Cass v American Guar. & Liab. Ins. Co.
Annotate this CaseDecided on October 30, 2006
Supreme Court, New York County
Alan M. Cass and Alan M. Cass & Associates, Plaintiffs,
against
American Guarantee & Liability Insurance Company and Zurich North America, Defendants.
601180/06
Walter B. Tolub, J.
Plaintiffs move, pursuant to CPLR 3212, for an order granting them summary judgment, declaring that defendant American Guarantee & Liability Insurance Company (AG&L) is obligated to defend and indemnify plaintiffs against claims of professional malpractice by a former client in an action entitled Elaine Lupo v Alan Cass, Esq. and Alan Cass and Associates, Index No. 103032/06 (the Underlying Action). Defendants AG&L and Zurich North America cross-move for summary judgment, dismissing the complaint and declaring that they have no duty to defend and indemnify.
In this insurance coverage dispute, plaintiffs allege that defendants improperly denied professional malpractice coverage based on late notice of claim. Plaintiffs contend that they promptly notified defendants of a potential legal malpractice claim asserted against them by the former client when they received the summons and complaint in the Underlying Action, on March 15, 2006. They assert that they were not aware that there was a claim or even a potential claim before that. Defendants contend that once plaintiffs' client received an adverse decision from the Workers Compensation Board (WCB) judge, affirmed by the legal appeals unit on November 5, 2005, denying her claim, plaintiffs were aware of a claim or potential claim under the policy.
BACKGROUND
Plaintiff Alan M. Cass Associates is a law firm with a practice in representing claimants before the Workers Compensation Board. Defendant AG&L issued "Lawyers Professional Liability Insurance Policy" No. LPL5384349-3 in December 2005 to plaintiff Alan M. Cass & Associates for coverage against claims based on allegations of malpractice during a one-year period from December 11, 2005 to December 11, 2006 (the Policy). Plaintiff Alan M. Cass, as a partner in the insured, is also an insured under the Policy.
The Policy provides in section V, paragraph B.3, entitled "Notice of a Potential Claim," that:
The Insured, as a condition precedent to this policy, shall immediately provide Notice to [*2]the Company if any Insured has any basis to believe that any Insured has breached a professional duty or to foresee that any such act or omission might reasonably be expected to be the basis of a Claim.
Exhibit A to Affidavit of Alan M. Cass, dated June 19, 2006, at page 4 of 12 (bold in original).
Plaintiff law firm was retained by Elaine Lupo on October 18, 2002 to represent her before the WCB for her disability claim based on an injury she suffered in the course of her employment with the New York City Board of Education (Cass Aff., ¶ 8). Based on a hearing before the WCB, Ms. Lupo received the maximum benefit of $400 per week from August 9, 2002 through October 29, 2002 (id., ¶ 10). Her award was thereafter reduced to $215 per week, which continued until August 5, 2003 (id.). At a hearing on August 5, 2003, the city challenged Ms. Lupo's right to continuing benefits. The WCB judge reduced her award to $103 per week based on the examination and report of the orthopedist retained by the city, Dr. Armand Prisco (id., ¶ 11). The WCB hearing judge scheduled the testimony of Ms. Lupo's treating physician, Dr. Leonard Harrison, for October 8, 2003 (id., ¶ 12). Dr. Harrison was not available for that date, so the hearing was rescheduled for December 17, 2003 (id., ¶¶ 13-14). Dr. Harrison failed to appear on that date, so the judge issued a decision, precluding Dr. Harrison's testimony, and also noting that Ms. Lupo failed to appear at the hearing for the third time (Cass Aff., Exhibit C, at 1-2). The WCB suspended payments to Ms. Lupo. Plaintiff firm appealed the preclusion of Dr. Harrison's testimony, but the Legal Appeals Unit of the WCB affirmed the decision of the hearing judge on June 11, 2004 (id.).
