author: CIPARICK, J. R.S. Smith, J. (dissenting).

text:
    [822 NE2d 331, 789 NYS2d 80]
    In the Matter of Malta Town Centre I, Ltd., Respondent, v Town of Malta Board of Assessment Review, Appellant.
    Argued October 19, 2004;
    decided November 18, 2004

      POINTS OF COUNSEL

      Tuczinski, Cavalier, Burstein & Collura, P.C., Albany (Daniel G. Vincelette of counsel), for appellant.
    I. Successful completion of an annual reassessment voids the three year moratorium of Real Property Tax Law § 727. (Matter of Owens Corning v Board of Assessors, 279 AD2d 118; Matter of Rosen v Assessor of City of Troy, 261 AD2d 9; Matter of American Cyanamid Co. v Board of Assessors, 288 AD2d 213; Matter of Hellerstein v Assessor of Town of Islip, 37 NY2d 1; Matter of Sterling Estates v Board of Assessors of County of Nassau, 66 NY2d 122.) II. Petitioner was not entitled to summary judgment as the record contradicts the court’s holding that the record was “devoid of any detail” of the annual reassessment program conducted by the Town of Malta. (Zuckerman v City of New York, 49 NY2d 557; Alvarez v Prospect Hosp., 68 NY2d 320; Ayotte v Gervasio, 81 NY2d 1062; Wahila v Kerr, 204 AD2d 935; Wenger v Goodell, 288 AD2d 815, 98 NY2d 605; Empire Magnetic Imaging v Comprehensive Care of N.Y., 271 AD2d 472; Matter of Akey v Town of Plattsburgh, 300 AD2d 871; Hasbrouck v City of Gloversville, 102 AD2d 905.)

      Pott and Naviasky, LLP, Schenectady (Laurence Naviasky of counsel), for respondent.
    I. The determination that an annual reassessment under RPTL 1573 is not equivalent to a revaluation or update as contemplated by RPTL 727 (2) (a) is supported by the language and intent of the respective statutes.
      (Matter of Viacom Corp. v Board of Assessors of Town of Horse-heads, 295 AD2d 791; Matter of Owens Corning v Town of Bethlehem, 279 AD2d 118; Matter of Hellerstein v Assessor of Town of Islip, 37 NY2d 1; Matter of Rosen v Assessor of City of Troy, 261 AJD2d 9; Matter of Chasalow v Board of Assessors of County of Nassau, 202 AD2d 499; People ex rel. Hagy v Lewis, 280 NY 184; Nash v Assessor of Town of Southhampton, 168 AD2d 102; Matter of Sterling Estates v Board of Assessors of County of Nassau, 66 NY2d 122.) II. The trial court correctly held that appellant failed to submit admissible proof sufficient to create a genuine issue of fact that it engaged in a town-wide revaluation or update. (Hedrick v Genesee Mgt., 246 AD2d 858; Koppers Co. v Empire Bituminous Prods., 35 AD2d 906; Ascher v Garafolo Elec. Co., 113 AD2d 728; Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d 27, 49 NY2d 924; Matter of Akey v Town of Plattsburgh, 300 AD2d 871; Hasbrouck v City of Gloversville, 102 AD2d 905, 63 NY2d 916; Phillips v Bronx Lebanon Hosp., 268 AD2d 318; Barrette v General Elec. Co., 144 AD2d 983.)
   OPINION OF THE COURT

CIPARICK, J.

The issue presented by this appeal is whether proof of an annual reassessment pursuant to the state reassessment aid program under RPTL 1573 is evidence that there has been “a revaluation or update of all real property on the assessment roll” for the purposes of RPTL 727 (2) (a). We conclude that it is evidence of a revaluation or update sufficient to defeat petitioner’s motion for summary judgment.

Petitioner, Town Centre, commenced a prior RPTL article 7 tax certiorari proceeding to challenge its assessments for the 1998, 1999, 2000 and 2001 tax years. In December 2001, the parties resolved the proceeding by a stipulation reducing the assessed value of the property to $7,800,00o. The Supreme Court order and judgment authorizing the stipulation specified that the assessed valuation of the property would remain “subject to the provisions of Real Property Tax Law § 727 . . . [and that] the assessed valuation of the subject properties shall not be changed, subject to the provisions of RPTL § 727 (2), for such properties for the next three succeeding assessment rolls.” Both parties reserved all rights under section 727 to challenge future assessments.

The Town of Malta participates in an annual real property reassessment program administered, by the New York State Office of Real Property Services (ORPS). Pursuant to article 15-B of the RPTL, this program provides financial assistance to assessing units that comply with the standards set forth in the statute for the preparation of an annual assessment roll at a uniform percentage of current value. As part of the 2002 annual reassessment, the Town Assessor conducted the statutorily required analysis and all values were brought to 100% of full market value as of the January 1, 2002 valuation date.

In April 2002, the Town Assessor sent Town Centre a notice that the assessed valuation of the property had been increased to $9,750,000. Town Centre then submitted a complaint to respondent Board of Assessment Review, arguing that the Town was prevented from changing the assessed value of the property for three years under RPTL 727 or, in the alternative, that the assessed value exceeded the fair market value of the property. The Board found Town Centre’s proof insufficient to warrant a change.

Town Centre then commenced the instant article 7 tax certiorari proceeding requesting court review of the assessed valuation. Petitioner argued both that the assessment was excessive and that it was conducted in violation of section 727. In response to Town Centre’s requests under the Freedom of Information Law (FOIL) (Public Officers Law § 84 et seq.) the Town of Malta submitted documents indicating that the Assessor may have relied upon outdated information to ascertain the 2002 assessment value—the same information used in the earlier article 7 proceeding that established the property’s market value for 1998 and 1999. Town Centre moved for summary judgment, arguing that the Assessor failed to conduct a proper revaluation or update in compliance with RPTL 727 and that the assessed value should be reduced to $7,800,000.

The Board cross-moved to strike Town Centre’s section 727 causes of action. In support of its cross motion, the Board submitted the affidavit of the Town Assessor. The Assessor’s affidavit indicated that she had “analyze[d] and re-evaluate[d] the market data and assessed values of all commercial properties within the Town.” The affidavit further stated that ORPS had determined that the Town’s plan “was in compliance with [the] State’s annual reassessment plan.” Attached as exhibits to the Assessor’s affidavit were ORPS documents concerning the Board’s compliance with the state annual reassessment aid program and a letter from ORPS documenting successful completion of the reassessment program. The affidavit also indicated that the Assessor consulted income questionnaires from 1995 and 1998.

