SEIBEL, District Judge.
Before this Court are the Motion for Summary Judgment of Plaintiff Continental Casualty Company ("Continental") pursuant to Federal Rule of Civil Procedure 56, (Doc. 27); the Motion to Dismiss of Defendant Marshall Granger & Co., LLP ("Marshall Granger") pursuant to Federal Rule of Civil Procedure 12(b)(6), (Doc. 34); and the Motion to Dismiss of Defendants-Intervenors Joseph J. Boughton, Jr. and Northstar Investment Group, Ltd. (collectively, "Boughton Entities") pursuant to Federal Rule of Civil Procedure 12(b)(6), (Doc. 24). For the reasons stated below, Plaintiff's Motion is DENIED without prejudice to renewal following limited discovery; Defendant Marshall Granger's Motion is DENIED; and Defendants-Intervenors' Motion is DENIED.
For the purposes of the Defendants'
Continental issued Accountants Professional Liability Policy No. 140451264 (the "Policy") to Marshall Granger, a certified public accounting firm, for the period April 1, 2010 to April 1, 2011. (Compl. ¶¶ 1, 5.) Laurence M. Brown and Ronald J. Mangini were Marshall Granger's principals and general and managing partners. (Id. ¶¶ 6-7.) The Policy's contract terms state:
(Id. ¶ 12; id. Ex. A, at VI.G (bold denotes defined terms in the Policy).)
On behalf of Marshall Granger, Brown prepared and signed the Policy's renewal application. (Id. ¶ 13; id. Ex. B.)
(Id. ¶¶ 14-18; id. Ex. B, at 1-3.) Above Brown's signature, the application contained several warnings, including that the "[a]pplicant represents, after inquiry, that the information contained herein and in any attachments, supplemental applications or forms required hereby are true, accurate and complete, and that no material facts have been suppressed or misstated." (Id. ¶ 20; id. Ex. B, at 4.) Immediately above the signature line, the application also stated that it "[m]ust be signed by a person who has the authority to sign on behalf of and to bind the Applicant, all firms and individuals requesting insurance through this application." (Id. Ex. B, at 4.) In reliance upon the information furnished in Marshall Granger's application and Marshall Granger's submission of the application subject to the application's admonitions, Continental issued the Policy. (Id. ¶¶ 20-21.)
Unbeknownst to Continental, Brown and/or Marshall Granger had created a prospectus entitled "Infinity Reserves Tennessee — Gas Gathering and Trunk Pipeline System," which was distributed to certain Marshall Granger clients and other prospective investors beginning around October 2007. (Id. ¶ 23; id. Ex. C.) The prospectus's cover letter — signed by Brown as President of Infinity Reserves-Tennessee, Inc. ("Infinity") — stated that Infinity was "currently selling interests in its ... gas gathering and trunk system, along with its interconnect into the Duke Energy ... main east-west trunk line," and the opportunity was "an attractive package for several reasons." (Id. ¶ 24;
In May 2010, Mangini informed Boughton that Brown was holding himself out as an officer of Infinity and soliciting investments based on false representations regarding its operations. (Id. ¶ 29.) Boughton subsequently reported the allegations to the Securities & Exchange Commission ("SEC"), which commenced an emergency enforcement action against Brown and Mangini on July 22, 2010 in this Court. (Id. ¶¶ 29-30.) The SEC alleged that Brown and Mangini had been selling fictitious Infinity common stock and promissory notes, a scheme yielding over $2.1 million in fraudulently obtained profits from at least thirteen investors — some of whom were Marshall Granger clients — that were used to pay interest to other investors in furtherance of the scheme or misappropriated for personal use by Brown, Mangini, or their families. (Id. ¶ 30.) Mangini and Brown both invoked their Fifth Amendment privileges against self-incrimination instead of providing any responses to the SEC's allegations. (Id. ¶ 31.) Brown was also subsequently indicted in this Court. (Id. ¶ 30.)
