Standard & Poor's Corp. v. Continental Cas. Co.

• Decision Date: 25 September 1989
• Docket Number: No. 87 Civ. 6543 KC.,87 Civ. 6543 KC.
• Citation: 718 F. Supp. 1219
• Parties: STANDARD & POOR'S CORPORATION, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

718 F. Supp. 1219

STANDARD & POOR'S CORPORATION, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Defendant.

No. 87 Civ. 6543 KC.

United States District Court, S.D. New York.

September 25, 1989.

William Dallas, Sullivan & Cromwell, New York City, for plaintiff.

Denny Chin, Campbell, Patrick & Chin, New York City, for defendant.

MEMORANDUM AND ORDER

CONBOY, District Judge:

In 1980, defendant Continental Casualty Company ("Continental") issued to Standard & Poor's ("S & P"), a prominent publisher of business and financial information, an insurance policy covering loss from, inter alia, "any act, error or omission, misleading statement or misstatement" committed by S & P. The policy provided for a $500,000 deductible per "occurrence" and a $20,000,000 liability limit per "occurrence" with an annual aggregate liability limit of $20,000,000. "Occurrence" is defined in the policy as follows:

"Occurrence" means all communication, utterance or dissemination of matter published, printed, distributed, exhibited, advertised or otherwise made available on one or a series of dates relating to the same subject, person or class of persons or in all things communicated in a book of one or more volumes or any repetitions thereof.

In 1977, the Washington Public Power Supply System ("the System") began issuing bonds to finance the construction of two nuclear power plants to be located in the state of Washington. Bonds were issued on fourteen separate occasions between March 1977 and 1981. Each time a bond series was issued, S & P assigned a creditworthiness rating to it. Each rating was included in the offering memorandum for the corresponding series, and was also published in various periodicals. In the early 1980s, the power plant projects were beset by cost overruns and other problems, culminating in the System's default on the bonds in August of 1983.

Numerous lawsuits followed the default, and S & P was named as a defendant in several of them. In response to inquiries from S & P's counsel, Continental confirmed, by letter, that the policy applied. The letter suggested that S & P's liability, if any, was for a single occurrence within the meaning of the policy. In July 1983, the claims against S & P were dismissed without prejudice, but were reinstated in 1986. S & P again contacted Continental, and Continental again confirmed coverage. In 1987, however, after reviewing what it claimed to be "additional information" about the bond ratings, Continental reversed its position, claiming that each rating was a separate occurrence within the meaning of the policy. This reversal followed S & P's request for reimbursement for the cost of defending the reinstated claims, which cost exceeded the single deductible amount of $500,000 but was significantly less than $7,000,000. Thus, the upshot of Continental's about face on policy coverage was to preclude S & P from recovering anything since their defense costs did not exceed 14 deductibles.

In this diversity action, S & P seeks a declaration that Continental is obligated to reimburse S & P subject to a single $500,000 deductible. S & P now moves for summary judgment arguing a) that the claims alleged in the underlying litigation fall within what S & P contends is the unambiguous definition of a single "occurrence" in the policy, or b) that the exchange of confirmatory letters in 1983 and 1986 constitutes a binding agreement to that effect regardless of the meaning of the original policy. Continental also moves for summary judgment arguing that a) each rating was a separate occurrence b) there was no amendment or waiver of the terms of the policy, and c) that S & P is not entitled to punitive damages on the theory that Continental acted in bad faith.

DISCUSSION

At the outset, the Court rejects plaintiff's argument that the central issue in this case, the meaning of "occurrence" under the policy, can be resolved by reference to the factual allegations in the underlying litigation. In so arguing, S & P relies on the often stated proposition in "duty to defend" cases that the insurer must provide or pay for the insured's defense unless the insurer demonstrates that the allegations of the underlying complaint are subject to no reasonable interpretation that implicates the insurer's obligations under the policy. See, e.g., International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 361 N.Y.S.2d 873, 875, 320 N.E.2d 619, 620-621 (Ct.App.1974). To state the rule, however, is to distinguish it since the focus of the dispute in such cases is the construction of the underlying complaint — "whether the complaint alleges any facts or grounds which bring the action within the protection purchased," Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 876, 476 N.E.2d 272, 275 (Ct.App.1984) (emphasis added) — and not the construction of the insurance policy.

The number and content of the S & P ratings that gave rise to the underlying claims against it are not disputed here (although the parties emphasize different aspects of the ratings in their papers). What is disputed is the intended application of the policy to the agreed facts, an issue entirely beyond the scope of the underlying action. Stated another way, if Continental's interpretation of the policy is the correct one, no reading of the complaint, no matter how favorable to S & P, renders S & P's conduct a single "occurrence" within the meaning of the policy. Allowing the fortuitous and, in context, irrelevant choice of descriptive language used by the litigants in the...