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Sunday, December 28, 2008

Duty To Defend and Indemnify - How Does This Work?

Perhaps I should say right off the bat that it doesn't work in New York City. I'll be writing the case of Stuyvesant High School shortly.

Indemnification by a municipality means that you, as a public servant, are being sued for actions you took while working within your duties as a city employee, and therefore you can be represented by a publicly-funded attorney, or corporation counsel (100 Church Street, New York City 10007).

In New York City, if you are an employee of a city agency or a civil servant and you are sued individually by a person who says you did something while at work that harmed him/her in some way, you may find yourself not getting the representation that you might expect. I know a teacher who was accused of looking at a student in the "wrong" way, he was sued, and the Corporation Counsel denied him any representation. On the other hand, when the Staten Island Ferry accident happened in 2003, and 11 people were killed, the City attorneys claimed that this was an 'Act of God'; Mayor Michael Bloomberg indemnified Department of Transportation Commissioner Iris Weinshall (NYS Senator Chuck Schumer's wife) who, many New Yorkers believed - and still do believe - should have been held accountable for keeping irresponsible people at the helm of the ferry.(pictured below: Tina Brown, Iris Weinshall, Charles Schumer)

The fact that 11 people died and many were seriously injured but the DOT Commissioner was defended in court by an attorney for the city, therefore paid with public funds, bothers many people.

So, what is important with indemnification or "hold harmless" is who decides who will be indemnified.

Monday, August 11, 2008
TRS ordered to reconsider educator’s eligibility for member service credit while serving with a BOCES’ contractor

TRS directed to reconsider educator’s eligibility for member service credit while serving with a BOCES’ contractor*

Matter of Handley v New York State Teachers' Retirement System, 2008 NY Slip Op 32189(U), July 23, 2008, Supreme Court, Albany County, Docket Number: 0623907/2008, Judge: George B. Ceresia [not selected for official publication]

It is not uncommon for a public employer such as a BOCES to appoint an individual to a position that is funded by a “grant” received from the federal government, a private foundation, or a private corporation.

The Handley case involved a significantly different situation – BOCES entering into a contract with a private entity to provide certain services to the BOCES -- and the decision in Handley and a number of similar cases opens a Pandora’s Box of personnel issues with respect to “Handley-like employees,” including, but not limited to:

1. Who pays the employer contribution for Social Security, health insurance, unemployment insurance workers’ compensation and similar fringe benefits for a Handley-like individual?

2. Is a Handley-like individual to be provided representation and indemnification pursuant to Section 17 of the Public Officers Law [State employees] or Section 18 of the Public Officers Law [employees of political subdivisions of the State] in the event such an individual is sued for some act or omission involving the performance of his or her duties?

3. Is a Handley-like individual a member of the relevant Taylor Law negotiating unit and must he or she pay employee organization dues or an agency shop fee?

4. Do statutory or contract disciplinary procedures apply in cases involving disciplinary action taken against a Handley-like individual?

5. Does the federal Hatch Act [except in cases of the academic staff of a college or university] apply to a Handley-like individual?

6. In the event of a “layoff” what are the seniority rights, if any, of a Handley-like individual and how would such rights, if any, impact other employees of the public employer involved?

This case arose when Brett A. Handley asked the court to review of a final determination New York State Teachers’ Retirement System (TRS) that found his service for the school year July 1, 2005 through June 30, 2006 while serving with Monroe 2-Orleans BOCES (MTO) as a Teacher on Special Assignment (TOSA) was not a creditable year of service in TRS.

Handley was to serve as Associate Director of Curriculum and Technology of “Project Lead the Way” for a period of ten months - September 1,2005 - June 30, 2006. Thereafter TRS determined that Handley “was not entitled to retirement credit for claimed teaching services at [MTO] during that year because [he] did not render teaching service at MTO.”

TRS said it had: “… obtained documents and information which appears to indicate that [Handley] had been improperly reported by MTO as providing teaching service to them during the school years [sic] in question. The documents and information appear to indicate that, during the relevant time period, [Handley was], in fact, working for a not-for-profit corporation named Project Lead the Way, Inc. [PLTW]….”

Other reasons advanced by TRS in support of its determination included findings that Handley did not work at any MTO location but work out of his home; he was supervised by PLTW personnel and that it appeared that he was “a full-time employee” of PLTW during this period.

