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Federal Ins. Co. v International Bus. Machs. Corp.

Court of Appeals of New York

January 10, 2012, Argued; February 21, 2012, Decided

No. 20


 [*645]   [***433]   [**935]  Chief Judge Lippman.

The question before the Court is whether the disputed language in an insurance policy extends coverage to alleged violations of the Employee Retirement Income Security Act   of 1974 (ERISA) by defendant insureds, International Business Machines Corporation and the IBM Personal Pension Plan (collectively, IBM), acting in their capacity as the settlor of their employee benefit plans. We reaffirm fundamental principles of insurance contract interpretation and hold that the plain language of the policy does not cover such acts and, therefore, that the Appellate Division correctly held that plaintiff insurer Federal Insurance Company (Federal) is entitled to summary judgment and a declaration that it is not required to indemnify IBM in the manner requested.

Federal issued an excess insurance policy to IBM for the policy period from April 14, 1999 through April 14, 2000. The underlying policy (Zurich policy) was issued by Zurich American Insurance Company (Zurich) and it is limited  [****2] to $ 25,000,000. A class action was filed against IBM, alleging that certain amendments to the benefit plans in 1995 and 1999 violated provisions of ERISA pertaining to age discrimination (see Cooper v IBM Personal Pension Plan, 2005 WL 1981501, 2005 US Dist LEXIS 17071 [SD Ill 2005], revd in part 457 F3d 636 [7th Cir 2006], cert denied 549 US 1175, 127 S Ct 1143, 166 L Ed 2d 907 [2007]). The parties to the Cooper action reached a settlement, which included amounts designated to cover those plaintiffs' attorneys' fees. IBM made those payments and then sought reimbursement from Federal, maintaining that the limits of the underlying Zurich policy had been exhausted and coverage of the excess Federal policy was thereby triggered. Federal commenced the instant suit against IBM, alleging eight causes of action and requesting a declaration that the Federal policy "provides no coverage for, or duty to indemnify, any amount paid by IBM and the Plan in settlement of the Cooper Action which represents attorneys' fees. "The parties filed cross motions for summary judgment. The Supreme Court denied plaintiff Federal's motion and granted  [*646]  IBM's motion. The Appellate Division reversed, holding that plaintiff was entitled  [****3] to summary judgment (78 AD3d 763, 911 NYS2d 148 [2d Dept 2010]). This Court granted IBM leave to [***434]  [**936]  appeal (16 NY3d 706, 920 NYS2d 780, 945 NE2d 1031 [2011]). We now affirm.

As is relevant to this appeal, the Federal policy is a "follow form" policy, meaning that it conforms to the terms and endorsements of the underlying Zurich policy (see e.g. Jefferson Ins. Co. of N.Y. v Travelers Indem. Co., 92 NY2d 363, 369, 703 NE2d 1221, 681 NYS2d 208 [1998]). ] A reviewing court must decide whether, " 'afford[ing] a fair meaning to all of the language employed by the parties in the contract and leav[ing] no provision without force and effect' " (Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 222, 774 NE2d 687, 746 NYS2d 622 [2002], quoting Hooper Assoc. v AGS Computers, 74 NY2d 487, 493, 548 NE2d 903, 549 NYS2d 365 [1989]), there is a "reasonable basis for a difference of opinion" as to the meaning of the policy (Greenfield v Philles Records, 98 NY2d 562, 569, 780 NE2d 166, 750 NYS2d 565 [2002]). If this is the case, the language at issue would be deemed to be ambiguous and thus interpreted in favor of the insured (see Breed v Insurance Co. of N. Am., 46 NY2d 351, 353, 385 NE2d 1280, 413 NYS2d 352 [1978] [recognizing "the general rule that ambiguities in an insurance policy are to be construed against the insurer"]). If not, then the policy will be found  [****4] to be unambiguous, meaning that "the language it uses has 'a definite and precise meaning, unattended by danger of misconception in the purport of the   [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion' " (Greenfield, 98 NY2d at 569, quoting Breed, 46 NY2d at 355), and shall be applied as written, either in favor of or against coverage, depending entirely on the language used. In analyzing the meaning of an insurance policy provision, it is necessary to determine the "reasonable expectations of the average insured" (Cragg v Allstate Indem. Corp., 17 NY3d 118, 122, 950 NE2d 500, 926 NYS2d 867 [2011]).

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18 N.Y.3d 642 *; 965 N.E.2d 934 **; 942 N.Y.S.2d 432 ***; 2012 N.Y. LEXIS 311 ****; 2012 NY Slip Op 1320; 53 Employee Benefits Cas. (BNA) 2339; 2012 WL 538241

 [1]  Federal Insurance Company, Respondent, v International Business Machines Corporation et al., Appellants.

Prior History: Appeal, by permission of the Court of Appeals, from an order of the Appellate Division of the Supreme Court in the Second Judicial Department, entered November 9, 2010. The Appellate Division (1) reversed, on the law, so much of a judgment of the Supreme Court, Westchester County (Alan D. Scheinkman, J.), as had awarded defendants the principal sum of $ 25,000,000 as against plaintiff and had, upon review of so much of a prejudgment order of that court (Kenneth W. Rudolph, J.), denied plaintiff's motion for summary judgment and granted that branch of defendants' cross motion which was for summary judgment on their counterclaim alleging breach of contract; (2) granted plaintiff's motion for summary judgment; (3) denied that branch of defendants' cross motion which was for summary judgment on their counterclaim alleging breach of contract; (4) declared that plaintiff had no obligation to indemnify defendants for any amounts, including defense costs or settlement payments, that defendants may have incurred in connection with an action entitled Cooper v IBM Personal Pension Plan (457 F3d 636 [2006]); and (5) modified the Supreme Court order accordingly.

Federal Ins. Co. v International Bus. Machs. Corp., 78 AD3d 763, 911 NYS2d 148, 2010 N.Y. App. Div. LEXIS 8179 (N.Y. App. Div. 2d Dep't, 2010), affirmed.

Disposition:  [****1] Order affirmed, with costs.


fiduciary, insured, coverage, prong, disputed, obligations, benefit plan, provisions

Insurance Law, Policy Interpretation, Ambiguous Terms, Construction Against Insurers, Unambiguous Terms, Pensions & Benefits Law, ERISA, General Overview, Claim, Contract & Practice Issues, Ordinary & Usual Meanings, Fiduciaries, Fiduciary Responsibilities, Contracts Law, Contract Interpretation, Exclusions