01 Civ. 2737 (RLC)
November 29, 2001
Joseph Vozza Of Counsel, VOZZA VOZZA, for Plaintiffs.
Steven A. Coploff, of Counsel, STEINBERG CAVALIERE, LLP, for Defendant.
Defendant Chicago Insurance Company moves for summary judgment dismissing the complaint in this case and declaring that defendant has no duty to defend or indemnify plaintiffs Mark Varrichio and Associates and Mark A. Varrichio in connection with a legal malpractice action against plaintiffs, pending in the Supreme Court, Bronx County. See Joseph Olivera v. Mark A. Varrichio and Associates and Mark A. Varrichio, Index No. 18631/00. Plaintiffs oppose the motion. For the reasons set forth below, defendant's motion for summary judgment is granted.
The relevant facts are not in dispute. In the summer of 1996, Joseph Olivera ("Olivera") retained attorney Mark A. Varrichio ("Varrichio") to represent Olivera in a personal injury action arising from a car accident with a New York City employee earlier that year. Varrichio filed a timely notice of claim as to Olivera's property damage, but neglected to do so regarding his personal injuries. As a result, Olivera's motion to file a late notice and/or amend his original complaint was denied on April 5th, 1999, and his personal injury action against the City was dismissed.
Varrichio promptly notified defendant of the probability that Olivera would file a legal malpractice claim against him — notice that defendant acknowledged in a letter dated April 29, 1999. On June 2d 2000, Varrichio informed defendant that Olivera had advised Varrichio that he intended to pursue the malpractice claim and that he had retained a new attorney. Defendant acknowledged this notice as well, and retained the firm of White, Fleischner Fino ("White Fleischner") to aid it in settling the matter pre-suit, if possible.
On July 8, 2000, Olivera's new attorney commenced a malpractice action against plaintiffs, serving them with a summons and complaint on July 19, 2000. Plaintiffs neither replied nor forwarded a copy to defendant. In a letter dated July 25, 2000, White Fleischner informed Olivera's attorney that it had been retained in the matter, and requested information regarding the claim. On September 15, 2000, Olivera's attorney called White Fleischner to inform it that plaintiffs had been served and were now in default.
In a letter dated September 21, 2000, defendant disclaimed coverage on grounds that plaintiffs had not complied with the policy condition requiring them to immediately forward copies of process to defendant if suit is brought against them. Not until September 25, 2000, over two months after process had been served, did plaintiffs forward copies of the summons and complaint in the malpractice action to defendant.
On March 13, 2001, after failing to persuade defendant to reconsider its disclaimer, plaintiffs commenced a declaratory judgment action in the Supreme Court, Bronx County, to force defendant to defend and/or indemnify them in Olivera's legal malpractice claim. Defendant removed the action to federal court on March 30, 2001, and served an answer to the complaint on April 4, 2001. Defendant now moves for summary judgment.
Since this case is now in federal court, the Federal Rules of Civil Procedure supply the standards for summary judgment. Under Rule 56(c), F.R. Civ. P., summary judgment is appropriate when "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." In making this determination, the court must "resolve all ambiguities and draw all reasonable inferences against the nonmoving party." Flanigan v. Cen. Elec. Co., 242 F.3d 78, 83 (2d Cir. 2001).
In terms of the merits, it is important to clarify at the outset what this case is not about. To begin with, contrary to plaintiffs' apparent belief, this case is not about whether they complied with their duty under the policy to cooperate. See Pls.' Mem. of Law in Opp. to Def.'s Mot. for Summ. J. ("Pls.' Mem."), at 5-8. Although the provision at issue is entitled "Assistance and Cooperation of Insured in the Event of Claim or Suit," it is clear that the specific clause in question is as much about notice as it is cooperation. Therefore, plaintiffs' analysis about what insurers must show before they may disclaim based on a failure to cooperate is largely irrelevant.
Nor is this case about whether defendant may disclaim coverage based on some failure by plaintiffs to provide notice of Olivera's claim. Although not entirely consistent on this point, defendant seems to acknowledge that the "issue of whether or not the [plaintiffs] gave defendant timely written notice of claim is not at issue in this case." Reply Mem. in Further Supp. of Def.'s Mot. for Summ. J. ("Def.'s Reply Mem."), at 4. And well defendant should, for the evidence and testimony provided by both parties clearly establishes that Varrichio provided defendant with notice of Olivera's pending claim in conformity with the terms of his insurance policy.