Significantly, TRS said that PLTW “had apparently arranged with MTO for MTO to pay [Handley’s] salary and provide [him] with benefits as if [he] were an employee of MTO,” although he was, in fact, rendering services to PLTW as a PLTW employee.”

Justice Ceresia, however, annulled TRS’ decision and remanded the matter to it “for further proceedings not inconsistent with this Court’s decision.”

Although the court said that TRS has authority under the Education Law and associated case law to correct errors in computing benefits, “it may neither exercise such authority in an arbitrary and capricious nor irrational manner.”

The court decided that in this instance TRS has exercised its authority in both an arbitrary and capricious and irrational manner because:

1. TRS took a de novo approach in determining whether Handley was MTO’s employee without considering whether MTO, in the first instance, had a good faith basis for concluding that he was its employee when it reported his service to TRS;

2. Where service credit has already been given, TRS should first consider whether an educational entity had a good faith basis for concluding that a teacher/professional is that entity’s employee.

3. If such a basis existed, TRS should accept that designation without substituting its judgment for that of the educational entity, even if a different conclusion could be supported by the evidence.

The full text of the decision is posted at:

* Also decided on the same date by the court, and involving similar issues, were the following actions: Matter of Phillips v New York State Teachers' Retirement System, 2008 NY Slip Op 32190(U), Supreme Court, Albany County, Docket Number: 0624107/2008 [see: ] and Matter of Tebbano v New York State Teachers' Retirement System, 2008 NY Slip Op 32191(U), Docket Number: 0625007/2008; [see ] and Matter of Blais v New York State Teachers' Retirement System, 2008 NY Slip Op 32192(U), Docket Number: 0625207/2008, [see ]

Other cases involving this issue include: Matter of Jensen-Dooling v New York State Teachers' Retirement System and Matter of White v New York State Teachers' Retirement System, both similarly decided by Justice Ceresia.
By Public Employment Law Press on Monday, August 11, 2008

Friday, October 17, 2008
Duty to defend and indemnify an employee being sued triggered by allegations of misconduct related to the performance of official duties
Dreyer v City of Saratoga Springs, 2006 NY Slip Op 52618(U), Supreme Court, Saratoga County, Nolan, J. [not to be published in the printed Official Reports]

The principal issue in Erin Dreyer’s suit against the City of Saratoga Springs and its City Council is whether the City is required to provide or pay for Dreyer’s defending herself in two Federal court actions in U.S. District Court for the Northern District of New York, Moore v Dreyer and Curley, 05-CV-1060 and Cornick v City of Saratoga Springs, Curley and Dreyer, 06-CV-0138.

Dreyer served as the City’s Deputy Commissioner of Public Safety. The relationship between Dreyer and Police Chief Edward Moore and Assistant Chief James Cornick became strained and ultimately Moore and Cornick alleged that certain of Dreyer's actions constituted criminal violations and misconduct by a public official. This resulted in the New York State Police investigating Dreyer's conduct. Later a Special Prosecutor was appointed and a Grand Jury was convened to review Dreyer's conduct.

Although the Grand Jury returned a "no-bill", [it did not indict Dreyer for any crime], it reported that she had committed several acts of misconduct, performed negligently, and deliberately acted to create and foster dissension in the police department. The report recommended that she be disciplined or removed from office.

Subsequently Moore commenced a Federal court action to recover damages against Dreyer and Curley in which he alleges that the two conspired under color of law and state action to violate his constitutional rights through adverse employment actions designed to create a hostile work environment and to force him to resign, and further, that Dreyer, with Curley's approval, intentionally and maliciously implemented a course of hostile and disparaging conduct, disseminated, publicly and privately, defamatory information about him, and illegally retaliated when he spoke out against their conduct.

The City Council decided that Curley's conduct, as alleged in Moore's complaint, fell within the scope of his official duties as Commissioner of Public Safety, and adopted a resolution to defend and indemnify Curley but determined that Dreyer's acts, as alleged in Moore's complaint, were not within the scope of her official duties as Deputy Commissioner of Public Safety and refused to provide to her a defense and indemnification. It did the same with respect to the lawsuit filed by Cornick.