Notwithstanding, plaintiff firm obtained a new hearing on August 23, 2004, and convinced the WCB hearing judge to authorize a new orthopedic consultation (Cass Aff., ¶ 19). Plaintiff firm referred Ms. Lupo to Dr. Andrew Brown (id., ¶ 20). On March 2, 2005, a hearing was scheduled by the WCB judge at which Dr. Brown was to testify (id., ¶ 21). Plaintiff Alan Cass asserts in his affidavit that his firm sent a letter, dated December 22, 2004, advising Dr. Brown of the hearing date (id., ¶ 22). On March 2, 2005, Dr. Brown failed to appear, and the WCB judge granted plaintiff firm's request for an adjournment to May 4, 2005 (id., ¶ 24). By letter dated March 10, 2005, plaintiff firm advised Dr. Brown of the new hearing date (id., ¶ 25). By letter dated April 18, 2005, plaintiffs were advised by Dr. Brown that he could not make the hearing on May 4, because he was attending a risk management seminar (Cass Aff., Exhibit F). Plaintiffs did not mail this letter to the WCB. Plaintiffs advised Ms. Lupo that Dr. Brown again was unavailable to testify on May 4, 2005, and that they strongly recommended that she accept the city's settlement offer, which she rejected (Cass Aff., ¶¶ 29-31).
On May 4, 2005, plaintiffs submitted the letter from Dr. Brown to the WCB hearing judge, and requested a second adjournment, which was denied (id., ¶ 34). The WCB judge ruled that Dr. Brown's attendance at the seminar did not constitute an "extraordinary circumstance" under Workers' Compensation Law § 300.10 (c), and precluded his testimony and report (id., ¶ 34). In his decision, the judge noted that notice of Dr. Brown's unavailability was not filed with the WCB in advance of the hearing (id., ¶ 42; see also Exhibit G annexed thereto, at 3). The judge further stated that he found Dr. Prisco to be highly credible, and found no further causally related disability, and no schedule loss of use (Cass Aff., Exhibit G). Plaintiffs filed an appeal of that decision (Cass Aff., ¶ 37).
By decision dated November 5, 2005, the Legal Appeals Unit of the WCB affirmed the [*3]decision of the hearing judge (Cass Aff., Exhibit H). In its decision, the appeals unit specifically noted that no explanation was given as to why the letter from Dr. Brown was not mailed to the Board in advance of the hearing. It found that the WCB judge properly determined that the excuse for Dr. Brown's inability to appear did not fall within the WCB rule (12 NYCRR 300.10 [c]) regarding the need to show extraordinary circumstances for a second failure to appear, and properly precluded his testimony (Cass Aff., Exhibit H, at 2). The panel also found that the third report by Dr. Prisco, the carrier's consulting orthopedist, dated December 9, 2003, which diagnosed a resolved sprain and contusion of the left wrist, and a resolved lumbar sprain, and found no further causally related disability, constituted sufficient credible evidence of no disability. It noted that there was no indication in the record of a request by plaintiffs to cross-examine Dr. Prisco concerning the basis of the contents of the December 9, 2003 report, and, therefore, that the report was uncontradicted (id.).
In December 2005, Ms. Lupo obtained new counsel to represent her.
On March 15, 2006, plaintiffs were served with the complaint in the Underlying Action (Cass Aff., Exhibit I). In the Underlying Action, Ms. Lupo alleges that plaintiffs committed legal malpractice in failing to give notice to the WCB judge of the anticipated non-appearance of a witness, failing to notify her of the hearings, and failing to cross-examine the carrier's medical witness (id.).
On March 15, 2006, plaintiffs notified defendants of the claim in accordance with their Policy (Cass Aff., ¶ 56). By letter dated March 27, 2006, AG&L denied coverage for this matter on the ground that the plaintiffs had failed to timely comply with the notice conditions of the Policy, requiring that they immediately notify AG&L of any potential claim against them (Cass Aff., Exhibit J). AG&L asserted that plaintiffs had failed to advise of a potential claim when they received the November 4, 2005 decision. It contended that the November 4, 2005 decision clearly blamed plaintiff firm for the outcome of Ms. Lupo's case. Plaintiffs objected to the denial of coverage, and defendants adhered to their position (Cass Aff., Exhibits K and L).
On April 4, 2006, plaintiffs commenced this action seeking a declaration that defendants have a duty under the Policy to defend and indemnify them for the Underlying Action (Cass Aff., Exhibit M). On April 25, 2006, defendants served their answer (Cass Aff., Exhibit N).
In support of their motion for summary judgment, plaintiffs contend that the malpractice allegations are plainly covered by the Policy. Plaintiffs argue that the Policy is a "claims made" policy, and, as such, the awareness of the "possibility" of a malpractice claim is an insufficient basis to disclaim coverage. Instead, they contend that the claim must be a particularized request or demand by the client, not the WCB Legal Appeals Unit. They assert that Ms. Lupo made no request or demand prior to the commencement of her lawsuit. They claim that they acted reasonably in reporting the claim to AG&L, and complied with all conditions requiring notice of the facts of the potential claim. Plaintiffs also claim that the Policy provision regarding notice of a potential claim is ambiguous, and that such ambiguity should be construed against the insurer. Finally, plaintiffs argue that because of AG&L's immediate disclaimer of coverage, there is a conflict of interest and they are entitled to select counsel for the Underlying Action, and that AG&L is obligated to reimburse the attorneys' fees.
