United States District Court, E.D. New York
March 31, 2004.
AARON BREWER, ALEX STYLIANOU, RITA BOWMAN and WILLIAM WALCOTT, individually and on behalf of all other similarly situated, Plaintiffs,-against- VILLAGE OF OLD FIELD, ROBERT BELL, individually and in his capacity as Old Field constable, JORDANA B. CASCIANO, individually and in her capacity as Old Field clerk, BARBARA DRAGONE, individually and in her capacity as Old Field treasurer, MARIANNE S. FELLER, individually and in her capacity as Old Field clerk, WILLIAM FINNAMORE, individually and in his capacity as Old Field constable, WILLIAM H. HALL, individually and in his capacity as former mayor of Old Field, LEROY HILL, individually and in his capacity as Old Field constable, HELAINE KATZ, individually and in her capacity as Old Field clerk, JEFFREY T. KRACHT, individually and in his capacity as Old Field constable, RONALD LA VITA, individually, PHILIP MORALES, individually and in his capacity as Old Field constable, MICHAEL NASTASI, individually and in his capacity as Old Field constable, WALTER ROTHSCHILD, individually, in his former capacity as Old Field Commissioner of Public Safety, and in his current capacity as Old Field Fire & Special Projects Commissioner, JAMES SIMONS, individually and in his capacity as Old Field Commissioner of Public Safety, and CARY STALLER, individually and in his capacity as Mayor of Old Field, Defendants; VILLAGE OF OLD FIELD, Third Party Plaintiff, -against- NEW YORK MUNICIPAL INSURANCE RECIPROCAL, Third Party Defendant
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
The third-party action involves a dispute over whether the third
party defendant, the New York Municipal Insurance Reciprocal ("NYMIR" or
the "third party defendant"), has the duty to defend and indemnify the
third-party plaintiff, the Village of Old Field (the "Village" or the
"third-party plaintiff") in connection with this class action lawsuit.
This case is brought on behalf of that class of people who had been
ticketed by the Village's constables from 1994 to the present (the
"first-party action" or the "Brewer action").
Presently before the Court are the following motions: (1) a motion for
summary judgment by the Village seeking, among other things, a
declaration that the NYMIR has a duty to defend the Village in the
Brewer action; (2) a motion for summary judgment by the NYMIR, for among
other things, a declaration that it does not have an obligation to defend
the Village or provide indemnification in the Brewer action; and (3) a
motion by the Village, pursuant to Federal Rule of Civil Procedure
("Fed.R. Civ. P") 56(f) seeking additional discovery in order to oppose
the motion for summary judgment brought by the NYMIR.
From April 1, 1994 to April 1, 2000, the Village of Old Field
subscribed to the New York Municipal Insurance Reciprocal as its
insurance carrier. As a NYMIR subscriber, the Village was afforded
insurance coverage for a variety of exposures including,
among other things, Law Enforcement Liability.
The Law Enforcement Liability Policy (the "Policy") provides in
[NYMIR] will pay on behalf of the INSURED all sums
which the INSURED shall become legally obligated
to pay as damages because of WRONGFUL ACT(S) which
1. PERSONAL INJURY
2. BODILY INJURY, or
3. PROPERTY DAMAGE
caused by an OCCURRENCE and arising out of the
performance of the INSURED's duties to provide law
enforcement and/or other departmentally approved
activities as declared in the Application . . . and
all operations necessary and incidental thereto.
Policy § A.
The Policy included the following definitions:
INSURED means the [Village] and all full or
part-time and all auxiliary or volunteer law
enforcement officers of the [Village].
WRONGFUL ACT means any actual or alleged act,
error, omission, neglect or breach of duty by the
OCCURRENCE means an event, including continuous or
repeated exposure to conditions, which results in
PERSONAL INJURY, BODILY INJURY or PROPERTY DAMAGE
sustained, during the policy period, by any person or
organization and arising out of the performance of the
INSURED'S law enforcement duties.
