Burkhart, Wexler & Hirschberg, LLP v. Liberty Insurance Underwriters, 2008 NY Slip Op 30886(U) (N.Y. Sup. Ct. 3/14/2008), 8744-07/

• Decision Date: 14 March 2008
• Docket Number: Motion Sequence: 002.,8744-07/,Motion Sequence: 001.
• Citation: 2008 NY Slip Op 30886
• Parties: BURKHART, WEXLER & HIRSCHBERG, LLP, STEPHEN B. WEXLER, ERROL A. BURKHART, DAVID HIRSCHBERG, AND NORMAN ARNOFF, Plaintiff(s), v. LIBERTY INSURANCE UNDERWRITERS, Defendant(s).
• Court: New York Supreme Court

Page 1

2008 NY Slip Op 30886(U)

BURKHART, WEXLER & HIRSCHBERG, LLP, STEPHEN B. WEXLER, ERROL A. BURKHART, DAVID HIRSCHBERG, AND NORMAN ARNOFF, Plaintiff(s), v. LIBERTY INSURANCE UNDERWRITERS, Defendant(s).

8744-07/

Motion Sequence: 001.

Motion Sequence: 002.

Supreme Court of the State of New York, Nassau County.

Motion Submitted: December 21, 2008.

March 14, 2008.

KAREN VERONICA MURPHY, J.S.C.

This motion by defendant Liberty Insurance Underwriters Inc. ("Liberty Insurance") for an order pursuant to CPLR §§ 3024(b) and 3211(a)(7) striking paragraph 24 from the Verified Complaint; striking and dismissing the third cause of action and plaintiff's demand for punitive damages from the Verified Complaint; and, an award of attorney's fees, is determined as provided herein.

This cross-motion by plaintiffs Burkhart, Wexler & Hirschberg, LLP, Stephen B. Wexler, Errol A. Burkhart, David Hirschberg and Norman B. Arnoff ("the attorneys") for an order pursuant to CPLR § 3025 granting them leave to amend their complaint to add causes of action for breach of the covenant of good faith and fair dealing, bad faith and fraudulent marketing practices, and a violation of General Business Law § 349; and, an order pursuant to CPLR § 3212 granting them partial summary judgment declaring that defendants have a contractual duty to defend them in the action Financial Advisors Legal Association Inc. v. Wexler & Burkhart, P.C., et al., (07 Civ. 2248 EDNY) is determined as provided herein.

The plaintiffs in this action, Burkhart, Wexler & Hirschberg, LLP, Stephen B. Wexler, Errol A. Burkhart, David Hirschberg and Norman B. Arnoff ("the attorneys") are defendants in the Federal Court action Financial Advisors Legal Association Inc. v. Wexler & Burkhart, P.C., et al., (07 Civ. 2248 EDNY). That action was brought against them by one of their former clients, Financial Advisors Legal Association Inc. ("Financial Advisors"). It was commenced on or about June 4, 2007 and on or about June 8, 2007, the attorneys notified Liberty Insurance about that suit and requested a defense and indemnification. By letter dated July 3, 2007, Liberty Insurance denied the attorneys a defense in that action. This action in which the attorneys seek, inter alia, a defense and indemnification in the Federal Court action ensued.

As for the attorneys' motion pursuant to CPLR § 3025, leave to amend their complaint is not necessary as the defendants' time to answer has not expired. CPLR §§ 3211(f), 3025(a). Plaintiff's "proposed" Amended Complaint is accordingly substituted for the original complaint. As is its right, Liberty Insurance has elected to pursue its CPLR §§ 3024, 3211 application vis a vis the Amended Complaint. (Terrano v. Fine, 17 A.D.3d 449, 793 N.Y.S.2d 451 (2d Dept., 2005) citing Livadiotakis v. Tzitzkalakis, 302 A.D.2d 369, 370, 753 N.Y.S.2d 898 [2d Dept., 2003]).

As for the attorneys' summary judgment motion, they are correct: Liberty Insurance's duty to defend presents a pure question of law, which can be determined from the subject insurance policy and the complaint in the Federal Court action. The attorneys may not seek summary judgment pursuant to CPLR § 3212 as issue has not been joined. While a court may treat a motion pursuant to CPLR § 3211 as a summary judgment motion (CPLR § 3211[c]), the attorneys' motion is not a motion pursuant to CPLR § 3211. The attorneys' application may not be treated as one for a preliminary injunction because they have not established a likelihood of success on the merits, that irreparable injury will result absent injunctive relief or that a balancing of the equities tips decidedly in their favor. (Aetna Ins. Co. v. Capasso, 75 N.Y.2d 860, 552 N.E.2d 166, 552 N.Y.S.2d 918 (1990); W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 420 N.E.2d 953, 438 N.Y.S.2d 761 [1981]).

