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MEDORA CUNNIFF v. WESTFIELD

August 26, 1993

MEDORA CUNNIFF, Plaintiff,
v.
WESTFIELD, INC., LOEWS THEATER MANAGEMENT CORP., and LOEWS SOUTH SHORE MALL, L.P., Defendants. WESTFIELD, INC., and WESTLAND SOUTH SHORE MALL, L.P., Third-Party Plaintiffs, v. BRIGHTSHORE SEALER CORPORATION, Third-Party Defendant. WESTFIELD, INC. and WESTLAND SOUTH SHORE MALL, L.P., Second Third-Party Plaintiffs, v. MARYLAND CASUALTY COMPANY, Second Third-Party Defendants.



The opinion of the court was delivered by: DENIS R. HURLEY

 HURLEY, District Judge

 In the above-referenced action, plaintiff Medora Cunniff sues for damages arising out of injuries allegedly caused when she slipped in the parking lot of the South Shore Mall in Bay Shore, Long Island. Subsequent to the filing of that action, defendants Westfield, Inc. and Westland South Shore Mall, L.P., a California limited partnership, (collectively, "Westfield"), commenced a second third-party action against Maryland Casualty Company, ("Maryland"), which seeks a declaratory judgment regarding various insurance coverage disputes between Westfield and Maryland. Currently before the Court is Westfield's motion for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, on its claims against Maryland. For the reasons stated below, Westfield's motion is granted in part and denied in part.

 Background

 On May 13, 1988, Brightshore Sealer Corporation, ("Brightshore"), amended the provisions of its insurance policy with Maryland in order to cover certain work being performed on the South Shore Mall parking lot by Brightshore for defendant Westfield. Although the amended policy named Westfield as an additional insured, it also contained a provision which excluded from coverage "damage arising out of any act or omission of the additional insured or any of his employees, other than general supervision of work performed for the additional insured by the name insured."

 On December 18, 1988, plaintiff Medora Cunniff allegedly slipped on some ice near the entrance of Loews South Shore Cinema, Inc., (which is located at the South Shore Mall), and sustained personal injuries. Shortly thereafter, she filed a complaint against Westfield. Subsequently, Westfield brought an impleader action against Brightshore, Maryland's insured, alleging negligence in the performance of its services and claiming indemnification pursuant to a service agreement and the policy. Westfield also demanded that Maryland assume the defense of the matter on its behalf, although Maryland refused. By reason of that denial, Westfield was forced to defend the action itself, and consequently incurred costs, expenses and attorneys fees.

 Thereafter, Westfield brought a declaratory judgment action requesting: (1) that the Court declare that Maryland is obligated under the policy to defend the pending action on behalf of Westfield, and to indemnify it for any judgment awarded; (2) that Maryland is required to pay any and all attorneys' fees, costs and other expenses incurred thus far by Westfield in the defense of the pending action; and (3) that Maryland is required to pay all attorneys' fees, costs and other expenses incurred by Westfield in bringing the declaratory judgment. Since the filing of Westfield's current motion, Maryland agreed to fully defend and indemnify Westfield up to the limits of the insurance policy issued to the primary insured, Brightshore. However, Maryland nevertheless "reserves the right to any policy defenses not heretofore raised."

 By its summary judgment motion, Westfield moves the Court to make the following findings: (1) that, having admitted that it is obligated to defend and indemnify Westfield, Maryland is estopped from denying that obligation; (2) that because a conflict of interest exists, Westfield has the right to select counsel of its own choosing to continue its representation in the underlying personal injury action, with such counsel's reasonable fees to be paid by Maryland; and (3) that Maryland is obligated to reimburse Westfield for all legal fees which have been expended in both defending the underlying action and bringing the present declaratory judgment action.

 In response, Maryland argues that, although Westfield is entitled to a defense and indemnification in the underlying action, it is not entitled to counsel of its own choosing. Nevertheless, Maryland asserts that it has tendered a list of five approved law firms to Westfield, the expenses for which Maryland would assume. Furthermore, Maryland contends that Westfield may not recover attorneys' fees or expenses incurred in bringing its declaratory judgment action. Finally, Maryland maintains that Westfield is only entitled to recover reasonable fees expended in defense of the underlying action, and it requests a hearing to determine the amount of damages to which Westfield is entitled to recover in that connection.

 Discussion

 I.

 When a conflict of interest between an insurer and its insured arises, "such that a question as to the loyalty of the insured's counsel to that insured is raised, the insured is entitled to select its counsel, whose reasonable fee is to be paid by the insurer." Emons Industr., Inc. v. Liberty Mutual Ins. Co., 749 F. Supp. 1289, 1297 (S.D.N.Y. 1990) (citations omitted); Parker v. Agricultural Ins. Co., 109 Misc. 2d 678, 682, 440 N.Y.S.2d 964, 967 (Sup. Ct. N.Y. Cty. 1981) (quoting Prashker v. United States Guar. Co., 1 N.Y.2d 584, 593, 136 N.E.2d 871, 154 N.Y.S.2d 910 (1956)). As the New York Court of Appeals has noted, a conflict requiring independent counsel is necessary when "the defense attorney's duty to the insured would require that he defeat liability on any ground and his duty to the insurer would require that he defeat liability only upon grounds which would render the insurer liable." Public Serv. Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392, 401 at n.*, 442 N.Y.S.2d 422, 427 at n.*, 425 N.E.2d 810 at n.*(1981); see also Klein v. Salama, 545 F. Supp. 175, 179 (E.D.N.Y. 1982).

 In fact, courts construing New York law have consistently held that where such a conflict exists, "the interests of the insured and insurer are best accommodated by permitting the insured to choose his own counsel and by requiring the insurer to pay the reasonable fees of that counsel." Klein, 545 F. Supp. at 179 (citations omitted); Emons Industr., 749 F. Supp. at 1297 (citations omitted); Goldfarb, 53 N.Y.2d at 401, 442 N.Y.S.2d at 427.

 With respect to the case at bar, the Court agrees with Westfield that a clear conflict of interest is present between itself and Maryland. As noted in the cases cited above, Maryland may continue to attempt to avoid coverage of any liability assessed against Westfield in the underlying action by invoking policy exclusions. Furthermore, Maryland can present Westfield's case in such a way as to defeat liability based upon the ground of Westfield's own negligence. Indeed, as implicitly recognized by Maryland, a finding of Westfield's affirmative negligence would trigger the policy's exclusion and thereby relieve Maryland of any obligation to indemnify Westfield. That the loyalty of the insurer's attorney would ...


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