Supreme Court granted Town Centre’s motion, ordered the Board to reduce the assessment to $7,800,000—the stipulated amount in the earlier proceeding—and denied the Board’s cross motion (Malta Town Ctr. I, Ltd. v Town of Malta Bd. of Assessment Review, 195 Misc 2d 619 [Sup Ct, Saratoga County 2003]). The court found the Board’s motion papers insufficient to show that there had been a town-wide revaluation or update. The court also concluded that RPTL 1573’s annual reassessment criteria are not the equivalent of “revaluation” or “update” under RPTL 727 (2) (a) and therefore the Town’s participation in the section 1573 state aid program did not qualify as an exception under RPTL 727 (2). The Appellate Division affirmed for the reasons stated by Supreme Court (Matter of Malta Town Ctr. I, Ltd. v Town of Malta Bd. of Assessment Review, 2 AD3d 957 [3d Dept 2003]). This Court granted leave to appeal and we now reverse.

The Board argues that the Town’s successful completion of an annual reassessment under section 1573 is sufficient to abrogate the section 727 three-year period prohibiting any change in assessed valuation. Town Centre asserts that an annual reassessment under section 1573 is something less stringent than a “revaluation or update” under section 727 (2) (a) and that the two actions are not equivalent. Town Centre further argues that the purpose behind section 727 would be defeated if successful participation in the annual reassessment program is equivalent to a revaluation or update under section 727 (2) (a).

As this is a question of statutory interpretation, we turn first to the plain language of the statutes as the best evidence of legislative intent (see Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]). Section 727 of the Real Property Tax Law provides a three-year respite from any change in the assessed valuation of property “where an assessment being reviewed pursuant to this article is found to be unlawful, unequal, excessive or misclassified by final court order or judgment” (RPTL 727 [1]; see also RPTL 727 [3] [prohibiting petitions for review of assessments for property subject to section 727 (1)]). The statute permits certain exceptions to this three-year grace period, most relevantly, where there has been “a revaluation or update of all real property on the assessment roll” (RPTL 727 [2] [a]).

Although section 727 does not define a “revaluation or update,” the terms are defined elsewhere in the RPTL. “ ‘Revaluation’, ‘reassessment’ or ‘update’ means a systematic review of the assessments of all locally assessed properties, valued as of the valuation date of the assessment roll containing those assessments, to attain compliance with the standard of assessment set forth in [RPTL 305 (2)]” (RPTL 102 [12-a]).

Legislative history indicates that one focus of the three-year respite provision was to address the situation requiring taxpayers to bring successive suits to challenge assessments that had been previously reduced by court order (see Governor’s Approval Mem, Bill Jacket, L 1995, ch 693 [stating that “by locking in the judicially-reduced assessments on most properties for the following three tax years, the bill will spare all parties the time and expense of repeated court intervention”]). The result we reach is not contrary to that intent, as a town-wide revaluation—or reassessment—is one of the specific exceptions that allows an assessment to be changed during that three-year time period (see RPTL 727 [2] [a]). That exception seems to recognize that the importance of a three-year grace period is diminished if the value of the property is kept current by annual reassessments. The interest in reduced litigation contemplated by the statutory respite period must be balanced against the importance of maintaining current and equitable assessment rolls. The question before us is whether a RPTL 1573 reassessment can constitute an exception under RPTL 727. We conclude that it can.

RPTL 1573 authorizes state aid for municipalities that keep assessment rolls up to date at a uniform percentage of current market value (see RPTL 1573 [1] [a], [b]). The statute specifically provides that annual reassessment aid will be awarded to a municipality that keeps an “equitable assessment roll” which includes “annually conducting a systematic analysis of all locally assessed properties using a methodology specified in . . . regulations [promulgated by the state board; and] annually revising assessments as necessary to maintain the stated uniform percentage of value” (RPTL 1573 [2] [b] [i] [B]-[C]). The implementing regulation likewise defines reassessment as “a systematic analysis of the assessments of all locally assessed properties, valued as of the valuation date of the assessment roll containing those assessments to attain compliance with the statutory standard of assessment” (9 NYCRR 201-2.5 [c] [1]).

The language of these provisions makes clear that reassessment, revaluation and update have the same meaning for the purposes of both RPTL 727 and RPTL 1573. In addition, the definition of reassessment, revaluation or update is virtually identical to a criterion for annual reassessment aid under section 1573 (compare “systematic review of the assessments” [RPTL 102 (12-a)] with “systematic analysis of all locally assessed properties” [RPTL 1573 (2) (b) (i) (B)]). This similarity further supports the conclusion that an annual reassessment under section 1573 is evidence of a revaluation or update under section 727.

This interpretation is also bolstered by the legislative history. Section 102 (12-a) was amended in 1998 to establish a uniform definition for reassessment, revaluation and update (see Mem in Support, Bill Jacket, L 1998, ch 319). The previous version of the statute defined revaluation and update separately and did not define reassessment at all (see Mem in Support, Bill Jacket, L 1998, ch 319). ORPS participated in the drafting of the amended section 102 (12-a). The legislative history indicates that ORPS “determined that the consistent and efficient administration of its programs require a common understanding of what local valuation activity constitutes a reassessment for participation in or compliance with the agency’s programs” (Mem in Support, Bill Jacket, L 1998, ch 319). ORPS further found that regular reassessment would help municipalities attain equity on their tax rolls (see Mem in Support, Bill Jacket, L 1998, ch 319).

It is thus clear from both the legislative history and the text of RPTL 102 (12-a) that the Legislature intended to provide a consistent definition of the three terms. The memorandum in support of the amendment to section 102 specifically states that the “bill would amend the definitions of revaluation and update to incorporate the policy of [ORPS] in regard to local reassessment activity” (Mem in Support, Bill Jacket, L 1998, ch 319). The minor differences in terminology do not support the conclusion, reached by Supreme Court and affirmed by the Appellate Division, that these terms have a different meaning where the intent of the Legislature was to harmonize them.

Further, the requirements to satisfy annual reassessment under section 1573 are, if anything, more stringent than those needed to constitute a revaluation or update under section 727 (2) (a). The “systematic analysis” is only one factor that must be met (see RPTL 1573 [2] [b] [i] [B]). For example, the assessing unit must also demonstrate that there is a program established to reappraise and physically inspect each property at least once within a six-year period (see RPTL 1573 [2] [b] [i] [D]). As a result, proof that there has been “a systematic analysis of all locally assessed properties” in satisfaction of section 1573 constitutes evidence that there has been a revaluation or update under section 727 (2) (a).

Finally, the Assessor’s affidavit, incorporating the ORPS documents as exhibits and stating that ORPS found the Town to be “in compliance with [the] State’s annual reassessment plan,” was sufficient to show compliance with section 1573 and thus, to defeat Town Centre’s motion for summary judgment. Contrary to the dissent’s contention, sincé we hold that evidence of annual reassessment under section 1573 is equivalent to a “revaluation or update of all real property” under section 727 (2) (a), the Assessor’s affidavit incorporating ORPS documents was indeed adequate proof that such revaluation or update occurred. That proof was not limited to a statement that the Assessor analyzed only commercial properties. The ORPS documents show the Assessor inspected all parcels (see dissenting op at 575). Although there has been a town-wide reassessment satisfying both section 1573 and section 727, the question as to whether the assessment value for this particular parcel was accurate is referred to Supreme Court.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Supreme Court for further proceedings in accordance with this opinion.

