (4) causing damage to the plaintiff ( Furia v. Furia, 116 AD2d 694, 695 [2nd Dept 1986]; Stratton Group, Ltd. v. Sprayregen, 458 F Supp 1216, 1217 [SD NY 1978]). The complaint must set forth the provisions of the contract ( Shields v. School of Law of Hofstra Univ., 77 AD2d 867, 868-869 [2nd Dept 1980]; Lupinski v. Village of Ilion, 59 AD2d 1050 [4th Dept 1977]) and the terms of the agreement upon which liability is predicated, either by express reference or by attaching a copy of the contract ( Chrysler Capital Corp. v. Hilltop Egg Farms, Inc., 129 AD2d 927 [3rd Dept 1987]; Sebro Packaging Corp. v. S.T.S. Industries, Inc., 93 AD2d 785 [1st Dept 1983]).
Royal and Liberty Mutual assert that they did not sell primary policies to IFF for the applicable periods. Rather the named insured was BBA, IFF's subsidiary. There is nothing in the record to raise a question of fact as to whether IFF was the named insured or an additional insured.
The documentary evidence, as well as the admissions made by counsel, on the record, in open court before me, make clear that Royal and Liberty Mutual have agreed to defend and indemnify their named insured, BBA, in the Benavides Action. A duty to defend does not arise if the entity named in the underlying action is not an "insured" under the policy, even if the claims seek to hold that entity vicariously liable for the conduct of others who are named insureds under the policy ( Medical Malpractice Ins. Assn v. Medical Liability Mut. Ins. Co., 86 AD2d 476 [1st Dept], lv denied 57 NY2d 604).
BBA contends that there is still a justiciable controversy as to the obligation of Royal/Liberty Mutual to pay BBA's pre-litigation expenses incurred during the period of time between the filing of the original complaint in the Benavides Action in September or October of 2001 (when IFF, but not BBA, was named as a defendant), and the amendment of the complaint in the Benavides Action in March 2002, in which BBA was added as a defendant and allegations were made against it. BBA contends that a policyholder may recover defense costs incurred by it prior to the commencement of an action against it, where, although the insured was not originally named as a party defendant, it was clear from the allegations of the original complaint that it would be sued ( Fitzpatrick v. American Honda Motor Co., 78 NY2d 61; Liberty Mut. Ins. Co. v. Continental Cas. Co., 771 F2d 579, 586 [1st Cir 1985]). Fitzpatrick held that "rather than mechanically applying only the 'four corners of the complaint' rule * * *, the sounder approach is to require the insurer to provide a defense when it has actual knowledge of facts establishing a reasonable possibility of coverage" ( 78 NY2d at 67). Here, a plain reading of the original petition in the Benavides Action shows that there was a reasonable possibility that BBA would be sued, even though it was not named as a defendant until the filing of the amended petition.
Defendants argue that, before the court reaches the legal issue of coverage, the duty to defend/indemnify must be triggered by the filing of a complaint against the insured alleging facts arguably entitling the insured to coverage, and that the insurers' defense obligation is limited to the defense of "any suit" against the insured, and thus, is triggered by the filing of a formal law suit against the insured ( Technicon Elecs. Corp. v. American Home Assur. Co., 141 AD2d 124, 145-146 [2nd Dept 1988], affd 74 NY2d 66, rearg dismissed 74 NY2d 843, rearg denied 74 NY2d 893).
They further argue that the policy provides that "[n]o insured will, except at the insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense * * * without our consent." It is undisputed that the pre-litigation expenses incurred by BBA prior to its being named a defendant in the amended petition in the Benavides Action were incurred without the consent of its insurers. However, BBA timely requested that Royal/Liberty Mutual defend it, which request was rejected. Therefore, they breached their obligation to defend BBA by not paying its pre-litigation costs, prior to March 2002.
