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Selective Insurance Company of New York v. St. Catherine's Center for Children

Supreme Court, Albany County

December 11, 2019

Selective Insurance Company of New York and SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA, Plaintiffs,
v.
St. Catherine's Center for Children, and JANE DOE, an infant, by her Parents and Natural Guardians, JOHN and MARY DOE, individually and as interested parties, Defendants.

          McElroy, Deutsch, Mulvaney & Carpenter, LLP Attorneys for Plaintiffs (Michael J. Marone and Eric G. Siegel, of counsel)

          DuCharme, Clark & Sovern, LLP Attorneys for St. Catherine's Center for Children (Cheryl L. Sovern and John W. Clark, of counsel)

          Sovern Law, PLLC Attorneys for St. Catherine's Center for Children (Cheryl L. Sovern, of counsel)

          RICHARD M. PLATKIN A.J.S.C.

         This is an action brought by plaintiffs Selective Insurance Company of New York and Selective Insurance Company of South Carolina (collectively, "Selective") for, among other things, rescission of an insurance policy issued to defendant St. Catherine's Center for Children ("St. Catherine's") that provided abuse and molestation coverage, including prior acts coverage. Selective alleges that St. Catherine's materially misrepresented and fraudulently concealed allegations of abuse and molestation by its employees when applying for this coverage.

         Discovery is complete, and a trial-term note of issue has been filed. Selective now moves pursuant to CPLR 3212 for an order: (1) rescinding and declaring void ab initio the abuse and molestation coverage written for St. Catherine's, including the prior acts endorsement; (2) determining that St. Catherine's engaged in, and is liable for, common-law fraud; (3) declaring that Selective does not have a duty to defend or indemnify St. Catherine's in an underlying action for sexual molestation that is pending in this Court; and (4) dismissing St. Catherine's counterclaim for declaratory relief. St. Catherine's opposes Selective's motion and cross-moves pursuant to CPLR 3212 for the summary dismissal of plaintiffs' complaint and a declaration that Selective is obliged to defend and indemnify St. Catherine's in the underlying action.

         BACKGROUND

         St. Catherine's is a social services organization located in Albany, New York that provides services to children and their families. Among other programs, St. Catherine's operates a day treatment program that serves elementary school students with behavioral and special needs that cannot be met in a traditional school setting.

         A. The Policy

         Selective issued a commercial insurance policy to St. Catherine's ("Policy") on June 21, 2016 that provided prospective coverage for abuse and molestation claims (see NYSCEF Doc No. 2 ["Complaint"], ¶¶ 5-7).

         St. Catherine's applied for the Policy through its independent agent, Rose & Kiernan ("R & K") (see id., ¶ 6). As part of the application process, R & K submitted to Selective, on March 1, 2016, an application entitled "HUMAN SERVICES - COMPREHENSIVE APPLICATION" (NYSCEF Doc No. 55 ["Application"]). In Section VI of the Application, entitled "Abuse and Molestation," St. Catherine's represented that it carried abuse and molestation coverage from a different carrier (id., p. 5). St. Catherine's then answered "no" to Question 12, which asked whether "any incidents resulted in an allegation of sexual abuse" (id.).

         Sean Leary is a Selective underwriter who was involved in issuing the Policy. On June 23, 2016, he spoke with R & K regarding "a potential need for abuse or molestation prior acts coverage for St. Catherine's because [its] insurance program was going to switch from a claims made coverage to occurrence based coverage" (NYSCEF Doc No. 53 ["Leary Aff."], ¶ 10). On the same date, Leary contacted Nancy Adams of Selective to inquire whether the insurer was authorized to write prior acts coverage in New York (see id., ¶ 11), noting that the underwriting guidelines did not authorize this type of coverage (see id., ¶¶ 12-17). Adams ultimately advised Leary that Selective could issue prior acts coverage under limited circumstances, but cautioned that "[i]f the insured has any incidents that they are aware [of, ] [Selective] should not provide [the retroactive coverage for] prior acts" (NYSCEF Doc. 57, p. 4).