R.S. Smith, J. (dissenting).

Real Property Tax Law § 727 provides that, once the assessed valuation of a parcel has been challenged and a court has altered it, the new valuation is frozen for three years. An exception exists where, within those three years, “[tjhere is a revaluation or update of all real property on the assessment roll” (RPTL 727 [2] [a]).

Under RPTL 1573, towns or other assessing units are entitled to financial aid when they meet certain standards of real property tax administration. There are two kinds of aid—triennial and annual. To receive triennial aid, a town must carry out “a revaluation or update that includes the reinspection and reappraisal of all locally assessed properties” (RPTL 1573 [2] [a]). Annual aid is based on a number of criteria, one of which is “annually conducting a systematic analysis of all locally assessed properties” (RPTL 1573 [2] [b] [i] [B]).

The main question here is whether a town that has met the criterion for annual aid specified in section 1573 (2) (b) (i) (B) automatically escapes from the three-year freeze of section 727. The majority holds that it does. I dissent, because I think this reading creates a loophole in section 727 that the Legislature did not intend and that will undermine the purpose of the statute.

The relevant language from section 727, providing both for the three-year freeze and for the exception to it, is as follows:

“1. Except as hereinafter provided . . . where an assessment being reviewed pursuant to this article is found to be unlawful, unequal, excessive or misclassified by final court order or judgment, the assessed valuation so determined shall not be changed for such property for the next three succeeding assessment rolls ....
“2. An assessment on property subject to the provisions of subdivision one of this section may be changed on an assessment roll where:
“(a) There is a revaluation or update of all real property on the assessment roll.”

The relevant language from section 1573 (2), providing both for triennial and annual aid to assessing units, is as follows:

“State assistance . . . shall be payable as follows ... (a) Triennial aid ... on an assessment roll on which there has been implemented a revaluation or update that includes the reinspection and reappraisal of all locally assessed properties . . .
“(b) (i) Annual reassessment aid . . . when the state board determines that the assessing unit has maintained an equitable assessment roll. Such determination . . . shall be based upon criteria including but not limited to: . . .
“(B) annually conducting a systematic analysis of all locally assessed properties using a methodology specified in . . . regulations.”

In reading these two statutes, what is most striking is the resemblance between the language used in creating an exception to the three-year freeze requirement—“a revaluation or update of all real property on the assessment roll”—and the language used in authorizing triennial aid: “a revaluation or update that includes the reinspection and reappraisal of all locally assessed properties.” It seems obvious, and the parties to this action do not dispute, that a “revaluation or update” sufficient to obtain triennial aid is also a “revaluation or update” sufficient to nullify the three-year freeze requirement.

But here the Town contends, and the majority holds, that meeting the “systematic analysis” criterion for annual aid is also enough to nullify a three-year freeze. No one simply reading the above-quoted statutory language would readily come to that conclusion. On the contrary, it seems evident that the annual “systematic analysis of all locally assessed properties” referred to in section 1573 (2) (b) (i) (B) is something different from, and less momentous than, the “revaluation or update that includes the reinspection and reappraisal of all locally assessed properties” in section 1573 (2) (a). If that is true, it is a reasonable inference that the “systematic analysis” is also insufficient to constitute the “revaluation or update of all real property” that is required for an exception to the three-year freeze under section 727 (2) (a).

The conclusion derived from this exercise in verbal logic is also supported by a commonsense interpretation of the two statutes. The policy behind the three-year freeze in RPTL 727 (1) is obviously to provide some respite from litigation. Where a dispute over valuation has been resolved by court order, both the town and the taxpayer should be allowed to rely on that resolution for a reasonable period of time. But it would be unfair to leave the freeze in effect to the benefit (or detriment) of a recent litigant when every other taxpayer in town is being subjected to a reexamination of the value of his or her property.

The exception in section 727 (2) exists to prevent such unfairness.

It is entirely consistent with the purpose of the exception that it is triggered when a town conducts the “revaluation or update that includes the reinspection and reappraisal of all locally assessed properties” that entitles it to triennial aid from the State. Triggering the exception in this way does not greatly interfere with the effectiveness of the three-year freeze, because triennial aid, as its name implies, can be obtained no more frequently than once in three years. But if the town, by meeting one of the criteria for annual aid, automatically escapes from the freeze, then the freeze has no meaning in any town in which that criterion is met.

The majority nevertheless concludes that conducting the “systematic analysis” that is one of the criteria for annual aid is enough to trigger the exception to the freeze requirement. The main basis for the majority’s conclusion is the definition section of the Real Property Tax Law, which provides (RPTL 102 [12-a]):

“ ‘Revaluation’, ‘reassessment’ or ‘update’ means a systematic review of the assessments of all locally assessed properties, valued as of the valuation date of the assessment roll containing those assessments, to attain compliance with the standard of assessment set forth in subdivision two of section three hundred five of this chapter.”

The majority finds this language to be “virtually identical” to the criterion for annual reassessment set forth in RPTL 1573 (2) (b) (i) (B), and thus concludes that to meet that criterion automatically constitutes doing a “revaluation” or “update.” I do not agree. The words of the definition section—“systematic review of the assessments of all locally assessed properties” and the words describing the annual aid criterion—“systematic analysis of all locally assessed properties”—are similar, but they are not identical or virtually so. Read in context, “review of the assessments” and “analysis” suggest different meanings; the difference is between setting out to revise the data and merely examining it. Nor is it plausible that the authors of section 1573 (2) (b) (i) (B), when they specified a “systematic analysis of all locally assessed properties,” meant exactly the same thing as a “revaluation or update.” If that is what they meant they could have used the words “revaluation or update”—the very words they did use in the same statute, when they provided for triennial aid in section 1573 (2) (a).

The majority says that the legislative history of the definition section supports its interpretation. I believe it supports mine. Section 102 (12-a), defining “ ‘[Revaluation5, ‘reassessment’ or ‘update,’ ” was added to the RPTL by amendment in 1998. Nothing indicates that a purpose of the amendment was to equate the terms “revaluation” or “update” with the criterion for annual aid in section 1573 (2) (b) (i) (B). The legislative history does not mention section 1573 (2) (b) (i) (B) at all; rather, it shows that the purpose of the bill was to provide that the three words “[Revaluation,” “reassessment” and “update” all meant the same thing, and that all denoted a process designed to assure that assessments be at the same percentage of current value (Mem in Support, Bill Jacket, L 1998, ch 319). If the authors of the definition had intended to track section 1573 (2) (b) (i) (B) the language of the two sections would not be similar, but identical. I conclude from the legislative history that the similarity between section 102 (12-a) and section 1573 (2) (b) (i) (B) is essentially fortuitous.