Accordingly, that branch of the motion by Royal and Liberty Mutual seeking dismissal of the first cause of action by BBA against them (breach of contract) is denied. Since there is no justiciable controversy concerning the obligation of Royal and Liberty Mutual to defend and indemnify BBA in the Benavides Action, that branch of the motion by Royal and Liberty Mutual to dismiss the second and third causes of action by BBA (declaratory judgment) is granted. To the extent that the Complaint seeks a declaratory judgment that Royal/Liberty Mutual is obligated to pay its pre-litigation expenses between the filing of the original petition and the amended petition in the Benavides Action, the court declares that they have such an obligation.
That branch of the motion seeking dismissal of the fourth cause of action by BBA against Royal and Liberty Mutual (bad faith refusal to defend) is granted and it is dismissed as duplicative.
IFF contends that, by virtue of its purchase of all of the issued and outstanding stock of BBA, it is entitled to all the benefits of the primary policies sold to BBA, including insurance coverage. IFF contends that it may be liable to the class action plaintiffs under a theory of corporate successorship. The amended class action complaint in the Benavides Action alleges that IFF is merely a continuation of BBA.
Liberty Mutual moves to dismiss, pursuant to CPLR 3211 (a) (1), based on documentary evidence, to wit, the insurance policy. There is no privity of contract between IFF and Royal/Liberty Mutual ( see Skura v. Hartford Fire Ins. Co., 213 AD2d 472 [2d Dept 1995]), nor was IFF ever named as an additional insured ( American Ref-fuel Co. of Hempstead v. Resource Recycling, Inc., 248 AD2d 420, 423 [2nd Dept 1998]). There is nothing in the Royal/Liberty Mutual policies issued to BBA to indicate an intention to confer third-party beneficiary status on IFF, a stranger to the contract ( Stainless, Inc. v. Employers Fire Ins. Co., 69 AD2d 27, 34-35 [1st Dept 1979], affd 49 NY2d 924).
Accordingly, that branch of the motions by Royal/Liberty Mutual to dismiss the first cause of action asserted by IFF (breach of contract) is granted. For the reasons just articulated, the second and third causes of action asserted by IFF (declaratory judgment) are granted to the extent of declaring that Royal/Liberty Mutual have no duty to defend and/or indemnify IFF under their policies issued to BBA. Since Royal/Liberty Mutual have no contractual duty to defend or indemnify IFF, IFF's fourth cause of action (bad faith refusal to defend) asserted against Royal/Liberty Mutual is dismissed.
Zurich American Home and National Union
Zurich issued certain policies of commercial general liability insurance, effective May 1, 1999 to May 1, 2002, to IFF as the named insured; BBA was added as an insured on December 15, 2000. Zurich has stated that it has no opposition either to Royal's motion to dismiss Zurich's cross-claim or to Liberty Mutual's motion to dismiss Zurich's cross-claim because both Royal and Liberty Mutual have conceded that the duty to defend and/or indemnify BBA in the Benavides Action (Zurich Br., at 2). However, insofar as Zurich, American Home and National Union seek contribution from Liberty Mutual for amounts incurred in defending IFF in the Benavides Action, their cross claims are dismissed. An insurer has no greater right of contribution against another insurer than the purported mutual insured would have ( Hartford Acc. Indem. Co. v. CNA Ins. Cos., 99 AD2d 310 [1st Dept 1984]; Medical Malpractice Ins. Assn v. Medical Liability Mut. Ins. Co., 86 AD2d at 478-479]). For the reasons previously stated, since Liberty Mutual has no obligation to defend and/or indemnify IFF, Zurich, American Home and National Union have no right of contribution against Liberty Mutual for amounts incurred in defending IFF in the Benavides Action.
In order to trigger the obligation of National Union and American Home to defend, the petition in the Benavides Action must allege an "occurrence" within the purview of the insurance policies.
The original petition in the Benavides Action sought "entry of judgment against Defendant IFF for compensatory and punitive damages caused by Defendant's intentional, reckless and/or negligent design, testing, formulation, manufacture, marketing and selling of the defective BBA butter flavoring (¶ 2), and that "Defendant IFF and/or its predecessor in interest, Bush Boake [sic] Allen, designed, manufactured, marketed and/or distributed BBA butter flavoring. In the year 2000, Defendant merged with Bush Boake Allen. In the transaction: (1) Defendant IFF expressly or impliedly agreed to assume Bush Boake Allen's liabilities and debts, (2) the transaction amounted to a merger of the corporations, and (3) Defendant IFF is merely a continuation of Bush Boake Allen" (¶ 17).