Conversely, in support of its cross motion for summary judgment, AG&L asserts that plaintiffs are not entitled to insurance coverage for the Underlying Action, because they failed to comply with the policy condition requiring that they immediately provide AG&L with written [*4]notice of any potential claim. AG&L argues that plaintiffs' client's workers' compensation benefits were terminated by a written decision on November 4, 2005, which decision expressly criticized plaintiffs' handling of their client's case in two respects. First, plaintiffs were criticized for failing to explain why the letter from Dr. Brown was not mailed to the WCB in advance of the hearing. Second, they were criticized for failing to cross-examine Dr. Prisco on his latest report on their client, leaving the report completely unchallenged. Despite this written decision, and despite the fact that the client replaced plaintiffs as counsel in the workers' compensation matter a month later, plaintiffs failed to report this matter as a potential claim, until March 15, 2006, after they were served with the malpractice complaint in the Underlying Action. AG&L urges that no reasonable attorney, upon reviewing the criticisms leveled against him or her, could have ignored the potential of a claim for malpractice being asserted. AG&L also argues that only AG&L issued the Policy, and that Zurich North America is a trade style used by AG&L, and is not a legal entity. Thus, it contends that Zurich is not a proper defendant.
DISCUSSION
The motion for summary judgment is denied. The branch of the cross motion with respect to defendant Zurich, which is not contested by plaintiffs, is granted. The remainder of the cross motion for summary judgment in AG&L's favor is granted, and it is declared that AG&L has no duty to defend or indemnify under the Policy.
Section V, paragraph B.3 of the Policy specifically requires immediate notice of a potential claim "if any Insured has any basis to believe that any Insured has breached a professional duty or to foresee that any such act or omission might reasonably be expected to be the basis" of a claim. This policy condition is unambiguous and comports with most attorney's professional liability policies (Sirignano v Chicago Ins. Co., 192 F Supp 2d 199, 202 [SD NY 2002]; Bellefonte Ins. Co. v Albert, 99 AD2d 947, 948 [1st Dept 1984]). Plaintiffs, here, did not give AG&L notice of the potential claim until there was an actual claim on March 15, 2006, more than four months after it received the November 4, 2005 decision by the WCB Legal Appeals Unit. This violated the terms of the Policy.
This provision may be characterized as a notice of occurrence provision (Sirignano v Chicago Ins. Co., 192 F Supp 2d at 203). Its purpose is to enable the insurer to make a timely investigation of the relevant facts, and to exercise control over the matter early on, perhaps leading to early settlement or to help insurers to take steps to eliminate the risk of future similar occurrences (id., citing Commercial Union Ins. Co. v International Flavors & Fragrances, Inc., 822 F2d 267, 271 [2d Cir 1987]).
Where an insurance policy requires notice of a potential claim, the insured must promptly notify the insurer when the insured reasonably might expect to be the subject of a malpractice claim (Sirignano v Chicago Ins. Co., supra; Bellefonte Ins. Co. v Albert, supra). This notice requirement operates as a condition precedent to coverage, and to the insurer's obligation to defend and indemnify (White v City of New York, 81 NY2d 955 [1993]; Uniguard Sec. Ins. Co. v North River Ins. Co., 79 NY2d 576 [1992]). Therefore, absent a valid excuse, the insured's failure to satisfy the policy's notice requirements vitiates the policy, and the insurer need not show prejudice in order to assert the defense of noncompliance (Argo Corp. v Greater New York Mut. Ins. Co., 4 NY3d 332 [2005]; Security Mut. Ins. Co. of New York v Acker-Fitzsimons Corp., 31 NY2d 436 [1972]). The insured has the burden to demonstrate that it complied with any conditions precedent to coverage, including timely notice (see Thomson v Power Auth. of [*5]State of NY, 217 AD2d 495 [1st Dept 1995]).