Dreyer sued the City, contending that the City's determination not to provide for her defense was made in violation of law, was irrational and was arbitrary and capricious. She argued that by enacting City Code §9-1, the City intended to give City officers and employees the same protections afforded to such personnel by Public Officers Law §18. Section 18, in pertinent part, provides “the provisions of this section shall apply to any public entity (a) whose governing body has agreed by the adoption of local law, bylaw, resolution, rule or regulation (i) to confer the benefits of this section upon its employees....”

Dreyer claimed that as Deputy Commissioner she was for all practical purposes the alter ego of the Commissioner and had been properly invested by the Commissioner to carry out his broad authority to manage and supervise the police department. The City, in rebuttal, said that it correctly concluded that claims alleged against Dreyer arose from actions taken outside of her official duties and did not give rise to an obligation of the City to defend her in both actions and that its determination was rational and proper. Further, said the City, its decision that Curley's conduct giving rise to these two actions fell within his official responsibilities and that hers did not, do not constitute disparate treatment of the Commissioner and Deputy Commissioner.

Justice Nolan said that a defense under Public Officers Law §18 (a) must be provided even though an employee's actions "may be characterized as intentional wrongdoing" unless it can be determined that the conduct was "entirely unrelated to the employer's business". The court also noted that a municipal employer's statutory duty under Public Officers Law §18 to provide a defense to its officers and employees has been likened to an insurance company's contractual duty to provide a defense to one of its insured policyholders and, citing Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, commented that the Court of Appeals recently said that "when [an insurance] policy represents it will provide the insured with a defense, we have said that it actually constitutes litigation insurance' in addition to liability coverage".

Justice Nolan decided that in determining whether or not to provide Dreyer representation and indemnification, the City's inquiry should have been confined to merely a review of the two complaints "to ascertain whether [they] charge[d] that [Dreyer] was acting within the scope of...her employment at the time of the alleged wrongdoing" and “If the complaints made such allegations - and they do - the City's analysis ends there, and a defense must be provided unless, by local law, the City had adopted - which it had not - additional review requirements.”

In contrast, said the court, “any independent factual analysis by a municipality is appropriate only when the complaint fails to allege that an employee at the time of the wrongdoing was acting within the scope of employment.”

The bottom line: in determining whether Dreyer was entitled to be defended in the Moore and Cornick actions, the City was limited by Public Officers Law §18(3) and City Code §9-1 to a review of the allegations in the complaint, which did allege Dreyer was acting within the scope of her employment. By going beyond these allegations and engaging on its own in an independent assessment of the underlying facts, the City exceeded the limits on its discretion imposed by Public Officers Law §18(3) (a) and City Code 9-1. Accordingly, the court directed the City to provide Dreyer with a defense in both federal actions and to reimburse her reasonable costs of her defense to date in both actions.

Justice Nolan said that he would jurisdiction to fix said amount if the parties are unable to agree such amount.

The full text of the decision is posted on the Internet at:
By Public Employment Law Press on Friday, October 17, 2008

Argued and submitted May 3, 2006; decided June 8, 2006

Automobile Ins. Co. of Hartford v Cook, 21 AD3d 1155, reversed. (See Third Judicial Department decision March 28, 2005)

{**7 NY3d at 134} OPINION OF THE COURT

Ciparick, J.

The issue in this declaratory judgment action is whether the insurer has a duty to defend its policyholder under his homeowner's insurance policy in an underlying wrongful death action, resulting from a shooting committed in self-defense. We conclude that the insurer here is obligated to defend under the policy. (For more on this issue, see Intentional Act Exclusion: Policy-Interpretation Conflict)

On February 20, 2002, Alfred Cook shot and killed Richard Barber inside his [*2]home. At the depositions, the witnesses testified that the two men had known each other for many years, but became involved in a dispute relating to their business relationship. Barber, weighing about 360 pounds, was approximately three times Cook's size and had previously attacked the smaller man, causing injury to his leg. On the morning of February 20, Barber and another man were outside of Cook's home, hurling{**7 NY3d at 135} objects at the house. They left without further incident, but Barber returned later that day with two other companions. When Cook, who was standing outside his door, saw them approaching, he asked a person visiting him to leave because he expected trouble. He returned inside, locked the door and, anticipating a confrontation, retrieved a .25 caliber handgun from his bedroom.