PERSONAL INJURY means:
a. Assault and battery;
b. Discrimination, unless insurance thereof is
prohibited by law;
c. False arrest, detention or imprisonment, or
d. False or improper service of process;
e. Humiliation or mental distress;
f. The publication or utterance of a libel or
slander or of other dafamatory or disparaging
material . . .;
g. Violation of civil rights protected under
42 U.S.C. § 1981 et sequential or State Law;
h. Violation of property rights;
i. Wrongful entry, eviction or other invasion of
the right of public occupancy; if such offence
is committed during the policy period.
Policy § E.
On October 10, 2000, the plaintiffs commenced the first party action by
filing a Summons and Class Action Complaint (the "Initial Complaint") in
the United States District Court for the Eastern District of New York.
The Initial Complaint named the Village and fifteen current and former
employees and/or officials in both their individual and official
capacities (the "defendants"). This action was commenced by and on behalf
of that class of people who had been ticketed by the Village's constables
from 1994 to the present. In particular the Brewer plaintiffs allege,
among other things, that the Village created a private police force,
purportedly cloaked with legitimate public authority, to enforce traffic
and other laws and collect fines for alleged violations of those laws
through a distinct enterprise. The complaint included violations of the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et
seq., ("RICO") and 42 U.S.C. § 1983 ("Section 1983").
On or about October 18, 2000, the Village tendered its defense of the
Brewer action to the NYMIR. Thereafter, on November 14, 2000, NYMIR,
through coverage counsel, issued a disclaimer letter, advising the
Village that no coverage existed under any of the policies that were
issued to the Village prior to its withdrawal from the NYMIR in or about
A First Amended Class Action Complaint was filed on March 14, 2001 (the
"First Amended Complaint"). On April 6, 2002, the plaintiffs filed a
Second Amended Class Action Complaint (the "Second Amended Complaint").
On October 25, 2002, the Second Amended Complaint was forwarded to NYMIR
by counsel to another carrier affording the Village with insurance
In a letter dated November 7, 2002, the NYMIR, through its counsel,
disclaimed coverage for the causes of action set forth in the Second
Thereafter, on or about March 11, 2003, the Village filed this
third-party complaint against the NYMIR seeking, among other things, a
declaratory judgment, pursuant to 28 U.S.C. § 2201, et seq., that NYMIR
is obligated to pay for the Village's defense of the Brewer action
pursuant to the terms of the Policy. The third-party complaint also seeks
damages for the NYMIR's alleged breach of the defense and indemnification
provisions of the Policy, based on the refusal to pay by NYMIR for the
Village's defense and to provide indemnification in the Brewer action.
As stated above, presently before the Court are three separate
motions: (1) a motion for summary judgment by the Village seeking, among
other things, a declaration that the NYMIR has a duty to defend the
Village in the Brewer action; (2) a motion for summary judgment by the
NYMIR, for among other things, a declaration that it does not have an
obligation to defend the Village or provide indemnification in the
Brewer action; and (3) a motion by the Village, pursuant to Rule 56(f)
seeking additional discovery in order to oppose the motion for summary
judgment brought by the NYMIR.
A. Summary Judgment Standard
Summary judgment must "be rendered forthwith 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 a judgment as
a matter of law." Fed.R.Civ.P. 56(c). In considering a motion for
summary judgment, a district court must weigh several considerations in
evaluating whether to grant a motion for summary judgment with respect to
a particular claim. Gallo v. Prudential Residential Servs., Limited
Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). The Second Circuit
indicated that: (1) the moving party carries the burden to demonstrate
that no genuine issue respecting any material fact exists; (2) all
ambiguities and inferences must be resolved in favor of the non-moving
party; (3) the moving party may obtain summary judgment by showing that
no rational jury could find in favor of the non-moving party
because the evidence to support its case is so slight; and (4) the trial
court's duty is confined to issue finding and does not extend to issue
resolution. Id.; see also B.F. Goodrich v. Betkoski, 99 F.3d 505, 522 (2d
Cir. 1996). In addition, a court should be mindful in such a case that
unresolved issues must be material in order to survive summary judgment,
and that "the 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." Knight v. U.S. Fire Ins. Co., 804 F.2d 9,
11 (2d Cir. 1986). B. NYMIR's Duty to Defend
As indicated above, the Village seeks a declaration that the NYMIR has
a duty to defend the Village in the Brewer action and provide indemnity,
whereas the NYMIR seeks a declaration that it does not have an obligation
to defend or indemnify the Village.
