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Criminal Acts Exclusion Bars Coverage Even Though Insured Not Charged With, or Convicted of, a Crime

On February 6, 2023, Justice Louis L. Nock of the New York County Supreme Court issued a decision in Wesco Ins. Co. v. Nunez Dental Servs., P.C., 2023 NY Slip Op 30373(U), holding that a criminal acts exclusion barred coverage for a lawsuit alleging violations of the rights of privacy and publicity under the N.Y. Civil Rights Law, despite the fact that the insured was never convicted, or even charged with, a crime.

The underlying lawsuit alleged that the insured, Nunez Dental, misappropriated the image of the plaintiff’s image to advertise Nunez’s dental services.  Among other causes of action, the complaint asserted violations of Civil Rights Law §§ 50-51.  Section 50 of the statute provides that “[a] person, firm or corporation that uses for advertising purposes, or for the purposes of trade, the name, portrait or picture of any living person without having first obtained the written consent of such person . . . is guilty of a misdemeanor.”  The insured’s CGL policy had a criminal acts exclusion, barring coverage for any claim that “aris[es] out of a criminal act committed by or at the direction of the insured.”   Although there were other civil causes of action in the complaint, the insurer argued that this exclusion applied because New York law defines the underlying conduct—unauthorized use of a person’s portrait or picture—as a crime.

Justice Nock agreed and granted summary judgment to the insurer, explaining:

[The criminal acts] exclusion applies regardless of whether the insured is actually convicted of, or even charged with, a crime.  (Kenhoe v Nationwide Mut. Fire. Ins. Co., 299 AD2d 318, 319 [2d Dept 2002]).  Moreover the Court of Appeals has interpreted the phrase “arising out of” broadly in the next of the criminal acts exclusion, holding that where criminal conduct is the operative act necessary to establish liability, the underlying plaintiff’s theory of recovery does not control whether the exclusion applies.

In opposition, Davalos argues that Nunez harbored the belief that it had obtained Davalos’ consent to use her image, and (the argument goes), per that belief, Nunez did not commit or direct a criminal act.  However, those allegations are not contained within Davalos’ underlying complaint, and thus are not relevant to whether plaintiffs rightfully disclaimed coverage (A.J. Sheepskin and Leather Co., Inc. [v. Colonia Insurance Company,] 273 AD2d [107,] 107 [2d Dept 2000]).  Further, the allegations of the underlying complaint are a sufficient basis to deny coverage even in the absence of a finding that the alleged conduct took place. . .  .

Justice Nock cites the Second Department’s decision in Kenhoe for the proposition that a criminal acts exclusion “applies regardless of whether the insured is actually convicted of, or even charged with, a crime.”  But importantly, in that case, “[t]he subject policy explicitly excluded coverage . . . regardless of whether the insured was actually charged with, or convicted of, a crime.”  Kehoe, 299 A.D.2d at 319.  Here by contrast, the policy is silent on that question.  Further, the decision dismisses the relevance of Nunez’s subject intent on the ground “those allegations are not contained within [the] complaint.”  But this ignores the well-established rule that insurers must consider extrinsic evidence that establishes a potential basis for coverage.  See Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 66-67 (1991).  The insured has filed a notice of appeal.  We will continue to follow the case in the First Department.      

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