My view that compliance with section 1573 (2) (b) (i) (B) does not constitute a “revaluation” or “update” within the meaning of section 727 (2) (a) is reinforced by the facts of this case. It seems clear that the Town of Malta here did meet the section 1573 (2) (b) (i) (B) criterion, at least in the view of the state agency that dispenses aid under section 1573. But, as Supreme Court’s opinion demonstrates, the evidence submitted by the Town utterly fails to show that it performed a “revaluation or update of all real property on the assessment roll,” as section 727 (2) (a) requires. The affidavit submitted by the Town Assessor conspicuously omits any assertion that, in complying with section 1573 (2) (b) (i) (B), she annually revalues, reviews or updates the values of all properties in the Town. Instead, she makes the much more limited statement: “I analyze and reevaluate the market data and assessed values of all commercial properties within the Town for each annual reassessment plan” (emphasis omitted and added). It is literally true, as the majority points out, that state documents show that the Assessor “inspected all parcels”—but the majority omits to note that this was a drive-by inspection (“from the public right of way”) done to collect “inventory data.”

Because the Town did not perform the “revaluation or update of all real property” that would trigger the exception to the three-year freeze requirement, I would, affirm the order of the Appellate Division.

Chief Judge Kaye and Judges G.B. Smith, Rosenblatt, Graffeo and Read concur with Judge Ciparick; Judge R.S. Smith dissents and votes to affirm in a separate opinion.

Order reversed, etc.

      . The prior assessed value of the property was $8,375,000 for each year in question, with the exception of 1999, for which the assessed value was $8,785,000.

      . The notice reflected that the property’s prior assessed value was $8,375,000, rather than the stipulated value of $7,800,000.

      . RPTL 727 states that:
      “1. Except as hereinafter provided, . . . where an assessment being reviewed pursuant to this article is found to be unlawful, unequal, excessive or misclassified by final court order or judgment, the assessed valuation so determined shall not be changed for such property for the next three succeeding assessment rolls prepared on the basis of the three taxable status dates next occurring on or after the taxable status date of the most recent assessment under review in the proceeding subject to such final order or judgment. . . .

        “2. An assessment on property subject to the provisions of subdivision one of this section may be changed on an assessment roll where:
      “(a) There is a revaluation or update of all real property on the assessment roll; . . .
      “3. No petition for review of the assessment on such property shall be filed while the provisions of subdivision one of this section are applicable to such property” (RPTL 727).

      . RPTL 1573 provides, as relevant here, that:

        “2. State assistance pursuant to subdivision one of this section shall be payable as follows for each separately assessed parcel appearing on the applicable assessment roll, excluding parcels which are wholly exempt or assessed by the state board: . . .
      “(b) (i) Annual reassessment aid in the amounts specified in subparagraph (ii) of this paragraph when the state board determines that the assessing unit has maintained an equitable assessment roll. Such determination shall be made in accordance with standards established pursuant to regulations promulgated by the state board, . . . and shall be based upon criteria including but not limited to:
      “(A) annually maintaining assessments at the percentage of value specified in subdivision one of this section;

        “(B) annually conducting a systematic analysis of all locally assessed properties using a methodology specified in such regulations;
      “(C) annually revising assessments as necessary to maintain the stated uniform percentage of value” (RPTL 1573 [2]).

      . RPTL 305 (2) states that “[a]ll real property in each assessing unit shall be assessed at a uniform percentage of value (fractional assessment) . . (RPTL 305 [2]).

      . The dissent notes that the triennial aid provision of section 1573 (2) (a) specifically includes the phrase “revaluation or update” (see dissenting op at 574-575). In order to receive aid under that provision, however, the municipality must also reinspect and reappraise all properties in connection with the revaluation or update (see RPTL 1573 [2] [a]). The reinspection and reappraisal is in excess of what is required by the “revaluation or update” exception in section 727 (2) (a) (see also Guidelines for Annual Reassessment, New York State Office of Real Property Services, May 2002, at 6 chttp:// www.orps.state.ny.us/reassess/seguide.pdf>, cached at chttp:// www.courts.state.ny.us/reporter/webdocs/seguide.pdf> [stating that yearly reappraisal is not required for annual reassessment]). Further, although section 1573 (2) (b) (i) (B) does not contain the “revaluation or update” phrase, the purpose of the section is to provide annual reassessment aid. As the dissent also points out, “[r]evaluation,” “reassessment” and “update” all have the same meaning under RPTL 102 (12-a) (see dissenting op at 575).

      . To the extent Town Centre contends the Board failed to provide evidence in admissible form, that issue is apparently unpreserved as it was not specifically raised in Town Centre’s reply affirmation before the trial court.


source: Caselaw Access Project

author: G.B. Smith, J. Read, J. (dissenting).

license: Public Domain

text:
    [822 NE2d 768, 789 NYS2d 461]
    Excess Insurance Company Ltd. et al., Respondents, v Factory Mutual Insurance Company, Formerly Known as Allendale Mutual Insurance Company, Appellant.
    Argued October 13, 2004;
    decided December 2, 2004

      POINTS OF COUNSEL

      London Fischer LLP, New York City (Bernard London, James L. Fischer and James Walsh of counsel), for appellant.
    I. A property reinsurance contract should not be interpreted by reference to liability insurance precedents. (Bellefonte Reins. Co. v Aetna Cas. & Sur. Co., 903 F2d 910; Unigard Sec. Ins. Co., Inc. v North Riv. Ins. Co., 4 F3d 1049; Great N. Ins. Co. v Mount Vernon Fire Ins. Co., 92 NY2d 682; Becarie v Union Bank of Switzerland, 272 AD2d 162; Port Auth. of N.Y. & N.J. v Affiliated FM Ins. Co., 311 F3d 226; Ryan v Royal Ins. Co. of Am., 916 F2d 731; Allendale Mut. Ins. Co. v Excess Ins. Co., 992 F Supp 271, 62 F Supp 2d 1116; Commercial Union Ins. Co. v Seven Provinces Ins. Co., Ltd., 217 F3d 33, 531 US 1146; Kass v Kass, 91 NY2d 554; Aetna Cas. & Sur. Co. v Home Ins. Co., 882 F Supp 1328.) II. Alternatively, the reinsurance agreement is ambiguous as a matter of law. (Sumitomo Mar. & Fire Ins. Co. v Cologne Reins. Co. of Am., 75 NY2d 295; United Fire & Cas. Co. v Arkwright Mut. Ins. Co., 53 F Supp 2d 632; Eskimo Pie Corp. v Whitelawn Dairies, Inc., 284 F Supp 987; Menke v Glass, 898 F Supp 227; Canusa Corp. v A & R Lobosco, Inc., 986 F Supp 723; Board of Mgrs. of Yardarm Condominium II v Federal Ins. Co., 247 AD2d 499; Preminger v Columbia Pictures, 49 Misc 2d 363, 25 AD2d 830, 18 NY2d 659; Fox Film Corp. v Springer, 273 NY 434; Franklin Sugar Ref. Co. v Lipowicz, 247 NY 465; Newhall v Appleton, 114 NY 140.)

