I agree with the majority that plaintiffs failed to establish a prima facie case of bad faith based upon defendant’s alleged gross disregard of its insured’s interests. However, I disagree with the majority’s position that the policy exclusions relied on by defendant are “patently” inapplicable. Therefore, I dissent from the majority’s affirmance of the judgment in plaintiffs’ favor on the causes of action to enforce the default judgment in the underlying action, and would deny all parties summary judgment as to those claims.
Plaintiffs loaned $2,830,000 to Goldan, LLC, a real estate company owned by Jeffrey Daniels and Mark Goldman. Plaintiffs claim that Daniels, an attorney, agreed to represent them in the transactions and that he failed to record mortgages securing the loans or obtain title insurance.
Daniels had a lawyers’ professional liability policy with defendant American Guarantee and Liability Insurance Co. (American) that extended indemnity coverage, subject to the policy terms, for amounts Daniels became legally obligated to pay as damages because of a claim based on an act or omission in his rendering or failing to render legal services for others. The relevant policy exclusions provide: “This policy shall not apply to any Claim based upon or arising out of, in whole or in part: . . . D. the Insured’s capacity or status as: 1. an officer, director, partner, . . . shareholder, manager or employee of a business enterprise . . . [Insured’s Status Exclusion]. E. the alleged acts or omissions by any Insured, with or without compensation, for any business enterprise, whether for profit or not-for *406profit, in which any Insured has a Controlling Interest [Business Enterprise Exclusion].”
On December 2, 2008, Daniels placed American on notice of plaintiffs’ potential claim, stating:
“I have become aware of circumstances that would lead me to believe that a claim may be asserted against my law firm as a result of legal services that I have rendered to a real estate development company, Goldan, LLC. Goldan is [a] company that is owned by myself and an individual named Mark Goldman. My law firm provided legal services to Goldan on a retainer basis.
“[Claimants] have indicated that they believed I was representing their interests in ensuring that the funds in excess of several million dollars that were lent to Goldan over several transactions were secured by filed mortgages against real property. I do not have personal knowledge of these mortgages which, I believe, were negotiated directly with Mark Goldman. However, it appears that these mortgages may not have been recorded.”
On or about December 31, 2008, American reserved its rights to deny coverage on various grounds, including the Insured’s Status Exclusion and Business Enterprise Exclusion. On or about January 16, 2009, plaintiffs sued Daniels, Goldman and Goldan. In the first and second causes of action, plaintiffs asserted that Daniels’s failure to record the mortgages or obtain title insurance was a departure from good and accepted legal practice and deprived plaintiffs of a secured interest in the properties. In the fifth and sixth cause of actions, they alleged that Daniels breached his personal guarantees of the loans.
American allegedly retained counsel to represent Daniels, who received extensions of time to answer. By letter dated March 9, 2009, American informed Daniels that it was ceasing to pay for his defense and was disclaiming coverage on various grounds, including that the action fell outside the policy insuring clause because it was based on self dealing; was excluded from coverage under the Insured’s Status Exclusion and Business Enterprise Exclusion; and sought restitution of loan principal and interest owed by Goldan and Daniels (as guarantor), not “damages” as defined by the policy. American also reserved its rights under other policy provisions, as well as generally.
On June 8, 2009, plaintiffs wrote to Daniels demanding $450,000 “in full resolution of the claims asserted in [the underlying] action.” Daniels forwarded the letter to American, which, by letter dated July 8, 2009, reiterated its disclaimer and rejected the settlement offer.
On October 2, 2009, a default judgment was entered against *407Daniels that held him liable to plaintiff K2 for $2,404,378.36 and plaintiff ATAS for $688,716. Upon plaintiffs’ application, the personal guarantee claims were discontinued without prejudice. American states that it was not notified of the application for the default judgment or of the discontinuance.
On or about December 14, 2009, Daniels assigned his claims against American to plaintiffs, which commenced this action. In the first and second causes of action, plaintiffs seek to recover the amount of the default judgment, up to the policy limits. In the third and fourth causes of action, plaintiffs assert that American breached the implied covenant of good faith and fair dealing, and seek to recover the full amount of the judgment.1
Pursuant to Insurance Law § 3420 (b), an injured party can recover against the carrier to the same extent that the insured would be entitled to recover under the terms of the policy. A default judgment entered against an insured in an underlying suit is binding on the carrier, which cannot contest the merits of the plaintiffs claim in a subsequent suit under section 3420 (see Robbins v Michigan Millers Mut. Ins. Co., 236 AD2d 769, 771 [1997]; Matychak v Security Mut. Ins. Co., 181 AD2d 957 [1992], lv denied 80 NY2d 758 [1992]). However, the carrier may contest the scope of coverage under the policy and is entitled to raise defenses with respect to the applicability of the insuring and exclusionary provisions (see Lang v Hanover Ins. Co., 3 NY3d 350, 356 [2004]; Fisher v Hanover Ins. Co., 288 AD2d 806 [2001]; Fusco v American Colonial Ins. Co., 221 AD2d 231 [1995]; see also drone v Tower Ins. Co. of N.Y., 76 AD3d 883, 884 [2010], lv denied 16 NY3d 708 [2011] [“As Havana’s assignees, plaintiffs are now suing upon a claim which is subject to the same defenses Tower could have asserted against Havana”]).
