United States District Court, S.D. New York
July 19, 2004.
ROYAL INSURANCE CO. OF AMERICA, Plaintiff,
LEXINGTON INSURANCE CO., Defendant.
The opinion of the court was delivered by: RICHARD CASEY, District Judge
MEMORANDUM OPINION & ORDER
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
[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
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,
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
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.
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