reality of today's society is that I knew that if Randy [Zickl] got
sued, I would get sued." Adams dep. at 51 (attached as Exhibit D to
Zickl filed an action against Calcagno for Novak on December 4, 1996.
Both Adams and Zickl knew that the statute of limitations period had
run. However, both were hopeful that a tolling provision might apply. In
that regard, Zickl asked Adams to research any medical evidence available
that could show Novak had a serious medical condition which may have
affected her between the time of the collision and the filing of the
action, thus tolling the statute of limitations. Adams agreed, and
participated in the effort to find such evidence, but to no avail.
Therefore, Zickl did not raise a tolling argument in opposition to
Calcagno's statute of limitations defense. In 1997 and 1998, Zickl, with
the knowledge and acquiescence of Adams, attempted to convince Novak to
voluntarily discontinue her lawsuit against Calcagno. The action was
eventually dismissed by the court as barred by the statute of
On July 20, 1999, Adams reported this matter to Chicago for the first
time. Chicago responded in a letter dated July 28, 1999, reserving its
right to disclaim coverage. Chicago contends that as of July 28, 1999,
they were under the impression that Adams had first learned of the
potential claim in March or April 1997 and subsequently came to believe
that he knew about it as early as January or February of 1997. Adams
disputes this and states that he never learned of a potential claim until
July 1999. Adams claims that Chicago's attorney told him to continue
representing Novak on the workers compensation claim; Chicago disputes
On August 12, 1999, Adams wrote to Novak concerning a potential
conflict of interest. In his letter, Adams stated, "[i]f Mr. Zickl is
found to have committed `malpractice,' I could also be held responsible
if I acted negligently in referring you to him for representation." Eric
A. Adams letter to Patricia Novak (Aug. 12, 1999) at 1 (attached as
Exhibit O to Coploff aff.). Novak commenced a legal malpractice action
against Adams and Zickl on March 1, 2000. The summons and complaint were
served on Adams on March 9, 2000. Adams forwarded copies of the summons
and complaint to Chicago the same day.
On March 17, 2000, eight months after Adams had initially notified them
of the potential claim, Chicago denied coverage. Chicago stated that
Adams had a duty to report the potential claim in early 1997 when he
learned that the statute of limitations period had been missed, but did
not do so until July 1999. On March 16, 2001, Adams commenced a
declaratory judgement action in New York State Supreme Court, Genesee
County. Chicago removed the case to this Court on April 2, 2001.
Jurisdiction in this Court is alleged in the original Complaint to be
based on diversity.*fn1 Chicago filed its motion for summary judgment on
June 26, 2001, and Adams filed his on June 29, 2001. Both parties have
responded and replied to each other's motions and the Court heard oral
argument on September 26, 2001.
Summary Judgement Standard
The law on summary judgment is well settled. Summary judgment may only
be granted if "the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to
any material fact and that the moving
party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c).
That is, the burden is on the moving party to demonstrate that the
evidence creates no genuine issue of material fact. See Amaker v. Foley,
274 F.3d 677, 680-81 (2d Cir. 2001); Chipollini v. Spencer Gifts, Inc.,
814 F.2d 893 (3d Cir. 1987) (en banc). Where the non-moving party will
bear the burden of proof at trial, the party moving for summary judgment
may meet its burden by showing the "evidentiary materials of record, if
reduced to admissible evidence, would be insufficient to carry the
non-movant's burden of proof at trial." Celotex Corp. v. Catrett,
477 U.S. 317, 327 (1986).
Once the moving party has met its initial obligation, the opposing
party must produce evidentiary proof in admissible form sufficient to
raise a material question of fact to defeat a motion for summary
judgment, or in the alternative, demonstrate an acceptable excuse for its
failure to meet this requirement. Duplantis v. Shell Off-Shore, Inc.,
948 F.2d 187 (5th Cir. 1991); FED. R. CIV. P. 56(f). Mere conclusions or
unsubstantiated allegations or assertions on the part of the opposing
party are insufficient to defeat a motion for summary judgment. Knight v.
United States Fire Ins. Co., 804 F.2d 9 (2d Cir. 1986). The Court, of
course, must examine the facts in the light most favorable to the party
opposing summary judgment, according the non-moving party every inference
which may be drawn from the facts presented. See Doe v. Dep't of Pub.