      Kaplan & von Ohlen, Chicago, Illinois (Richard A. Walker, of the Illinois Bar, admitted pro hac vice of counsel), and D’Amato & Lynch, New York City (Jan H. Duffalo of counsel), for respondents.
    I. The reinsurance agreements “limit” of $7,000,000 caps plaintiffs-appellants’ entire liability to defendant-respondent Factory Mutual Insurance Company. (West 56th St. Assoc. v Greater N.Y. Mut. Ins. Co., 250 AD2d 109; Sanabria v American Home Assur. Co., 68 NY2d 866; Rhodes v Newhall, 126 NY 574; Bracher v Equitable Life Assur. Socy., 186 NY 62; Allendale Mut. Ins. Co. v Excess Ins. Co., Ltd., 970 F Supp 265, 992 F Supp 271; Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191; Unigard Sec. Ins. Co. v North Riv. Ins. Co., 79 NY2d 576; Bellefonte Reins. Co. v Aetna Cas. & Sur. Co., 903 F2d 910; Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd’s of London, 96 NY2d 583; Christiania Gen. Ins. Corp. of N.Y. v Great Am. Ins. Co., 979 F2d 268.) II. The courts below correctly determined, as a matter of law, that the reinsurance agreement at issue is unambiguous. (Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285; Unisys Corp. v Hercules Inc., 224 AD2d 365; West, Weir & Bartel v Mary Carter Paint Co., 25 NY2d 535; Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191; Airco Alloys Div., Airco Inc. v Niagara Mohawk Power Corp., 76 AD2d 68; Bethlehem Steel Co. v Turner Constr. Co., 2 NY2d 456; United Fire & Cas. Co. v Arkwright Mut. Ins. Co., 53 F Supp 2d 632; Menke v Glass, 898 F Supp 227; Canusa Corp. v A & R Lobosco, Inc., 986 F Supp 723; Board of Mgrs. of Yardarm Condominium II v Federal Ins. Co., 247 AD2d 499.)
   OPINION OF THE COURT

G.B. Smith, J.

The issue presented by this appeal is whether respondents’ obligation to pay sums for certain loss adjustment expenses arising from a “follow the settlements” clause is subject to the indemnification limit stated in a reinsurance policy. Like the Appellate Division, we conclude that it is, and therefore affirm the order of the Appellate Division.

In December 1990, appellant Factory Mutual Insurance Company (formerly known as Allendale Mutual Insurance Company) entered into an agreement with Bull Data Systems Inc. to provide property insurance with an indemnification limit of $48 million. Specifically, the policy covered against the risk of loss or damage to Bull Data’s personal computer inventory stored in a warehouse located in Seclin, France. In turn, Factory Mutual obtained facultative reinsurance from various London reinsurers which have severally subscribed to the reinsurance agreement at issue in this litigation. The reinsurance policy states, in pertinent part:

“REASSURED: ALLENDALE INSURANCE COMPANY “ASSURED: BULL DATA CORPORATION and/or as original. “PERIOD: Twelve months at 1st June, 1991 and/or as original. Both days inclusive. “LOCATIONS: Bull Data Corporation, Seclin, France as original. “INTEREST: Goods and/or Merchandise incidental to the Assured’s business consisting principally of personal computers and/or as original. “LIMIT: US$ 7,000,000 any one occurrence p/o US$ 13,500,000 any one occurrence excess of US$ 25,000,000 any one occurrence. “CONDITIONS: As original and subject to same valuation, clauses and conditions as contained in the original policy or policies but only to cover risks of All Risks of Physical Loss or Damage but excluding Inventory Shortage. Including Strikes, Riots, Civil Commotions and Malicious Damage risks if and as original. Premium payable as in original. Reinsurers agree to follow the settlements of the Reassured in all respects and to bear their proportion of any expenses incurred, whether legal or otherwise, in the investigation and defence of any claim hereunder. Service of Suit Clause (U.S.A.). Insolvency Clause.”

In June of 1991, a fire that generated a spate of litigation, in the United States and abroad, destroyed the warehouse. Bull Data presented a claim to Factory Mutual and, suspecting that the fire was the result of arson, Factory Mutual refused to satisfy it.

Bull Data brought suit in the courts of France to recover under its insurance policy. Factory Mutual also commenced an unsuccessful litigation against Bull Data in the United States District Court for the Northern District of Illinois, claiming that the loss was due to arson, and the limit of liability under the insurance policy was $48 million. After incurring approximately $35 million in litigation expenses, both lawsuits were terminated and Factory Mutual settled the claims with Bull Data for nearly $100 million.

Factory Mutual thereafter sought payment from respondent reinsurers. The reinsurers refused payment and filed an action in the courts of England seeking a declaration that the reinsurance contract was invalid. The English courts dismissed the case for lack of jurisdiction. During that period, Factory Mutual commenced a declaratory judgment action in the United States District Court for the District of Rhode Island seeking $7 million from the reinsurers and an additional $5 million in loss adjustment expenses, allegedly the proportionate share of expenses that the reinsurers owed Factory Mutual for having defended the Bull Data claim. Factory Mutual later discontinued the action upon stipulation and commenced a similar action in the United States District Court for the Southern District of New York.

District Judge Shira A. Scheindlin granted partial summary judgment to the reinsurers and dismissed Factory Mutual’s claim for loss adjustment expenses (Allendale Mut. Ins. Co. v Excess Ins. Co. Ltd., 970 F Supp 265 [SD NY 1997], amended upon rearg 992 F Supp 271 [SD NY 1997]). During the pendency of Factory Mutual’s appeal to the United States Court of Appeals for the Second Circuit, that court decided an unrelated case which affected the subject matter jurisdiction of the pending case, resulting in dismissal of the appeal and vacatur of the judgment of the District Court (Allendale Mut. Ins. Co. v Excess Ins. Co. Ltd., 62 F Supp 2d 1116 [SD NY 1999]).

The reinsurers thereafter commenced this declaratory judgment action in Supreme Court, New York County, seeking to annul the reinsurance agreement based on material nondisclosures and misrepresentations or, in the alternative, a judgment awarding damages. Factory Mutual interposed a counterclaim, seeking the $7 million indemnification limit under the reinsurance policy as well as $5 million in loss adjustment expenses incurred by Factory Mutual in the litigation of the original claim with Bull Data. Both Factory Mutual and the reinsurers moved for partial summary judgment on Factory Mutual’s counterclaims seeking loss adjustment expenses in excess of the amount stated in the indemnification limit. Supreme Court denied the reinsurers’ motion, granted Factory Mutual’s cross motion and declared that the reinsurers’ obligation to pay their proportionate share of the loss adjustment expenses was not subject to the stated indemnity limit of $7 million.

