Bluestein & Sander, Martin J. Bluestein and Ronni Sander v. Chicago Insurance Company, 276 F.3d 119, 2d Cir. (2002)
Uploaded by
Scribd Government DocsBluestein & Sander, Martin J. Bluestein and Ronni Sander v. Chicago Insurance Company, 276 F.3d 119, 2d Cir. (2002)
Uploaded by
Scribd Government Docs276 F.3d 119 (2nd Cir.
2002)
BLUESTEIN & SANDER, MARTIN J. BLUESTEIN AND
RONNI SANDER, PLAINTIFFS-APPELLEES,
v.
CHICAGO INSURANCE COMPANY, DEFENDANTAPPELLANT.
Docket No. 01-7286
August Term, 2001
UNITED STATES COURT OF APPEALS FOR THE SECOND
CIRCUIT
Argued: November 14, 2001
Decided January 9, 2002
Chicago Insurance Company appeals from a judgment of the United States
District Court for the Southern District of New York (Casey, J.), declaring
that CIC is obligated to indemnify plaintiff law firm under a malpractice
insurance policy.
AFFIRMED.
Steven A. Coploff, Steinberg & Cavaliere, Llp, White Plains, New York,
for Defendant-Appellant.
Martin J. Bluestein, Bluestein & Sander, Pound Ridge, New York, for
Plaintiffs-Appellees
Before: Cardamone, McLAUGHLIN, and Sotomayor, Circuit Judges.
McLAUGHLIN, Circuit Judge
1
This case compels us to analyze estoppel principles in the context of a
malpractice insurance policy issued by the defendant to the plaintiff law firm.
We rule that the district court correctly concluded that the insurer was estopped
from disclaiming coverage to the law firm.
BACKGROUND
In 1996, Chicago Insurance Company ("CIC") issued a lawyers' professional
liability insurance policy to the law firm of Bluestein & Sander, and its partners
Martin Bluestein and Ronni Sander (collectively, "Bluestein"). The policy
covered Bluestein for malpractice and promised to indemnify Bluestein for
damage awards, described as "compensatory judgments, settlements or
awards." The coverage, however, specifically excluded "the return of fees or
other consideration paid to the Insured."
The following year, DFJ Capital Corporation ("DFJ") sued Bluestein for legal
malpractice. In the complaint, DFJ listed "legal fees," without further
clarification, as part of the damages sought. Bluestein promptly forwarded a
copy of the complaint to CIC. When it got the complaint, CIC designated the
law firm Silverman, Collura, Chernis & Balzano ("Silverman") to represent
Bluestein in the malpractice matter. CIC did not disclaim coverage for the
return to DFJ of legal fees it had paid to Bluestein.
The Silverman firm answered the malpractice complaint and conducted pretrial discovery on behalf of Bluestein. In December 1998, CIC received a copy
of DFJ's interrogatory responses, which specifically referred to "[l]egal fees
incurred" as part of the damages DFJ sought against Bluestein. DFJ's
interrogatory responses made perfectly clear that DFJ wanted the return of fees
that they had paid to Bluestein for legal services. DFJ claimed that they had
paid Bluestein for legal services that "had no value." Nine months later, CIC,
citing those interrogatory responses, informed Bluestein for the first time that it
was disclaiming coverage with respect to the portion of any award for the
return of legal fees. CIC based its disclaimer on the language contained in the
policy excluding coverage for the "return of fees or other consideration paid to
the Insured."
Shortly thereafter, Bluestein commenced this action in New York State
Supreme Court. CIC removed the action to the United States District Court for
the Southern District of New York (Casey, J.). Bluestein then moved for
summary judgment on grounds that: (1) CIC was obligated to indemnify them
for all sums at issue in the malpractice case up to the policy limits, including
legal fees incurred; and (2) even if such legal fees were excluded under the
policy, CIC should be estopped from disclaiming coverage.
The district court granted Bluestein's motion for summary judgment, holding
that, under New York law, CIC was estopped from asserting a defense to
coverage-even if valid-because it had unreasonably delayed issuing its
disclaimer and Bluestein had been prejudiced as a result. Bluestein & Sander v.
Chi. Ins. Co., No. 99 Civ. 11519, 2001 WL 167707, at *3-*4 (S.D.N.Y. Feb.
20, 2001). Specifically, the court stated that, as a matter of law, CIC's delay of
more than two years after its receipt of DFJ's complaint, and nine months after
its receipt of DFJ's interrogatory responses, was unreasonable. Id. at *3. By the
time CIC disclaimed, the district court noted, discovery was "substantially
complete with respect to defense issues." Id. at *4. In addition to the actual
prejudice suffered by Bluestein, the district court held that prejudice to
Bluestein could be presumed under New York law because CIC had issued its
disclaimer only after controlling Bluestein's defense for over two years. Id.
7
CIC now appeals, arguing that the district court erred in applying estoppel to
create coverage expressly excluded in the insurance policy.
For the reasons set forth below, we affirm the district court.
DISCUSSION
9
We review a district court's grant of summary judgment de novo, examining the
evidence in the light most favorable to, and drawing all inferences in favor of,
the non-movant. Weinstock v. Columbia Univ., 224 F.3d 33, 40-41 (2d Cir.
2000). Summary judgment is appropriate only if it can be established that "there
is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed. R. Civ. P. 56(c).
