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United States District Court, S.D. New York

July 19, 2004.


The opinion of the court was delivered by: RICHARD CASEY, District Judge


Royal Insurance Co. of America ("Plaintiff"), an excess insurer, sues Lexington Insurance Co. ("Defendant"), a primary insurer, for legal fees incurred by their mutual insured, Fieber Management Co. ("Fieber"). The Court held argument on the parties' cross-motions for summary judgment on June 15, 2004. Having read the papers and having considered the oral arguments, Plaintiff's motion for partial summary judgment is GRANTED; Defendant's cross-motion is DENIED.

On January 25, 2002, Fieber settled a tort claim brought by Giovanni Frigolino for $3.2 million. Frigolino was injured on a Fieber-owned jobsite when he fell seven stories while working on a roof repair project. Plaintiff contends that Defendant, pursuant to its general liability policy to Fieber, is obligated to pay all defense costs and expert fees incurred in connection with the Frigolino case. Defendant's policy provided primary coverage to Fieber in the amount of $1 million per occurrence. Plaintiff provided excess coverage to Fieber in the amount of $5 million per occurrence above Defendant's primary coverage.

  After it had become apparent that the Frigolino case would exhaust Defendant's policy and after Defendant tendered $1 million to Plaintiff, the law firm of Leahey & Johnson, P.C. ("Leahey"), continued to litigate the case. Plaintiff now moves for summary judgment on its claim that Defendant pay all defense costs and expert fees incurred by Leahey and its predecessor counsel, Lester Schwab Katz & Dwyer LLP. Although the parties have yet to provide a precise sum to the Court, at oral argument counsel for Plaintiff estimated the costs and fees to be just shy of $80,000.


  Federal Rule of Civil Procedure 56(c) provides that summary judgment is appropriate "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). Summary judgment should only be granted if "the nonmoving party `has failed to make a sufficient showing on an essential element of [its] case with respect to which [it] has the burden of proof.'" Berger v. United States, 87 F.3d 60, 65 (2d Cir. 1996) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). When viewing the evidence, the Court must assess the record in the light most favorable to the nonmovant, resolve all ambiguities and draw all reasonable inferences in its favor. See Delaware & Hudson Ry. Co. v. Consol. Rail Corp., 902 F.2d 174, 177 (2d Cir. 1990).

  Issues of fact are genuine when "a reasonable jury could return a verdict for the nonmoving party," and such contested facts are material to the outcome of the particular litigation if the substantive law at issue so renders them. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "If, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). Only when it is apparent that no rational trier of fact "could find in favor of the nonmoving party because the evidence to support its case is so slight" should a court grant summary judgment. Gallo v. Prudential Residential Servs., LP, 22 F.3d 1219, 1223-24 (2d Cir. 1994).

  I. Count One: Declaratory Judgment

  Under New York law, which is applicable here, there exists direct fiduciary duties between excess and primary insurance carriers. See Cont'l Cas. Co. v. Pullman, Comley, Bradley & Reeves, 929 F.2d 103, 107 (2d Cir. 1991). Therefore, Plaintiff may seek reimbursement of the legal fees it paid in relation to the Frigolino defense.

  The starting point in this matter is the language of the insurance contracts. See Pantone, Inc. v. Esselte Letraset Ltd., 691 F. Supp. 768, 771 (S.D.N.Y. 1998); Aetna Cas. & Sur. Co. v. Home Ins. Co., 882 F. Supp. 1328, 1343 (S.D.N.Y. 1995). When the intent of an insurance contract can be discerned from the plain language of the document, courts will give effect to that meaning. See Int'l Fid. Ins. Co. v. County of Rockland, 98 F. Supp.2d 400, 404 (S.D.N.Y. 2000); Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 565 F. Supp. 1485, 1492 (S.D.N.Y. 1982). "The intention of the parties must be gleaned from all corners of the documents, rather than from sentences or clauses viewed in isolation." Pantone, 691 F. Supp. at 771; see also Williams Press, Inc. v. State, 335 N.E.2d 299, 302 (N.Y. 1975). Furthermore, the parties' rights under written contracts should be determined by the plain meaning of the language used. See Pantone, 691 F. Supp. at 772. "In a contract dispute, a motion for summary judgment may be granted only where the agreement's language is unambiguous and conveys a definite meaning." John Hancock Mut. Life Ins. Co. v. Amerford Int'l Corp., 22 F.3d 458, 461 (2d Cir. 1994). And when language in a contract is clear, the court must construe the contract and grant summary judgment without reference to extrinsic evidence. See Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094-95 (2d Cir. 1995).

  Against this backdrop, Plaintiff is entitled to partial summary judgment; Defendant's policy required that it pay Fieber's defense costs through "judgment or settlement," although it has failed to do so. The first paragraph of Defendant's policy with Fieber reads,

[Defendant] shall have the right and duty to defend any suit against [Fieber] seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but [Defendant] shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of [Defendant's] liability has been exhausted by the payment of judgments or settlements and the discharge of its defense and payment obligations as provided in paragraph VI.
(Commercial General Liability Policy ¶ I, Ex. 1 of Exhibits to Defendant's Motion for Summary Judgment.) In pertinent part, paragraph VI of the policy provides that, "[Defendant] will pay, as part of and not in addition to the applicable limit of liability: A. all expenses incurred by [Defendant] in any suit defended by [Defendant]. . . ." (Id. ¶ VI.) Furthermore, the policy provides that "[Defendant] shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of [Defendant's] liability has been exhausted by the payment of judgments or settlements. . . ." (Id. at Endorsement #005.)