The Appellate Division reversed by granting the reinsurers’ motion and denying Factory Mutual’s cross motion. The Court thus declared that any portion of the loss adjustment expenses • that the reinsurers were obligated to bear was subject to the $7 million limit stated in the reinsurance policy. The Appellate Division granted Factory Mutual leave to appeal to this Court. We now affirm the order of the Appellate Division.

In resolving the issue before us, we are mindful that in interpreting reinsurance agreements, as with all contracts, the intention of the parties should control. To discern the parties’ intentions, the court should construe the agreements so as to give full.meaning and effect to the material provisions (see Breed v Insurance Co. of N. Am., 46 NY2d 351, 355 [1978]; see also Greenfield v Philles Records, Inc., 98 NY2d 562, 569 [2002]; Slatt v Slatt, 64 NY2d 966, 967 [1985]).

Here, there is no dispute that the reinsurance agreements set the policy limit at $7 million per occurrence. The so-called “follow the settlements” clause is thereafter set forth in the section of the policy entitled “CONDITIONS.” As provided in the agreement, the clause requires the reinsurers to pay their portion of expenses incurred in the investigation and defense of any claim under the agreement. The reinsurers, however, contend that their liability to pay is subject to the $7 million cap negotiated under the policy. By contrast, Factory Mutual argues that the reinsurers’ liability to pay the defense expenses is separate and apart from the indemnification cap on the policy.

We agree with the reinsurers and hold that they cannot be required to pay loss adjustment expenses in excess of the stated limit in the reinsurance policy. Once the reinsurers have paid the maximum amount stated in the policy, they have no further obligation to pay Factory Mutual any costs related to loss adjustment expenses. In so holding, we follow the decisions of the United States Court of Appeals for the Second Circuit as expressed in Bellefonte Reins. Co. v Aetna Cas. & Sur. Co. (903 F2d 910 [2d Cir 1990]) and Unigard Sec. Ins. Co., Inc. v North Riv. Ins. Co. (4 F3d 1049 [1993]). In both cases, the ceding insurers claimed that a similar “follow the fortunes” clause required the reinsurers to reimburse litigation costs beyond the stated limit in the policy. The court in both cases concluded that such a reading of the policy would render meaningless the liability cap negotiated in the policy. According to the Bellefonte court, to “allowt ] the ‘follow the fortunes’ clause to override the limitation on liability—would strip the limitation clause and other conditions of all meaning; the reinsurer would be obliged merely to reimburse the insurer for any and all funds paid. . . . The ‘follow the fortunes’ clauses in the certificates are structured so that they coexist with, rather than supplant, the liability cap. To construe the certificates otherwise would effectively eliminate the limitation on the reinsurers’ liability to the stated amounts” (903 F2d at 913).

Likewise here, the parties negotiated an indemnity limit of $7 million per occurrence. Thus, any obligation on the part of the reinsurers to reimburse Factory Mutual, whether it be for settling the original insurance claim with Bull Data or for the loss adjustment expenses incurred in the protracted litigation that ensued, must be capped by the negotiated limit under the policy. Otherwise, the reinsurers would be subject to limitless liability. Indeed, this case well illustrates such an injustice as Factory Mutual now seeks to saddle the reinsurers with a portion of a litigation bill that exceeds the negotiated policy limit by more than 70%. To permit such a result would render the liability cap a nullity.

Factory Mutual asserts that this case is distinguishable from Bellefonte and Unigard in that those cases involved liability insurance while this case involves property insurance. According to Factory Mutual, a liability insurance product normally encompasses the obligation to pay the legal defense costs on behalf of the insured as well as the cost of the loss itself. Thus, the risk to be spread in reinsurance would already include loss adjustment expenses. However, a property insurance product would cover only the value of the property item to be insured. Under those circumstances, Factory Mutual contends, an insurer would have no contractual obligation to incur investigation or litigation costs and the risk of those costs is not already included in the reinsurance product. We find this argument unpersuasive and conclude that this distinction does not provide a sufficient basis to extend the reinsurers’ liability beyond the limit stated in the reinsurance policy.

The limit clause in the policy is intended to cap the reinsurers’ total risk exposure. Although Judge Scheindlin’s decision in Allendale was vacated and is not binding, we find her reasoning persuasive, “Whether [the reinsurers] reimburse [Factory Mutual] for claims for property losses or defense costs makes no difference to them. Reinsurers of property insurance policies have the same interest in controlling their maximum exposure as do reinsurers of liability insurance policies. Thus, Bellefonte and Unigard’s holdings that the limit clauses define the reinsurers’ bargained-for maximum exposure to liability inclusive of all costs and expenses are applicable even where the underlying insurance policy does not oblige the insurer to cover the insured’s defense costs” (992 F Supp at 277).

Of course, both parties were well aware of the type of product that was being reinsured. It would be far from unreasonable to expect that at the time of procuring reinsurance, Factory Mutual could anticipate the possibility of incurring loss adjustment expenses in settling a claim from Bull Data. Certainly, nothing prevented Factory Mutual from insuring that risk either by expressly stating that the defense costs were excluded from the indemnification limit or otherwise negotiating an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurers’ liability on the insured property. Failing this, the reinsurers were entitled to rely on the policy limit as setting their maximum risk exposure.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Read, J. (dissenting).

I see no way to tell from the plain language of this certificate whether the parties intended for costs and expenses to be included in the reinsurance limit or excluded from it. Further, in my view the majority has misinterpreted Bellefonte Reins. Co. v Aetna Cas. & Sur. Co. (903 F2d 910 [2d Cir 1990]) in ways that augur further expansion of its much debated holding. Accordingly, I dissent.

I.

The certificate pertains to reinsurance of a $13,500,000 layer ($25,000,000 to $38,500,000) of a $48,000,000 property insurance policy issued by Factory Mutual. Two provisions are at issue. The first provides that the “LIMIT” is “US$ 7,000,000 any one occurrence [part of] US$ 13,500,000 any one occurrence excess of US$ 25,000,000 any one occurrence.” The second notes several “CONDITIONS,” including one whereby the certificate is made “subject to same valuation, clauses and conditions as contained in the original policy” (a “following form” provision) and one whereby “[Reinsurers agree ... to bear their proportion of any expenses incurred” (a “follow the settlements” provision).

In essence, the majority concludes that the only reasonable interpretation of these provisions is that the policy contains a $7,000,000 limit (any one occurrence) which is cost-inclusive. This conclusion rests too heavily on the “follow the settlements” provision of the certificate, and fails to consider the “following form” provision. An equally plausible reading is that the parties, who “conditioned” the certificate on the same “valuation, clauses and conditions” as exist in the primary property policy— where costs are commonly paid in addition to the policy limit* * —could have intended to create a cost-exclusive reinsurance limit. Moreover, the parties did not expressly state that the limit was “subject to” the conditions and therefore capped all liability under the certificate (see e.g. Bellefonte). Because the certificate may reasonably be interpreted in either of two ways, I conclude that it is ambiguous (see Evans v Famous Music Corp., 1 NY3d 452 [2004]).