10
"The parties' briefs assume that New York law controls this dispute, and such
implied consent is sufficient to establish choice of law." Santalucia v. Sebright
Transp., Inc., 232 F.3d 293, 296 (2d Cir. 2000). Where New York law is
unsettled, this Court is obligated to predict carefully how the state's highest
court would resolve the uncertainty. Id. at 297. In making this prediction, we
give the "fullest weight" to pronouncements of the state's highest court, while
giving "proper regard" to relevant rulings of the state's lower courts. Id.
11
Under New York common law, an insurer, who undertakes the defense of an
insured, may be estopped from asserting a defense to coverage, no matter how
valid, if the insurer unreasonably delays in disclaiming coverage and the
insured suffers prejudice as a result of that delay. Globe Indem. Co. v. Franklin
Paving Co., 430 N.Y.S.2d 109, 111 (2d Dep't 1980). Further, prejudice to an
insured may be presumed "where an insurer, though in fact not obligated to
provide coverage, without asserting policy defenses or reserving the privilege
to do so, undertakes the defense of the case, in reliance on which the insured
suffers the detriment of losing the right to control its own defense." Albert J.
Schiff Assocs. Inc. v. Flack, 51 N.Y.2d 692, 699 (1980); Globe Indem. Co.,
430 N.Y.S.2d at 111.
A. Delay
12
CIC rejects the charge that it unreasonably delayed disclaiming coverage for
the return of legal fees. The reasonableness of any delay is "judged from the
time that the insurer is aware of sufficient facts to issue a disclaimer." Mount
Vernon Fire Ins. Co. v. Unjar, 575 N.Y.S.2d 694, 696 (2d Dep't 1991). CIC
admits that it received a copy of the DFJ malpractice complaint in July 1997
but argues that the label "legal fees" alleged in that complaint as part of DFJ's
damages was ambiguous. We need not resolve this question, because when CIC
got around to disclaiming coverage, in September 1999, it relied on
interrogatory responses from December 1998 as the basis for disclaimer. Even
though CIC certainly knew from those responses that DFJ was seeking a refund
of legal fees paid, CIC still waited nine months to disclaim. CIC offered no
reason for this lengthy delay, which under New York law is plainly
unreasonable. See Hartford Ins. Co., v. County of Nassau, 46 N.Y.2d 1028,
1030 (1979) (holding that an unexplained two month delay in disclaiming
coverage was unreasonable as a matter of law).
B. Prejudice
13
CIC also argues that the district court erred in "presuming" prejudice rather
than actually determining whether there was true prejudice. Again, under New
York law, prejudice to an insured may be presumed where "an insurer, though
in fact not obligated to provide coverage, without asserting policy defenses or
reserving the privilege to do so, undertakes the defense of the case, in reliance
on which the insured suffers the detriment of losing the right to control its own
defense." Flack, 51 N.Y.2d at 699. In such cases, "though coverage as such
does not exist, the insurer will not be heard to say so." Id. (citing O'Dowd v.
Amer. Sur. Co. of N.Y., 3 N.Y.2d 347, 355 (1957)); see also Touchette Corp. v.
Merchants Mut. Ins. Co., 429 N.Y.S.2d 952, 955 (4th Dep't 1980)(stating that
"proof of prejudice may be implied where the insurer has complete control of
the defense"). Here, CIC's designated counsel, Silverman, controlled
Bluestein's defense for over two years before any disclaimer by CIC.
Consequently, prejudice must be presumed.
14
In any event, Bluestein suffered actual prejudice. Silverman conducted
Bluestein's defense almost to the close of discovery before CIC disclaimed
coverage on a ground then advanced for the first time. Despite Bluestein's
limited pro se participation in preparation of the answer and possibly in
depositions, there is no evidence in the record that either Silverman or
Bluestein explored the significance of DFJ's claim for the return of legal fees.
Because of CIC's dilatory disclaimer, targeted discovery regarding this issue
was no longer possible, or, at the very least, was seriously compromised.
C. Public Policy
15
As a last refuge, CIC contends that, under New York law, public policy bars
estoppel where it would provide coverage for the return of "ill- gotten gains," a
label that CIC would append to the fees Bluestein received from DFJ.
Indemnification agreements in New York "are unenforceable as violative of
public policy only to the extent that they purport to indemnify a party for
damages flowing from the intentional causation of injury." Austro v. Niagara
Mohawk Power Corp., 66 N.Y.2d 674, 676 (1985). Bluestein's malpractice was
alleged to be its failure to commence DFJ's action on a promissory note before
the statute of limitations expired. There is simply nothing in the record to
support the conclusion that Bluestein intentionally set out to injure its client,
DFJ.
CONCLUSION
16
We have considered CIC's other arguments and find them to be without merit.
Therefore, the judgment of the district court is hereby AFFIRMED.
You might also like
- No ratings yetThe Lavay Corporation Gerard M. Lavay v. Dominion Federal Savings & Loan Association, and William L. Walde David A. Neal James Winston Bray William J. Dorn, the Lavay Corporation Gerard M. Lavay v. Dominion Federal Savings & Loan Association, and William L. Walde David A. Neal James Winston Bray William J. Dorn, the Lavay Corporation Gerard M. Lavay v. William J. Dorn, and Dominion Federal Savings & Loan Association William L. Walde David A. Neal James Winston Bray, 830 F.2d 522, 4th Cir. (1987)10 pages