Safety ex rel. Lee, 271 F.3d 38, 47 (2d Cir. 2001); International Raw
Materials, Ltd. v. Stauffer Chemical Co., 898 F.2d 946 (3d Cir. 1990).
However, the party opposing summary judgment "may not create an issue of
fact by submitting an affidavit in opposition to a summary judgment
motion that, by omission or addition, contradicts the affiant's previous
deposition testimony." Hayes v. New York City, Department of
Corrections, 84 F.3d 614, 619 (2d Cir. 1996). It is equally well settled
that in diversity actions, such as the one at bar, federal court sits and
operates as if it were "`only another court of the state,'" and must apply
state substantiative law. GTFM, LLC v. TKN Sales, Inc., 257 F.3d 235, 241
(2d Cir. 2001) (quoting Guaranty Trust Co. v. York, 326 U.S. 99, 109
Timeliness of notice
Chicago contends that Adams failed to provide it with timely notice of
a potential claim as required under the terms of the policy at issue.
Adams points out that in section 9B of the policy, no specific time
period is set forth as to when the insured is to give notice of a
potential claim. Adams argues that he has always maintained that he first
received notice of a potential claim on July 7, 1999. It was that day
when Novak's new attorney, Lee Michaels ("Michaels"), told Adams for the
first time he was considering an action against Adams for malpractice.
On the issue of notice to the insurer, Chicago contends that under New
York law, where the policy is silent as to when notice must be given,
"the law implies a duty to give notice within a reasonable time."
Thompson v. Power Auth. of State of N.Y., 217 A.D.2d 495, 497 (N.Y.A.D.
1st Dept. 1995). The Court agrees with Chicago on this point, and, thus,
the question becomes what was a reasonable time? Adams first learned that
Zickl had missed the statute of limitations on or about November 6,
1996. His first notice to Chicago did not occur until July 20, 1999.
Adams's argument is summed up in his memorandum of law and reply to
Chicago's opposition, wherein he states:
[l]earning that Mr. Zickl missed the statute of
limitations was not notice of a potential claim. It is
clear from all of the affidavits submitted to date, as
well as the accompanying reply affidavit of Lee S.
Michaels, that Mr. Adams had a reasonable good faith
belief in non-liability. Learning that Mr. Zickl
missed the statute of limitations did not cause him,
or any reasonable person, to believe that he was
exposed to a potential claim because at first he was
told, by Mr. Zickl, that the statute could be extended
because of Ms. Novak's mental incompetence. More
importantly, Mr. Adams was inexperienced in
malpractice actions and believed that only Mr. Zickl
was liable for any malpractice because Mr. Zickl was
responsible for the third party action.
Plaintiff Adams' Memorandum of Law and Reply to Chicago's opposition
(August 10, 2001) at 2.
Chicago argues that, "[n]ot only would a reasonable attorney have
envisioned his own liability under the circumstances, Adams later
candidly acknowledged to Novak that, if Zickl were found to have
committed malpractice, he (Adams) could also be held responsible to her."
Chicago's Memorandum of Law (June 26, 2001) at 6 (quoting Coploff aff. at
¶ 12 and Exhibit O).
New York case law holds that, "[g]enerally the timeliness of notice
presents a question of fact." Home Mut. Ins. v. Presutti, 78 A.D.2d 968,
969 (4th Dept. 1980) (citations omitted). It is also well settled that
"`[f]ailure to give timely notice to the insurer may be excused when
premised upon the insured's good faith belief of nonliability (citations
omitted).'" LoTempio v. Safeco Ins. Co. of America, 71 A.D.2d 799, 800-01
(N.Y.A.D. 4th Dept. 1979) quoting Hartford Fire Ins. Co. v. Masternak,
55 A.D.2d 472, 474 (N.Y.A.D. 4th Dept. 1977); see also Spracino v.
Pawtucket Mut. Ins. Co., 50 F.3d 141, 143 (2d Cir. 1995). However, the
New York Courts have also held that, "[t]he sufficiency of an excuse is
for the jury to decide unless it is patently without merit, in which case
the Court will permit disclaimer as a matter of law." Public Service
Mut. Ins. Co. v. Levy, 87 Misc.2d 924, 928 (N.Y.Sup.Ct. 1976).
