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Barkan v. New York Schools Insurance Reciprocal

September 15, 2009

MICHAEL BARKAN, ET AL., PLAINTIFFS-RESPONDENTS,
v.
NEW YORK SCHOOLS INSURANCE RECIPROCAL, DEFENDANT THIRD-PARTY PLAINTIFF-APPELLANT-RESPONDENT;
ROSLYN PUBLIC SCHOOLS, ET AL., THIRD-PARTY DEFENDANTS- RESPONDENTS-APPELLANTS,
ASENATH ANDERSON, THIRD-PARTY DEFENDANT-RESPONDENT, ET AL., THIRD-PARTY DEFENDANTS.



In an action, inter alia, for a judgment declaring that the defendant is obligated to defend and indemnify the plaintiffs in an underlying action entitled Roslyn Union Free School District v Barkan, pending in the Supreme Court, Nassau County, under Index No. 05-5946, the defendant third-party plaintiff appeals (1) from a decision of the Supreme Court, Nassau County (Cozzens, Jr., J.), dated March 22, 2007, and (2), as limited by its brief, from so much of an order of the same court entered April 26, 2007, as, upon the decision, denied its cross motion for summary judgment declaring that it is not obligated to defend the plaintiffs and the third-party defendants Carol Margaritis and Asenath Anderson in the underlying action, and granted those branches of the plaintiffs' motion and the separate motions of the third-party defendants Roslyn Public Schools, Carol Margaritis, and Asenath Anderson which were for summary judgment declaring that it is so obligated; the third-party defendant Roslyn Public Schools cross-appeals (1) from the decision dated March 22, 2007, and (2), as limited by its brief, from so much of the order entered April 26, 2007, as, upon the decision, denied that branch of its cross motion which was for an award of an attorney's fee and costs; and the third-party defendant Carol Margaritis separately cross-appeals (1) from the decision dated March 22, 2007, and (2), as limited by her brief, from so much of the order entered April 26, 2007, as, upon the decision, denied those branches of her separate motion which were for summary judgment declaring that the defendant is obligated to indemnify her in the underlying action and for an award of an attorney's fee and costs.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

WILLIAM F. MASTRO, J.P., PETER B. SKELOS, MARK C. DILLON and RANDALL T. ENG, JJ.

(Index No. 705/06)

DECISION & ORDER

ORDERED that the appeal and the cross appeals from the decision are dismissed, as no appeal lies from a decision (see Schicchi v Green Constr. Corp., 100 AD2d 509); and it is further,

ORDERED that the order is modified, on the law, by deleting the provision thereof denying that branch of the motion of the third-party defendant Carol Margaritis which was for an award of an attorney's fee and costs and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed insofar as appealed and cross-appealed from; and it is further,

ORDERED that one bill of costs is awarded to the plaintiffs and the third-party defendants appearing separately and filing separate briefs, payable by the defendant.

The plaintiffs, former members of the Board of the Roslyn Union Free School District, sued herein as Roslyn Public Schools (hereinafter the School District) commenced this action seeking, inter alia, a declaration that the defendant New York Schools Insurance Reciprocal (hereinafter NYSIR) was obligated to defend and indemnify them in an underlying action entitled Roslyn Union Free School District v Barkan, pending in the Supreme Court, Nassau County, under Index No. 05-5946 (hereinafter the underlying action), pursuant to two insurance policies issued to the School District.

The underlying action involves allegations that during the period from 1998 until 2004, several employees of the School District stole more than $11,000,000 of School District funds. The plaintiffs are alleged to have breached their fiduciary duties as members of the Board of Education of the School District and negligently performed their duties, which resulted in the exacerbation of the theft and scandal faced by the School District.

NYSIR counterclaimed to rescind the policies based upon alleged misrepresentations made by the School District to NYSIR in the 2002-2003 renewal applications for the policies, specifically, that the School District failed to disclose misappropriations allegedly made by Pamela Gluckin, the School District's former Assistant Superintendent for Business. In the alternative, NYSIR sought a judgment declaring that it was not obligated to defend or indemnify the plaintiffs in the underlying action because, inter alia, the insureds failed to timely provide it with notice of the claims alleged in the underlying action. NYSIR also commenced a third-party action against, among others, the School District and former Board members Carol Margaritis and Asenath Anderson seeking rescission and a declaration of no coverage on the same grounds.

The Supreme Court determined that NYSIR was obligated to defend the plaintiffs, Margaritis, and Anderson in the underlying action. We agree.

Generally, it is for the insured to establish coverage and for the insurer to prove that an exclusion in the policy applies to defeat coverage (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 218; see also Belsito v State Farm Mut. Ins. Co., 27 AD3d 502, 503). An insurer's duty to defend is broader than the duty to indemnify and arises whenever the allegations of the complaint against the insured, liberally construed, potentially fall within the scope of the risks undertaken by the insurer (see New York City Hous. Auth. v Commercial Union Ins. Co., 289 AD2d 311, 312, citing Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169). "[T]he duty of an insurer to defend its insured arises whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim" (Physicians' Reciprocal Insurers v Loeb, 291 AD2d 541, 542). If any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action (see Fitzpatrick v American Honda Motor Co., 78 NY2d 61). Nonetheless, "an insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision" (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45; see Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652).

The Supreme Court properly determined that NYSIR has an obligation to defend the plaintiffs, Margaritis, and Anderson in the underlying action. The plaintiffs, Margaritis, and Anderson demonstrated, prima facie, that the allegations of the complaint in the underlying action potentially give rise to a claim covered by the policy (see e.g. Belsito v State Farm Mut. Ins. Co., 27 AD3d at 503), and NYSIR failed to raise a triable issue of ...


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