EBER BROS. WINE & LIQUOR CORP., HARRIS BEACH PLLC, v

SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department

899
CA 14-00150
PRESENT: SMITH, J.P., FAHEY, WHALEN, AND DEJOSEPH, JJ.

HARRIS BEACH PLLC, PLAINTIFF-RESPONDENT,

V MEMORANDUM AND ORDER

EBER BROS. WINE & LIQUOR CORP.,
DEFENDANT-APPELLANT.

BOND SCHOENECK & KING PLLC, ROCHESTER (JOSEPH S. NACCA OF COUNSEL),
FOR DEFENDANT-APPELLANT.

HARRIS BEACH PLLC, PITTSFORD (JOSEPH D. PICCIOTTI OF COUNSEL), FOR
PLAINTIFF-RESPONDENT.

Appeal from an order of the Supreme Court, Monroe County (J.
Scott Odorisi, J.), entered April 25, 2013. The order granted
plaintiff’s motion for partial summary judgment.

It is hereby ORDERED that the order so appealed from is
unanimously reversed on the law without costs and the motion is denied
in accordance with the following Memorandum: Plaintiff, the longtime
general counsel for defendant, commenced this action seeking to
recover approximately $750,000 in costs, disbursements, legal fees,
and interest thereon for services rendered to defendant in the defense
of a tort and breach of contract action in which defendant had been
sued (underlying action). The underlying action was commenced on
October 5, 2006, and, at that time, defendant was insured by Illinois
National Insurance Company (Illinois National) pursuant to a policy of
directors, officers and private company liability insurance (Illinois
National policy) effective for the period from March 31, 2006 to March
31, 2007. The coverage under the Illinois National policy was limited
to claims made and reported during the period in which that policy was
effective, as was the coverage afforded defendant under a policy of
directors, officers, and private company liability insurance issued by
National Union Fire Insurance Company of Pittsburgh, Pa. (National
Union) for the period from March 31, 2008 to March 31, 2009 (National
Union policy). On August 7, 2008, i.e., approximately two years after
the commencement of the underlying action, plaintiff wrote to M&T
Insurance Agency, from which defendant had obtained the National Union
policy, and, inter alia, tendered the defense of defendant in the
underlying action pursuant to what the record reflects was the
National Union policy. Both Illinois National and National Union are
part of the AIG group of insurers, and by letter dated September 24,
2008, a claims analyst employed by AIG Domestic Claims, Inc. rejected
plaintiff’s tender on the ground that it was untimely.
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CA 14-00150

In its answer, defendant denied that it “failed to pay any legal
bills justly due to [plaintiff].” Defendant also asserted 10
affirmative defenses, only two of which are relevant on appeal. In
the fifth affirmative defense defendant alleged that plaintiff’s
claims are barred by the doctrine of unclean hands, and in the sixth
affirmative defense defendant alleged that any recovery by plaintiff
must be reduced by sums presently owing or found to be owed to
defendant arising from plaintiff’s professional negligence and breach
of fiduciary duty. Defendant also asserted two counterclaims,
including a counterclaim for professional negligence alleging, in
relevant part, that plaintiff was negligent in failing to provide
defendant’s insurer with timely notice of the claim that was the
underlying action. Defendant alleged that, had plaintiff given timely
notice of the claim, coverage for defendant in that matter would not
have been denied and, “[defendant’s] insurer would have advanced the
very defense costs that [plaintiff] now seeks to recover from
[defendant].” Plaintiff thereafter moved for partial summary judgment
dismissing the subject affirmative defenses as well as the subject
counterclaim insofar as it is based on the alleged late reporting of
the underlying action. Supreme Court granted the motion, and we
reverse.

In order to establish legal malpractice by plaintiff, defendant “
‘must demonstrate that [plaintiff] failed to exercise the ordinary
reasonable skill and knowledge commonly possessed by a member of the
legal profession’ and that [plaintiff’s] breach of this duty
proximately caused [defendant] to sustain actual and ascertainable
damages . . . To establish causation, [defendant] must show that [it]
would have prevailed in the underlying action or would not have
incurred any damages, but for [plaintiff’s] negligence” (Rudolf v
Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442; see Utica
Cutlery Co. v Hiscock & Barclay, LLP, 109 AD3d 1161, 1161). In the
context of this motion by plaintiff for partial summary judgment, the
burden was on plaintiff to present “evidence . . . in admissible form
establishing that [defendant] is unable to prove at least one of [the]
essential elements of a malpractice cause of action” (Ippolito v
McCormack, Damiani, Lowe & Mellon, 265 AD2d 303, 303; see Compis
Servs., Inc. v Greenman, 15 AD3d 855, 855, lv denied 4 NY3d 709).
More specifically, plaintiff was required to establish in this case
that, even if plaintiff had timely tendered defendant’s defense in the
underlying action, defendant’s insurer would not have furnished
defense dollars in the underlying action, and thus that defendant
could not have been harmed by plaintiff’s untimely notice of the
underlying action. We conclude that plaintiff failed to do so and
that the court therefore erred in granting the motion.

In deciding this issue, we must examine the terms of the Illinois
National policy, which was effective at the time of the commencement
of the underlying action and pursuant to which plaintiff should have
promptly tendered the defense and indemnification of defendant in the
underlying action. That contract provides, inter alia, that Illinois
National did not assume any duty to defend defendant, but that
defendant had the option of either timely tendering its defense to
Illinois National or seeking an advance of defense costs from Illinois
 -3- 899
CA 14-00150

National prior to the final disposition of the claim. If Illinois
National advanced defense costs, it was entitled to recoupment of
those costs to the extent that defendant was not entitled to payment
of the loss in question under the terms of the Illinois National
policy. The Illinois National policy also contains a clause requiring
notice “as soon as practicable” and either “during the Policy Period
or during the Discovery Period” as a condition precedent to coverage
under that agreement.

In spite of that timely notice provision, plaintiff did not
tender the defense of defendant to any insurer until August 7, 2008,
and it appears from the record before us that plaintiff never tendered
the defense of defendant or sought an advance of defense costs for
defendant under the Illinois National policy. As a result of those
omissions, plaintiff never asked Illinois National to take a position
on coverage for defendant under the Illinois National policy, and thus
the record is silent as to how Illinois National would have responded
to such a tender. Indeed, this matter presents a question of claim
handling, i.e., how Illinois National would have processed a request
for coverage under the Illinois National policy. Consequently, we
conclude that plaintiff did not meet its initial burden on the motion
for partial summary judgment (see Utica Cutlery Co., 109 AD3d at 1162;
see generally Zuckerman v City of New York, 49 NY2d 557, 562). We
therefore reverse the order in its entirety, deny the motion for
partial summary judgment, reinstate that part of defendant’s
counterclaim for professional negligence based on plaintiff’s alleged
failure to provide defendant’s insurer with timely notice of the
underlying claim, and reinstate defendant’s fifth and sixth
affirmative defenses. We decline to address defendant’s remaining
contention herein.

Entered: October 3, 2014 Frances E. Cafarell
Clerk of the Court