In contrast to the duty to defend, the duty to pay is determined “by the actual basis for the insured’s liability to a third person” (Servidone Constr. Corp. v Security Ins. Co. of Hartford, 64 MY2d 419, 424 [1985]). “[T]he breach by [a] defendant of its duty to defend does not create coverage, and [a] ‘defendant is not precluded from demonstrating that the actual basis of the insured’s liability to plaintiffis] is such that the loss falls entirely within the policy exclusion’ ” (Matijiw v New York Cent. Mut. Fire Ins. Co., 292 AD2d 865, 865 [2002], quoting Robbins v *408Michigan Millers Mut. Ins. Co., 236 AD2d 769, 771 [1997], supra). Thus, even if American were found to have breached a duty to defend, it would not be required to indemnify Daniels, and in turn plaintiffs, for a judgment for a loss that is excluded by the policy.
Although the default judgment in the underlying action established Daniels’s liability to plaintiffs, it did not establish American’s. American’s liability to plaintiff, as an indemnitor, depends on facts outside of the default judgment (see Holmes v Allstate Ins. Co., 33 AD2d 96, 97-98 [1969]). Even if the default judgment mandates a finding that Daniels is liable to plaintiffs, it does not foreclose a finding that Daniels represented both Goldan and plaintiffs in connection with the mortgage transactions and that his conduct falls within the ambit of either the Insured’s Status Exclusion or the Business Enterprise Exclusion, or both, because his failure to record the mortgages and obtain title insurance was a business decision to benefit his company, Goldan.
The majority finds that the Insured’s Status Exclusion and Business Enterprise Exclusion do not apply because plaintiffs underlying malpractice claims were “based on” Daniels’s status as plaintiffs’ attorney, and not, even in part, on his performance of services for, or his status as an owner of, Goldan. This interpretation of the exclusions is too narrow.
The policy language is broad, expressly stating that the policy “shall not apply to any Claim based upon or arising out of, in whole or in part etc.” (emphasis added) the insured’s capacity or status as an officer or director of a business enterprise or from the alleged acts or omissions of the insured for any business enterprise in which he has a controlling interest. While plaintiffs allege in the underlying complaint that Daniels represented them, in his notice of the potential claim, Daniels advised American that to the extent he rendered legal services at all, those services were rendered to his own company, Goldan. Further, the complaint states that Daniels was a principal of Goldan, and American contends that Daniels engaged in self-dealing by representing one, if not both, of the parties to the loan transaction and also acting as the principal of the business enterprise receiving the loans. Thus, even if plaintiffs’ allegations of malpractice triggered the policy’s insuring clause, an issue of material fact remains as to whether plaintiffs’ legal malpractice claims, at least in part, are based upon or arose out of Daniels’s capacity or status as an officer, director, shareholder or employee of Goldan, or out of his alleged acts or omissions on behalf of Goldan, a business enterprise in which he had a con*409trolling interest (see Denihan Ownership Co., LLC v Commerce & Indus. Ins. Co., 37 AD3d 314, 315 [2007] [“Words like ‘arising from,’ when used in exclusion clauses, are generally taken as a broad and comprehensive reference to events originating from, incident to, or having connection with the subject of the exclusion”]).
The majority contends that this interpretation of the policy exclusions is overbroad, “as the exclusions are more reasonably understood to be ‘designed to exclude claims based upon legal work performed by an insured for an enterprise in which he or she has some kind of ownership interest and thus where the insured is likely to benefit directly from recovery under the policy’ (Oot v Home Ins. Co. of Ind., 244 AD2d 62, 70 [1998]).” However, Oot is distinguishable on its facts.
In Oot, Olde Mill sued Earl Oot, Thomas Oot, and the Oot Law Offices, alleging that Earl had performed legal services for it with respect to the refinancing of a note and mortgage held by Earl and others as mortgagees, without disclosing his conflict of interest and in breach of his fiduciary duty. The Fourth Department held that coverage for the underlying claims against Thomas was not excluded by a policy provision excluding claims based on work with respect to any business venture in which the insured had a pecuniary or beneficial interest. However, in so ruling, the court, noting that the carrier had made “that argument despite its failure to cross-appeal from that part of the judgment in favor of Earl, which implicitly finds that the claim was covered under the policy” (244 AD2d at 69-70), found the clause inapplicable because “[t]he underlying action arises out of work performed by Earl for Olde Mill; Thomas did not participate, and his liability arises solely by virtue of his partnership with Earl” (id. at 70). The court further held that “the exclusion applies only to a ‘pecuniary or beneficial’ interest that the insured ‘has’ at the time the claim is made for which the insured seeks coverage” and that “[b]ecause Earl was no longer a mortgagee at the time the claim was made, no such benefit exists” (id.).