Here, the applicable notice of potential claim requirement contained in the Policy requires notice "immediately." Policy provisions mandating immediate notice have been characterized "as setting forth an ironbound requirement,' in contrast to policy provisions providing a more elastic standard,'" such as notice as soon as practicable (Chicago Ins. Co. v Borsody, 165 F Supp 2d 592, 598-99 [SD NY 2001], quoting Mighty Midgets, Inc. v Centennial Ins. Co., 47 NY2d 12, 19 [1979]). Under either notice requirement, the over four-month delay cannot be justified under the circumstances here.
"State and federal courts have held relatively short delays in providing notice of an actual or potential claim" to be unreasonable as a matter of law (Chicago Ins. Co. v Borsody, 165 F Supp 2d at 599; see generally American Ins. Co. v Fairchild Indus., Inc., 56 F3d 435, 440 [2d Cir 1995] ["Under New York law, delays for one or two months are routinely held unreasonable'"]; American Home Assur. Co. v Republic Ins. Co., 984 F2d 76 [2d Cir], cert denied 508 US 973 [1993] [same]; see e.g. M..Z. Discount Clothing Corp. v Meyninger, 23 F Supp 2d 270, 272 [ED NY 1998] [over 10-day delay is not immediate]; Chicago Ins. Co. v Borsody, 165 F Supp 2d 592, supra [40-day delay unreasonable]; Goodwin Bowler Assocs., Ltd. v Eastern Mut. Ins. Co., 259 AD2d 381 [1st Dept 1999] [two-month delay unreasonable]; Pandora Indus., Inc. v St. Paul Surplus Lines Ins. Co., 188 AD2d 277 [1st Dept 1992] [31-day delay unreasonable]; Republic New York Corp. v American Home Assur. Co., 125 AD2d 247 [1st Dept 1986] [45-day delay unreasonable]).
It is clear that plaintiffs' first notice to AG&L on March 15, 2006 more than four months after they became aware of the November 4, 2005 WCB decision, denying their client benefits and specifically criticizing plaintiffs' handling of the matter was untimely as a matter of law.
Under New York law, an attorney/insured's awareness that his or her particular handling of a client's matter may adversely affect the client's interests is sufficient to put a reasonable attorney on notice of a potential claim for malpractice. "[W]here there is no excuse or mitigating factor, the issue [of reasonableness] poses a legal question for the court, rather than an issue for the trier of fact" (SSBSS Realty Corp. v Public Serv. Mut. Ins. Co., 253 AD2d 583, 584 [1st Dept 1998] [internal quotation marks and quotation omitted]).
Here, any lawyer in plaintiffs' position could have reasonably expected a legal malpractice claim in light of the events which led up to the Underlying Action. Plaintiffs were clearly aware on November 4, 2005, that the WCB decision specifically noted plaintiffs' failure to give the WCB judge notice, prior to the hearing date, that the doctor testifying on their client's behalf would not be able to appear for the second time, which plaintiffs were aware of for two weeks before the hearing, and which led to the preclusion of the doctor's testimony. The WCB decision further noted that plaintiffs did not request to cross-examine the opposition's orthopedist on his final report of no disability, which report, therefore, was uncontradicted. Plaintiffs were aware that their client would see this decision, criticizing their representation and denying her benefits. In addition, shortly after the November 4, 2005 decision, Ms. Lupo retained new counsel. These facts, taken together, would have led a reasonable attorney to have expected a potential malpractice claim by their former client. Clearly, plaintiffs' first notice to AG&L on March 15, 2006 more than four months after a lawyer with plaintiffs' knowledge reasonably could have expected a claim was untimely as a matter of law (see American Ins. Co. v [*6]Fairchild Indus., Inc., 56 F3d 435, supra).
Plaintiffs' contention, in this motion, that advance notice of the doctor's inability to appear at the hearing is not mandated by the applicable statute (WCL § 300.10 [c]), and that they made a tactical decision not to further cross-examine Dr. Prisco, and, therefore, that they committed no breach of any professional duty, is unpersuasive. The issue is not whether or not plaintiffs actually committed malpractice, or whether they subjectively believed that there was no conduct which could give rise to a claim, but whether a reasonable attorney would have expected a malpractice claim under the circumstances. Plaintiffs' reliance upon Evanston Ins. Co. v GAB Business Servs., Inc. (132 AD2d 180 [1st Dept 1987]), and Brooks v Zurich-American Ins. Group (300 AD2d 1761[st Dept 2002]), is misplaced. The court in Evanston Ins. Co. did not consider policy language, as contained in plaintiffs' Policy here, requiring notice of a potential claim (132 AD2d 180, supra). In Brooks, again the policy language is distinguishable, and the court found that there was indicia of reasonableness for insured's delay in giving notice, and the insured demonstrated a good faith belief that it was not sure if the problem was due to vandalism by a third party, which would have been covered, or sabotage by an employee which was not covered (300 AD2d 176, supra). There is no such indicia of reasonableness here. Accordingly, plaintiffs' failure to comply with the Policy condition requiring immediate notice of a potential claim vitiates AG&L's defense and indemnity obligations with respect to the Underlying Action.
