Appeal from a judgment of the Supreme Court, Erie County (Gerald J. Whalen, J.), entered April 20, 2012 in a declaratory judgment action.
Georgetown Capital Group, Inc. v Everest Natl. Ins. Co.
Released on March 15, 2013
Appellate Division, Fourth Department
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.
PRESENT: SMITH, J.P., PERADOTTO, LINDLEY, SCONIERS, AND VALENTINO, JJ.
The judgment, among other things, granted in part plaintiffs' motion for partial summary judgment and denied in part the cross motion of defendant Everest National Insurance Company for summary judgment.
It is hereby ORDERED that the judgment so appealed from is unanimously modified on the law by granting judgment in favor of plaintiff Georgetown Capital Group, Inc. as follows: It is ADJUDGED and DECLARED that Everest National Insurance Company is obligated to provide a defense to that plaintiff in the underlying federal actions,
and as modified the judgment is affirmed without costs.
Memorandum: Plaintiffs commenced this action seeking a declaration that defendant Everest National Insurance Company (ENIC) is obligated to defend and indemnify them in two underlying federal securities actions pursuant to a securities broker/dealer's professional liability policy (hereafter, policy) that ENIC issued to defendant Royal Alliance Associates, Inc. (hereafter, Royal). Royal is an SEC-registered broker-dealer and investment advisor, and plaintiff Georgetown Capital Group, Inc. (hereafter, Georgetown) is a financial services firm that offers securities and financial advisory services through Royal. Georgetown's investment advisors are all registered representatives of Royal. Plaintiff Joseph Curatolo is the president and sole shareholder of Georgetown and also a registered representative of Royal.
The amended complaints in the underlying actions allege that Timothy Geidel, a former Georgetown employee and registered representative of Royal, offered and sold unregistered and fictitious securities to investors and that Royal and Georgetown failed to supervise Geidel. Geidel ultimately pleaded guilty in federal court to wire fraud and structuring.
Plaintiffs moved for partial summary judgment on the first and second causes of action seeking a declaration that ENIC is obligated to defend plaintiffs and/or Royal in the underlying actions, and ENIC cross-moved for summary judgment, contending that it has no duty to provide a defense in the underlying actions. As relevant to this appeal, we conclude that Supreme Court properly granted that part of plaintiffs' motion with respect to Georgetown, and denied ENIC's cross motion in that respect, but erred in failing to declare the rights of the parties in connection with plaintiffs' motion (see Alexander v New York Cent. Mut., 96 AD3d 1457, 1457). We therefore modify the judgment accordingly.
An insurer's duty to defend is " exceedingly broad' and an insurer will be called upon to provide a defense whenever the allegations of the complaint suggest . . . a reasonable possibility of coverage' " (Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137, quoting Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 648). "If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be" (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 670). Thus, the duty to defend exists " even though facts outside the four corners of [the] pleadings indicate that the claim may be meritless or not covered' " (Automobile Ins. Co. of Hartford, 7 NY3d at 137, quoting Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 63).
The insured has the initial burden of establishing coverage under an insurance policy while the insurer bears the burden of proving that an exclusion in the policy applies to defeat coverage (see Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 220). "[E]xclusions are subject to strict construction and must be read narrowly" (Automobile Ins. Co. of Hartford, 7 NY3d at 137). In order to establish that an exclusion defeats coverage, the insurer has the "heavy burden" of establishing that the exclusion is expressed in clear and unmistakable language, is subject to no other reasonable interpretation, and is applicable to the facts (Continental Cas. Co., 80 NY2d at 654-655, citing Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311). An insurer "will be required to provide a defense unless it can "demonstrate that the allegations of the complaint cast that pleading solely and ...