Moreover, I disagree with the majority’s apparent reading of Bellefonte. In Bellefonte, Aetna issued primary and excess liability policies to A.H. Robins Co., the manufacturer of the Daikon Shield. Aetna reinsured the excess policies with various reinsurers. After an “explosion” of litigation over the device, Aetna and Robins disputed the extent of Aetna’s liability for defense expenses under the excess policies, and ultimately reached a monetary settlement in excess of the limit stated in the excess policy. Aetna then looked to the reinsurers for the excess paid on the underlying policy. The reinsurers refused to pay, arguing that their liability was limited by the reinsurance certificate.

The certificate stated that the reinsurance was provided “subject to the . . . amount of liability set forth herein” (903 F2d at 911). The court concluded that this created a cap on the reinsurers’ liability whether reached through payment of expenses or settlement of claims. The Second Circuit reasoned that “[a]ny other construction of the reinsurance certificates would negate” the “subject to” provision of the certificate (id. at 914; see also Unigard Sec. Ins. Co. v North Riv. Ins. Co., 4 F3d 1049 [2d Cir 1993] [following Bellefonte as certificate included same “subject to” language]).

The Bellefonte court also considered and rejected a second argument made by Aetna, which the Appellate Division applied below (2 AD3d 150 [1st Dept 2003]) and the majority now adopts. Aetna argued that the “follow the fortunes” doctrine, as embodied in a clause in the certificate, obligated the reinsurers to pay all Aetna’s settlements even if they were in excess of the liability limit in the reinsurance policy. The Bellefonte court rebuffed this argument, noting that “[t]he ‘follow the fortunes’ clauses in the certificates are structured so that they coexist with, rather than supplant, the liability cap. To construe the certificates otherwise would effectively eliminate the limitation on the reinsurers’ liability to the stated amounts” (903 F2d at 913 [emphasis added]). Critically, this prong of the court’s analysis was based on its conclusion that the certificate created a cap on liability through the “subject to” and the “limitation” clauses, and that “the ‘follow the fortunes’ doctrine does not allow Aetna to recover defense costs beyond the express cap stated in the certificates” (id.).

The Appellate Division disregarded the “subject to” analysis in Bellefonte, as does the majority, summarily concluding that “all contracts are subject to their terms and conditions” (2 AD3d at 152). Instead, the Appellate Division relied on Bellefonte’s “follow the fortunes” analysis, and concluded that the “overriding determination in Bellefonte and Unigard was that the ‘follow the fortunes’ clauses of the reinsurance contracts considered there coexisted with, and did not supplant, the contract limitations” (id.). In my view, this was error.

Bellefonte’s holding was not intended as a general rule applicable to any and all reinsurance certificates (see Goldstein, Bellefonte Lives, 8-10 Healey’s Litig Rep Reinsurance 9 [1997] [noting that Bellefonte should have been limited to “the specific contract language” in the certificate]). The holding relies on specific certificate language—“the first two provisions of the reinsurance certificates” (903 F2d at 913)—which the court determined contained a “cap” on the reinsurers’ liability. Because the certificate had a cap, the “follow the fortunes” clause in the certificate could not supplant the cap, which therefore limited expenses.

The Appellate Division and now the majority have converted a rule unique to the specific certificate language in Bellefonte into a general principle that a “follow the fortunes” clause never supplants a policy limit. Thus, the majority, like the Appellate Division before it, expands Bellefonte from a contract-specific holding into a rule of general applicability.

When the holding of Bellefonte—that the reinsurance certificate’s specific policy language controls whether costs are included or excluded from the limit—is applied here, it is easily distinguished. There is no “subject to” language in the reinsurance certificate at issue on this appeal. Rather, the certificate contains two discrete provisions—“LIMIT” and “CONDITIONS”—and neither offers any guidance as to whether the “CONDITIONS” are subject to the “LIMIT.”

Further, it is worth observing that practitioners in the reinsurance industry have consistently criticized Bellefonte. Specifically, commentators have noted that in ruling “based solely on a textual interpretation of the language of the certificates,” the Bellefonte court ignored important extrinsic evidence of industry custom and practice showing that the nature of the underlying policy often controlled whether the reinsurance limit was cost-inclusive or cost-exclusive {see Goldstein, Bellefonte Lives [“ (n) otwithstanding Bellefonte . . . the industry for the most part has continued to follow the custom and practice of reinsurers providing coverage for expenses in addition to limits where the reinsured policy also covers expenses in addition to limits”]). There was a fear “that the Bellefonte rule would be applied to the same certificate language but where the reinsured policy covered defense costs in addition to limits” {id.).

When Unigard was decided, this fear was realized. There, the certificate language was nearly identical to that in Bellefonte. The Second Circuit rejected extrinsic evidence that the reinsurers covered expenses in addition to the policy limit, instead choosing to rely on its holding in Bellefonte and the similar certificate language (4 F3d at 1071).

Commentators have similarly faulted Allendale Mut. Ins. Co. v Excess Ins. Co. Ltd. (970 F Supp 265 [SD NY 1997], rearg granted and original decision adhered to 992 F Supp 271 [1997], vacated 172 F3d 37 [table, text at 1999 WL 55313, 1999 US App LEXIS 1735 (2d Cir 1999)]). The federal District Court in Allen-dale was the first court to rule on the case now before us, holding that the plain language of the certificate meant that expenses were included in the policy limit. Citing Bellefonte and Unigard, the court rejected Factory Mutual’s request to distinguish these cases on the basis of the specific certificate language or the nature of the underlying policies (992 F Supp at 274-275). Allendale was thus judged to be “a significant extension” of Bellefonte on both fronts (see Goldstein, Bellefonte Lives; see also Goldstein, For Whom Does Bellefonte Toll? It Tolls for Thee, 9-7 Mealey’s Litig Rep Reinsurance 12 [1998] [“Because Allendale involved reinsurance of a property policy, rather than a liability policy that provided a defense for the insured, and because the contract at issue lacked certain critical language contained in the Bellefonte and Unigard certificates, Allendale clearly expanded the breadth of the Bellefonte Rule”]).

Today, the majority adopts the Allendale rationale, and suggests that Factory Mutual should have negotiated language “expressly stating that the defense costs were excluded from the indemnification limit,” or otherwise setting forth “an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurers’ liability on the insured property” (majority op at 584-585). But Factory Mutual first obtained the relevant certificate in London in December 1990, about eight months after the Second Circuit decided Bellefonte. It seems harsh and unrealistic for us to fault Factory Mutual for not having drafted this certificate to conform with a recently decided case whose potential future reach could hardly have been predicted at the time.

II.