In response to the cross motion for summary judgment, plaintiffs urge that they had a reasonable belief in non-liability, which excuses their late notice. A reasonable belief in non-liability may excuse an insured's failure to give timely notice (see Sayed v Macari, 296 AD2d 396 [2d Dept 2002]), and "the insured has the burden of showing the reasonableness of such excuse" (White v City of New York, 81 NY2d at 957; see also Duffin v Colonial Indem. Ins. Co., 270 AD2d 942 [4th Dept 2000]). Where there is no excuse offered or where the excuse is unsupported by credible facts, the court may determine reasonableness as a matter of law (see Wilson v Quaranta, 18 AD3d 324 [1st Dept 2005] [delay unreasonable as a matter of law]; SSBSS Realty Corp. v Public Serv. Mut. Ins. Co., 253 AD2d 583, supra [delay unreasonable as a matter of law]; Power Auth. of the State of NY v Westinghouse Elec. Corp., 117 AD2d 336, 339-40 [1st Dept 1986] ["where there is no excuse for the delay and mitigating considerations are absent, the issue may be disposed of as a matter of law in advance of trial."]; see also Travelers Indem. Co. v Worthy, 281 AD2d 411, 412 [2d Dept 2001] [ruling as a matter of law that insureds' explanations for failure to provide insurer timely notice was inadequate]; 1700 Associates v Public Serv. Mut. Ins. Co., 256 AD2d 456, 457 [2d Dept 1998] [plaintiff's belief in non-liability unreasonable as a matter of law, and delay in notifying insurer precludes coverage]; Chimenti v Allstate Ins. Co., 253 AD2d 534, 534-535 [2d Dept 1998] [delay unreasonable as a matter of law]; Can-Am Roofing, Inc. v American States Ins. Co., 229 AD2d 973, 974 [4th Dept 1996]).
This court holds that plaintiffs did not have a reasonable belief of non-liability based on this record. As discussed above, the WCB specifically criticized plaintiffs, upon its preclusion of their client's witness, expressly based, in part, on their failure to give advance notice of the witness' inability to appear, and criticized them for failing to cross-examine the opposing doctor, which led to their client's loss of benefits, and the client hiring a new lawyer. Regardless of plaintiffs' subjective and conclusory claim that they were unaware of any conduct on their part [*7]which could give rise to a legal malpractice claim, the events which occurred in connection with plaintiffs' client's loss of benefits are such that "any reasonable attorney-insured could reasonably have expected a claim" (Sirignano v Chicago Ins. Co., 192 F Supp 2d at 204; see Wilson v Quaranta, 18 AD3d at 325; Sparacino v Pawtucket Mut. Ins. Co., 50 F3d 141, 143 [2d Cir 1995 ] ["[t]he test for determining whether the notice provision has been triggered is whether the circumstances known to the insured at that time would have suggested to a reasonable person the possibility of a claim"]).
Accordingly, plaintiffs' untimely notice to AG&L of a potential claim vitiated its defense and indemnity obligations to plaintiffs with respect to the Underlying Action. AG&L is granted summary judgment on its cross motion, and it is entitled to a declaration that it has no duty to defend and indemnify plaintiffs in the Underlying Action.
With regard to the branch of the cross motion to dismiss the complaint as against defendant Zurich, on the ground that Zurich is a trade style used by AG&L and not a legal entity, that branch is granted as unopposed.
Accordingly, it is
ORDERED, DECLARED and ADJUDGED that defendant American Guarantee & Liability Insurance Company is not required to defend and indemnify plaintiffs in the Underlying Action; and it is further
ORDERED that plaintiffs' motion for summary judgment is denied; and it is further
ORDERED that American Guarantee & Liability Insurance Company's cross motion for summary judgment is granted, and the complaint is dismissed against American Guarantee & Liability Insurance Company and Zurich North America, with costs and disbursements as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
Dated: October , 2006
ENTER:
_________________________
J.S.C.
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