Nevertheless, in response to the attorneys' cross-motion seeking, inter alia, declarative relief, Liberty Insurance has sought a declaratory judgment declaring that its denial of a defense to the attorneys in the Federal Court action was proper and that it is not contractually obligated to defend or indemnify them. Accordingly, both the plaintiff attorneys and the defendant Liberty Insurance have indicated that the issue presented is purely a legal one and it is unequivocally clear that they have both laid bare their proof and "submitt[ed] facts and arguments which clearly indicate that they have `deliberately chart[ed] a summary judgment course'" with respect to Liberty Insurance's duty to the attorneys in the Federal Court action. (Mihlovan v. Grozavu, 72 N.Y.2d 506, 531 N.E.2d 288, 534 N.Y.S.2d 656 (1988), quoting Four Seasons Hotels v. Vinnik, 127 A.D.2d 310, 320, 515 N.Y.S.2d 1 (1^st Dept., 1987); see also, Backer v. Bouza Falco Co., 28 A.D.3d 503, 814 N.Y.S.2d 188, lv. app. 854 N.E.2d 1276, 821 N.Y.S.2d 812 (2d Dept., 2006), lv den. 7 N.Y.3d 707 (2006); Myers v. BMR Bldg. Inspections, Inc., 29 A.D.3d 546, 814 N.Y.S.2d 686 (2d Dept., 2006); Jamison v Jamison, 18 A.D.3d 710, 796 N.Y.S.2d 625 [2d Dept., 2005]).

While Liberty Insurance did issue the attorneys their professional liability insurance policies, it has refused to defend and/or indemnify them in the Federal Court action on numerous grounds. Liberty Insurance has not denied the attorneys coverage based on an exemption but rather as simply not falling within the activities covered by their policy. Liberty Insurance denied coverage on the ground that in its complaint, Financial Advisors did not allege that the attorneys' wrongful conduct arose out of the rendering or failure to render professional legal services for others, as was required by the policy. Liberty Insurance also denied the attorneys coverage on the ground that they may have had a reasonable basis to either believe that they had breached a professional duty or to foresee that a claim may be advanced before their first policy was issued. Liberty Insurance also denied the attorneys coverage because in its complaint, Financial Advisors had alleged that the attorneys' conduct was dishonest, fraudulent, criminal, malicious and/or deliberately wrongful, which is not covered by the policy and because Financial Advisors had alleged that the attorneys had provided legal services and acted as a principal in RRADA, an entity in which the attorneys apparently held various individual and collective equity interests, which also was not covered by the attorneys' policy. Lastly, Liberty Insurance denied the attorneys coverage for failure to provide timely notice.

In the first cause of action of the Amended Complaint in this action the attorneys allege that they have incurred and continue to incur legal costs defending the federal action and that Liberty Insurance acted in bad faith and breached their insurance agreement by refusing to defend them. Declaratory relief is sought. In the second cause of action of the Amended Complaint in this action the attorneys seek the costs and expenses incurred so far in defending the federal court action, as well as future costs and expenses to be borne by them. In the third cause of action of their Amended Complaint in this action the attorneys allege that although Liberty Insurance led it to believe that it was procuring "litigation insurance," Liberty Insurance never had any intention of providing it. The attorneys further allege that Liberty Insurance engaged in fraudulent marketing and claims practices, thereby giving rise to their liability for the costs and attorneys' fees incurred in bringing this action, as well as punitive damages. In the fourth cause of action of their Amended Complaint in this action a violation of Section 349 of the General Business Law is alleged. The attorneys allege that it is Liberty Insurance's custom and practice to deny any and all claims that are arguably beyond the terms of the professional liability insurance policy regardless of the existence of claims, which are clearly within the terms of the policy; that Liberty Insurance at no time disclosed those customs and practices to them; and, that Liberty Insurance in fact made representations to them to the contrary. The attorneys allege that Liberty Insurance's deceptive acts and practices have injured them and caused them to incur legal fees in the Federal Court action and substantial fees and costs in bringing this action to secure insurance coverage, as well.

Summary Judgment: Liberty Insurance's Duty to Defend

The attorneys bear the burden of establishing the existence of coverage in the first instance: until that burden is met, Liberty Insurance does not bear the burden of establishing an exclusion. (Consolidated Edison Co. of New York, Inc. v. Allstate Ins. Co., 98 N.Y.2d 208, 218, 774 N.E.2d 687, 746 N.Y.S.2d 622 (2002); American Mfrs. Mut. Ins. Co. v. Qualifying Distributors, Inc., 16 A.D.3d 607, 792 N.Y.S.2d 555 [1^st Dept., 2005]). The duty to defend is broader than the duty to indemnify. (Fitzpatrick v. American Honda Motor Co., Inc., 78 N.Y.2d 61, 65, 575 N.E.2d 90, 571 N.Y.S.2d 672 (1991), citing Ruder& Finn v. Seaboard Sur. Co., 52 N.Y.2d 663, 669-670, 422 N.E.2d 518, 439 N.Y.S.2d 858 (1981), lv to rearg den. 54 N.Y.2d 753 [1981]). It is the facts pleaded, which determine whether a claim is potentially covered so as to trigger a duty to defend. (See, Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153, 154, 589 N.E.2d 365, 58 N.Y.S.2d 142 [1992]). "If the [Federal Court action] complaint contains any facts or allegations which bring the claim even potentially within the protection purchased, the insurer is obligated to defend." (Technicon Electronics Corp. v. American Home Assur. Co., 74 N.Y.2d 66, 73, 542 N.E.2d 1048, 544 N.Y.S.2d 531 (1989) citing Ruder & Finn v. Seaboard Sur. Co., supra)."The duty of an insurer to defend its insured arises whenever the allegations within the four corners of the underlying complaint potentially give rise to a covered claim, or where the insurer `has actual knowledge of...