Vogel v American Guar. & Liab. Ins. Co.  2017 NY Slip Op 02462  Decided on March 29, 2017 Appellate Division, Second Department is the story of a fight between a law firm and its insurer, which will be going to trial.  Did the carrier have to defend this case of legal malpractice which arose over escrowed funds?

“In an action, inter alia, to recover damages for breach of a legal malpractice insurance policy and for a judgment declaring that the plaintiffs are covered under that policy, (1) the defendant American Guarantee & Liability Insurance Company appeals from so much of an order of the Supreme Court, Nassau County (Bruno, J.), dated July 20, 2014, as denied those branches of its motion, made jointly with the defendant Zurich American Insurance Company, which were for summary judgment dismissing the first and second causes of action in the second amended complaint insofar as asserted against those defendants and thereupon searched the record and awarded the plaintiffs summary judgment on the first and second causes of action in the second amended complaint insofar as asserted against those defendants, and (2) the defendants American Guarantee & Liability Insurance Company and Zurich American Insurance Company appeal from a judgment of the same court (Marber, J.) dated November 18, 2014, which, upon the order, is in favor of the plaintiffs and against them in the principal sum of $781,475.39. The plaintiffs cross-appeal, as limited by their brief, from (1) so much of the same order as granted that branch of the motion of the defendants American Guarantee & Liability Insurance Company and Zurich American Insurance Company which was for summary dismissing the third cause of action in the second amended complaint insofar as asserted against them, and (2) so much of the same judgment as failed to award them certain interest.”

“”[A]n insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision” (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45; see Cumberland Farms, Inc. v Tower Group, Inc., 137 AD3d 1068, 1070). “To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint [in the underlying action] cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision” (Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175; see 492 Kings Realty, LLC v 506 Kings, LLC, 88 AD3d 941, 943; Exeter Bldg. Corp. v Scottsdale Ins. Co., 79 AD3d 927, 929).

The language of the policy determines the coverage (see Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347; Certain Underwriters at Lloyd’s London Subscribing to Policy No. SYN-1000263 v Lacher & Lovell-Taylor, P.C., 112 AD3d 434, 434-435; Utica First Ins. Co. v Star-Brite Painting & Paperhanging, 36 AD3d 794, 795-796; Shapiro v OneBeacon Ins. Co., 34 AD3d 259).

Here, in moving for summary judgment, AG/Zurich did not eliminate all triable issues of fact relating to the issue of its duty to defend or indemnify the plaintiffs in the underlying action (see Cumberland Farms, Inc., v Tower Group, Inc., 137 AD3d at 1071; Soho Plaza Corp. v Birnbaum, 108 AD3d 518, 522; Franklin Dev. Co., Inc., v Atlantic Mut. Ins. Co., 60 AD3d at 901). Since AG/Zurich failed to meet its burden as movant, it is not necessary to review the sufficiency of the plaintiffs’ opposition papers. Accordingly, the Supreme Court properly denied AG/Zurich’s motion for summary judgment dismissing the first and second causes of action in the second amended complaint.

However, there are triable issues of fact relating to Vogel’s alleged negligent supervision of the escrow account, and the application of the policy provisions to the circumstances, such that it was not established as a matter of law that the allegations in the complaint require AG/Zurich to defend and indemnity the plaintiffs (see Soho Plaza Corp. v Birnbaum, 108 AD3d at 522; Franklin Dev. Co., Inc. v Atlantic Mut. Ins. Co., 60 AD3d at 901). Accordingly, the Supreme Court erred in searching the record and awarding summary judgment to the plaintiffs on the first and second causes of action.”