coverage for acts "arising out of any dishonest, fraudulent,
criminal or malicious act, omission or deliberate
misrepresentation committed by or at the direction of, or with
the knowledge of any Insured."
Following receipt of CIC's disclaimer, Borsody retained
counsel to represent his interests in the Allstate Action.
Borsody's counsel became aware of the possible existence of two
criminal investigations of Borsody involving the same or similar
issues as alleged in the Allstate complaint.
On or about February 1, 2000, counsel for Borsody filed a
motion to dismiss the Allstate action on behalf of Borsody,
sought an order dismissing the First, Second and Third Counts
due to the misconduct of Allstate's counsel, or in the
alternative, an order staying the Allstate Action or compelling
discovery into Allstate's role in encouraging a parallel and
related criminal investigation or in the alternative severing
the First, Second and Third Counts of the complaint.
As a result of a pretrial conference, an agreement was reached
with Allstate that the portion of Borsody's motion to stay the
proceedings would be withdrawn in exchange for an agreement that
discovery would be stayed until such time as Borsody's counsel
could consult with the appropriate law enforcement authorities
to determine Borsody's status in any pending criminal
investigations. It was eventually confirmed that an
investigation was being conducted by the Attorney General of the
State of New Jersey and that the United States Attorney's Office
was not conducting an investigation of matters related to the
On or about March 8, 2000, counsel to Borsody's office was
served with an answer and cross-claim of Neuner in the Allstate
Action. Neuner was a former client of Borsody. The cross-claim
asserted causes of action against Borsody, including one
denominated "legal malpractice" related to issues in the
On March 29, 2000, the Honorable Charles E. Villanueva denied
Borsody's motion to dismiss and/or stay the Allstate Action in a
12-page opinion (the "Opinion").
Counsel to Borsody sought to determine whether the filing of
an answer to either the main Allstate complaint or the Neuner
cross-claim would constitute a waiver of Borsody's Fifth
Amendment privilege and, in the event that Borsody could not
file an answer to the complaint and cross-claim due to Fifth
Amendment considerations, whether CIC would deny coverage due to
Borsody's failure to cooperate with the carrier.
Upon concluding that answers could be filed without a waiver
of privilege, counsel to Borsody forwarded the Neuner crossclaim
to CIC on April 17, 2000. The Attorney General's office
indicated that Borsody would not be a target of an
On May 25, 2000, CIC sent a reservation of rights letter to
Borsody's counsel reserving its rights to later deny coverage as
to the Neuner cross-claim based upon the allegedly late notice
provided to CIC.
On or about January 2, 2001, Dahan and Practice Perfect, also
defendants in the Allstate Action, filed an amended answer and
cross-claim asserting a claim against Borsody for
indemnification based upon negligent misrepresentations made by
Borsody at their seminars. By letter dated January 18, 2001, CIC
agreed to provide a defense for Borsody under the Policy for the
Dahan cross-claim, reserving all its rights in that connection.
Summary Judgment is Appropriate
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." Summary judgment "is properly
regarded not as a disfavored procedural shortcut, but rather as
an integral part of the Federal Rules as a whole, which are
designed `to secure the just, speedy and inexpensive
determination of every action.'" Celotex Corp. v. Catrett,
477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). 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, 106 S.Ct. 2548, 91
L.Ed.2d 265 (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
non-movant, 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 Cir. 1991)).
For a dispute to be genuine, there must be more than
"metaphysical doubt." Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538
(1986). "If the evidence is merely colorable, or is not
significantly probative, summary judgment may be granted."
Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (citations
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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (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 Cir. 1985). "One of the
principal purposes of the summary judgment rule is to isolate
and dispose of factually unsupported claims or defenses."
Celotex, 477 U.S. at 323-24, 106 S.Ct. 2548. In view of the
facts presented here and the cross-motions for summary judgment,
it is appropriate to determine these issues under Rule 56.
Coverage Arising Out of the Complaint in the Allstate Action
Was Properly Denied
In the "Coverage" section of the Policy it is stated that
CIC's defense and indemnity obligations extend to:
Claims . . . arising out of any negligent act, error,
omission or Personal Injury in the rendering of or
failure to render Professional services . . .
The indemnity obligation is stated in the first full paragraph
of the coverage section, and the defense obligation is set forth
in the second full paragraph of that section. The defense
obligation is tied to the indemnity obligation by virtue of
policy language stating that CIC has a duty to defend any suit
against the insured "seeking Damages to which this insurance
applies . . ."