  The contract clearly and unambiguously established that: (1) defense costs were in addition to, not part of, the policy limit; (2) tender of its policy limit did not extinguish Defendant's duty to defend; and (3) Defendant was obligated to defend Fieber until its policy limit had been exhausted through the payment of either a judgment or settlement. Therefore, standing alone, tender of its policy limit to Plaintiff did not relieve Defendant of its obligation to defend Fieber. See, e.g., Maryland Cas. Co. v. W.R. Grace & Co., 794 F. Supp. 1206, 1221 (S.D.N.Y. 1991) ("[W]e find under New York law that the duty to defend survives the exhaustion of the policy limits."), rev'd on other grounds, 4 F.3d 155 (2d Cir. 1993); Federal Ins. Co. v. Cablevision Sys. Dev. Co., 662 F. Supp. 1537, 139 (E.D.N.Y. 1987) ("It is well settled in New York that the obligation of insurers to defend their insured is "heavy indeed" and broader than their obligation to indemnify. Both of these obligations arise from two distinct promises by the insurer to the insured."); see also Nat'l Union Fire Ins. Co. v. Travelers Ins. Co., 214 F.3d 1269, 1274 (11th Cir. 2000) (concluding that an excess insurance carrier's involvement in litigation did not relieve a primary insurer of its "contractual duty to defend"); Continental Ins. Co. v. Burr, 706 A.2d 499, 501 (Del. 1997) (holding under policy language similar to Defendant's policy that "the duty to defend is not discharged until policy limits are paid to settle all claims or to satisfy a judgment against the insured."). Defined as Defendant's "duty," under the policy Defendant was obligated to defend any suit until that time when its policy limit had been exhausted through the payment of either a judgment or settlement. Therefore, Defendant must pay for the defense costs that Fieber incurred until the Frigolino action was settled on January 25, 2002.

  Moreover, the Court notes that Plaintiff's policy was tied to Defendant's obligation to defend Fieber until its policy limit was exhausted by payment of settlement or judgment. Plaintiff's policy provides that, "We will have the right and duty to defend any `suit' seeking those damages when: (a) the applicable limits of insurance of the `underlying insurance' and other insurance have been used up in the payment of judgments or settlements." (Big Shield Commercial Catastrophe Liability Policy [Pl.'s Policy] ¶ I., Ex. D of Exhibits to Plaintiff's Motion for Partial Summary Judgment.) This provision makes clear that Plaintiff is obligated to pay Fieber's legal fees only when Defendant has tendered its policy limit through judgment or settlement. Defendant, however, points to a provision entitled, "Supplementary Payments," — which follows the "Insuring Agreement" section of the policy — to argue that Plaintiff must pay the legal fees because Plaintiff had assumed control of the litigation. That section reads, "We will pay, with respect to any claim we investigate or settle, or any `suit' against an insured we defend: (I) All expenses we incur." (Id.) Given the ordering of these provisions, it is clear that the Supplemental Payment section merely defines "costs" and does not specify when the costs must be paid (an issue addressed in the preceding Insuring Agreement). Moreover, construing the Supplementary Payments provision to require Defendant to pay for legal expenses when Defendant incurs such expenses would eviscerate the ordering established in the respective policies, namely that Plaintiff's obligation to defend is triggered only when Defendant's applicable limits have been exhausted in the payment of settlement or judgment.

  Despite its argument that Plaintiff's taking control of the case extinguished its obligation to pay defense costs, Defendant's duty to defend ceased only when the policy so stated. Under the clear and unambiguous policy, Defendant was required to pay defense costs until it exhausted its policy limit through either settlement or judgment. Accordingly, Defendant is obligated to pay all defense costs and expert fees incurred in connection with the Frigolino case up until January 25, 2002, the date of settlement.

  II. Count Two: Bad Faith

  In Count Two of the Complaint, Plaintiff states claims for bad faith against Defendant under both the common law and New York statutory law. Defendant moves for summary judgment on this claim and Plaintiff has asserted a Federal Rule of Civil Procedure 56(f) defense to Defendant's motion. See Fed.R.Civ.P. 56(f) ("Should it appear from affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment. . . ."). "Rule 56(f) requires the Court to ensure that parties have a reasonable opportunity to make their record complete before ruling on a motion for summary judgment." Dufor v. K-Sea Transp. Co., 2001 U.S. Dist. LEXIS 10703, at *16 n. 5 (S.D.N.Y. July 30, 2001). Plaintiff, the party opposing summary judgment, has filed an appropriate Rule 56(f) affidavit demonstrating that the facts it seeks are expected to create a genuine issue of material fact, how it may obtain these facts, and why the previous discovery efforts have failed. Based on this affidavit and the arguments before the Court, Defendant's motion for summary judgment on the bad faith claim is denied without prejudice.


  For the foregoing reasons, Plaintiff's motion for summary judgment on Count One of its Complaint is GRANTED; Defendant's cross-motion for summary judgment on both counts is DENIED. The parties are directed to appear for a conference in this case on August 6, 2004 at 9:30 a.m. in Courtroom 14C.


So Ordered.

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