The amended petition in the Benavides Action tracks the allegations of the original petition, but added BBA as a party defendant, and alleged that "the defendants BBA and/or IFF designed, manufactured, marketed and/or distributed BBA and IFF natural and artificial butter flavorings. In the year 2000, the defendant IFF merged with the defendant BBA. In the transaction: (1) the defendant IFF expressly or impliedly agreed to assume the defendant BBA's liabilities and debts, (2) the transaction amounted to a merger of the corporations, and (3) the defendant IFF is merely a continuation of the defendant BBA" (¶ 18)
The defendant insurers at bar argue that the original petition in the Benavides Action alleged that only BBA butter flavoring — not any IFF product — caused the plaintiffs' bodily injuries. All of the policies issued by National Union and American Home to IFF had expired by May 1, 1999, eighteen months before IFF purchased BBA in November 2000. National Union and American Home assert that there can be no liability under the National Union or American Home policies for liabilities which arose because of an acquisition after the expiration of the policies. The policies issued by National Union and American Home expired after the filing of the original petition, but before the filing of the amended petition, in the Benavides Action. National Union and American Home assert that there is no liability for pre-acquisition insurance policies for injuries caused by a BBA product.
The case law is clear that where policies expire prior to a corporate merger or acquisition the insurers are not liable for an "after-acquired liability" ( see e.g. Maryland Cas. Co. v. W.R. Grace Co., 794 F Supp 1206, 1231 [SDNY 1991], Supplementary Opinion, 1991 WL 283547 No. 83 Civ. 7451 (SWK) (SD NY Dec. 23, 1991), revd and remanded on other grounds, 23 F3d 617 [2d Cir 1994] (as amended), cert denied, 513 U.S. 1052 (no coverage from acquiring corporation's expired policies for liabilities first taken on with subsequent acquisition of asbestos-producing companies).
Here, however, IFF's liability is not predicated solely upon its acquisition of or merger with BBA. The previously quoted paragraphs of both the original and amended petition in the Benavides Action allege not only successor liability against IFF, but direct liability as well.
New York courts have held that the duty to defend is "exceedingly broad" and, indeed, broader than the duty to indemnify ( Continental Cas. Co. v. Rapid-American Corp., 80 NY2d 640, 648). Under New York law, an insurance company's duty to defend arises "whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim" ( Frontier Insulation Conts, Inc. v. Merchants Mut. Ins. Co., 91 NY2d 169, 175 [emphasis added]; Fitzpatrick v. American Honda Motor Co., 78 NY2d 61, 65).
The insurance companies' duty to defend is determined, therefore, by matching the allegations in the Benavides Action against the insurance policies at issue. If the allegations in the Benavides Action even potentially fall within the coverage provided, the insurance companies must defend their insured(s). If any allegation or cause of action in the Benavides Action is covered, the insurance companies must defend the entire action ( McGroarty v. Great American Ins. Co., 36 NY2d 358, 365). The court must construe liberally in favor of coverage the facts alleged in the Benavides Action to avoid having the duty to defend being controlled by inartful drafting by the underlying claimants ( see e.g. Ruder Finn, Inc. v. Seaboard Sur. Co., 52 NY2d 663, 670). In addition, an insurance company must "provide a defense when it has actual knowledge of facts establishing a reasonable possibility of coverage," even if such facts are outside of the pleadings ( Fitzpatrick, 78 NY2d at 67).
Guided by the foregoing principles, the court declares that Zurich, National Union and American Home have a duty to defend IFF in the Benavides Action. Furthermore, IFF is entitled to recover from Zurich, National Union and American Home its pre-litigation expenses reasonably incurred prior to the insurers agreeing to represent IFF, since it appears that the allegations in the Benavides Action potentially fall within the coverage provided ( George Muhlstock Co. v. American Home Assur. Co., 117 AD2d 117 [1st Dept 1986]).
