Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 14 N.Y.3d 232 (2010)
When a complaint against an insured contains at least one claim potentially covered by a primary insurance policy, the insurer has a duty to defend the entire action, precluding any duty of an excess insurer where its policy provides excess coverage when “any Loss arising from any claim” is covered by other insurance.
Summary
This case involves a dispute between two insurers, Hermitage (CGL policy) and Federal (D&O policy), over the cost of defending Fieldston against two lawsuits. Hermitage argued Federal should contribute to defense costs, claiming Federal’s D&O policy covered most claims. The Court of Appeals held that because Hermitage’s CGL policy potentially covered one claim (injurious falsehood) in each lawsuit, Hermitage had a primary duty to defend the entire action. Federal’s D&O policy’s “other insurance” clause made its coverage excess since Hermitage’s policy covered at least one claim. Thus, Hermitage bore the entire defense cost, illustrating the broad duty to defend.
Facts
Hermitage issued a CGL policy to Fieldston, and Federal issued a D&O policy. Chapel Farm sued Fieldston in federal court, alleging “injurious falsehood” and other claims. Hermitage defended Fieldston under a reservation of rights, arguing Federal’s D&O policy was primary. After the federal suit was dismissed, Villanova (formerly Chapel Farm) sued Fieldston in state court with similar claims. Hermitage again defended under a reservation of rights, seeking reimbursement from Federal. The state court dismissed the injurious falsehood claim, and Federal then assumed the defense.
Procedural History
Two declaratory judgment actions were filed to determine the insurers’ responsibilities. In the first action (federal lawsuit), the Supreme Court ruled Hermitage was primary. In the second action (state lawsuit), the Supreme Court found neither insurer had proved their position as a matter of law. The Appellate Division reversed both rulings, holding Federal was required to contribute to defense costs. The Court of Appeals reversed the Appellate Division, reinstating the Supreme Court’s initial ruling on the federal case and granting summary judgment to Federal on the state case.
Issue(s)
Whether Hermitage’s primary duty to defend against the injurious falsehood claim triggers a primary duty to defend against all causes of action in the complaints, precluding any obligation by Federal under its “other insurance” clause.
Holding
Yes, because under the terms of Federal’s D&O policy, there existed “other insurance” (Hermitage’s CGL) that covered the “loss” arising from the defense of the underlying actions; when a policy has a clause making it excess to other valid insurance, the insurer is not required to contribute to a defense already covered by another policy.
Court’s Reasoning
The court emphasized that an insurer’s duty to defend is broader than the duty to indemnify and is triggered when a complaint alleges any cause of action that creates a reasonable possibility of recovery under the policy. The court quoted Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65 (1991), stating that the duty to defend “arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy.” The court further explained, quoting Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435, 443 (2002), that if “ ‘ any of the claims against an insured arguably arise from covered events, the insurer is required to defend the entire action.’ ” The court reasoned that because Hermitage’s CGL policy potentially covered the injurious falsehood claim, it had a duty to defend the entire action. Federal’s D&O policy had an “other insurance” clause that made its coverage excess when any loss was covered by another policy. “Loss” included “Defense Costs.” Therefore, Hermitage had the primary duty to defend without contribution from Federal. The Court stated, “If the policies were drafted using different language, we might hold differently, but we may not judicially rewrite the language of the policies at issue here to reach a more equitable result”. The court prioritized the plain language of the insurance contracts, even if the result appeared inequitable.