Rimar v. Continental Cas. Co.

• Decision Date: 12 December 1975
• Citation: 376 N.Y.S.2d 309,50 A.D.2d 169
• Parties: George P. RIMAR, Respondent, v. CONTINENTAL CASUALTY COMPANY, Appellant, Frederick J. Wonnacott et al., Defendants. George P. RIMAR, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Appellant, Frederick J. Wonnacott et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 309

376 N.Y.S.2d 309

50 A.D.2d 169

George P. RIMAR, Respondent, v. CONTINENTAL CASUALTY COMPANY, Appellant, Frederick J.

Wonnacott et al., Defendants.

George P. RIMAR, Plaintiff, v. CONTINENTAL CASUALTY COMPANY, Appellant, Frederick J.

Wonnacott et al., Respondents.

Supreme Court, Appellate Division, Fourth Department.

Dec. 12, 1975.

Phelps, Gray, Mansour & Hewitt, Niagara Falls (Benjamin Hewitt, Niagara Falls, of counsel), for appellant.

Brennan, Callahan, Tesseyman, Zelman & Runfola, Buffalo (Arnold Zelman, Buffalo, of counsel), for respondent Rimar (#736).

Christopher T. W. Ross, Buffalo, for respondents (#737).

Before MARSH, P.J., and SIMONS, MAHONEY, GOLDMAN and DEL VECCHIO, JJ.

OPINION

GOLDMAN, Justice:

In this declaratory judgment action defendant Continental Casualty Company (Continental) appeals from Special Term's orders granting the motion of plaintiff-respondent Rimar and cross motions of defendants-respondents Wonnacott, Buccieri, Johnson and Chamberlain for summary judgments. The summary judgments appealed from ordered removal of attorneys retained by Continental to represent respondents, granted respondents the right to select counsel of their own choosing and directed appellant to pay respondents reasonable attorneys' fees and expenses.

On June 3, 1970 Continental issued a policy of Accountants Professional Liability Insurance to Rimar, Wonnacott, Buccieri and Johnson as a partnership. Under paragraph 'Coverage', Continental agreed

'to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of any act or omission of the insured * * * or any person for whose acts or omissions the insured is legally responsible, and arising out of the performance of professional services for others in the insured's capacity as an accountant or notary public and the company shall have the right and duty to defend any suit against the insured seeking such damages, even if any of the allegations of the suit are groundless, false or fraudulent and may make such investigation and with the written consent of the insured, such settlement of any claim or suit as it deems expedient'.

Under 'Exclusions', the policy was not to apply

'to any dishonest, fraudulent, criminal or malicious act or omission of the insur provided, however, with respect to the named insured this exclusion shall not apply as respects liability arising out of any dishonest, fraudulent, criminal or malicious act of any employee of the named insured if such act is not committed with the knowledge and consent of the named insured'.

In defining 'Persons Insured' the policy provided that 'if the named insured is designated in the declarations as a partnership, the partnership so designated and any partner or member thereof but only with respect to his liability as such' was covered by the policy. While the policy was in force an action was commenced in the United States District Court, Western District of New York, by a corporation known as Kayak Recreational Manufacturing Corporation (Kayak) against all of the respondents, individually and as partners in the accounting firm of Rimar, Wonnacott, Buccieri & Johnson. The complaint demanded $250,000 in compensatory damages, and $200,000 in punitive damages suffered by virtue of defendants' alleged malpractice, fraud, gross negligence, statutory violations and other wrongdoing in the preparation, issuance, certification and rendering of certain financial statements upon which Kayak relied in the conduct of its business. Upon being served with summons and complaint in the federal court action the respondent individuals and the alleged partnership delivered the pleadings to appellant and requested that it defend them. Continental retained a firm of attorneys who prepared and served answers on behalf of respondents as defendants. Thereafter an amended answer was served on behalf of defendants Wonnacott, Buccieri and Johnson and a separate amended answer on behalf of defendants Rimar and Chamberlain. In Both answers the alleged accounting firm's status as a partnership was denied and it was further alleged that defendant Chamberlain was an employee of defendant Rimar.

Continental notified respondents that it disclaimed liability under its policy for any damages 'arising from fraudulent acts or for punitive damages'. Continental notified respondents by letter that '(a)s a courtesy we shall continue with your defense, subject to the understanding that we shall not be bound to any judgment rendered against you for damages arising from fraudulent acts or for punitive damages. This defense is subject to a full reservation of all of our rights under the policy and we wish it be firmly understood that we do not waive any rights under the policy and that you likewi do not waive any of your rights as they may appear'. Upon receipt of this notification an attorney representing respondent Rimar requested Continental to permit Rimar to select his own attorney for defense of the Kayak action and gave as his reason that Continental having partially disclaimed, there existed a conflict of interest. Continental advised respondents that the law firm it retained would continue with the defense and that it was further advising that law firm 'not to relay any information concerning the areas of coverage which are in dispute'. Furthermore, it notified respondents that 'if the insureds desire personal attorneys at their own expense' they could retain them. Respondents Wonnacott, Buccieri and Johnson served amended answers in the Kayak action through independently retained counsel, which contained cross claims against respondents Rimar and Chamberlain, claiming that these two respondents had actually performed the services alleged in the Kayak complaint.

Thereafter respondent Rimar commenced the instant declaratory...