New York Court Holds No Coverage for Criminal Proceeding

In its recent decision in Certified Environmental Services, Inc. v. Endurance Am. Ins. Co., 2018 N.Y. App. Div. 704 (4th Dep’t Feb. 2, 2018), the Supreme Court of New York, Appellate Division, Fourth Department, had occasion to consider whether a liability insurer had coverage obligations with respect to an underlying criminal proceeding.

Certified Environmental Services sought coverage under a series of packaged liability policies affording coverage for professional liability, contractors pollution liability, and general liability matters.  Specifically, it sought reimbursement of defense costs and indemnification in connection with a federal criminal proceeding brought under the Clean Air Act to which it eventually pled guilty and agreed to pay restitution.

One of the sets of policies under which Certified Environmental Services sought coverage insured against “claims,” a term defined as “any written demand, notice, request for defense, request for indemnity, or other legal or equitable proceeding against [plaintiff]” by a person or entity for, inter alia, “covered damages” arising out of plaintiff’s “negligent acts, errors, or omissions.” “Covered damages” include “all claim related costs,'” which in turn are defined as “all costs and expenses associated with the handling, defense, settlement or appeal of any claim’ or suit.'”  

The court agreed with the insurer that the federal government’s federal prosecution of Certified Environmental Services did not satisfy this definition as the federal government was not seeking damages qualifying as “covered damages.”  The court also rejected Certified Environmental Services’ argument that its own demand for a defense in the underlying proceeding constituted a “claim,” observing that a “claim” is only something that can be made against the insured, not something made by the insured.

Certified Environmental Services also sought coverage under a set of policies that limited the defense obligation to “suits,” a term defined as a “civil proceeding.”  The court agreed that because the underlying matter was a criminal rather than civil proceeding, the defense obligation under these policies was not triggered.