On September 20, 2010, Mangini informed Continental of the SEC action and Brown's indictment, (id. ¶ 32; id. Ex. F), and Mangini later submitted claim reports to Continental relating to former Marshall Granger clients who lost money from their Infinity investments, (id. ¶¶ 33-35; id. Exs. G-I). On November 1, 2010, Continental responded to the claims, stating that it had no coverage obligation to Marshall Granger and expressly reserving its right to seek rescission of the Policy. (Id. ¶ 36.) Apart from the claims reported by Mangini, Continental received several other claims from former Marshall Granger clients, and Continental has denied coverage and/or reserved its rights to do so for all claims. (Id. ¶ 37.)
Continental filed the Complaint on June 13, 2011, seeking a declaratory judgment against Marshall Granger, Brown, and Mangini that Continental is entitled to rescind the Policy on the basis of material misrepresentations in the application and that Continental has no obligation to provide coverage to Marshall Granger or to defend Marshall Granger, Brown, Mangini, or any other insured in connection with claims asserted by third parties relating to the Infinity investments. (Id. ¶ 3.) On November 3, 2011, the Boughton Entities intervened after Mangini assigned all of his rights under the Policy to them. (Doc. 13.) Continental obtained a partial default judgment that it was entitled to rescind the policy with respect to Brown on January 20, 2012. (Doc. 21.) On March 9, 2012 before any discovery commenced, Defendants filed their Motions to Dismiss, (Docs. 24, 34), and Continental filed its Motion for Summary Judgment, (Doc. 27).
When deciding a motion to dismiss, the Court's "review is limited to the facts as
There are circumstances, however, under which it is appropriate for a court to consider documents outside of the complaint on a motion to dismiss. For example, when deciding a motion to dismiss, the Court is entitled to consider:
Weiss v. Inc. Vill. of Sag Harbor, 762 F.Supp.2d 560, 567 (E.D.N.Y.2011) (internal quotation marks omitted).
"Rule 201 of the Federal Rules of Evidence permits judicial notice of a fact that is `either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably ... questioned.'" United States v. Bryant, 402 Fed.Appx. 543, 545 (2d Cir.2010) (summary order) (quoting Fed.R.Evid. 201). Further, it is well established that courts may take judicial notice of publicly available documents on a motion to dismiss. See Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir.2004) (courts can "look to public records ... in deciding a motion to dismiss"). "In the motion to dismiss context, however, a court should generally take judicial notice `to determine what statements [the documents] contain[] ... not for the truth of the matters asserted.'" Schubert v. City of Rye, 775 F.Supp.2d 689, 698 (S.D.N.Y. 2011) (alterations in original) (quoting Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.1991)).
Defendants submit the following documents with their Motions to Dismiss:
Continental submits the following with its opposition to Defendants' Motions to Dismiss:
I will consider all of these documents for the purposes of the Defendants' Motions. I may take judicial notice of these materials — for the fact that they exist and what is in them, but not for their truth — because they are public documents. See Sutton ex rel. Rose v. Wachovia Sec., LLC, 208 Fed.Appx. 27, 29-30 (2d Cir. 2006) (pleadings and court orders are "undisputably matters of public record"); Global Network Commc'ns Inc. v. City of N.Y., 458 F.3d 150, 157 (2d Cir.2006) ("A court may take judicial notice of a document filed in another court not for the truth of the matters asserted in the other litigation, but rather to establish the fact of such litigation and related filings.").
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (alteration, citations, and internal quotation marks omitted). While Federal Rule of Civil Procedure 8 "marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era,... it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Iqbal, 556 U.S. at 678-79, 129 S.Ct. 1937.
In considering whether a complaint states a claim upon which relief can be granted, the court "begin[s] by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth," and then determines whether the remaining well-pleaded factual allegations, accepted as true, "plausibly give rise to an entitlement to relief." Id. at 679, 129 S.Ct. 1937. Deciding whether a complaint states a plausible claim for relief is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not `shown' — `that the pleader is entitled to relief.'" Id. (alteration omitted) (quoting Fed.R.Civ.P. 8(a)(2)).
