HNRK Coverage Corner

On March 9, 2018, the Second Department issued a decision in Graphic Arts Mut. Ins. Co. v. Pine Bush Central School Dist., Index No. 6304/2015, holding that a school district's entitlement to indemnity coverage under a CGL policy for the cost of settling a religious discrimination case depended on questions of fact. Graphic Arts arose from a lawsuit filed by a group of students from the Pine Bush School District, alleging that the students were subjected to anti-Semitic harassment and discrimination by other students, which was reported to, but ignored by school officials.  According to the Complaint, the school officials' conduct gave rise to an inference that they "intended for the harassment to occur."  After the district settled the lawsuit, its CGL insurance carrier filed a declaratory judgment action arguing that claims arising from "intentional discriminatory conduct" were not covered by the policy. 

The trial court granted a motion to dismiss the carrier's complaint, but the Second Department reversed, explaining:

Whether a loss is the result of an accident must be determined from the point of view of the insured.  Where the loss is unexpected, unusual, or unforeseen from the point of view of the insured, the loss constitutes an accident. An act that is intentionally committed or performed may still be considered an accident within the meaning of an insurance policy, as long as the insured did not expect or intend the harm caused. Whether an event or series of events qualifies as an accident is a question of fact.  Regardless of the initial intent or lack thereof as it relates to causation, or the period of time involved, if the resulting damage could be viewed as unintended by the fact finder the total situation could be found to constitute an accident.

. . .

While it is not legally impossible to find accidental results flowing from intentional causes, i.e., that the resulting damage was unintended although the original acts leading to the damage were intentional, the insurance policies do not conclusively establish that the plaintiff is obligated to indemnify the defendants in the underlying action, and the other evidence submitted by the defendants did not utterly refute the factual allegations set forth in the plaintiff's complaint. Whether the incidents set forth in the amended complaint in the underlying action were accidents present questions of fact which cannot be determined on a motion to dismiss pursuant to CPLR 3211(a)(1) and (7).

One takeaway from this decision is the important distinction between an insurer's duty to defend, and the duty to indemnify.  Here, the carrier agreed to provide the insured a defense, but may ultimately be able to establish a defense to coverage.  The standards for defense and indemnity coverage are different.  The duty to defend is “exceedingly broad,” and arises whenever there is “a reasonable possibility of coverage.”  Hillcrest Coatings, Inc. v. Colony Ins. Co., 151 A.D.3d 1643, 1645 (4th Dep’t 2017).  The duty to indemnify often depends on the actual facts developed in the underlying case.