         On July 8, 2016, R & K informed Leary that St. Catherine's did not require prior acts coverage, as "[i]t is being picked up on the prior policy" (id., p. 3). Leary understood this to mean that St. Catherine's had secured a supplemental extended reporting period ("SERP") from the prior carrier (see Leary Aff., ¶ 20). [1] Based on the information received from R & K and the representations made by St. Catherine's, Selective issued the Policy on July 15, 2016 (see id., ¶ 21; NYSCEF Doc No. 59 ["Policy"]). [2]

         B. The Prior Acts Endorsement

         R & K advised Leary on August 31, 2016 that St. Catherine's did, in fact, require prior acts coverage for abuse and molestation dating back to 2009 (see Leary Aff., ¶ 22; NYSCEF Doc No. 60). "Because Selective did not underwrite prior acts abuse or molestation coverage in any state, including New York, Selective determined that the only way to accommodate St. Catherine's request was to create a manuscript endorsement to be approved through the New York Free Trade Zone" (Leary Aff., ¶ 23).

         Prior to agreeing to extend retroactive coverage, Selective requested additional information from St. Catherine's. In this connection, Christopher Greagan of R & K wrote to Leslie Siegard, the chief financial officer of St. Catherine's, on September 22, 2016 to advise of the "need to document to Selective that [St. Catherine's] did not have any Sexual Misconduct claims from 9/1/2009 to the present" (NYSCEF Doc No. 78). On September 23, 2016, Siegard gave the following certification on behalf of St. Catherine's: "I certify that there have been no losses, accidents, violations or circumstances that might give rise to a sexual misconduct claim under the [prior] insurance policy... from 12:01 am on 09/01/2009 to present" (NYSCEF Doc No. 79 ["Statement of No Loss"] [capitalization omitted, emphasis added]).

         John Willenborg, the senior Selective manager involved in underwriting the prior acts endorsement, emailed R & K on November 30, 2016 to further discuss the requested coverage, which is said to be of a type that Selective did not write anywhere in the United States (see NYSCEF Doc No. 64 ["Willenborg Aff."], ¶ 5; NYSCEF Doc No. 66). The process of drafting the custom "manuscript endorsement" for approval by the New York Free Trade Zone was complex and continued into the first quarter of 2017 (Willenborg Aff., ¶ 7).

         On March 10, 2017, Willenborg received additional information from R & K regarding the scope of risks involved in writing the prior acts coverage (see id., ¶ 8). Specifically, the communication confirmed that clergy members did not provide direct care or services at St. Catherine's (see id., ¶ 9; NYSCEF Doc No. 67). However, "[a]s a result of Selective's ongoing concerns regarding not only reported claims, but also the significant risk for events or allegations occurring between 2009 and 2016 that could lead to future claims or lawsuits, Selective required St. Catherine's to execute a more detailed certification of no known loss or potential loss" (Willenborg Aff., ¶ 10; see NYSCEF Doc No. 68).

         On March 20, 2017, Willenborg informed R & K that Selective required a supplemental signed letter of no loss (see Willenborg Aff., ¶ 13). The precise language required by the insurer was sent to R & K on March 22, 2017 (see NYSCEF Doc Nos. 68, 70), and the executed certification (see NYSCEF Doc No. 71 ["No-Loss Letter"]) was returned to Selective on March 27, 2017.

         The No-Loss Letter, which appears on the letterhead of St. Catherine's and is signed by its executive director, Frank Pindiak, reads, in pertinent part:

As you know, after the inception of the Policy, we requested that Selective provide "sexual misconduct" prior acts coverage... for the period from September 2009 through the inception date of the Policy. I understand that Selective has agreed to issue this coverage, conditioned upon receipt of the following certification from St. Catherine[']s.
On behalf of St. Catherine[']s, I hereby represent that St. Catherine[']s made a due diligence inquiry into whether there are any (i) claims, actions, lawsuits or demands for which St. Catherine[']s or a third party may potentially seek coverage under the Policy; and/or (ii) facts, events, actions, inactions or circumstances that may lead to claims, actions, lawsuits or demands for which St. Catherine[']s or a third party may potentially seek coverage under the Policy.
Based upon this due diligence inquiry, as of the date of this letter, St. Catherine's is not aware of any (i) claims, actions, lawsuits or demands for which St. Catherine's or a third party may potentially seek coverage under the Policy, or (ii) facts, events, actions, inactions or circumstances that may lead to claims, actions, lawsuits or demands for which St. Catherine's or a third party may potentially seek coverage under the Policy.
St. Catherine's acknowledges that the statements and representations made to Selective in this communication are material to Selective's decision to issue the Policy, with the requested "prior acts". St Catherine's further acknowledges that Selective reserves all rights to rescind the Policy, whether in whole or in part, based on its discovery of contrary information (id., pp. 1-2).

