Ultimately, a settlement was entered into according to which
total payments to the class certified pursuant to the Second
Amended Complaint, to counsel for the class, and for
administration costs are capped at $4.3 million. CheckRite's
prior insurance carrier contributed approximately $1,150,000
towards this amount. CheckRite states that it is liable for up to
$3.2 million plus fees and expenses to its counsel of more than $425,000.
I. Coverage Under The Illinois National Policies
A. Choice of Law
Subject matter jurisdiction in this case is based upon diversity
of citizenship of the parties. See 28 U.S.C. § 1332.
Thus, this court must determine which substantive state law
governs. The Illinois National insurance policy does not contain
a choice-of-law provision, nor do the parties address the choice
of law question in their legal memoranda. However, the parties
cite primarily to New York law, thereby implicitly agreeing that
this is the applicable law. See Hannex Corp. v. GMI, Inc.,
140 F.3d 194, 203 n. 7 (2d Cir. 1998); Cowan v. Codilia, No. 98 Civ. 5548,
1999 WL 1029729, at *4 n. 2 (S.D.N.Y. Nov. 10, 1999). "Implied consent to
use a forum's law is sufficient to establish choice of law."
Tehran-Berkeley Civil and Envtl. Eng'rs v. Tippets-Abbett-McCarthy
Stratton, 888 F.2d 239, 242 (2d Cir. 1989); see also Hannex
Corp., 140 F.3d at 203 n. 7; Cowan, 1999 WL 1029729, at *4 n. 2.*fn4
Thus, the Court will apply New York substantive law to this case.
B. Standard for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that
a motion for summary judgment may be granted when "there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law." The Second Circuit
has repeatedly noted that "as a general rule, all ambiguities and
inferences to be drawn from the underlying facts should be
resolved in favor of the party opposing the motion, and all
doubts as to the existence of a genuine issue for trial should be
resolved against the moving party." Brady v. Town of Colchester,
863 F.2d 205, 210 (2d Cir. 1988) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 330 n. 2 (1986) (Brennan, J., dissenting)); see
Tomka v. Seiler Corp., 66 F.3d 1295, 1304 (2d Cir. 1995); Burrell
v. City Univ., 894 F. Supp. 750, 757 (S.D.N.Y. 1995). If, when
viewing the evidence produced in the light most favorable to the
nonmovant, there is no genuine issue of material fact, then the entry of
summary judgment is appropriate. See Burrell, 894 F. Supp. at 758
(citing Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d
Materiality is defined by the governing substantive law.
"Only disputes over facts that might affect the outcome of the
suit under the governing law will properly preclude the entry of
summary judgment. Factual disputes that are irrelevant or
unnecessary will not be counted." Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). "[T]he mere existence of factual
issues — where those issues are not material to the claims before
the court — will not suffice to defeat a motion for summary
judgment." Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d
Under New York law, the court determines the proper construction
of an insurance contract, as with other contracts, as a matter of
law. See Andy Warhol Foundation for the Visual Arts,
Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir. 1999) (citing
Dicola v. American S.S. Owners Mut. Protection & Indem. Ass'n,
Inc., 158 F.3d 65, 77 (2d Cir. 1998)). The first analytic step
for the court is to make an initial interpretation of the policy
that will "give effect to the intent of the parties as expressed
in the clear language of the contract." Village of Sylvan Beach
v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir. 1995) (citations
omitted). In making this initial interpretation, the court must
determine whether the policy terms are ambiguous. A contract
provision is unambiguous where it has "`a definite and precise
meaning, unattended by danger of misconception in the purpose of
the [contract] itself, and concerning which there is no
reasonable basis for a difference of opinion.'" Sayers v.
Rochester Telephone Corp., 7 F.3d 1091, 1095 (2d Cir. 1993)
(citations omitted). A contract is not ambiguous merely because
the parties argue for different interpretations, nor "where the
interpretation urged by one party `strain[s] the contract
language beyond its reasonable and ordinary meaning.'" See Hunt
Ltd. v. Lifshultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir.