"Generally, the question of whether a delay is excusable is a question of
fact for the jury, but of course a delay may be unreasonable as a matter
of law when either no excuse is advanced or a proffered excuse is
meritless." Olin Corp. v. Ins. Co. of North America, 966 F.2d 718, 724
(2d Cir. 1992) (citations omitted).
In the case at bar, Adams states, "[a]t no time until July 7, 1999,
when I was first contacted by Ms. Novak's new lawyer, Lee Michaels, was I
aware that Ms. Novak and her new lawyer were considering filing a claim
against me." Adams aff. at 10. He also contends that up until July 7,
1999, he believed Zickl's representations that the statute of limitations
could be tolled, and believed that Zickl was the only one potentially
liable. Id. at ¶¶ 11 & 12.
The Court can not accept that Adams, knowing he was closely engaged in
work on a client's case with co-counsel, could reasonably believe that
co-counsel's failure to file suit before the expiration of the statute of
limitations would not potentially expose him to a malpractice claim.
Initially, immediately after realizing the limitations period had
expired, Adams might have reasonably believed a tolling provision would
insulate him from any liability. However, once he saw that there was no
means for tolling the statute of limitations and, in concert with Zickl,
began to urge Novak to withdraw her lawsuit, Adams
was clearly on notice
of a potential claim, notwithstanding the good relations between his
client and him. Certainly by August 7, 1997, Adams could see that Zickl
had no defense to a motion to dismiss the personal injury suit, and since
he and Zickl were essentially operating as co-counsel, Adams must have
reasonably believed himself to be at least potentially liable. By August
25, 1998, when he received a copy of Zickl's letter to Novak asking her
to withdraw her lawsuit, even a non-lawyer would have seen the reasonable
potential for liability. Yet, it was not until July 20, 1999, that Adams
first notified Chicago of the potential for a claim against him by
Though, as previously indicated, the case law generally holds that the
question of reasonableness is one for the fact finder, in this case the
Court finds, as a matter of law, that under the undisputed factual
circumstances present here, Adams failed to notify Chicago after becoming
aware of a "negligent act, error, or omission in the rendering of or
failure to render professional services" which could reasonably be
expected to be the basis of a claim covered by the insurance. The Court
specifically finds that Adams' proffered excuse is meritless under the
Equitable Estoppel Against Chicago
Not only does Adams argue that he timely notified Chicago of the
potential for a claim against him, he also asserts that Chicago is
equitably estopped from disclaiming coverage in this case. He maintains
that between his notification on July 20, 1999, and Chicago's actual
disclaimer on March 17, 2000, eight months elapsed, during which time
Chicago failed to take action, and that this conduct on Chicago's part
was to his detriment. Adams argues that during the eight month period he
relied on Chicago's apparent defense of him against the malpractice
claim, and that Chicago's conduct during that period caused prejudice to
Adams's case. Therefore, Adams asks this Court to rule, as a matter of
law, that Chicago's disclaimer is unreasonably late and ineffective.
It is well settled that under the New York common law doctrine of
equitable estoppel an insurer cannot unreasonably delay the exercise of
its right to disclaim to the detriment of an inured. See United States
Fidelity and Guarantee Co. v. Weiri, 265 A.D.2d 321 (N.Y.A.D. 2nd Dept.
1999) citing Matter of Firemen's Fund Ins. Co. v. Hopkins, 88 N.Y.2d 836;
Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028. Both Adams and
Chicago cite a district court case holding that an insurer may be
estopped from asserting a valid defense under the policy if: (1) the
insurer undertakes to defend the insured, (2) with knowledge of a defense
to coverage under the policy, and (3) unreasonably delays disclaiming
coverage on the basis of that defense, and (4) if the insurer's delay
prejudices the insured who (5) reasonably relied on the insurer. Mount
Vernon Fire Ins. Co. v. J.J.C. Stucco & Carpentry Corp., 1997 WL 177864,
1997 U.S. Dist. LEXIS 21690 (E.D.N.Y. No. 95-CV-5202, Apr. 3, 1997).
It was on July 7, 1999, that Adams learned for the first time, in a
conversation with Novak, that she was discussing with attorney Michaels
filing a malpractice action against both Zickl and Adams. Later that same
day, Adams and Michaels spoke by telephone, and Michaels informed Adams
that, at first, he had not considered bringing a malpractice action
against Adams, but then changed his mind after learning that Zickl did
not have malpractice insurance coverage.
