FIELDSTON PROPERTY OWNERS ASSOCIATION, INC. v. HERMITAGE INSURANCE COMPANY AND FEDERAL INSURANCE COMPANY
(N.Y. Ct. App. February 24, 2011)
Fieldston Property Owners Association, Inc. (“Fieldston”) was sued first in federal court and subsequently in New York state court by Chapel Farm Estates (“Chapel Farm”) based upon “false statements and fraudulent claims Fieldston allegedly made concerning Chapel Farm’s right to access Fieldston’s property during a construction project. In the federal lawsuit, Chapel Farm asserted causes of action for injurious falsehood and interference with property rights and sought damages and injunctive relief.
Fieldston was insured under a commercial general liability policy issued by Hermitage as well as a Directors and Officers Liability policy issued by Federal Insurance Company. Hermitage agreed to defend Fieldston in the federal action under a reservation of rights and subsequently demanded that Federal participate in the defense of their common insured. Federal refused, relying upon the “other insurance” clause in its policy which states:
If any Loss arising from any claim made against the Insured(s) is insured under any other valid policy(ies) prior or current, then this policy shall cover such Loss, subject to its limitations, conditions, provisions, and other terms, only to the extent that the amount of such Loss is in excess of the amount of such other insurance whether such other insurance is stated to be primary, contributory, excess, contingent or otherwise, unless such other insurance is written only as specific excess insurance over the limits provided in th[is] policy.
Thereafter, the federal lawsuit was dismissed and Chapel Farm, which then became known as Villanova Estates, Inc., commenced an action in New York State Supreme Court, essentially alleging the same operative facts and asserting 18 separate causes of action. Once again, Hermitage agreed to defend under a reservation of rights, specifically advising Fieldston that only the injurious falsehood claim was potentially covered under the general liability policy. Federal disclaimed coverage, asserting that the D & O applied on an excess basis.
Ultimately, Fieldston was successful in getting the injurious falsehood claim dismissed, and Heritage re-tendered to Federal, which agreed to take over the defense.
Two declaratory judgment actions followed, one commenced by Fieldston and one by Federal. Summary judgment motions were filed and the decisions in both actions were appealed. On appeal, the Appellate Division, First Department, determined that Federal should reimburse Hermitage its equitable share of defending the federal court action based upon its conclusion that with the possible exception of the injurious falsehood claim, none of the other causes of action were covered under the Hermitage policy while several of them were potentially insured under the D & O policy.
Federal sought leave to appeal to the Court of Appeals. The Appellate Division granted leave certifying the question as follows: “Was the order of this Court … properly made.”
The Court of Appeals answered the certified question in the negative and reversed. Inasmuch as Hermitage’s duty to defend was triggered, its obligation continued, and extended to all claims, until such time as the injurious falsehood claim was dismissed. Moreover, based upon the language of the relevant “other insurance” clauses, Hermitage’s policy applied on a primary basis, without contribution from Federal, notwithstanding that “Federal would appear to have an obligation to indemnify Fieldston for a greater proportion of the causes of action” if liability was found.
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Brian Biggie and Sharon Angelino
https://www.goldbergsegalla.com/attorneys/sharon-angelino
https://www.goldbergsegalla.com/attorneys/brian-r-biggie