It is well-settled that under New York law, "an insurer's duty to
defend is extremely broad and distinct from the duty to indemnify."
Napoli, Kaiser & Bern, LLP v. Westport Ins. Corp., 295 F. Supp.2d 335,
338 (S.D.N.Y. 2003) (citing Md. Cas. Co. v. Cont'l Cas. Co., 332 F.3d 145,
160 (2d Cir. 2003) (calling duty to defend "exceedingly broader" than
duty to indemnify) (internal quotation omitted)); see also Commercial
Union Assur. Co. v. Oak Park Marina, Inc., 198 F.3d 55, 59 (2d Cir. 1999)
("under governing New York law, an insurer's duty to defend is
exceedingly broad and is separate from and more expansive than the duty
to indemnify." (internal citations omitted)); see also McCostis v. Home
Ins. Co. Of Ind., 31 F.3d 110, 112 (2d Cir. 1994) (citation omitted).
Thus, "an insurer may be contractually bound to defend even though it may
not ultimately be bound to pay, either because its insured is not
factually or legally liable or because the occurrence is
later proven to be outside the policy's coverage." Fitzpatrick v. Amer.
Honda Motor Co., 78 N.Y.2d 61, 66, 571 N.Y.S.2d 672, 674 (1991).
"Determining whether an insurer has a duty to defend requires an
examination of the policy language and the allegations of the complaint
to see if the underlying complaint alleges any facts or grounds which
bring the action within the protection purchased." First Investors
Corp., et al. v. Liberty Mut. Ins. Co., 152 F.3d 162, 165-66 (2d Cir.
1998) (internal quotations omitted). "The duty of an insurer to defend
its insured arises whenever the allegations within the four corners of
the underlying complaint potentially give rise to a covered claim, or
where the insurer `has actual knowledge of facts establishing a
reasonable possibility of coverage.' " Frontier Insulation Contractors,
Inc. v. Merchants Mut. Ins. Co., 91 N.Y.2d 269, 175, 667 N.Y.S.2d 982,
984 (1997) (quoting Fitzpatrick, 78 N.Y.2d at 65-67); see also Int'l Bus.
Machs. Corp. v. Liberty Mut. Fire Ins. Co., 303 F.3d 419, 424 (2d Cir.
However, "no duty to defend exists . . .[if] `there is no possible
factual or legal basis on which the insurer will be obligated to
indemnify the insured.' " Napoli, Kaiser & Bern, LLP, 295 F. Supp.2d at
338 (quoting Md. Cas. Co. v. Cont'l Cas. Co., 332 F.3d 145, 160 (2d Cir.
2003)); see also Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608,
620 (2d Cir. 2001) (the duty to defend continues "until it is determined
with certainty that the policy does not provide coverage" (emphasis
Thus, an insurer must defend "[i]f the complaint contains any facts or
allegations which bring the complaint even potentially within the
protection purchased." Technicon Elec. v. Amer. Home Assur. Co.,
74 N.Y.2d 66, 73, 544 N.Y.S.2d 531, 533 (1989); see also Hotel Des
Artistes v. Transam. Ins. Co., No. 93 Civ. 4563, 1994 WL 263429, at *3
(S.D.N.Y. June 13, 1994) ("[E]ven if only a single claim in the
underlying complaint potentially falls within the indemnity coverage of
the policy, the insurer must defend the entire action."). An insurer must
defend even if covered claims are dismissed by the Court leaving only
non-covered claims remaining. See Harrington Haley LLP v. Nutmeg, Ins.
Co., 39 F. Supp.2d 403, 409 (S.D.N.Y. 1999) ("Although the non-RICO
claims were dismissed . . . and [the insurer] presumably would have no
obligation to indemnify for purely RICO liability, there never has been
any assurance that the case ultimately could not result in insured
Among the possibilities were amendment of the pleadings at trial to
permit submission of non-RICO theories to the jury, an appellate reversal
of the dismissal of the Section 1983 claim, and an order for a new
Further, whenever an insurer wishes to exclude certain coverage from
its policy obligations, it must do so "in clear and unmistakeable"
language. Kratzenstein v. Western Assur. Co., 116 N.Y. 54, 59, 22 N.E. 221
(1889). In addition, "any such exclusion or exceptions from policy
coverage must be specific and clear in order to be enforced. They are not
to be extended by interpretation or implication, but are to be accorded a
narrow construction." Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304,
311, 486 N.Y.S.2d 873, 876 (1984) (citations omitted).