There was further testimony that the group burst into Cook's home. The four individuals gathered in the kitchen where Barber began demanding money from Cook while pounding his fists on the kitchen table. Cook, alarmed, drew his gun and demanded that they leave his house. Barber apparently laughed at the small size of the pistol, at which point Cook withdrew to his bedroom for a larger weapon. He picked up a loaded, 12 gauge shotgun and stood in his living room at the far end of his pool table. Cook again ordered them to leave the house. Although Barber started to head toward the door with his companions, he stopped at the opposite end of the pool table, turned to face Cook and told his companions to take anything of value, and that he would meet them outside because he had some business to attend to. When Barber menacingly started advancing toward Cook, Cook warned him that he would shoot if he came any closer. Cook aimed his gun toward the lowest part of Barber's body that was not obscured by the pool table—his navel. When Barber was about one step away from the barrel of the gun, Cook fired a shot into Barber's abdomen. Barber died later that day at a hospital.

Cook was indicted for intentional and depraved indifference murder. At trial he raised a justification defense. A jury acquitted him of both murder counts and of the lesser included offenses of manslaughter in the first and second degrees.

The administrator of Barber's estate, Victoria Pruyn, commenced a wrongful death action against Cook. The first cause of action alleges that "[i]njury to the decedent and the decedent's death were caused by the negligence of the defendant, Alfred S. Cook." Specifically, the complaint alleges that Cook's behavior "consisted of negligently playing with a loaded shotgun; negligently pointing that shotgun at the abdomen of the decedent; negligently discharging that shot gun into the decedent's abdomen; and engaging in unruly behavior at the Defendant's residence on February 20, 2002." In a separate cause of action, the complaint alleges that Cook intentionally shot Barber causing Barber's death. At his examination before{**7 NY3d at 136} trial, Cook testified, "I knew the [shot from the] shotgun would injure Mr. Barber because I had to stop him, but I did not anticipate it killing him." [*3]

Cook sought homeowner's personal liability coverage from his insurer, the Travelers Insurance Company, appearing in this action as the Automobile Insurance Company of Hartford. Hartford disclaimed coverage explaining that the incident was not an "occurrence" within the meaning of the policy and furthermore that the injury inflicted upon Barber fell within a policy exclusion, as it was "expected or intended" by Cook. The insurer commenced this declaratory judgment action against both Cook and Pruyn for a declaration that it was not obligated to defend or indemnify Cook in the wrongful death action. After depositions, Hartford moved for summary judgment and Cook cross-moved, seeking a declaration that the insurer was required to defend and indemnify him in the underlying tort action.

Supreme Court denied Hartford's motion and granted Cook's cross motion to the extent of declaring that the insurer had a duty to provide a defense for Cook in the wrongful death action. The court found that Hartford failed to prove that the incident was not an occurrence covered by the policy or that Cook's actions were subject to the exclusion for injuries expected or intended by the insured. The court held that the insurer had a duty to defend because the negligence allegations in the complaint could potentially be proven at trial.

The Appellate Division reversed, concluding that since Cook intentionally shot Barber, his actions could not be considered an accident or "occurrence" and, thus, were not covered by the policy (21 AD3d 1155, 1157 [2005]). The Court also noted that the acts came within the policy exclusion for bodily injury "expected or intended" by the insured (id. at 1158). One Justice dissented and voted to affirm, holding that if the negligence claim were established, Cook's actions would be covered by the policy. This Court granted leave to appeal and we now reverse.

Our inquiry is twofold: whether an "occurrence" is involved that gives rise to policy coverage and, if so, whether it falls within the "expected or intended" injury policy exclusion. As relevant here, the insurance policy defines an "occurrence" as "an accident . . . which results, during the policy period, in . . . bodily injury." The policy also contains an exclusion for bodily injury "which is expected or intended by any insured." The policy represents that it will provide a defense and pay—up to {**7 NY3d at 137}the policy limits—the amounts for which the insured is legally liable, "[i]f a claim is made or a suit is brought against any insured for damages because of bodily injury . . . caused by an occurrence to which this coverage applies, even if the claim or suit is false."

