The opinion of the court was delivered by: KEN SCHROEDER, Magistrate Judge
In accordance with 28 U.S.C. § 636(c), the parties have
consented to have the undersigned conduct all further proceedings
in this case, including entry of final judgment. Dkt. #12.
Currently before the Court is plaintiffs' motion for summary
judgment (Dkt. #26), declaring that defendant is obligated to
defend and indemnify plaintiffs in an action titled Mary and
Dennis Stanek, et al. v. Gretchen Jensen, which is pending in
New York State Supreme Court, County of Erie (Index No.
11826/01), and defendant's cross-motion for summary judgment
(Dkt. #31), declaring that defendant is not obligated to defend
or indemnify plaintiffs in the underlying action. For the
following reasons, plaintiffs' motion is denied and defendant's
motion is granted. BACKGROUND
The Automobile Insurance Company of Hartford Connecticut
("AIC"), insured Bruce and Gretchen Jensen pursuant to a
homeowner's policy issued September 15, 1998 and renewed to
September 15, 2000. Dkt. #33, ¶ 1. The policy provides defense
If a claim is made or a suit is brought against any
insured for damages because of bodily injury or
property damage caused by an occurrence to which this
coverage applies, even if the claim or suit is false.
Dkt. #31, Pt. 32, p. 17. An insured is defined to include the
policy holders and residents of the policy holders' household who
are relatives. Dkt. #31, Pt.32, p. 6. An occurrence is defined as
"an accident" which results in "bodily injury." Dkt. #31, Pt.32,
The policy excludes coverage for bodily injury "which is
expected or intended by any insured" or "arising out of business
pursuits of any insured." Dkt. #31-32, p. 17. The policy includes
the following language with respect to business pursuits:
NOTE: The furnishing of home day care services for
(1) a fee, or
(2) other compensation by the insured and rendering
of such services two or more days per week for a
period of two or more hours per day constitutes one
type of many different business pursuits.
This exclusion does not apply to:
(1) activities which are ordinarily incident to
* * *
Dkt. #31, Pt.32, p. 17. As a condition of coverage, the insured is subject to the
Duties After Loss. In case of an accident or
occurrence, the insured shall perform the following
duties that apply. You will help us in seeing that
these duties are performed:
a. give written notice to us or our agent as soon as
is practical, which sets forth:
(1) the identity of the policy and insured;
(2) reasonably available information on the time,
place and circumstances of the accident or
(3) names and addresses of any claimants and
* * *
Dkt. #31, Pt. 32, p. 20.
During the policy period, Ms. Jensen provided babysitting
services for a profit at her residence. Dkt. #35, ¶ 2.*fn1
During November or December of 1999 and again during January or
February of 2000, Gretchen Jensen personally witnessed
inappropriate behavior of a sexual nature by her son against
children in her care. Dkt. #35, ¶¶ 2-3. Ms. Jensen sought
treatment for her son and obtained a referral to counseling
services in February of 2000. Dkt. #35, ¶ 6.
In February or March of 2000, the mother of one of the children
in her care informed Ms. Jensen that "there was an incident
involving" her son. Dkt. #35, ¶ 4. In March of 2000, Gretchen Jensen moved daycare operations to
another residence to avoid further contact between her son and
the children in her care. Dkt. #35, ¶ 5. By that time, Ms. Jensen
was aware that Erie County was investigating possible misconduct
regarding daycare services provided at the Jensen's residence.
Dkt. #35, ¶ 7.
On July 17, 2000, Ms. Jensen was approached by police officers
regarding allegations that her son improperly touched and/or
abused children in her care. Dkt. #35, ¶ 8. On November 29, 2000,
Ms. Jensen's son was charged with sexual abuse and directed to
appear in Family Court. Dkt. #35, ¶ 9. Ms. Jensen was charged
with endangering the welfare of a child on June 14, 2001, and
pled guilty to that charge on June 18, 2001. Dkt. #35, ¶¶ 9,12.
On June 29, 2001, Ms. Jensen's son was convicted by way of a plea
to an act which, if committed by an adult, would constitute the
crime of sexual abuse in the second degree. Dkt. #35, ¶ 13.
The parents of three children receiving daycare services from
Gretchen Jensen commenced suit against Ms. Jensen in New York
State Supreme Court, Erie County on December 18, 2001. Dkt. #44,
Exh. A. Each of them allege that between September of 1999 and
July of 2000, Gretchen Jensen negligently supervised the children
in her care by permitting opportunities for her son to be alone
with the children, at which time her son had sexual and other
inappropriate contact with the children, and that Ms. Jensen
and/or her son subjected the children to verbal and/or physical
abuse and/or threats. Dkt. #44, Exh. A. Ms. Jensen was served with the Summons and Complaint in the
underlying personal injury action on January 8, 2002. Dkt. #35, ¶
15. She telephoned her insurance agent that day and delivered a
copy of the Summons and Complaint to her insurance agent on
January 9, 2002. Dkt. #35, ¶ 16. AIC received notice of the
personal injury action by letter from the insurance agent on
January 18, 2002. Dkt. #35, ¶ 16.
By letter dated January 22, 2002, AIC disclaimed
The complaint against you alleges various acts of
willful and intentional conduct involving sexual
abuse and/or other inappropriate contact by [your
son] with infants and verbal and/or physical abuse
and/or threats by you and/or your son.
Therefore, the plaintiffs' alleged damages do not
arise out of an occurrence as required by the
insuring agreement of your policy.
Dkt. #31, Pt. 31, p. 3. AIC also advised plaintiffs that "[i]n
addition to the fact that any alleged bodily injury, property
damage, or personal injury was not caused by an occurrence as
required for coverage to attach, the above-mentioned exclusions
[intentional acts and business pursuits] also apply and coverage
is therefore expressly excluded as a result." Dkt. #31, Pt. #1,
AIC also disclaimed coverage due to plaintiffs' failure to
provide timely notice of the claim. Dkt. #31, Pt.31, p. 4.
Specifically, AIC advised plaintiffs that
The Complaint states that the alleged incidents and
activities occurred between September 1999 and July
2000. However, the first notice to Travelers and/or
your agent was only after you were served with a
Summons and Complaint on January 8, 2002. Our
investigation indicates that you were aware of the activities alleged for quite some
time prior to the service of the Summons and
Complaint and that as a result of an investigation by
the District Attorney and/or other authorities, you
pled guilty to endangering the welfare of a child
back in June 2001 and your son's case was handled in
Family Court back at that time also. Therefore, you
have failed to comply with the policy condition
mentioned above and as a result, there is no coverage
for this matter and [AIC] will not defend or
indemnify you regarding it.
Dkt. #31, Pt.31, p. 4.
Plaintiffs commenced a third-party action against AIC on August
8, 2002, seeking declaratory judgment and alleging breach of
contract and breach of the duty of good faith and fair dealing.
Dkt. #31, Exh. 4. The third-party action was severed from the
personal injury action by stipulation entered September 6, 2002
and removed to this Court on September 9, 2002. Dkt. #31, Exh. 5
& 6. By stipulation entered January 22, 2003, the cause of action
for breach of the duty of good faith and fair dealing, as well as
claims for punitive or exemplary damages, were dismissed. Dkt.
On April 24, 2003, the plaintiffs in the underlying personal
injury action commenced suit against AIC in New York State
Supreme Court, County of Erie, seeking a declaration that AIC is
obligated to defend Gretchen Jensen in that action. Dkt. #31,
Exh. 11. AIC removed the action to this Court, where it was
assigned a case number of 03CV365. Dkt. #31, Exh. 12. That action
was consolidated with ...