In support of their motion to dismiss the Complaint against Mangini, Defendants assert that the Complaint alleges concealment of material information during the policy procurement process only by Brown — not by Mangini — and that the Policy's Innocent Insureds provision
Both parties agree that New York law entitles an insurer to rescind an insurance policy — and the policy is deemed void ab initio — "if it was issued in reliance on material misrepresentations." Fid. & Guar. Ins. Underwriters, Inc. v. Jasam Realty Corp., 540 F.3d 133, 139 (2d Cir. 2008); see Interboro Ins. Co. v. Fatmir, 89 A.D.3d 993, 933 N.Y.S.2d 343, 345 (2d Dep't 2011). A misrepresentation in an application for insurance is a false "`statement as to past or present fact, made to the insurer by ... the applicant for insurance... as an inducement to the making thereof.'" Fid. & Guar. Ins. Underwriters, 540 F.3d at 139 (quoting N.Y. Ins. Law § 3105(a)). "If an insurer can show that it was induced to accept an application that it might otherwise have refused it is entitled to rescind the policy." In re WorldCom, Inc. Sec. Litig., 354 F.Supp.2d 455, 465 (S.D.N.Y.2005); see Interboro, 933 N.Y.S.2d at 345 ("A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented."). Further, "[e]ven an innocent misrepresentation, if material, will support rescission." WorldCom, 354 F.Supp.2d at 465; see Vella v. Equitable Life Assurance Soc'y, 887 F.2d 388, 391 (2d Cir.1989) ("So long as a misrepresentation is material, it is no defense to an action for rescission that the misrepresentation was innocently made.").
If a policy was procured through a material misrepresentation, the insurer
The Complaint's allegations, taken as true, sufficiently allege that Marshall Granger's responses to Questions 1, 10.a, 12, 13, and 21.c amounted to material misrepresentations in that Continental would not have issued the Policy had it been aware of the true facts. (Compl. ¶¶ 14-19, 21-22.) The crux of the Defendants' argument, however, is that the Policy's Innocent Insureds provision functions as a severability clause, preventing rescission of the Policy as to Mangini because the Complaint fails to allege that Mangini participated in any concealment or misrepresentation during the procurement process. (Ds' MTD Mem. 1-2; Ds' Reply MTD Mem. 1-5.) I find this argument unavailing.
"An insurance policy must be construed to `effectuate the intent of the parties as derived from the plain meaning of the policy's terms.'" Gfroerer v. Ace Am. Ins. Co., No. 03-CV-866, 2004 WL 2966173, at *4 (W.D.N.Y. Dec. 22, 2004) (quoting Andy Warhol Found. for Visual Arts, Inc. v. Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir.1999)). In New York, "[i]nsurance policies are read in light of common speech and the reasonable expectations of a businessperson." United Nat. Ins. Co. v. Granoff, Walker & Forlenza, P.C., 598 F.Supp.2d 540, 546 (S.D.N.Y.2009) (internal quotation marks omitted). Unambiguous provisions are interpreted according to their "plain and ordinary meaning." Lavanant v. Gen. Accident Ins. Co. of Am., 79 N.Y.2d 623, 629, 584 N.Y.S.2d 744, 595 N.E.2d 819 (1992) ("Unambiguous provisions of a policy are given their plain and ordinary meaning."). If a provision is ambiguous, however, it is construed against the insurer. See K. Bell & Assocs. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir.1996). "An ambiguity exists where the terms of an insurance contract could suggest more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business." Fabozzi v. Lexington Ins. Co., 601 F.3d 88, 90 (2d Cir.2010) (internal quotation marks omitted).