It is well settled that an insurance company's duty to defend is broader than its duty to indemnify. Indeed, the duty to defend is "exceedingly broad" and an insurer will be called upon to provide a defense whenever the allegations of the complaint "suggest . . . a reasonable possibility of coverage" (Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 648 [1993]). "If, liberally construed, the claim is within the embrace of the policy, the [*4]insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be" (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 670 [1981]).

The duty remains "even though facts outside the four corners of [the] pleadings indicate that the claim may be meritless or not covered" (Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 63 [1991]). For this reason, when a policy represents that it will provide the insured with a defense, we have said that it actually constitutes "litigation insurance" in addition to liability coverage (see Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 310 [1984], quoting International Paper Co. v Continental Cas. Co., 35 NY2d 322, 326 [1974]). Thus, an insurer may be required to defend under the contract even though it may not be required to pay once the litigation has run its course.

When an insurer seeks to disclaim coverage on the further basis of an exclusion, as it does here, the insurer will be required to "provide a defense unless it can 'demonstrate that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation' " (Allstate Ins. Co. v Mugavero, 79 NY2d 153, 159 [1992] [citation omitted]). In addition, exclusions are subject to strict construction and must be read narrowly (see Seaboard, 64 NY2d at 311).

An examination of the wrongful death complaint leads to the conclusion that Cook's claim is covered by the policy. Among other things, the complaint alleges that Cook negligently caused Barber's death. If such allegations can be proven, they would fall within the scope of the policy as a covered occurrence. The policy defines an "occurrence" as an accident, and we have previously defined the term "accident," albeit in a life insurance{**7 NY3d at 138} policy, "to pertain not only to an unintentional or unexpected event which, if it occurs, will foreseeably bring on death, but equally to an intentional or expected event which unintentionally or unexpectedly has that result" (Miller v Continental Ins. Co., 40 NY2d 675, 678 [1976]). Thus, if Cook accidentally or negligently caused Barber's death, such event may be considered an "occurrence" within the meaning of the policy and coverage would apply. The factfinder in the underlying action may indeed ultimately reject the notion that Cook negligently caused Barber's death given the evidence of intentional behavior, but that uncertain outcome is immaterial to the issue raised here—the insurer's duty to defend in an action where it is alleged that the injury was caused by the negligent conduct of the insured.

Turning to the exclusion—as an allegation of negligence implies an unintentional or unexpected event, Hartford necessarily has failed to demonstrate that the allegations of the complaint are subject to no other interpretation than that Cook "expected or intended" the harm to Barber (compare Mugavero, 79 NY2d 153 [1992] [where the harm caused was [*5]inherent in the nature of the acts alleged to be committed by the insured—child sexual abuse—and fell within the homeowners' insurance policy's exclusion]). Hartford is thus required to defend Cook in the underlying wrongful death action.

In light of this disposition, it is unnecessary to address the remaining arguments—specifically, whether acts of self-defense are intentional acts precluding coverage under a homeowner's policy. Suffice it to say that a reasonable insured under these circumstances would have expected coverage under the policy. As to a duty to indemnify, that determination will abide the trial.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the order of Supreme Court should be reinstated.

Chief Judge Kaye and Judges G.B. Smith, Rosenblatt, Graffeo, Read and R.S. Smith concur.

Order reversed, etc.

The city says the Department of Transportation shouldn't be held responsible for the 2003 Staten Island Ferry crash that killed 11 people because an "act of God" contributed to the crash.

Victims and their families have filed claims totaling $3.2 billion against the city, after 11 people were killed when the Andrew J. Barberi slammed into a St. George pier. They say the DOT is liable for the accident.

However, court papers filed by the city list "an act of God" as the cause of the accident, arguing that although the ship hit a fixed object, the captain's medical problems couldn't be predicted.

The "act of God" defense is usually used in natural disasters, like earthquakes and floods, but an investigation has revealed that the crash occurred after the pilot of the ferry passed out.

Wayne Meehan, an expert in maritime law who is representing the city, said in a statement: "The sudden and unforeseeable incapacitation of a vessel's operator qualifies as such an 'act of God'. This is a principle which is well known to maritime law practitioners."

The city is arguing that under an old maritime law a ship owner's liability can be limited to the value of the ship. In this case that amounts to just more than $14 million.

Victims say the city acted negligently and shouldn't be able to limit its liability.

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