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Westport Insurance Corp. v. Napoli

September 27, 2010


The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.


This case involves a dispute over whether an insurance company-Westport Insurance Corporation-has the duty to defend its insured-the law firm of Napoli, Kaiser & Bern, LLP (that firm and its predecessor firms who are defendants, "NKB")-in a complaint filed in the Supreme Court of the State of New York captioned Appel-Hole, et al. v. Wyeth-Ayerst Laboratories, et al., Index No. 105122/09. The parties have cross-moved for summary judgment: Westport seeks a declaration that it has no duty to defend the law firm because the state complaint alleges the law firm engaged in fraud, which is excluded from coverage under Westport's policy with the law firm. NKB seeks a determination that Westport has a duty to defend the law firm in the state court action. For the reasons set forth below, plaintiff's motion is denied and defendants' motion is granted.


A. Facts

1. Procedural History

Napoli Kaiser & Bern is a law firm that participated in the settlement of certain litigations in New York state courts involving the diet drugs Fen-Phen and Redux. Westport issued a Lawyers Professional Liability policy to the law firm NKB for the period from February 24, 2001 to February 24, 2002. (Pl.'s Consolidated 56.1 Statement ("Pl.'s 56.1") ¶ 1.) In November 2001, the law firm of Parker & Waichman ("P&W") filed a lawsuit against NKB alleging that NKB had improperly manipulated diet drug settlements to the detriment of a number of plaintiffs who had been referred to NKB by P&W. (Id. ¶ 3.) NKB timely notified Westport that it had been sued and requested that Westport extend coverage to NKB under the policy and defend it in the lawsuit by P&W. (Id. ¶ 4.) Westport denied coverage to NKB in connection with the 2001 P&W lawsuit. (Id. ¶5.) As a result of Westport's denial of coverage, NKB retained its own legal counsel to defend it in that action. (Id. ¶ 6.)

In December 2001, NKB was sued again, this time in federal court in the Southern District of New York in Davis, Saperstein & Salomon, P.C. v. Paul Napoli, et. al., 01 Civ. 11328, in connection with the settlement of other claims in the same diet drug litigations. Again, NKB notified Westport it had been sued, and Westport again refused to defend NKB in that litigation as well. (Id. ¶¶ 7-9.) Because Westport denied coverage, NKB again retained legal counsel at its own expense to defend it. That federal action subsequently settled, and NKB obtained releases and discontinuances with prejudice. (Id. ¶¶ 10-11.)

Following the commencement of those two actions, NKB sued Westport in the Supreme Court of the State of New York, New York County, seeking to compel Westport to defend it in connection with the November 2001 action brought by P&W in state court. That action was subsequently removed to federal court, and after cross motions for summary judgment were filed, Judge John Koeltl granted summary judgment in favor of NKB and ordered Westport to defend NKB in the P&W action. See Napoli Kaiser & Bern, LLP v. Westport Ins. Corp., 295 F. Supp. 2d 335 (S.D.N.Y. 2003) ("Napoli I").

In 2003, NKB was once again named as a defendant in a New York Supreme Court action entitled Abramova, et al., v. Paul Napoli, et al., in which clients referred to NKB by P&W in connection with the New York diet drug litigations alleged essentially the same wrongdoing by NKB as the prior lawsuits. (Pl.'s 56.1 ¶ 14.) Westport has been providing a defense for NKB in that action and has also provided NKB a defense in the P&W litigation pursuant to Judge Koeltl's decision in Napoli I. (Id. ¶15.)

P&W and the Abramova plaintiffs (the "Intervenors") have subsequently filed an intervenor complaint ("Intervenor Complaint") in the New York diet drug litigation against NKB and related firms and attorneys. (Id. ¶ 16.) NKB timely notified Westport of the Intervenor Complaint and requested that Westport provide NKB a defense in that action as well. (Id. ¶ 17.) Once again, Westport refused to defend NKB and disclaimed any duty to indemnify NKB against any judgment which might be rendered against NKB. (Id. ¶ 18.) Because Westport refused to defend NKB in connection with that lawsuit, NKB retained legal counsel at its own expense. (Id. ¶ 20.) In August 2009, Westport filed the instant action seeking a declaration from this Court that it is not obligated to provide coverage for NKB in connection with the Intervenor Complaint.

2. The Insurance Policy

In each of the lawsuits described above, NKB was sued for its conduct as attorneys in settling some of its clients' claims in the New York diet drug litigations. NKB had purchased a "claims-made" Lawyers Professional Liability Insurance Policy (the "Policy") from Westport. The Policy provides that Westport will defend and indemnify NKB with respect to claims made during the policy period arising out of legal services rendered by NKB. The relevant coverage provision states: "The CLAIM must arise by reason of an act, error, omission or PERSONAL INJURY.... Coverage shall apply to any such CLAIMS arising out of services rendered or which should have been rendered by any INSURED, and arising out of the conduct of the INSURED'S profession as a lawyer...." (Policy § I.A, Ex. A to Decl. of Kristine A. Heres dated Nov. 25, 2009 ("Heres Decl.").) The Policy contains an exclusion for "any CLAIM arising out of any dishonest, fraudulent, or malicious acts, errors, omissions, or deliberate misrepresentations." (Id. Exclusion A.)

3. The Underlying Intervenor Complaint

The Intervenor Complaint alleges that NKB "fraudulently, unfairly, and unjustly" assigned individual settlement amounts to cases where NKB was representing clients directly "far above their actual worth and assigning a settlement value to cases referred from other attorneys... for amounts less than their actual worth." (Pl.'s 56.1 ¶ 32; Intervenor Compl., Ex. D to Heres Decl. ¶¶ 44-45.) This conduct allegedly permitted defendants to obtain attorneys' fees "far in excess of what they were entitled to receive," and caused ...

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