Defendants cite Wedtech, 740 F.Supp. at 219, for the proposition that the "Innocent Insureds" provision functions as a severability provision, but the policy at issue in Wedtech — unlike Marshall Granger's Policy — contained specific severability language. When Wedtech's insurer cancelled coverage following a government investigation and the convictions of several of its former officers and directors, Wedtech sought a declaratory judgment that the
Defendants allege that the Innocent Insureds provision here is "in the nature of [a] `severability' clause[]" and serves as "an important bargained-for promise that shields insureds not involved in policy procurement from misstatements and errors allegedly made in applying for the Policy," "creat[ing] a separate Policy and Application for each individual insured." (Ds' MTD Mem. 4-5.) But the Policy — unlike the policies in Wedtech and the other cases on which Defendants rely, (id. at 4-6)
Despite Defendants' urging, the Innocent Insureds provision cannot reasonably be construed as a severability provision relating to misrepresentations in the application. (See Ds' MTD Mem. 6; Ds' Reply MTD Mem. 2-3.) Defendants assert that the provision's plain language — that one insured's "concealment ... from us" does not render the Policy inapplicable to a different insured "who did not personally... participate in" the concealment — shows that the Policy is severable as to each insured's role in the procurement process and cannot be rescinded as to those insureds who did not conceal material information from the insurer. (Ds' MTD Mem. 6.) Specifically, Defendants argue that the words "from us" necessarily refer to the Policy procurement process because a duty to disclose to the insurer arises only at this time, and it is thus impossible to conceal anything from an insurer outside of the procurement period. (Ds' Reply MTD Mem. 2, 5-7.) Therefore, Defendants' argument goes, the inclusion of these two words extends the applicability of the Innocent Insureds provision to any misrepresentations or omissions during procurement and preserves coverage for any insured who did not conceal material information from the insurer. (Id.)
I disagree with Defendants' assertion that this interpretation is the only one that accords with "common speech" and the "reasonable expectations of a businessperson." (Ds' MTD Mem. 6 (quoting United Nat. Ins. Co., 598 F.Supp.2d at 546 (internal quotation marks omitted)).). To the contrary, the Innocent Insureds provision by its terms makes clear that it applies only "[i]f coverage under this Policy would be excluded as a result of any criminal, dishonest, illegal, fraudulent or malicious acts of any of you." (Compl. Ex. A., at VI.L.) This language, which mirrors that of the Policy's "bad acts" exclusion — "This Policy does not apply to... any claim based on or arising out of a dishonest, illegal, fraudulent, criminal or malicious act by any of you," (Id. at V.D) — makes plain that the Innocent Insureds provision kicks in only where coverage would otherwise be disclaimed under the bad acts exclusion. Continental does not invoke that exclusion from coverage here in search of a declaration that it need not cover a claim, and thus the Innocent Insureds provision's exception to that exclusion does not apply either. Rather, Continental seeks a declaration that it is entitled to rescission of the entire Policy on the ground that it was void from the start because of misrepresentations. This case thus presents no occasion to apply a clause, such as the Innocent Insureds provision, that presumes that there is a valid policy in place under which coverage "that would otherwise be afforded" "[c]ould be excluded." (Id. at VI.L.)
Similarly, the Innocent Insureds provision's reference to concealment of bad acts "from us" merely means that if there is a valid policy, and if under that policy coverage
Thus, the plain language neither supports Defendants' interpretation nor is ambiguous. Rather, the Innocent Insureds provision cannot be construed by a knowledgeable objective observer as anything but an exception applicable where the insurer would otherwise disclaim coverage under the bad acts exception. By its terms it cannot be read as affecting whether the Policy was void as a whole from inception.