Here, in contrast, plaintiffs allege that it was Daniels who committed the malpractice, which arises out of loan transactions between plaintiffs and Goldan, an entity in which Daniels held a pecuniary interest at the time of the claim and whose obligations he personally guaranteed. Further, Daniels advised American that he represented Goldan, and he will receive a direct benefit if American pays the judgment because that will relieve him of personal liability under his guarantees of Goldan’s obligations, a claim that was included in the underlying action but discontinued without prejudice.
*410Nor does Niagara Fire Ins. Co. v Pepicelli, Pepicelli, Watts & Youngs, PC. (821 F2d 216 [3d Cir 1987]), cited by the majority, mandate a different result. In Niagara, the exclusions at issue were not as broad as those at issue in this case, which apply to claims “based upon or arising out of, in whole or in part,” the insured’s capacity or status as an officer, director, partner, etc., or his acts or omissions for a business enterprise he controls. Further, in Niagara the alleged malpractice did not simultaneously involve business decisions by Pepicelli, whereas here a question exists as to whether Daniels’s failure to record the mortgage was, in whole or in part, a business decision to benefit his company, Goldan (see Darwin Natl. Assur. Co. v Hellyer, 2011 WL 2259801, 2011 US Dist LEXIS 60592 [ND 111 2011]).
In Darwin, the claimants sold land to Harmony Stone LLC for $1.9 million, secured by a $1,362,500 mortgage, which Harmony’s principals, attorney Hellyer and his partner, guaranteed. Harmony also obtained a $600,000 mortgage from American Community Bank & Trust (Community). Subsequently, Hellyer entered into an agreement with Community to increase Harmony’s loan from $600,000 to $1,225,000. As a condition thereof, Community required Harmony to obtain a subordination of mortgage agreement from the claimants. The claimants later sued Hellyer alleging that he acted as their counsel with respect to the loan subordination and committed professional negligence by failing to properly advise them. The claimants also sought to recover the full amount owed on their loan from Harmony or from Hellyer and his partner on their personal guaranty. In holding that the Business Enterprise Exclusion applied, the court explained that “it is reasonable to conclude that these allegations of failing to properly advise his clients are, at a minimum, either indirectly resulting from or in consequence of Hellyer’s business interest in Harmony Stone. As another court recently explained, business enterprise exclusions are frequently included in policies because ‘[insurers calculate liability insurance rates on the assumption that insured attorneys act solely in a legal capacity, and that their professional judgment is unaffected by personal interests. Business enterprise exclusions diminish risk associated with an insured’s decision to pursue business opportunities that may result in conflicts between the lawyers’ best interests and those of his client.’ Minn. Lawyers Mut. Ins. Co. v Antonelli, Terry, Stout & Kraus, LLP, No. 1:08-CV-1020, 2010 WL 4853300, at *10 (ED Va Nov. 18, 2010) (citation omitted). Here, the claim of malpractice is based on the fact that Hellyer had a personal financial stake in his business venture, and this is precisely the increased risk that plaintiff has excluded from its coverage with *411the Business Enterprise Exclusion” (2011 WL 225980, *5, 2011 US Dist LEXIS 60592, *15-16).
This view is consistent with New York law recognizing that “[a]n errors and omissions policy is intended to insure a member of a designated calling against liability arising out of the mistakes inherent in the practice of that particular profession or business,” and is not so comprehensive as “to protect against all business vicissitudes” (Albert J. Schiff Assoc. v Flack, 51 NY2d 692, 700 [1980]). “To hold otherwise, on a fair reading of the policies, would be to create additional coverage beyond that which was bought and paid for” (id.; see also Société Générale v Certain Underwriters at Lloyd’s, London, 1 AD3d 164 [2003]; Tartaglia v Home Ins. Co., 240 AD2d 396 [1997]).
In this regard, the duty of good faith and fair dealing implied in every contract is an integral part of an insurance contract (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 318 [1995]; Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 452 [1993]), and New York’s public policy prohibits indemnification for intentionally caused injuries (see Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 399 [1981]). American should be allowed discovery to determine if Daniels intentionally failed to record the mortgages. To hold otherwise and allow the insured to shift liability to the insurer would allow the wrongdoer to evade responsibility for his actions.
Accordingly, as issues of fact exist as to whether the Insured’s Status Exclusion or the Business Enterprise Exclusion applies, plaintiffs should not have been granted summary judgment on their first and second causes of actions seeking to enforce the default judgment in the underlying action, and that portion of the judgment should be vacated.
. The complaint alleges that on or about February 18, 2009, an involuntary petition for relief was filed under chapter 7 of the United States Bankruptcy Code (11 USC § 101 et seq.), naming Goldan as debtor, and that on or about April 3, 2009, a default judgment was entered in the underlying action against Goldman in the amount of $2,945,474.35.