Am. Guarantee & Liab. Ins. Co. v. Cohen
| Decision Date | 19 December 2013 |
| Docket Number | Index No. 113510/2009 |
| Citation | 2013 NY Slip Op 33470 |
| Parties | AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Plaintiff v. MARK E. COHEN, ESQ., URIEL MOND, TOBY PAPIR, JOSHUA MALLIN, JOEL ROTHMAN, MARTIN ROTHMAN, BERNARD SAND, JULIUS SAND, KAREN SAND, YEKUTIEL SHALEV, SHEMON SINGER, and JOSEPH WILLIG, Defendants |
| Court | New York Supreme Court |
DECISION AND ORDER
Plaintiff issued to its insured, defendant Cohen, an attorney practicing in New York, a professional liability insurance policy covering December 1, 2008, to December 1, 2009. Plaintiff has been defending and continues to defend Cohen in an underlying action for legal malpractice since January 2009. Plaintiff commenced this action seeking a declaratory judgment that plaintiff is not obligated to defend or indemnify Cohen in that action and seeking reimbursement of expenses for the defense already provided. The 11 plaintiffs in the underlying action intervened as defendants in this declaratory judgment action.
Intervening defendants sued defendant Cohen in the underlying action claiming legal malpractice based on his failure to undertake due diligence to obtain adequate security for their investments. The investors, who include the intervening defendants and Cohen, pooled funds together to invest in a realestate venture. The investors sent their funds to Cohen, which he maintained in his interest on lawyer account (IOLA), N.Y. Jud. § 497(1), and from which Cohen issued loans to a real estate investment fund managed by a nonparty. The real estate fund proved to be a Ponzi scheme that deprived defendants of any recovery of their investment, which was unsecured by any collateral.
Intervening defendants maintain that Cohen served as their attorney for the investment and represented that he would obtain collateral for the loans to secure against any potential loss. Defendant Cohen insists that he served only as an escrow agent for the investment pool, was not responsible for securing defendants' investment to guard against a potential loss, and therefore is not liable for any legal malpractice.
Plaintiff now moves for summary judgment declaring that plaintiff is not obligated to defend and indemnify Cohen because he (1) violated a condition of coverage by failing to provide notice of a potential claim and (2) materially misrepresented facts in his professional liability insurance renewal application. C.P.L.R. §§ 3001, 3212(b). If granted this relief, plaintiff seeks an award of damages in the amount of plaintiff's expenses for the defense already provided. Plaintiff also seeks summary judgment dismissing intervening defendants' counterclaim. Plaintiff has withdrawn its motion for a default judgment against defendant Cohen.
As a condition to coverage, the policy requires Cohen to notify the insurer immediately if he has reason to expect that a claim may be made against him for professional malpractice. Plaintiff maintains that Cohen was obligated to notify it of potential claims relating to the lost investments in February 2006, when he realized the investments were a total loss. Instead, Cohen advised plaintiff of the claim against him only after he was served with the summons and notice of the underlying action in December 2008.
Plaintiff further maintains that Cohen's failure to disclose the underlying failed investment in his renewal application November 19, 2008, for the 2008-2009 policy year constitutes a material omission in violation of the policy's condition requiring the insured to provide accurate statements in the renewal application. Specifically, plaintiff insists that Cohen's involvement in a failed investment constituted conduct that might result in a claim against Cohen under the policy, triggering his duty to make that disclosure in his renewal application.
Intervening defendants cross-move for summary judgment dismissing plaintiff's complaint and for summary judgment on their counterclaim. C.P.L.R. § 3212(b). The counterclaim alleges that plaintiff failed to disclaim coverage timely and thus waived any disclaimer or denial of coverage based on Cohen's late notice of a claim against him. Intervening defendants also seek a declaratory judgment declaring the parties' rights andobligations in defendants' favor, as is permitted in a declaratory judgment action. C.P.L.R. § 3001; 200 Genesee St. Corp. v. City of Utica, 6 N.Y.3d 761, 762 (2006); Savik, Murray & Aurora Constr. Mqt. Co., LLC v. ITT Hartford Ins. Group, 86 A.D.3d 490, 494 (1st Dep't 2011). Specifically, intervening defendants seek a declaratory judgment that plaintiff may not disclaim or deny coverage on the basis of a material misrepresentation because Cohen had no reason to report the underlying claims against him when he renewed his policy.
