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Federal Insurance Co. v. Cablevision Systems Development Co.

decided: December 18, 1987.

FEDERAL INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
CABLEVISION SYSTEMS DEVELOPMENT COMPANY, CHARLES F. DOLAN, COMMUNICATIONS MANAGEMENT CORPORATIONS, CABLEVISION SYSTEMS HOLDINGS COMPANY, ATLANTIC CABLE TELEVISION SERVICE CORPORATION, CABLEVISION OF HUNTINGTON, CABLEVISION SYSTEMS HUNTINGTON CORPORATIONS, CABLEVISION PROGRAM SERVICES COMPANY, CABLEVISION SYSTEMS CORPORATION, SPORTSCHANNEL ASSOCIATES, LONG ISLAND CABLE COMUNICATIONS DEVELOPMENT COMPANY, AM CABLE TV INDUSTRIES, INC., LAWRENCE MELI, ROBERT J. SULLIVAN, JOHN TATTA, AND NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, DEFENDANTS, AMERICAN EMPLOYERS INSURANCE COMPANY AND LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANTS-APPELLEES



Appeal from a judgment entered July 6, 1987 in the Eastern District of New York, John R. Bartels, District Judge, 662 F. Supp. 1537, granting the cross-motions for summary judgment by two insurance companies against a third insurance company apportioning defense costs in equal shares between the coinsurers, rather than on a pro rata basis in proportion to the coinsurers' respective policy limits.

Author: Timbers

Lumbard, Timbers and Kearse, Circuit Judges.

TIMBERS, Circuit Judge:

Federal Insurance Company ("appellant" or "Federal") appeals from a judgment entered July 6, 1987 in the Eastern District of New York, John R. Bartels, District Judge, granting the cross-motions for summary judgment by American Employers Insurance Company ("American Employers") and Liberty Mutual Insurance Company ("Liberty Mutual") against Federal, to apportion the settlement amount paid to a common insured in equal shares. Federal Insurance Co. v. Cablevision Systems Dev. Co., 662 F. Supp. 1537 (E.D.N.Y. 1987).

The central question presented is whether the costs of defending a common insured should be apportioned equally among three primary coinsurers when the coinsurers' comprehensive general liability policies contain an "other insurance" clause that apportions indemnity losses equally. Other subordinate questions are presented. We agree with the district court that the defense costs should be apportioned equally. We affirm.

I.

We summarize only those facts believed necessary to an understanding of the questions raised on appeal.

In 1983, Communication Systems Corp., Huntington TV Cable Corp. and Home Entertainment Productions, Inc. sued Cablevision Systems Development Company, its affiliates and certain officers (collectively "Cablevision") for alleged antitrust violations in connection with Cablevision's successful efforts to obtain the exclusive rights to cablecast the games of four professional New York sports teams (the Yankees, the Mets, the Islanders, and the Nets). Nishimura v. Dolan, 599 F. Supp. 484 (E.D.N.Y. 1984). At the time, Cablevision held, among others, four comprehensive general liability policies ("CGL policies") issued by Federal, American Employers and Liberty Mutual.

Cablevision purchased a one-year primary comprehensive insurance policy from Liberty Mutual with an indemnity limit of $2,000,000. The coverage commenced September 1, 1980. Cablevision also purchased two one-year primary insurance policies from American Employers with an indemnity limit of $1,000,000, covering the period from September 1, 1980 through September 1, 1981, and September 1, 1981 through September 1, 1982, respectively. Cablevision also purchased a one-year primary insurance policy from Federal with an indemnity limit of $500,000. The coverage under this policy commenced September 1, 1982. Cablevision incurred more than $2,400,000 in attorneys fees and defense expenses through June 30, 1986. Federal Insurance co., supra, 662 F. Supp. at 1538 n.2. Since Cablevision's antitrust action involved claims that it believed were covered by these policies, it sought coverage for its defense expenses from Liberty Mutual, American Employers and Federal.

Federal and American Employers acknowledged their obligations to defend Cablevision. Liberty Mutual did not. Liberty Mutual claimed that the allegations set forth in the complaint in Nishimura were outside its policy coverage. As a result, Federal commenced an action against Cablevision, American Employers and Liberty Mutual, seeking a declaratory judgment as to the rights and liabilities of the insurance companies with respect to the Nishimura action. Federal Insurance Co. v. Cablevision Systems Dev. Co., 637 F. Supp. 1568 (E.D.N.Y. 1986). On July 1, 1986, the district court held that Liberty Mutual was obligated to defend Cablevision, or to reimburse it for the costs of defense. Id. at 1583. The court further held that it was premature at that time to decide on the apportionment of defense costs between the coinsurers. Id. at 1571 n.4.

On September 5, 1986, Cablevision and its insurers entered into a settlement agreement pursuant to which Cablevision received $2,100,000 as a final and complete compromise of all the rights and obligations between Cablevision and its insurers for any actual or potential liability for defense costs arising from the Nishimura action. Under the settlement agreement, American Employers and Liberty Mutual each agreed to pay Cablevision $665,000 and Federal agreed to pay $570,000. National Union fire Insurance Company and Mission Insurance Company, two other Cablevision insurers, contributed $150,000 an $50,000 respectively. The settlement agreement, however, was without prejudice to the rights of Federal, American Employers and Liberty Mutual to seek reallocation of the settlement amount.

On September 9, 1986, the parties to the settlement agreement filed a stipulation of dismissal agreeing that all claims asserted in Federal Insurance Co. v. Cablevision Systems Dev. Co., supra, 637 F. Supp. 1568, be dismissed with prejudice, except for those claims between Federal, American Employers and Liberty Mutual relating to apportionment of Cablevision's defense expenses among themselves. In March 1987, Federal moved for summary judgment on the issue of apportioning the settlement amount among Federal, American Employers and Liberty Mutual. Federal asserted that the contributions to the settlement amount by these three insurers should be apportioned on a pro rata basis in proportion to the coinsurers' respective indemnity policy limits. Liberty Mutual and American Employers each cross-moved for summary judgment, asserting that the settlement amount should be apportioned on an equal basis among the three carriers, irrespective of indemnity limits.

The district court granted the cross-motions for summary judgment by American Employers and Liberty Mutual. The court held that the three insurers had an equal, unlimited obligation to defend Cablevision. The court stated that the three insurers -- Federal, Liberty Mutual and American Employers -- "demonstrated the intent to apportion indemnity loss equally", since the CGL policies contained an "other insurance" clause. Federal Insurance Co., supra, 662 F. Supp. at 1541. Accordingly, the court held that the "defense costs should be apportioned equally" between the three insurers. Id. Dividing the agreed settlement in amount of $1,900,000 three ways and adjusting the amounts owed by each insurer so that they are apportioned equally, the court entered judgment directing Federal to pay to American Employers and Liberty Mutual each the sum of $31,666.66, for a total of $63,333.32. From that judgment this appeal was taken.

Federal asserts two claims on appeal. First, it claims that the court erred in concluding that under New York law the defense obligations of the three insurers were equal and unlimited. Second, it claims that the court erroneously relied on the "other insurance" provisions contained in the CGL policies in concluding that equal apportionment of the defense obligations was proper. For the reasons that follow we reject appellants' claims and we affirm.

II.

This being a diversity action and Cablevision, a limited partnership with its principal place of business in New York, and the general partner Communication Management Corporation having its principal place of business in New York, we apply New York law. The underlying antitrust ...


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