Albert J. Schiff Associates, Inc. v. Flack , 73 A.D.2d 329 ( 1980 )

OPINION OF THE COURT

Sullivan, J.

This is an appeal from the grant of partial summary judgment declaring that an insurer is legally obligated to defend its insured in pending litigation.

This action was commenced by Albert J. Schiff Associates, Inc. (Associates), a life insurance agent and employee benefit plan consultant, to seek a declaration that defendants, its insurers, have a duty to defend with respect to an action maintained against it and others in Massachusetts and, in the event of any judgment ultimately rendered against Associates in such action, to indemnify. After receipt of the summons and complaint served upon Associates in the Massachusetts action and prior to the commencement of this proceeding, defendants disclaimed any obligation to defend or indemnify.

The Massachusetts action was brought by one Backman, a life insurance agent and competitor of Associates, who alleges that he developed a novel and unique life insurance sales program under the title "Double Dollar Plan”, which he disclosed to Associates’ principal, Albert J. Schiff, pursuant to a nondisclosure and confidentiality agreement and that, thereafter, Schiff maliciously disclosed the plan to Associates in circumstances whereby Associates knew of SchifFs contractual commitments to Backman. It is further alleged that Associates renamed the sales approach and adopted the plan as its own.

In May of 1971 Backman had apparently conducted a seminar for the purpose of presenting his plan to a select group of agents of the Mutual Life Insurance Company of New York (MONY). Among the agents attending was Schiff. It is alleged that as a condition to attending the seminar Schiff signed a contract by which he agreed to keep the details of the plan confidential, subject to disclosure only to other MONY associates or to a potential corporate account, approved by Backman, and further that if he developed any business from Backman’s concept, he would make certain specified payments to Backman.

The essence of the Massachusetts complaint, which has been described by one of the parties, not uncharitably, as "prolix, verbose, tiresome and repetitive”, is that Associates and others willfully and maliciously usurped a trade or commercial secret, or both. In 10 causes of action, only 3 of which are asserted against Associates, Backman alleges, inter alia, breach of contract, misappropriation of property, interference with contractual relations, breach of an implied contract, unjust enrichment, breach of trust, breach of confidential relationship, unfair competition, and deceptive trade practices. Besides damages, he seeks an accounting and declaratory relief. Count IV alleges that in breach of a written agreement to keep certain information and materials "confidential”, Associates did "wilfully and maliciously” breach such agreement with the purpose and intent of using the confidential information for its own economic benefit. In count V it is alleged that Associates’ use of confidential information in the marketing of a competitive insurance sales program constituted a willful and malicious interference with Backman’s exclusive rights. Count IX asserts willful and malicious unfair acts of competition by Associates in the "wilful misappropriation” of the sales approach material disclosed under the agreement of confidentiality.

Defendants had issued two professional indemnity insurance policies to Associates, one primary, the other excess, on identical terms, designated "Errors and Omissions Insurance”, the insuring agreements of which provided:

"Underwriters, in consideration of the premium and the undertaking of the Assured to pay the deductible as described in the Schedule hereof * * * and subject to the limits of liability of this insurance as set forth in the schedule, and the exclusions, conditions and other terms of the policy, do hereby agree as follows: * * * to pay on behalf of the Assured named in the Schedule, all sums which the assured shall become legally obligated to pay by reasons of liability for any error, omission or negligent act committed, or alleged to have been committed by the Assured, * * * while in the performance of services in the professional capacity of the Assured as:

"(a) Actuaries,

"(b) Employee Benefit Plan Consultants, and

"(c) Life Insurance Agents or Brokers”.

Invoking three policy exclusions, defendants disclaimed coverage for any loss that Associates might incur as a result of the Massachusetts action. Whatever the merits of defendants’ disclaimer, an issue we need not reach under our view of the case, we believe that the claim is not within the purview of the indemnity provided under the policy and that the insurers’ reliance upon exclusions rather than on the lack of coverage cannot provide the basis for insurance which otherwise does not exist. We take note that the thrust of defendants’ motion to dismiss the complaint, and its opposition to the motion for summary judgment centered on the nonexistence of coverage, and only alternatively on the exclusions upon which they originally disclaimed.

From the language of the agreement of insurance it seems clear that this professional indemnity policy was written to protect the insured with respect to liabilities arising from the performance of professional services as an actuary, employee benefit plan consultant, or life insurance agent or broker. The claims alleged in the Massachusetts complaint do not in any way suggest a negligent act, error or omission in the performance of any professional services. In fact, the sole reference to carelessness or neglect appears in paragraph 74 wherein it is alleged that Schiff had "wilfully neglected and refused to pay * * * the appropriate commission shares * * * despite repeated demands by Mr. Backman”. Nor does the Massachusetts action involve a claim by any client of Associates, or any person in privity with a client, or a claim by any other broker or agent for whom Associates had agreed to act, alleging the breach of a duty of professional care. Instead, a competitor of Associates asserts improper conduct in the willful and malicious usurpation of a trade or commercial secret. To construe an errors and omissions policy as affording coverage for such tortious conduct would render the insurer liable for obligations never intended to fall within the ambit of the policy.

Moreover, any suggestion that what is pleaded in the Massachusetts complaint is Associates’ neglect to adhere to the terms of SchifFs agreement with Backman, either through an erroneous interpretation of the agreement, or a misguided belief that its marketing process substantially differed from Backman’s, is not only a strained and unreasonable construction, but is belied by the wording of the complaint.

While it is well recognized that the insurer’s duty to defend is broader than the duty to indemnify (International Paper Co. v Continental Cas. Co., 35 NY2d 322; Goldberg v Lumber Mut. Cas. Ins. Co. of N. Y., 297 NY 148; American Home Assur. Co. v Port Auth. of N. Y. & N. J., 66 AD2d 269), the complaint fails to suggest any conduct on Associates’ part which would call for the insurers to indemnify it. Weighing the allegations of the complaint, as reasonably construed, against the insuring agreement, as written, we conclude that the claimed tortious conduct is outside the scope of coverage. In such circumstances, a duty to defend does not exist. (Shapiro v Glens Falls Ins. Co., 39 NY2d 204.)

The argument is made that the insurers did not originally disclaim on the ground that the claim was outside the scope of coverage. We do not believe, however, that insurance can be created by waiver. The insurers’ reliance on particular policy exclusions in their initial disclaimer does not prevent them from later asserting that the claims are not covered by the policy. The waiver cases that do involve insurance claims relate to an insurer’s disclaimer for a specific reason, such as arson of the insured or lack of notice, and subsequent retreat to some different technical ground other than that the claim is outside the insuring agreement. (See, e.g., Beckley v Otsego County Farmers Co-op. Fire Ins. Co., 3 AD2d 190, 194; Pensky v Aetna Life & Cas. Co., 84 Misc 2d 270; also, Hubbell v Trans World Life Ins. Co. of N. Y., 54 AD2d 94, 98-99.) None concerns a claim which, in the first instance, is outside the ambit of the insuring agreement.

Accordingly, the order and judgment, Supreme Court, New York County (Rubin, J.), entered February 26, 1979, denying defendants’ motion to dismiss the complaint, and granting plaintiff’s cross motion for partial summary judgment declaring defendants liable for the defense of the Massachusetts action, should be reversed, on the law, with costs and disbursements, and a declaration made that the insurance contracts issued by defendants to Schiff do not extend coverage for the claims asserted against Schiff in the Massachusetts action, and plaintiff’s cross motion denied.