Rather, the only dispute relevant to this discussion has to do with whether defendant was entitled to disclaim coverage solely on grounds that plaintiffs "failed to immediately forward suit papers to [defendant], in violation of the specific policy condition requiring that to be done." Id. In other words, the core conflict in this case is over whether plaintiffs provided adequate notice of suit, in the manner specified by their insurance policy. The distinction between notice of claim and notice of suit is admittedly fine, and courts sometimes conflate them as if they were one and the same. As this case demonstrates, however, there is a very real difference between the two types of notice. The policy at issue here specified separate procedures for notifying defendant when a claim was made, and when suit was filed. Plaintiffs complied with the former but not the latter.
The court agrees with the parties that New York law governs this diversity action. See, e.g., Olin Corp. v. Insurance Co. of North Am., 743 F. Supp. 1044, 1048-49 (S.D.N.Y. 1990) (Sand, J.) (identifying six criteria useful in determining whether New York law applies to insurance policies at issue in a diversity action: "the location of the insured risk; the insured's principal place of business; where the policy was issued and delivered; the location of the broker or agent placing the policy; where the premiums were paid; and the insurer's place of business."), aff'd, 929 F.2d 62 (2d Cir. 1991) Under New York law, "the notice provision for a primary A insurer operates as a condition precedent and . . . the insurer need not show prejudice to rely on the defense of late notice." Unigard Security, 594 N.E.2d 571, 573 (N.Y. 1992) (citations omitted). See also AXA Marine and Aviation Ins. Ltd. V. Sea jet Indus. Inc., 84 F.3d 622 (2d Cir. 1996) (stating that New York's no prejudice rule applies not just to notice of occurrence, but to notice of claim and suit provisions as well).
Plaintiffs cite a series of cases in which New York courts have required that an insurer demonstrate prejudice before disclaiming liability based upon failure to forward suit papers. As defendant correctly observes, however, those cases all involve the rights of injured persons (not the insured) to proceed directly against the tortfeasor's insurer. And as the court recognized in the Lauritano v. American Fidelity Fire Ins. Co., 162 N.Y.S.2d 553, 557 (1st Dep't 1957), aff'd 177 N.Y.S. 530 (1958), the seminal case in this area: "the standards by which the notice given by the injured party must be judged differ from those governing notice given by the insured." Therefore, defendant need not show that it suffered any harm from the defective notice to disclaim its duty to defend and indemnify.
It is undisputed that plaintiffs waited two months to forward the summons and complaint despite a policy provision that conditioned coverage on their doing so immediately. New York courts have clearly held that failure to do so "independently justifies" an insurer's denial of coverage. Steadfast Ins. Co. v. Sentinel Real Estate Corp., 2001 N.Y. App. Div. LEXIS 5695, at *20 (1st Dep't June 7, 2001) (citing Viles Contracting Corp. v. Hartford Fire Ins. Co., 708 N.Y.S.2d 281 (1st Dep't 2000)). And both state and federal courts in this state have routinely found that relatively short delays in providing notice violate an immediate notice requirement. See, e.g., Chicago Ins. Co. v. Halcond, 49 F. Supp.2d 312, 320 (S.D.N.Y. 1999) (Kaplan, J.) (38-day delay); M.Z. Discount Clothing Corp. v. Meyninger, 23 F. Supp.2d 270, 272 (E.D.N.Y. 1998) (noting that delay of more than 10-days is not immediate); Rushing v. Commercial Casualty Ins. Co., 167 N.E. 450, 451 (N.Y. 1929) (22-day delay); Goodwin Bowler Assocs., Ltd. v. Eastern Mut. Ins. Co., 687 N.Y.S.2d 126, 127 (1st Dep't 1999) (2 months); Safer Gov't Employees Ins. Co., 678 N.Y.S.2d 667, 668 (2d Dep't 1998) (more than one month).
However, the foregoing does not end the discussion because, "[u]nder New York law, an insured's failure to timely forward a copy of a summons and complaint may be excused "if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible.'" Asbeska Indus. v. Travelers Indern. Co., 831 F. Supp; 74 (E.D.N.Y. 1993) (quoting N.Y. Ins. Law § 3420(a)(4) (McKinney's 1985)). Indeed, where an insured offers an excuse or mitigating circumstances in an effort to explain the lateness of the notice, "ordinarily, the reasonableness of any delay and the sufficiency of the excuse offered is a matter for trial." Avondale Industries, Inc. v. Travelers Indemnity Co., 774 F. Supp. 1416, 1430 (S.D.N.Y. 1991) (Conboy, J.) (quoting Eveready v. Chavis, 540 N.Y.S.2d 860, 861 (2d Dep't 1989)).