Plaintiff and intervening defendants, to obtain summary judgment, must make a prima facie showing of entitlement to judgment as a matter of law, through admissible evidence eliminating all material issues of fact. C.P.L.R. § 3212(b); Vega v. Restani Constr. Corp., 18 N.Y.3d 499, 503 (2012); Smalls v. AJI Indus., Inc., 10 N.Y.3d 733, 735 (2008); JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373, 384 (2005); Giuffrida v. Citibank Corp., 100 N.Y.2d 72, 81 (2003). Only if the moving parties satisfy this standard, does the burden shift to the opposing parties to rebut that prima facie showing, by producing evidence, in admissible form, sufficient to require a trial of material factual issues. Morales v. D & A Food Serv., 10 N.Y.3d 911, 913 (2008); Hyman v. Queens County Bancorp, Inc., 3 N.Y.3d 743, 744 (2004). If the moving parties fail to meet their initial burden, the court must deny summary judgment despite any insufficiency in the opposition. JMD Holding Corp. v. CongressFin. Corp, 4 N.Y.3d at 384; Romero v. Morrisania Towers Hous. Co. Ltd. Partnership, 91 A.D.3d 507, 508 (1st Dep't 2012); Chubb Natl. Ins. Co. v. Platinum Customcraft Corp., 38 A.D.3d 244, 245 (1st Dep't 2007); Atlantic Mut. Ins. Co. v. Joyce Intl., Inc., 31 A.D.3d 352, 352 (1st Dep't 2006). See Roman v. Hudson Tel. Assoc., 15 A.D.3d 227, 228 (1st Dep't 2005). If upon the moving parties prima facie showing, however, the opposition fails to establish material factual issues, the court must grant summary judgment. Vega v. Restani Constr. Corp., 18 N.Y.3d at 503; Morales v. D & A Food Serv., 10 N.Y.3d at 913; Romero v. Morrisania Towers Hous. Co. Ltd. Partnership, 91 A.D.3d at 508. In evaluating the evidence for purposes of the moving parties' motions, the court construes the evidence in the light most favorable to the opponents. Vega v. Restani Constr. Corp., 18 N.Y.3d at 503; Cahill v. Triborough Bridge & Tunnel Auth., 4 N.Y.3d 35, 37 (2004).
Plaintiff relies on Cohen's use of his IOLA for the investment to establish that he was acting as an attorney for intervening defendants, triggering his duty to notify plaintiff of the potential legal malpractice claims against him when he learned the investment failed in February 2006. Plaintiff presents no evidence of a retainer agreement establishing an attorney-client relationship between Cohen and intervening defendants.
Cohen in his deposition testimony, on the other hand, denies any attorney-client relationship with intervening defendants and maintains that his role was limited to a co-investor and escrow agent and that he never even undertook any responsibility to collateralize the investments, Aff. of Thomas E. Gallagher Ex. C, at 27, 65, 144-45. He further testified that, had he had any basis believe a malpractice claim against him potentially would arise from his involvement with the investment, he would have disclosed the potential claim to plaintiff when he renewed his policy. Id. at 166. Cohen's deposition testimony, even had plaintiff presented contrary evidence, raises a material factual issue that his belief in the absence of a potential claim by his co-investors for legal malpractice, as distinct from any other negligence or other culpable conduct, causing the lost investment, was reasonable under the circumstances. Great Canal Realty Corp. v. Seneca Ins. Co., Ins., 5 N.Y.3d 742, 743-44 (2005); Savik, Murray & Aurora Const. Mgt. Co., LLC v. ITT Hartford Ins. Group, 86 A.D.3d 490, 492 (1st Dep't 2011). See Wilson v. Quaranta, 18 A.D.3d 324, 325 (1st Dep't 2005).
The underlying claims against Cohen are predicated on his alleged failure to secure adequate collateral for the investments. Any misconduct in using his IOLA as the escrow account caused no harm to intervening defendants and therefore may not reasonably be expected to form a basis for a legal malpractice claim against Cohen. In fact intervening defendants do not claim any culpable conduct by Cohen in using his IOLA asthe escrow account.
Plaintiff has demonstrated neither an attorney-client relationship, nor any factors vitiating Cohen's reasonable belief of nonliability for legal malpractice, such that it was unreasonable not to have been aware of such a potential claim from his involvement in the investment before he received the summons in the underlying action. See Property & Cas. Ins. Co. of Hartford v. Levitsky, 110 A.D.3d 503 (1st Dep't 2013); Wilson v. Quaranta, 18 A.D.3d at 325. Since plaintiff thus fails to establish, as a matter of law, that Cohen unreasonably delayed in notifying plaintiff of the claims against him, plaintiff is not entitled to summary judgment awarding declaratory relief on this ground.
To establish materiality of a misrepresentation as a matter of law, plaintiff must present evidence, such as an affidavit from one of plaintiff's underwriters and corroborating documentary evidence of its underwriting policies, that plaintiff would not have...
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