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Chicago Insurance Co. v. Fasciana

December 13, 2006


The opinion of the court was delivered by: Loretta A. Preska, United States District Judge


Plaintiff Chicago Insurance Co. (the "Company"), an Illinois corporation, brought a diversity action against Fasciana & Assoc., P.C., and John Fasciana ("Fasciana"), a New York citizen, (1) to rescind a lawyer's professional liability insurance policy (Count 1), (2) for a judgment declaring that the insurance company is not required to provide coverage to Defendant Fasciana for a civil suit pending in the Eastern District of Texas (Count 2), and (3) for reimbursement of all fees and expenses paid (Count 3). Chicago Insurance seeks judgment against Defendants for damages, interest, and counsel fees, on account of an alleged material misrepresentation in an application for an insurance policy. The Company has moved for summary judgment on its first three claims for relief.*fn1


On April 10, 2000, Defendant Fasciana signed an application seeking to obtain from Chicago Insurance a lawyer's professional liability claims-made insurance policy on behalf of himself and Defendant Fasciana & Assoc. Pl. Rule 56.1 Stmt. ¶ 1;*fn2 Def. Rule 56.1 Stmt. ¶ 1;*fn3 Cavaliere Aff., Ex. E.*fn4 Chicago Insurance notes that Fasciana answered "no" to an insurance application question that asked whether there were any circumstances that may result in a claim against his firm. Pl. Rule 56.1 Stmt. ¶ 2; Cavaliere Aff., Ex. E. On June 7, 2000, the Company issued an insurance policy to Defendants for the period June 10, 2000, to June 10, 2001, for up to $2 million. Pl. Rule 56.1 Stmt. ¶ 3; Cavaliere Aff., Ex. E.

In January 2001, the Government filed an indictment in the Southern District of New York against Defendant Fasciana, United States v. John Fasciana et al., 01 Cr. 58, charging multiple counts of fraud with respect to his and his firm's dealings with their client, FACS Corporation International ("FACS"), which was acquired by Electronic Data Systems ("EDS"). Pl. Rule 56.1 Stmt. ¶ 4; Def. Rule 56.1 Stmt. ¶ 4; Cavaliere Aff., Ex. C. The indictment alleged that Fasciana participated in a scheme to make it appear that EDS had collected more than $350,000 in pre-acquisition receivables by laundering funds through Fasciana's bank accounts to pay FACS shareholders improperly. This enabled Fasciana to receive unearned additional contingency fees.

On March 15, 2001, Defendant Fasciana notified the Company of a civil lawsuit EDS brought against him in the Eastern District of Texas alleging fraud in connection with his professional representation, Electronic Data Systems Corp. v. John Fasciana, 01 Civ. 93 (the "Texas Action"). Pl. Rule 56.1 Stmt. ¶ 7; Def. Rule 56.1 Stmt. ¶ 7; Cavaliere Aff., Ex. D. Under a reservation of rights in a letter dated April 24, 2001, the Company assigned counsel to represent Fasciana in the civil action. Pl. Rule 56.1 Stmt. ¶ 9; Def. Rule 56.1 Stmt. ¶ 9; Cavaliere Aff., Ex. F. Soon after, the Company acquiesced to Fasciana's request to be represented by counsel of his choice. Pl. Rule 56.1 Stmt. ¶ 10; Def. Rule 56.1 Stmt. ¶ 10; Cavaliere Aff., Exs. G, H, J.

On July 7, 2005, after a two-and-a-half month criminal trial, Fasciana was found guilty by a jury on multiple counts of fraud arising out of his professional relationship with EDS. Cavaliere Aff., Exs. C, M. The evidence at trial showed that Defendant Fasciana, as an attorney for his client, FACS, acquired by EDS, had knowingly engaged in fraudulent conduct with respect to EDS in the years immediately prior to the submission of the application. Cavaliere Aff., Exs. C, M. On November 20, 2006, Judge Laura Taylor Swain sentenced Defendant Fasciana principally to 48 months incarceration, and judgment was entered on December 11, 2006 [docket no. 219].

Chicago Insurance seeks rescission of the policy (Count 1) because, it argues, Defendants made a material misrepresentation in the application for that policy by answering "no" to an application question inquiring whether there were any circumstances that may result in a claim against the firm. Pl. Memo. at 1.*fn5 Further, the Company seeks a judgment declaring that it has no obligation to provide coverage to Fasciana in the Texas Action, Compl. ¶ 28 (Count 2), and ordering reimbursement of money the Company paid in providing a defense in the Texas Action, Compl. ¶ 31 (Count 3).

Diane Cummings, the Director of Underwriting at Fireman's Fund Insurance Company, under whose umbrella Chicago Insurance operates, has explained that had Defendants disclosed "still-uncharged fraudulent misconduct to the detriment of EDS from or between 1995 and the end of 1998 -- as they were obliged to do in response to the application question asking whether there were any circumstances which may result in a claim -- CIC certainly would not have issued the renewal policy." Affidavit of Diane Cummings in Support of Plaintiff's Motion for Summary Judgment dated February 17, 2006 ("Cummings Aff.") ¶ 4.


Summary judgment is appropriate when the pleadings, depositions, interrogatories, admissions, and affidavits demonstrate that there are no genuine issues of material fact in dispute and that one party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Because summary judgment searches the record, Bayway Ref. Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219, 225 (2d Cir. 2000), the affidavits submitted on the preliminary injunction motion also may be considered. "[A] party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). "Factual disputes that are irrelevant or unnecessary" cannot defeat a motion for summary judgment. Id. at 248. All ambiguities must be resolved, and all reasonable inferences drawn, against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1982)). Only if it is apparent that no rational finder of fact "could find in favor of the nonmoving party because the evidence to support its case is so slight" should summary judgment be granted. Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1224 (2d Cir. 1994). This Court must accept the allegations of the complaints as true and construe all reasonable inferences in favor of Plaintiffs. See Karedes v. Ackerly Group, 423 F.3d 107, 113 (2d Cir. 2005); Tarshis v. Riese Org., 211 F.3d 30, 35 (2d Cir. 2000).

Under New York law, an insurer may avoid an insurance contract if the insured made a false representation of past or present fact as an inducement to enter into the contract and the misrepresentation was material, that is, where "knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract." Insurance Law § 3105 (a), (b); see Cruz v. New Millennium Constr. & Restoration Corp., 17 A.D.3d 19, 21 (3d Dep't 2005). A "material misrepresentation, even if innocent or unintentional, is sufficient to warrant a rescission of the policy." McLaughlin v. Nationwide Mut. Fire Ins. Co., 8 A.D.3d 739, 774 (3d Dep't 2004). The Company argues that Fasciana should have disclosed on the Chicago Insurance application his fraudulent activities with respect to his professional relationship with EDS, that, because of his criminal conviction, he is estopped from denying knowledge of that fraud, and that that information was material. Defendants argue that collateral estoppel is not appropriate here and that the Company has not shown a misrepresentation or that any misrepresentation on the application was material.

In this diversity action, federal law governs the collateral estoppel effect of a federal criminal conviction in a subsequent diversity action. Gelb v. Royal Globe Ins. Co., 798 F.2d 38, 43 (2d Cir. 1986). The Court of ...

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