On July 20, 1999, Adams sent written notification to Chicago of the
claim against him. On July 26, 1999, Chicago's claims attorney,
Shareen Sennello ("Sennello"), interviewed Adams by telephone. On July
28, 1999, Sennello sent Adams a detailed letter acknowledging receipt of
his written notification of claim, outlining their discussions on the
telephone, and reserving Chicago's right to disclaim coverage at a later
date if it was determined that Adams failed to comply with notification
requirements. Shareen A. Sennello letter to Eric R. Adams (July 28, 1999)
at 3 (attached as Exhibit V to Coploff aff.).
Adams claims that during the ensuing eight months, Chicago received
correspondence from Michaels on numerous occasions. For example, Michaels
wrote to Sennello on October 5, 1999, and laid out the facts of his
malpractice action and enclosed documentation. He wrote to her again on
December 28, 1999, requesting information from her files. Michaels' next
letter of January 6, 2000, referred to a telephone conversation
concerning his and Sennello's substantial disagreement on two legal
subjects. Apparently, Sennello informed Michaels that Novak's claim
against Adams was limited to $100,000, the underlying policy limit.
Michaels asked Sennello for case law supporting her position. On January
20, 2000, Michaels wrote a short letter referring to his January 6,
2000, correspondence, indicating that he was waiting for Sennello's
response. He also stated, "I have drafted a complaint and am prepared to
begin litigating forthwith if you do not respond." On February 8, 2000,
Michaels wrote to Sennello again, referring to his letters of January 6,
2000, and January 20, 2000. He wrote once more that she had not responded
to his earlier letter. He also wrote, "[c]learly this matter is headed
for suit, but I thought I would take a stab at least at a possible
accommodation with you." Finally, his letter of February 23, 2000,
contained the following two sentences: "Regrettably, you have chosen not
to answer any of my recent attempts at communication. You leave me with
no choice but to serve Mr. Adams with process." Apparently, the only
correspondence generated by Sennello to Michaels dates back to her letter
of October 1, 1999, asking him for information about the theory of his
malpractice action (Copies of all of these letters are attached as
Exhibit A to the affidavit of Lee S. Michaels, Esq. filed on June 29,
2001, in this case.)
In response to Adams's equitable estoppel argument, Chicago claims that
it denied coverage eight days after Adams was sued without ever
undertaking his defense. Memorandum of Law of Defendant Chicago Insurance
Company in Opposition to Plaintiff's Motion for Summary Judgment (July
30, 2001) ("Chicago's Memorandum of Law") at 5. In this regard, Chicago
makes the disingenuous argument that it, "had nothing concrete to
disclaim until suit was actually brought against Adams." Chicago's
Memorandum of Law at 5. Yet, on the issue of late notice, previously
discussed, Chicago maintained that Adams' position that he had nothing
concrete about which to notify Chicago until July 1999 was meritless.
On the matter of disclaimer, the Court finds that the definition of
"claim" is broad enough to include the apparent negotiations between
Chicago's attorney, Sennello, and Novak's attorney, Michaels, regarding
settlement of Novak's potential malpractice action. The Court further
concludes that Chicago learned on July 20, 1999, sufficient information
to warrant disclaimer under the policy's IX B condition, but chose to
delay disclaiming coverage until March 17, 2000. Moreover, the Court
finds that Chicago engaged in conduct which gave Novak's attorney,
Michaels, the appearance Chicago was defending Adams.
Therefore, under the facts present here, the Court concludes as a
matter of law, that, based upon the principles of equitable estoppel,
Chicago's late disclaimer of coverage was ineffective.
Defendants Novak and Zickl, named in the original complaint as parties
to this action, are dismissed from this action as unnecessary parties
under Rule 21 of the Federal Rules of Civil Procedure. Chicago's motion
for summary judgment (document # 11) is denied in its entirety and
Adams's motion for summary judgment (document # 14) is granted to the
extent that Chicago must defend and indemnify Adams, pursuant to the
policy at issue here, in the Novak v. Zickl and Adams law suit and
reimburse him for his attorney fees and costs and disbursements as
required by the policy.
IT IS SO ORDERED.