Moreover, while courts in the Second Circuit have not weighed in on this issue, I find the Fourth Circuit's and the Eleventh Circuit's interpretations of identical "Innocent Insureds" provisions persuasive — that the provision saves coverage for innocent insureds only when coverage is otherwise denied based on a policy's "bad acts" exclusion. In Bryan Bros. Inc. v. Continental Casualty Co. (applying Virginia law and affirming summary judgment disclaiming coverage for claims arising out of employee's theft), the Court interpreted the Innocent Insureds provision as "an exception to the bad acts exclusion," noting that because "exclusions and exceptions in an insurance policy cannot expand the scope of the agreed coverage," "the innocent insureds provision cannot provide coverage that is precluded by the plain language of the prior knowledge provision," relying in part on its earlier decision in TIG, 116 Fed.Appx. at 426-27 (affirming summary judgment allowing rescission against all partners based on material misrepresentation by one partner in policy application). See Bryan Bros., 660 F.3d 827, 831-32 (4th Cir.2011). Likewise, in Professional Asset Strategies, LLC v. Continental Casualty Co. (applying Alabama law and affirming summary judgment for insurer disclaiming coverage for a claim arising out of an employee's theft), the Eleventh Circuit cited Bryan Bros. with approval, agreeing that the policy's Innocent Insureds provision — identical to the provision at issue here — was applicable only if the bad acts exclusion barred coverage. See 447 Fed.Appx. 97, 100 (11th Cir. 2011). Finally, relying on Bryan Bros., the District of South Carolina held that coverage was precluded under the prior knowledge provision of an accountants liability policy with an identical Innocent Insureds provision even where the innocent partner who completed the renewal application had no knowledge of her other partner's misappropriation of client funds. Cont'l Cas. Co. v. Jones, No. 09-CV-1004, 2011 WL 3880963, at *3, *6 (D.S.C. Sept. 2, 2011), order amended on other grounds on reconsideration, 2012 WL 530002 (D.S.C. Feb. 17, 2012).
Defendants also argue that the Complaint does not state a plausible cause of action for rescission against Mangini because it does not allege that Mangini signed the policy application; had knowledge of any questions asked or answers provided in the application prior to the Policy's issuance; made any statement to Continental suggesting that Brown had authority to sign the application on his behalf; made any statement to Continental on which Continental relied in issuing the Policy or supplied any information to Brown for submission to Continental; or even was aware that Brown was procuring insurance. (Ds' MTD Mem. 3-4.) Defendants further assert that nothing in the SEC enforcement action is relevant to the issue of whether Continental relied upon misrepresentations by Mangini in issuing the Policy. (Id. at 9-10.) I find Defendants' arguments unavailing.
First, as noted above, because the Innocent Insureds provision does not apply, Mangini need not have personally been involved in the procurement process for Continental to have the right to rescind the Policy as to him. Under New York law, Brown's responses bind Marshall Granger and its partners, including Mangini. See Madison Recycling Assocs. v. Comm'r of Internal Revenue, 295 F.3d 280, 286-87 & n. 14 (2d Cir.2002); Kaur v. Royal Arcadia Palace, Inc., 643 F.Supp.2d 276, 295 (E.D.N.Y.2007); see also N.Y. P'ship Law §§ 20, 22-24, 26. By signing the application, Brown represented to Continental that he inquired into the truth, completeness, and accuracy of the application's responses; that the responses were true, accurate, and complete; that no material facts had been suppressed or misstated; and that he had the authority to sign on behalf of and to bind Marshall Granger and its employees to the information contained in the application.
Moreover, the Complaint adequately alleges that Mangini had knowledge of and involvement in the Infinity scheme. Specifically, the Complaint alleges that Mangini was listed as an officer of Infinity in its fraudulent marketing materials and that Mangini's signature appeared on counterfeit promissory notes and stock certificates issued to investors. (Id. ¶ 28; id. Ex. D.) Further, contrary to Defendants' assertion that the SEC enforcement action is irrelevant, (see Ds' MTD. Mem. 9-10), the Complaint incorporates the SEC's allegations that both Brown and Mangini violated the Securities Act of 1933 and the Securities Exchange Act of 1934 by offering and selling fictitious Infinity securities and misappropriating the proceeds for personal use. (Compl. ¶ 30.) Thus, the Complaint sufficiently alleges that Mangini knew of and participated in the Infinity scheme such that it is plausible that Continental could seek rescission of the Policy as to Mangini — a managing and general partner of Marshall Granger — for material misrepresentations made by another partner during the Policy procurement process.
Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "[T]he dispute about a material fact is `genuine' ... if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" if it "might affect the outcome of the suit under the governing law.... Factual disputes that are irrelevant or unnecessary will not be counted." Id. On a motion for summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255, 106 S.Ct. 2505. The movant bears the initial burden of demonstrating "the absence of a genuine issue of material fact," and, if satisfied, the burden then shifts to the non-movant to present "evidence sufficient to satisfy every element of the claim." Holcomb v. Iona Coll., 521 F.3d 130, 137 (2d Cir.2008) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). "The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]." Anderson, 477 U.S. at 252, 106 S.Ct. 2505. Moreover, the non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), and he "may not rely on conclusory allegations or unsubstantiated speculation," Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 428 (2d Cir.2001) (internal quotation marks omitted).
Continental's 56.1 Statement of Material Facts incorporates in greater detail all of the Complaint's allegations outlined above. (Doc. 29.) Given the disposition of the Motion, and the Defendants' evasive 56.1 response, (Doc. 40), I need not determine at this stage which material facts are actually undisputed. I note, however, that Defendants dispute all of the facts enumerated in Continental's 56.1 Statement, save the following: that Continental issued the Policy insuring Marshall Granger, Brown, and Mangini, (P's 56.1 ¶¶ 24-25; Ds' 56.1 ¶¶ 24-25);
Rule 56(d) gives the court discretion to deny or defer an otherwise supported motion for summary judgment to allow for further discovery if the nonmoving
Defendants' primary argument is that summary judgment is inappropriate here where they have been afforded no opportunity for discovery, and discovery is reasonably anticipated to raise genuine issues of material fact. (Ds' SJ Mem. 1-2, 8-11.)
Defendants also allege that, although they have tried to obtain Continental's underwriting guidelines, as well as any recommendations or written comments from Aon to Continental concerning the Policy's renewal, the only documents they have received have been those submitted in connection with this Motion, and that Defendants require a judicially-enforceable manner in which to obtain these necessary documents. (Id. ¶¶ 11-12; Ds' SJ Mem. 11 & n. 2.) I agree that summary judgment is premature, and Defendants are entitled to conduct limited discovery as set forth below.
An insurer seeking rescission has the burden of proving the existence of a material misrepresentation in the procurement process and that the insurer's knowledge of the truth would have resulted in refusal to issue the policy in the first instance. Vella, 887 F.2d at 391; Landmark Am. Ins. Co. v. S & S Pub, No. 10-CV-2982, 2011 WL 5825143, at *3 (E.D.N.Y. Nov. 14, 2011). Although materiality is usually a question of fact for the jury, see Towers Fin. Corp., 1997 WL 906427, at *7, an insurer may establish materiality as a matter of law by submitting "evidence of its underwriting practices with respect to similar applicants" but "may not rely merely on statements by representatives of the insurer that it would not have issued the policy but for the representation." WorldCom, 354 F.Supp.2d at 465 (internal quotation marks omitted); see Curanovic v. N.Y. Cent. Mut. Fire Ins. Co., 307 A.D.2d 435, 762 N.Y.S.2d 148, 151 (3d Dep't 2003) ("To establish materiality of misrepresentations as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins or rules pertaining to similar risks, to establish that it would not have issued the same policy if the correct information had been disclosed in the application. Conclusory statements by insurance company employees, unsupported by documentary evidence, are insufficient....").
Defendants assert that Continental thus cannot establish a material misrepresentation as a matter of law because the evidence that Continental has submitted — declarations from the Policy's principal underwriter, (see Burrows Decl.; Burrows Reply Decl.), and the relevant portions
While it seems highly unlikely to the Court that that Defendants' assertions are correct, it is peculiar that Continental did not simply provide its files regarding its underwriting decision with respect to the Policy. Because an insurer must present documentation — the applicability of which is in dispute here — concerning its underwriting practices to show that it would not have issued the Policy but for the misrepresentation, see WorldCom, 354 F.Supp.2d at 465; Curanovic, 762 N.Y.S.2d at 151, I agree that summary judgment is premature and limited discovery on Continental's underwriting guidelines and process for the Policy is necessary.