As stated above, the Second Amended Complaint alleges violations of the
Civil RICO statute and Section 1983. The Village maintains that such
allegations fall within the Policy's definition of Personal Injury which
includes a "[v]iolation of civil rights protected under 42 U.S.C. § 1981
et seq . . ." On the other hand the NYMIR argues that there is no
"occurrence" under the Policy because the Initial Complaint, the First
Amended Complaint and the Second Amended Complaint repeatedly assert that
the VILLAGE had no law enforcement duties and the Policy defines
"occurrence" as "an event . . .[which arises] out of the performance of
the INSURED's law enforcement duties."
Contrary to the contention of the NYMIR, the Second Amended Complaint
also alleges that the Old Field constabulary "can exist separate and
apart from [the complained of behavior], because, even in the absence of
that behavior, the Old Field `constables' could properly be designated as
code-enforcement officers to enforce non-traffic related local
ordinances." Second Amended Complaint ¶ 103. Thus it cannot be said
"with certainty" that the allegations contained in the Second Amended
Complaint are excluded by the Policy. See Hugo Boss Fashions, Inc., 252
F.3d at 620.
1. Exclusions in the Policy
The NYMIR contends that the allegations in the Second Amended Complaint
within, among other things, "Exclusion" number seven of the Policy.
The Court disagrees.
This Exclusion indicates that the Policy does not apply to
damages arising out of the willful violation of a
penal statute or ordinance committed by or with the
knowledge or consent of any INSURED or claims of
injury arising out of the acts of fraud committed by
or at the direction of the INSURED with affirmative
dishonesty or actual intent to deceive or defraud.
Policy § D(7) (emphasis added).
The Court finds that this exclusion is not stated in "clear and
unmistakeable" language. Kratzenstein, 116 N.Y. at 59; see also Seaboard
Sur. Co., 64 N.Y.2d at 311 ("Before an insurance company is permitted to
avoid policy coverage, it must satisfy the burden which it bears of
establishing that the exclusions or exemptions apply in the particular
case . . . and that they are subject to no other reasonable
interpretation." (citations omitted)).
In addition, although certain predicate acts alleged in the Second
Amended Complaint involving fraud are alleged with respect to the Civil
RICO cause of action, no such allegations are alleged pursuant to the
Section 1983 claim. In particular, the plaintiffs' allegations that the
Village's constables deprived the them of their rights under the
Fourteenth Amendment do not arise from the "willful violation of a penal
statute or ordinance" or state that the actions of the constables were
"acts of fraud committed by or at the direction of the
INSURED with affirmative dishonesty or actual intent to deceive or
defraud." See Policy § D(7) Thus, at this juncture, the Court is unable
to conclude that the plaintiffs' allegation that the Village violated
Section 1983 fall "solely and entirely within the policy exclusions."
International Paper Co. v. Continental Cas. Co., at 325.
The NYMIR also argues that the proper test to be applied when
considering whether an exclusion bars coverage for claims is the "but
for" test applied in Mount Vernon Fire Ins. Co. v. Creative Hous.,
88 N.Y.2d 347, 353, 645 N.Y.S.2d 433 (1996). The NYMIR maintains that
because the plaintiffs' Section 1983 allegations would not exist "but
for" the alleged fraud, the Section 1983 cause of action is also
excluded. The Court disagrees with the analysis of NYMIR. In Mount
Vernon, the policy in question expressly excluded coverage for "Assault
and Battery." Id. at 350. Not only does the Policy not contain an
"assault and battery exclusion," See Agoado Realty Corp., 95 N.Y.2d at
146 ("Here the insurance policy does not contain an `assault and battery'
exclusion; Mount Vernon, does not apply"), but the plaintiffs can sustain
a cause of action for a Section 1983 violation without finding that the
Village violated penal statutes or committed acts of fraud.
