11-2466-cv
Stein v. Northern Assurance Co. Am. et al.

                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS
PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE
32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan Courthouse, 500 Pearl Street, in the City of New York, on the 30th day
of August, two thousand twelve.

Present:
         ROBERT A. KATZMANN,
         PETER W. HALL,
                     Circuit Judges.1
________________________________________________

JUDITH STEIN, individually and as an Executor of the Estate
of Kenneth F. Stein, Jr. and as a beneficiary of the Estate of
Kenneth F. Stein, Jr., GWENDOLYN ZEGEL and JUDITH
STEIN, in their capacities as Trustees of a Testamentary Trust
created under the Last Will and Testament of Kenneth F. Stein, Jr.,
DAVID S. NEUFELD, as an Executor of the Estate of Kenneth F.
Stein, Jr.,

             Plaintiffs-Appellees,

                      v.                                               No. 11-2466-cv

NORTHERN ASSURANCE COMPANY OF AMERICA,
ONEBEACON AMERICA INSURANCE COMPANY, dba


       1
         Because Judge Richard C. Wesley, originally assigned to this panel, recused himself
from this case, the remaining two judges issue this order in accordance with Second Circuit
Internal Operating Procedure E(b).
INTERNATIONAL MARINE UNDERWRITERS, ONEBEACON
INSURANCE GROUP, LTD.,

           Defendants-Appellants.2
________________________________________________

For Plaintiffs-Appellees:                  JOHN A.V. NICOLETTI, Nicoletti Hornig & Sweeney, New
                                           York, N.Y.

For Defendants-Appellants:                 DENIS P. O’LEARY, Neufeld & O’Leary, New York, N.Y.


Appeal from the United States District Court for the Eastern District of New York (Platt, J.).

          ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and

DECREED that the judgment of the district court be and hereby is AFFIRMED.

          In this insurance coverage dispute, Plaintiffs-Appellees Judith Stein, Gwendolyn Zegel,

and David Neufeld (collectively, “plaintiffs” or “insured”) contend that Defendants-Appellants

Northern Assurance Company of America, OneBeacon America Insurance Company d/b/a

International Marine Underwriters, and OneBeacon Insurance Group, LTD. (collectively,

“insurers”) breached their duty to defend plaintiffs in an underlying action pending in New York

Supreme Court: Bernardis v. Town of Islip, No. 08-9250 (the “Bernardis Action”). The district

court (Platt, J.) granted plaintiffs’ motion for partial summary judgment, concluding that insurers

had improperly declined coverage based on a policy provision that excludes coverage for

property damage that the insured was aware of prior to the policy period. We presume the

parties’ familiarity with the facts and procedural history of this case, as well as with the issues on

appeal.




          2
              The clerk of the court is directed to amend the caption as noted.

                                                      2
       We review a district court’s grant of summary judgment de novo, viewing the facts in the

light most favorable to the non-moving party. Pilgrim v. Luther, 

, 204 (2d Cir.

2009). In reviewing a summary judgment decision, this Court “utilizes the same standard as the

district court: summary judgment is appropriate where there exists no genuine issue of material

fact and, based on the undisputed facts, the moving party is entitled to judgment as a matter of

law.” D’Amico v. City of New York, 

, 149 (2d Cir. 1998); Fed R. Civ. P. 56(a).

“We may affirm the district court’s decision on any ground appearing in the record.” Freedom

Holdings, Inc. v. Cuomo, 

, 49 (2d Cir. 2010).

       Under New York law, “[a]n insurer’s duty to defend its insured arises whenever the

allegations in a complaint state a cause of action that gives rise to the reasonable possibility of

recovery under the policy.” Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 

, 170 (N.Y. 2002) (internal quotation marks omitted). Accordingly, “an insurance

company’s duty to defend is broader than its duty to indemnify.” Auto. Ins. Co. of Hartford v.

Cook, 

, 1155 (N.Y. 2006). Moreover, “any ambiguity [in the policy] must be

resolved in favor of the insured and against the insurer.” Westview Assocs. v. Guar. Nat’l Ins.

Co., 

, 223 (N.Y. 2000).

       “To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears

the heavy burden of demonstrating that the allegations of the complaint cast the pleadings wholly

within that exclusion . . . .” Frontier Insulation Contractors. v. Merch. Mut. Ins. Co., 

, 868-69 (N.Y. 1997). In addition, an insurer may only disclaim its duty to defend if

it has demonstrated, as a matter of law, that “there is no possible factual or legal basis upon

which the insurer may eventually be held obligated to indemnify the insured under any policy

provision.” Id.; see also Allstate Ins. Co. v. Zuk, 

, 1037 (N.Y. 1991) (“[A]n


                                                  3
insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no

possible factual or legal basis on which it might eventually be obligated to indemnify its insured

under any policy provision.”).

       “An insurer’s duty to defend claims made against its policyholder is ordinarily

ascertained by comparing the allegations of a complaint with the wording of the insurance

contract.” IBM Corp. v. Liberty Mut. Ins. Co., 

, 144 (2d Cir. 2004). Accordingly,

“[i]t is well established that a liability insurer has a duty to defend its insured in a pending

lawsuit if the pleadings allege a covered occurrence, even though facts outside the four corners

of those pleadings indicate that the claim may be meritless or not covered.” Fitzpatrick v. Am.