For the foregoing reasons, Continental's Motion for Summary Judgment is DENIED without prejudice to renewal following limited discovery; Defendant Marshall Granger's Motion to Dismiss is DENIED; and Defendants-Intervenors Boughton Entities' Motion to Dismiss is DENIED. The Clerk of Court is respectfully directed to terminate the pending motions. (Docs. 24, 27, 34.) The parties are to appear for a status conference on February 28, 2013 at 3:30 p.m.
If coverage under this Policy would be excluded as a result of any criminal, dishonest, illegal, fraudulent or malicious acts of any of
Compl. Ex. A, at VI.L (bold denotes defined terms in the Policy).
The written application for coverage shall be construed as a separate application for coverage by each of the Insured Persons.... [N]o statement in the application or knowledge possessed by any Insured Person(s) shall be imputed to any other Insured Person(s) for the purpose of determining the availability of coverage with respect to claims made against any Insured Person(s)....
Wedtech, 740 F.Supp. at 216.
Defendants also cite Kozlowski for a similar proposition — that the coverage of an insured turns on whether he participated in concealing material facts during the policy's procurement. Although Defendants allege that the Kozlowski policy and the Marshall Granger Policy both "contained a provision making it clear that one insured could be innocent even if another insured was guilty of concealment in the procurement process," (Ds' MTD Mem. 5), the Kozlowski policy contained an explicit severability clause relating to the insurance application process that precluded the insurer from "imputing to any insured person a statement or knowledge possessed by any other insured person for the purpose of determining is coverage is available," Kozlowski, 792 N.Y.S.2d at 399 (internal quotation marks omitted). Marshall Granger's Policy contains no similar language. Because of the Kozlowski severability language, the First Department held that the insurer had to allege facts in support of its rescission claim that "Kozlowski participated, directly or indirectly, in misrepresenting facts to induce [the insurer] to issue the policy." Id. at 401. That "Continental `makes no effort to meet this burden' and ... `fails to cite any alleged misrepresentation made by [Mangini] to induce the issuance of the ... policy or even allege that [Mangini] ever signed an application or furnished any answers or information as part of the application process," (Ds' MTD Mem. 5-6 (quoting Kozlowski, 792 N.Y.S.2d at 401)), is unsurprising, given that the Policy contains no provision precluding Continental from imputing to Mangini the statements or knowledge of other insureds.
Defendant Marshall Granger has adopted the legal and factual arguments asserted by the Boughton Entities in their opposition brief and 56.1 statement. (Defendant Marshall Granger & Company, LLP's Memorandum of Law in Opposition to Continental Casualty Company's Motion for Summary Judgment, (Doc. 37), 7; Defendant's Response to Continental's Statement Pursuant to Local Rule 56.1, (Doc. 48), 1-2.) As with the Motions to Dismiss, I will refer to the Defendants collectively and make no distinction between the Boughton Entities and Marshall Granger.
I also need not address the arguments raised in Defendants' June 21 and June 29, 2012 letters. (Docs. 56, 57.) In any event, Defendants' positions seem to be without merit. Continental's payment of defense costs does not undermine its position. See WorldCom, 354 F.Supp.2d at 465 ("Until the issue of rescission is adjudicated, a contract of insurance remains in effect and the duty to pay defense costs is enforceable."). Likewise, because New York law requires that extended reporting period coverage must be available when claims-made liability policies — such as the Marshall Granger Policy — are terminated, N.Y. Comp. Codes R. & Regs. tit. 11 § 73.3(c)(1), Continental's offer of such coverage in this case does not undermine its position.