1989) (citation omitted).
If the terms of the policy are susceptible to more than one
reasonable interpretation, then the court should consider
extrinsic evidence to determine the parties' intent. See Warhol,
189 F.3d at 215. If the extrinsic evidence is inconclusive, the
court should apply the interpretative rule that ambiguities in an
insurance contract are ordinarily construed in favor of coverage
and against the insurer. See id.; Dicola, 158 F.3d at 77;
Lavanant v. General Accident Ins. Co., 595 N.E.2d 819, 822 (N Y
1992). This rule is based on the fact that it is the insurance company
that drafted the policy, and therefore the insurance company that
is responsible for any ambiguities therein. See Warhol, 189 F.3d
at 215; Lavanant, 595 N.E.2d at 822. If the ambiguities can be
resolved through a legal construction of the policy terms, rather
than a factual one, summary judgment may be appropriate even
where the policy is ambiguous. See Warhol, 189 F.3d at 215
Finally, with respect to coverage exclusions, an insurer bears
the burden of proving that an insurance policy's exclusions
"clearly and unmistakably" apply to the insured's claims. Sylvan
Beach, 55 F.3d at 115-16. The court should construe exclusion
provisions narrowly and in favor of coverage. See Home Ins. Co.
of Illinois v. Spectrum Information Technologies, Inc.,
930 F. Supp. 825, 848 (E.D.N.Y. 1996); Cone v. Nationwide Mut.
Fire Ins. Co., 551 N.E.2d 92, 93 (N.Y. 1989).
C. CheckRite Is Not Entitled To Coverage Under The 1995-96 Policy
The first issue confronting CheckRite with respect to coverage
under the 1995-96 Policy is the question of whether the Second
Amended Complaint was a new claim at all, such that it could be
considered "made" during the policy period. As explained below,
however, the Second Amended Complaint was indeed a new claim. The
problem, however, and the dispositive issue, is CheckRite's
failure to comply with the policy's reporting requirements.*fn5
It is noted that CheckRite contends that Illinois National has
waived all defenses other than the one asserted in its March 19,
1997 letter, i.e., the "pending or prior litigation" exclusion
under the 1996-97 Policy. This contention, however, is incorrect.
Although a defense to coverage may be waived, waiver cannot
create coverage where none exists under the policy. See Albert J.
Schiff Assocs., Inc. v. Flack, 417 N.E.2d 84,
87 (1980). Thus, "where the issue is the existence or nonexistence of
coverage (e.g., the insuring clause and exclusions), the doctrine
of waiver is simply inapplicable." See id.; see also Calocerinos
& Spina Consulting Eng'rs, P.C. v. Prudential Reinsurance Co.,
856 F. Supp. 775, 780 (W.D.N.Y. 1994); cf. Luria Bros. & Co. v.
Alliance Assurance Co., 780 F.2d 1082, 1090-91 (2d Cir. 1986)
(insurer waived misrepresentation defense where asserted
different defense only despite constructive notice of
misrepresentation). The requirement that claims be reported within a
specified time period is "the trigger for coverage" under a
claims-made policy, not a defense to existing coverage, and cannot be
waived. Calocerinos, 856 F. Supp. at 780.
1. The Second Amended Complaint Was A Claim Made During the
Illinois National maintains that the Second Amended
Complaint, although it was filed in May 1996, was not a "claim
made" during the 1995-96 Policy period because it was part of the
same "judicial proceeding," i.e., the Newman Class Action.
Instead, argues Illinois National, this was one and the same
claim as the Newman Class Action. It is undisputed that the
Newman Class Action (which included persons injured between
September 29, 1993 and January 27, 1994) was not covered by the
1995-96 Policy, since it was predated November 1, 1995. Illinois
National's argument turns on the procedural posture of the Second
Amended Complaint, that is, it was part of the same judicial
proceeding because the mechanism by which the claims of the new
class were raised was through an amended complaint. Illinois
National's reliance on the procedural posture of the Second
Amended Complaint, however, is misplaced.