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General Insurance Company of America v. City of New York

December 23, 2005


The opinion of the court was delivered by: James C. Francis IV United States Magistrate Judge


General Insurance Company of America ("GICA") seeks a judicial declaration that it is not obligated to defend or indemnify the City of New York (the "City") or the City's Administration for Children's Services ("ACS") in a separate lawsuit in this Court. Two motions for summary judgment are now pending. The City has moved for partial summary judgment declaring that GICA must defend it, and it has also requested an award of attorneys' fees. CIGA has cross-moved for a determination that it has no duty either to defend or to indemnify.

The parties consented to referral of the action to me for all proceedings including determination of dispositive motions pursuant to 28 U.S.C. § 636(c). For reasons that follow, the City's motion is granted and GICA's motion is denied.


A. Underlying Action

In June 2004, Barbara Finch filed a complaint in this Court on behalf of herself and her grandson Manny Moe against the City, ACS, the Talbot-Perkins Agency ("Talbot"), and New Alternatives for Children, Inc. Ms. Finch alleged that the defendants violated her and her grandson's constitutional rights and state law by, among other things, improperly placing Manny in non-kinship foster care at birth; failing to provide federally mandated preventive and reunification services; arbitrarily restricting visits between Ms. Finch and Manny; and failing to provide Manny with treatment for deafness in his left ear. (First Amended Complaint, Finch v. City of New York, No. 04 Civ. 4434 ("Finch FAC"), ¶¶ 33-35, 53-55, 57-60, 64-65, 68-70, 82-83, attached as Exh. F to Declaration of Alan H. Kleinman dated July 14, 2005 ("Kleinman Decl.")).

Manny was born in June 2001 with cocaine in his bloodstream and infected with syphilis. (Finch FAC, ¶ 24). His mother, Ms. Finch's daughter, had already lost parental rights to Manny's older sister Kaylee. (Finch FAC, ¶¶ 22-23). Ms. Finch, a certified foster care provider, was raising Kaylee and four other children who had come to her through the New York City foster care system. (Finch FAC, ¶¶ 21, 51). Without informing Ms. Finch, ACS removed Manny from the hospital and placed him in the custody of Talbot, a foster care agency. (Finch FAC, ¶ 26). Manny remained in non-kinship foster care for almost two years until May 2003, when the New York Family Court placed him with Ms. Finch. (Finch FAC, ¶¶ 26, 44).

Private foster care agencies such as Talbot provide a range of services for children the City has removed from their families, from foster care beds to therapeutic, medical, and adoption services. Talbot's contract with the City obligated the agency to provide such services. (Finch FAC, ¶ 6; foster care contract between ACS and Talbot, excerpts attached as Exh. A to Kleinman Decl.; GICA insurance policy, attached as Exh. B to Kleinman Decl. at 58). At some point before the current action was commenced, Talbot went out of business. (Kleinman Decl., Exh. H).

B. Instant Action

At the center of the dispute between GICA and the City is a GICA liability policy obtained by Talbot. Pursuant to its foster care contract with New York City, Talbot purchased the GICA policy, a standard commercial general liability policy, with an endorsement covering the City as an additional insured. The endorsement did not name the City specifically. Rather, it designated as additional insureds "any and all funding sources." (Kleinman Decl., Exh. A at 34; Declaration of Alan G. White dated Aug. 19, 2005 ("White Decl."), Exh. F at 1B, 1C). The policy covered the liability of both Talbot and the City for any bodily injury arising out of Talbot's operations and obligated GICA to pay for the insured's defense in the event of a related lawsuit. (Kleinman Decl., Exh. B at 59, 75). Under the policy, coverage was limited to injuries caused by an occurrence, defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Kleinman Decl., Exh. B at 59, 71).

The policy contained a significant exclusion: it "does not apply to 'bodily injury,' 'property damage' or 'personal and advertising injury' due to the rendering of or failure to render any professional services." (White Decl., Exh. F at 1A). For liability arising from its professional services, Talbot purchased a professional liability policy from GICA, but New York City was not insured under that policy.

On June 28, 2004, a few days after Ms. Finch filed suit, the City sent a copy of her complaint to Acordia, an insurance broker handling Talbot's GICA policy. (Kleinman Decl., Exh. G). Acordia faxed the complaint to GICA's agent on August 17, 2004, which faxed it on to GICA the same day. (Affidavit of James Klouse dated Aug. 17, 2005 ("Klouse Aff."), ¶¶ 4, 6). Because the endorsement adding all funders as additional insureds did not name the City specifically, GICA sought verification from the City of its relationship as a funder of Talbot. The City sent verification in mid-September. On September 24, James Klouse, a GICA claims specialist, sent a letter to the City's lawyer informing him that GICA had doubts about its obligations to the City and that GICA was submitting the documents to a lawyer for a legal opinion. (White Decl., Exh. D). On November 8, 2004, Mr. Klouse informed the City that GICA declined to defend and indemnify the City. (Klouse Aff., ¶ 15).

In it's complaint, GICA argues that the allegations in the Finch lawsuit fall entirely within the professional services exclusion of the general liability policy. The company also asserts that the City and ACS are not covered because any injuries arose out of the City's operations, not Talbot's, and because the actions alleged in the suit were not accidents, as required under the terms of the policy. Finally, GICA denies coverage on the ground that the injuries claimed by Ms. Finch are not bodily injuries.

C. The Summary Judgment Motions 1. New York City's Motion

The City asserts that GICA must defend it in the Finch action and that summary judgment is warranted for three reasons. First, it argues that the acts are covered by Talbot's commercial general liability policy. The City rejects GICA's conclusion that all of the acts alleged by Ms. Finch involved professional judgment, contending instead that the injuries could have been caused by a clerk, by a general administrative failure, or by a variety of negligent acts that would be covered by general liability insurance. Second, the City maintains that under controlling New York law, an insurer's duty to defend is exceedingly broad and encompasses parties in its position. Third, the City argues ...

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