The issue of the reasonable value of BBA's and IFF's costs and expenses, including attorney's fees, is referred to the Judicial Support Office for assignment to a Special Referee to hear and report with recommendations. Pending receipt of the report and a motion pursuant to CPLR 4403, final determination of that branch of the motion is held in abeyance. The parties may, if so advised, stipulate to a reference to hear and determine.
A copy of this order with notice of entry shall be filed with the Clerk of the Judicial Support Office, 60 Centre Street, Room 311, for the purpose of obtaining a calendar date.
The request, in motion sequence 007, for an order permitting certain materials deemed to be confidential, including papers referring to or containing bills submitted to plaintiffs by their defense counsel in the underlying action, to be filed with the court under seal is granted on consent without prejudice. Counsel for IFF is directed to submit an appropriate confidentiality stipulation or order.
Defendants National Union and American Home also seek to reserve their right, if any, to decline coverage in the future under the pollution exclusions, if the proofs adduced in the trial of the Benavides Action so warrant. The insurers have agreed to defend under the bodily injury liability coverage of their policies, but have reserved their right to decline to indemnify based on the pollution exclusions. New York courts have found that pollution exclusions may bar coverage for bodily injury from indoor and workplace contamination ( see e.g. B.U.D. Sheetmetal, Inc. v. Massachusetts Bay Ins. Co., 248 AD2d 856 [3d Dept 1998] (toxic fumes caused by product); A-One Oil, Inc. v. Massachusetts Bay Ins. Co., 250 AD2d 633 [2nd Dept 1998] (indoor air contamination caused by release of asbestos into residence after removal of furnace); White v. Freedman, 227 AD2d 470 [2d Dept 1969] (noxious fumes and chemical gases seeping into workplace through ventilation system); Demakos v. Travelers Ins. Co., 205 AD2d 731 [2nd Dept 1994] (cigarette smoke seeped into tenant's premises from pool and billiard club in basement of building).
Any exclusion upon which the insurance companies seek to rely to escape their duty to defend must unambiguously exclude any potential for coverage, and any ambiguities will be construed against the insurance companies as the drafters of the insurance policies (see Rapid-American, 80 NY2d at 655). The insurance companies must establish that the exclusion is stated in clear and unmistakable language and is subject to no other reasonable interpretation than to negate coverage ( Gillette, 64 NY2d at 311).
Accordingly, the court declares that National Union and American Home may reserve their right to decline coverage in the future under the pollution exclusions, if the proofs adduced in the trial of the Benavides Action so warrant.
Sanctions Request
Liberty Mutual has cross-moved for sanctions, pursuant to Part 130 of the Rules of the Chief Administrator, against IFF, BBA, and their counsel, Dickstein Shapiro Morin Oshinsky LLP (Dickstein Shapiro), for making a duplicative motion for summary judgment. In essence, Liberty Mutual argues that the separately noticed motion by plaintiffs for partial summary judgment on their causes of action for a declaratory judgment on the issue of the obligation(s) of the defendants to defend and/or indemnify IFF and BBA (sequence 006), was unnecessary and wasted time, effort and resources of the parties and of the court, since the very same arguments raised by plaintiff in their motion for summary judgment were raised by them in opposition to the respective motions by defendants for summary judgment and for dismissal of the complaint.
The Uniform Rules for Trial Courts vest this court with discretion to make an award of costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees resulting from frivolous conduct, or impose such financial sanctions against either an attorney or a party to the litigation or against both ( 22 NYCRR § 130-1.1 [a], [b]) for engaging in frivolous conduct.
"Frivolous conduct" is defined as being "completely without merit in law or fact and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; or is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another" ( 22 NYCRR § 130-1.1 [c]).
Although the separate motion by plaintiffs for summary judgment is redundant, I do not find that it rises to the level of being frivolous. The case cited by Liberty Mutual in support of its cross motion for sanctions, Matter of Herskowitz v. Tompkins ( 184 AD2d 402 [1st Dept], appeal dismissed 80 NY2d 1023), was far more egregious, and involved the making of "numerous duplicative motions," a situation not present herein.