On May 24, 2017, Willenborg informed R & K that Selective's regulator had approved the language of the manuscript endorsement (see Willenborg Aff., ¶ 18). Based on the information provided by St. Catherine's, including the Statement of No Loss dated September 23, 2016 and the No-Loss Letter dated March 24, 2017, Selective reissued the Policy to include a "Sexual Misconduct Liability Prior Acts Endorsement" (NYSCEF Doc No. 73 ["Endorsement"]).

         C. Jane Doe's Claim

         In August 2017, St. Catherine's submitted a claim to Selective seeking defense and indemnification in an action filed against it in this Court (see Index No. 905151-17 ["Underlying Action"]). The Underlying Action involves allegations by a former student (Jane Doe) that she was the victim of sexual abuse and/or inappropriate sexual contact by a St. Catherine's staff member (James Roe) between February 1, 2016 and February 8, 2016 (see Complaint, ¶¶ 29-31; see also NYSCEF Doc No. 5 ["UA Complaint"]). Notably, the occurrence giving rise to Jane Doe's allegations predates the effective date of the Policy, and, therefore, potentially is subject to coverage only under the prior acts Endorsement (see Complaint, ¶ 32).

         Selective's review of the UA Complaint disclosed that the Justice Center for the Protection of People with Special Needs ("Justice Center") had investigated Jane Doe's allegations and found them to be substantiated (see id., ¶ 33). Selective also learned that St. Catherine's employees had reported Jane Doe's allegations to the Albany Police Department ("APD") and the Justice Center on March 3 and 4, 2016, respectively (see id., ¶ 40). At Selective's request, St. Catherine's provided the insurer with a copy of the Justice Center's investigative report (see id., ¶ 36; see also NYSCEF Doc No. 6 [Justice Center's report]).

         Through its internal investigation, Selective eventually determined that St. Catherine's "knew and could have reasonably foreseen or anticipated that Roe's sexual misconduct... might become the basis of a claim or suit" (Complaint, ¶ 49). Selective further determined that St. Catherine's "knew that Roe's sexual misconduct was the subject of the Justice Center's and the [APD]'s investigation when [St. Catherine's] submitted the two no known loss letters" (id., ¶ 50).

         D. This Action

         Following St. Catherine's refusal to voluntarily rescind the Endorsement (see id., ¶¶ 51-52), Selective commenced this action, seeking (1) a judgment declaring the abuse and molestation coverage provided by the Policy and Endorsement to be rescinded and void ab initio, (2) monetary damages for St. Catherine's alleged fraud and (3) a declaration that Selective is under no duty to defend or indemnify St. Catherine's in the Underlying Action (see id., ¶¶ 54-79). St. Catherine's joined issue and interposed a counterclaim for a contrary declaration (see NYSCEF Doc No. 89 ["Answer"]).

         Discovery is complete, and a note of issue was filed on July 18, 2019 (see NYSCEF Doc No. 48). The parties' motions for summary judgment were submitted as of October 15, 2019, oral argument was held on November 26, 2019, and this Decision, Order & Judgment follows.

         ANALYSIS

         A. Legal Principles

         1. Summary Judgment

         The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient proof in admissible form to eliminate any genuine material issues of fact from the case (see Alvarez v Prospect Hosp., 68 N.Y.2d 320, 324 [1986]). If the movant meets its initial burden, the burden shifts to the nonmoving party to demonstrate the existence of disputed material facts or a legal defense to the claim (see id.). On such a motion, all evidence must be viewed in the light most favorable to the non-movant (see Branham v Loews Orpheum Cinemas, Inc., 8 N.Y.3d 931, 932 [2007]).

         2. ...


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