Plaintiffs argue that their delay should be excused because their discussions with defendant's representative led them to believe that defendant "already had the suit papers and a defense was being provided." Pls.' Memo., at 8-9. Defendant counters that plaintiffs' proffered excuse is invalid as a matter of law. In support of its position, defendant points to several cases in which courts in the Second Circuit have suggested that "there is no valid excuse under New York law for failing to give reasonable notice when there is an actual claim that triggers a notice of claim provision requiring immediate notice." Def.'s Reply Mem., at 8 (quoting Rooney v. Chicago Ins. Co., U.S. Dist. LEXIS 2796, at *32 (S.D.N.Y. March 13, 2001) (Koeltl, J.). See also American Ins. Co. v. Fairchild Indus., 56 F.3d 435, 439 (2d Cir. 1995); New York v. Blank, 27 F.3d 783, 795-96 (2d Cir. 1994).
Defendant's reliance on these cases is misplaced. For one thing, while the New York Court of Appeals has not ruled definitively on the subject, lower state courts have expressed implicit and explicit disagreement with the approach taken in the decisions cited by defendant. E.g. Reynolds Metal Co. v. Aetna Casualty and Surety. Co., 696 N.Y.S.2d 563, 568 (3d Dep't 1999) ("[D]efendants contend that a defense grounded upon the reasonableness of a belief of nonliability or noncoverage is only permitted in cases involving late notices of occurrence but not late notices of claim. We disagree and note that there is no New York case which specifically upholds such a distinction."); Strand v. Pioneer Ins. Co., 704 N.Y.S.2d 683 (3d Dep't 2000) (recognizing that reasonable belief in nonliability or noncoverage are a valid excuses for late notice of claim or suit and citing Reynolds with approval).
Even more fundamentally, however, it is clear from the record that plaintiffs did, in fact, provide adequate notice of claim. As suggested previously, defendant concedes that the sole question before the court is whether plaintiffs failed to provide adequate notice of suit by neglecting to forward copies of the summons and complaint. And New York state courts clearly do not treat all excuses for failure to forward suit papers as invalid as a matter of law. Strand, 704 N.Y.S.2d at 684 (affirming trial court's determination that triable issue of fact precluded summary judgment where insured offered her reasonable belief in noncoverage as excuse for her failure to forward legal papers to her insurer); Reynolds Metal Co., 696 N.Y.S.2d at 567-68 ("In our view, plaintiff has tendered sufficient evidentiary facts to raise a material question as to whether it held a reasonable good-faith belief in noncoverage and nonliability excusing its failure to "immediately forward' the letter to defendants."); Centenniel Ins. Co. v. Hoffman, 695 N.Y.S.2d 774 (3d Dep't 1999) (reviewing lower court's determination, following trial on the matter, that defendant did not offer reasonable excuse for his failure to forward suit papers, as required by his policy).
That said, the court is still convinced that the excuse offered by plaintiffs in this case is unreasonable as a matter of law. Even if the court were to accept plaintiffs' claim that they believed defendant already had the suit papers, that still would not excuse plaintiffs' failure to forward copies. The policy provision in question does not state that the obligation to forward suit papers is contingent upon whether or not the insurer has copies — the requirement is absolute. See Chicago Insurance Co. v. Halcond, 49 F. Supp.2d 312, 320 (S.D.N.Y. 1999) (Kaplan, J.) (noting that defendant's obligation to forward suit papers as soon as practicable was "unequivocal" under the terms of his insurance policy). Moreover, New York courts seem to recognize only two possible excuses for failure to forward suit papers: reasonable belief of noncoverage, and reasonable belief of nonliability. See, e.g., Reynolds Metal Co., 696 N.Y.S.2d at 568 (holding explicitly that an insured's good-faith belief of nonliability or noncoverage may excuse or explain its failure to forward suit papers "as long as the belief is reasonable under the circumstances").
If plaintiffs had failed to provide notice of suit because they believed that they were not liable for Olivera's alleged harms, or because they thought they were not covered by the insurance policy, the story might be different. But that's not what happened in this case. Plaintiffs simply failed to follow the clear and unequivocal directions in their insurance policy. As a result, summary judgment for defendant is appropriate.