Honda Motor Co., 

, 90 (N.Y. 1991).

       However, “[t]he insurer’s duty to defend is . . . not an interminable one, and will end if

and when it is shown unequivocally that the damages alleged would not be covered by the

policy.” Sturges Mfg. Co. v. Utica Mut. Ins. Co., 

, 323 (N.Y. 1975). In other

words, where an insurer’s duty to defend turns on an unresolved factual dispute, “the duty to

defend lasts only until the factual ambiguity is resolved in favor of the insurer.” Hugo Boss

Fashions, Inc. v. Fed. Ins. Co., 

, 622 (2d Cir. 2001); see also Avondale Indus., Inc.

v. Travelers Indem. Co., 

, 1425 (S.D.N.Y. 1991) (The “duty to defend

continues until judicial determination, either in [the] underlying action or in [the] coverage

action, of [the] issue relevant to coverage.” (citing Colon v. Aetna Life & Cas. Ins. Co., 

, 1042 (N.Y. 1985))).

       Upon consideration of the record on appeal, we hold that the district court did not err in

concluding that insurers have failed to meet their burden of establishing that they were entitled,




                                                   4
as a matter of law, to disclaim coverage under the applicable insurance policies.3 In particular,

the factual allegations in the complaint and bill of particulars filed in the Bernardis Action are

insufficient to establish as a matter of law that the insured had prior knowledge of the property

damage at issue in that action, such that the insured violated the notice provisions in the

applicable insurance policies. An insurer’s duty to defend is only extinguished under New York

law when it is unequivocally established that “there is no possible factual or legal basis on which

it might eventually be obligated to indemnify its insured.” Zuk, 574 N.E.2d at 1037; see Sturges,

332 N.E.2d at 323 (To disclaim coverage, an insurer must show “unequivocally that the damages

alleged would not be covered by the policy”). Here, there is ample ambiguity on the face of the

bill of particulars regarding the nature and quality of the notice that Anthony Bernardis, a

plaintiff in the Bernardis Action, gave to Kenneth Stein, a defendant in the Bernardis Action and

an officer in Defendant-Appellee Sayville Ferry Service, Inc. (“Sayville”), regarding the

property damage allegedly caused by Sayville on Bernardis’s property. Specifically, the bill of

particulars alleges that Bernardis informed Stein of flooding from property that Sayville does not

own or have any other possessory interest in.

       Moreover, consideration of extrinsic evidence, to the extent it is appropriate to do so

under New York law, does not alter our conclusion that insurers have failed to meet their burden

for disclaiming coverage. An insurer may only disclaim its duty to defend on the basis of


       3
         We reach this conclusion despite the district court’s erroneous determination that it
could not consider factual allegations made in the bill of particulars filed in the Bernardis Action
in making its coverage determination. Where “the duty to defend cannot be eliminated simply
by examining the face of the complaint, but the insurer’s responsibility to defend can,
nonetheless, be determined before the underlying claim is resolved,” New York law permits an
insurer to “extricate itself early [from its duty to defend] by demanding a bill of particulars.”
Hugo Boss, 252 F.3d at 621-22; see also Northway Eng’g, Inc. v. Felix Indus., Inc., 

, 439-40 (N.Y. 1991) (A bill of particulars allows a party in New York State court to
“amplif[y] a pleading by setting forth in greater detail the nature of the allegations and what the
party making them intends to prove.”).

                                                  5
extrinsic evidence “where the evidence offered . . . allow[s] a court to eliminate the possibility

that the insured’s conduct falls within coverage of the policy.” IBM, 363 F.3d at 148 (internal

quotation marks omitted) (emphasis in original).4 Here, Stein submitted a sworn affidavit in the

Bernardis Action in which he states that “prior to the commencement of the Bernardis lawsuit, I

had no communication with anyone concerning damage to their home that was allegedly caused

by [the insured].” App. at 108. Accordingly, the extrinsic evidence available in the Bernardis

Action cannot “eliminate the possibility” that Stein was in compliance with the notice provisions

of the applicable insurance policies.

       For the foregoing reasons, we conclude that the district court did not err in holding that,

on the record available to it, insurers improperly disclaimed coverage for defending insured in

the Bernardis Action. Our ruling today does not preclude insurers from again disputing their

duty to defend in the appropriate context and in the appropriate forum, should the factual record

on the issue of Stein’s prior notice of the property damage on Bernardis’s property become more

fully developed.

       The judgment of the district court is hereby AFFIRMED.


                                              FOR THE COURT:
                                              CATHERINE O’HAGAN WOLFE, CLERK




       4
         We have previously recognized that New York law is “unclear” regarding the
circumstances in which a court may consider extrinsic evidence in making coverage
determinations. IBM, 363 F.3d at 148 n.4. However, because we conclude that insurers cannot
meet their burden for disclaiming coverage even if we consider the extrinsic evidence on which
they rely, we need not delineate the precise scope of the extrinsic evidence exception under New
York law to resolve this case.

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