Accordingly, that branch of the motion seeking costs and sanctions is denied.
To recapitulate, it is hereby
ORDERED that that branch of the motion by Royal Insurance Company of America and Liberty Mutual Insurance Company seeking dismissal of the first cause of action by Bush Boake Allen, Inc. against them (breach of contract) is denied; and it is further
ORDERED that that branch of the motion by Royal Insurance Company of America and Liberty Mutual Insurance Company to dismiss the second and third causes of action by Bush Boake Allen, Inc. (declaratory judgment) is granted; and it is further
ORDERED that, to the extent that the Complaint seeks a declaratory judgment that Royal Insurance Company of America and Liberty Mutual Insurance Company are obligated to pay pre-litigation expenses incurred by Bush Boake Allen, Inc. between the filing of the original petition and the amended petition in the Benavides Action, the court declares that they have such an obligation; and it is further
ORDERED that that branch of the motion seeking dismissal of the fourth cause of action by Bush Boake Allen, Inc. against Royal Insurance Company of America and Liberty Mutual Insurance Company (bad faith refusal to defend) is granted and it is dismissed; and it is further
ORDERED that that branch of the motions by Royal Insurance Company of America and Liberty Mutual Insurance Company to dismiss the first cause of action asserted by International Flavors Fragrances, Inc. (breach of contract) is granted; and it is further
ORDERED that the second and third causes of action asserted by International Flavors Fragrances, Inc. (declaratory judgment) are granted to the extent of declaring that Royal Insurance Company of America and Liberty Mutual Insurance Company have no duty to defend and/or indemnify International Flavors Fragrances, Inc. under their policies issued to Bush Boake Allen, Inc.; and it is further
ORDERED that International Flavors Fragrances, Inc.'s fourth cause of action (bad faith refusal to defend) asserted against Royal Insurance Company of America and Liberty Mutual Insurance Company is dismissed; and it is further
ORDERED that American Home Assurance Company and National Union Fire Insurance Company of Pittsburgh, Pennsylvania have no right of contribution against Liberty Mutual Insurance Company for amounts incurred in defending International Flavors Fragrances, Inc. in the Benavides Action; and it is further
ORDERED that Zurich American Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pennsylvania and American Home Assurance Company have a duty to defend International Flavors Fragrances, Inc. in the Benavides Action, and that International Flavors Fragrances, Inc. is entitled to recover from Zurich American Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pennsylvania and American Home Assurance Company, its pre-litigation expenses reasonably incurred prior to the insurers agreeing to represent International Flavors Fragrances, Inc.; and it is further
ORDERED that National Union Fire Insurance Company of Pittsburgh, Pennsylvania and American Home Assurance Company may reserve their right to decline coverage in the future under the pollution exclusions, if the proofs adduced in the trial of the Benavides Action so warrant; and it is further
ORDERED that that branch of the motion seeking costs and sanctions against plaintiffs is denied; and it is further
ORDERED that the request for an order permitting certain materials deemed to be confidential, including papers referring to or containing bills submitted to plaintiffs by their defense counsel in the underlying action, to be filed with the court under seal, is granted on consent without prejudice, and that counsel for International Flavors Fragrances, Inc. is directed to submit an appropriate confidentiality stipulation or order; and it is further
ORDERED that the issue of the reasonable value of Bush Boake Allen, Inc.'s and International Flavors Fragrances, Inc.'s costs and expenses, including attorney's fees, is referred to the Judicial Support Office for assignment to a Special Referee to hear and report with recommendations. Pending receipt of the report and a motion pursuant to CPLR 4403, final determination of that branch of the motion is held in abeyance. The parties may, if so advised, stipulate to a reference to hear and determine.
A copy of this order with notice of entry shall be filed with the Clerk of the Judicial Support Office, 60 Centre Street, Room 311, for the purpose of obtaining a calendar date.
This shall constitute the decision and order of this court.