Thus, because the of the ambiguity of Exclusion number 7, and the
nature of the allegations in the Brewer action, the NYMIR did not sustain
its heavy burden of demonstrating that the plaintiffs claims are excluded
from coverage. Moreover, because NYMIR has a duty to defend the Section
1983 cause of action, it must defend the entire
complaint. See Hotel Des Artistes v. Transam. Ins. Co., 1994 WL 263429,
Accordingly, the third-party plaintiff's motion for partial summary
judgment on its first cause of action for a declaratory judgment that
NYMIR is obligated to pay for the Village's defense of the Brewer action
is granted and the NYMIR's motion for a declaration that does not have an
obligation to defend is denied. C. The Village's Motion for Summary
Judgment on Damages
As stated above, the Village also moves for summary judgment on its
second claim for relief which seeks damages for the NYMIR's alleged
breach of the defense provision of its Policy. This cause of action is
based on the refusal of the NYMIR to pay for the Village's defense of the
Not only does the Village fail to set forth any legal arguments in
support of this aspect of the motion, but the Court finds that there are
a disputed issues of material fact regarding whether NYMIR is liable for
damages. Accordingly, the motion for summary judgment by the Village is
denied with respect to the second cause of action. D. The NYMIR's
Obligation to Indemnify
The NYMIR moves for, among other things, a declaration that it does not
have an obligation to indemnify the Village in the first party action.
However, "[w]hile the duty to defend is measured against the possibility
of a recovery, the duty to pay is determined by the actual basis for the
insured's liability to a third person." Frontier Insulation Contractors,
91 N.Y.2d at 178 (quoting Servidone Constr. Corp. v. Security Ins. Co.,
64 N.Y.2d 419, 424, 488 N.Y.S.2d 139 (1985). Thus, at this stage in the
litigation, it is premature for this Court to determine NYMIR's duty to
Accordingly, the third party defendant's motion for a declaratory
judgment that it does not have an obligation to indemnify the Village is
denied, without prejudice.
E. The Public Official's Liability Policy
The NYMIR also seek a declaration stating that the Village does not
have coverage for the first-party action under the Municipal Public
Officials' Liability Policy. In particular, NYMIR contends that this
policy, a claims based policy, expired on April 1, 2000, more than six
months prior to the date the first party action was commenced. In
opposing this motion, the Village claims that without conducting
additional discovery, it cannot adequately respond to NYMIR's contention
that Municipal Public Officials' Liability Policy lapsed so as to avoid
coverage liability. In this regard, the Village has filed a motion under
Rule 56(f) seeking to adjourn consideration of this aspect of NYMIR's
motion until they are permitted to take additional discovery.
However, not only does the issue of whether the Municipal Public
Official's Liability Policy had lapsed prior to the commencement of the
Brewer action raise issues of material fact, but the NYMIR failed to
provide advance notice that it was moving for summary judgment on this
ground in violation of this Court's Individual Motion Rules of Practice.
Individual Rule IV(C)(i) requires a party moving for summary judgment to
set forth a statement pursuant to Local Civil Rule 56.1 setting forth
those items on which there is no material issue of fact. NYMIR's Rule
56.1 Statement contained no reference to its Public Officials' Liability
Policy but rather addressed only its Law Enforcement Liability Policy.
Accordingly, NYMIR's motion for a declaration stating that the Village
does not have coverage for the first party action under the Municipal
Public Official's Liability Policy is denied without prejudice. Because
of this denial, there is no need for the Village to take additional
discovery at this time. Thus, the Village's motion pursuant to Rule 56(f)
is also denied.
Based on the foregoing, it is hereby
ORDERED, that the Village's motion for a declaration that the NYMIR has
a duty to defend is GRANTED; and it is further
ORDERED, that the Village's motion for summary judgment regarding
damages is DENIED without prejudice; and it is further
ORDERED, that the NYMIR's motion for a declaration that it does not
have a duty to defend is DENIED; and it is further
ORDERED, that the NYMIR's motion for a declaration that it does not
have a duty to indemnify the Village is DENIED without prejudice; and it
ORDERED, that the Village's motion pursuant to Rule 56(f) is DENIED
© 1992-2004 VersusLaw Inc.