Here, both parties moved for summary judgment, arguing that the certificate was unambiguous. Although neither party argued that the certificate was ambiguous, ambiguity is an issue of law for the courts (Greenfield, 98 NY2d at 569). Factory Mutual opposed the reinsurers’ motion for summary judgment with extrinsic evidence of industry custom and practice, and thereby created a question of fact concerning the parties’ intent (Mallad Constr. Corp. v County Fed. Sav. & Loan Assn., 32 NY2d 285, 290-293 [1973]). Our precedent establishes that where there is ambiguity in a reinsurance certificate, the surrounding circumstances, including industry custom and practice, should be taken into consideration (see London Assur. Corp. v Thompson, 170 NY 94 [1902] ; see also Christiania Gen. Ins. Corp. of N.Y. v Great Am. Ins. Co., 979 F2d 268, 274 [2d Cir 1992] [citing London Assur.]; 1 Couch on Insurance 3d § 9:15, at 9-53).

Accordingly, I would modify the order of the Appellate Division by denying both motions, and remand the matter for further proceedings consistent with this opinion.

Chief Judge Kaye and Judges Ciparick, Rosenblatt, Graffeo and R.S. Smith concur with Judge G.B. Smith; Judge Read dissents and votes to modify by denying both motions for summary judgment in a separate opinion.

Order affirmed, etc.

      . “Facultative reinsurance is policy-specific, meaning that all or a portion of a reinsured’s risk under a specific contract of direct coverage will be indemnified by the reinsurer in the event of loss” (Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd’s of London, 96 NY2d 583, 587 [2001]).

      . Factory Mutual moved Supreme Court to dismiss the action on the grounds of forum non conveniens and also commenced an action in the Superior Court of Providence, Rhode Island. Supreme Court granted Factory Mutual’s motion. While the reinsurers appealed the order, they sought a preliminary injunction in Supreme Court to enjoin the Rhode Island proceeding, which that court denied. While the Rhode Island court was considering Factory Mutual’s motion for partial summary judgment on its claims for loss adjustment expenses in excess of the indemnification limit, the Appellate Division reversed the order of Supreme Court, reinstated the reinsurers’ lawsuit and enjoined the Rhode Island litigation.

      . In the reinsurance industry a “follow the settlements” clause “refers to the duty to follow the actions of the cedent in adjusting and settling claims” (Barry R. Ostrager and Thomas R. Newman, 2 Handbook on Insurance Coverage Disputes § 16.01 [b], at 1020 [12th ed 2004]). Thus, the reinsurers will be bound by the settlement or compromise agreed to by the cedent unless they can show impropriety in arriving at the settlement (id.).

      . Such an outcome would be particularly unfair given that the “follow the settlements” clause gave the reinsurers no control over the management of the unsuccessful litigation that Factory Mutual launched against Bull Data and no voice in limiting the $35 million litigation expense.

      . Sorema N.A. reinsured the remaining $6,500,000 of the $13,500,000 layer. Unlike Excess, Sorema paid up to its limit and also paid its proportion of costs.

      . The word “conditions” is not illuminative. Restatement (Second) of Contracts § 224 defines a condition as “an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.” As the Comments note, the term “condition” “is used with a wide variety of other meanings in legal discourse” (Restatement [Second] of Contracts § 224, Comment a).

      . The courts below did not determine whether or not this was the case here.

      . Indeed, the history of this case betokens ambiguity: five courts have now interpreted the certificate with varying results. Supreme Court and the Rhode Island Superior Court concluded that the certificate does not contain a cap and therefore the limit is cost-exclusive (see Factory Mut. Ins. Co. v Excess Ins. Co., Super Ct, Providence, RI, May 22, 2001, Hurst, J., PC 00-0760 [litigation enjoined 285 AD2d 351 (1st Dept 2001)]; Excess Ins. Co. v Factory Mut. Ins. Co., Sup Ct, NY County, Aug. 22, 2002, Moskowitz, J., Index No. 605759/ 99). The majority now joins the Appellate Division and the United States District Court for the Southern District, which found that the limit is cost-inclusive (see 2 AD3d 150 [1st Dept 2003]; Allendale Mut. Ins. Co. v Excess Ins. Co. Ltd., 970 F Supp 265 [SD NY 1997], rearg granted and original decision adhered to 992 F Supp 271 [1997], vacated 172 F3d 37 [table, text at 1999 WL 55313, 1999 US App LEXIS 1735 (2d Cir 1999)]).

      . The clause provided that “the liability of the Reinsurer . . . shall follow that of [Aetna]” (903 F2d at 911). These clauses are generally construed to mean that “the reinsurer follows the insurer’s fortunes under the latter’s insurance policies, subject to the stated exclusions and limitations in the reinsurance agreement . . . Without such a concept—and on occasion even with it—the reinsurer could successfully assert a defense to a claim under the reinsurance agreement, that was not asserted by the insurer with respect to the insurance claim, leaving the insurer with an unidentified liability” (Staring, Reinsurance § 18:1).

      . Our decision in Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd’s of London (96 NY2d 583 [2001]) is not to the contrary. There, we were asked whether a “follow the fortunes” clause negated an insurer’s obligation to apply the allocation methodology contained in the reinsurance policy. In rejecting this argument, we agreed with the “rationale” of the Second Circuit that the follow the fortunes doctrine “does not alter the terms or override the language of reinsurance policies” (id. at 596). Thus, Travelers supports the proposition that each reinsurance policy must be interpreted according to its own terms.

      . On reargument, however, the Allendale court acknowledged that “[i]n a purely semantic sense, the Reinsurance Agreement is ambiguous” (992 F Supp at 276). Nonetheless, the judge concluded that the certificate was only reasonably interpreted to be cost-inclusive. The Allendale court (like the majority) seemed concerned that a reinsurer would otherwise accept open-ended liability for costs (992 F Supp at 276 n 4), and thus appears to have “alter[ed] the contract to reflect its personal notions of fairness and equity” (Greenfield v Philles Records, 98 NY2d 562, 570 [2002]).

      . Other courts have regarded Bellefonte and Unigard skeptically. Aetna Cas. & Sur. Co. v Philadelphia Reins. Corp. (1995 WL 217631, 1995 US Dist LEXIS 4806 [ED Pa, Apr. 13, 1995]) followed Bellefonte, but only because Aetna was a party in Bellefonte and therefore was collaterally estopped from relitigating the issue. The court in Philadelphia Reinsurance preferred the analysis used in Penn Re, Inc. v Aetna Cas. & Sur. Co. (1987 WL 909519, 1987 US Dist LEXIS 15252 [ED NC, June 30, 1987]). There, the court (deciding the issue prior to Bellefonte) interpreted a reinsurance policy containing a “subject to” provision and found that the reinsurer was liable for costs in addition to the limit of the policy. Bellefonte rejected the analysis of Penn Re. In North Riv. Ins. Co. v CIGNA Reins. Co. (52 F3d 1194 [3d Cir 1995]), the court was faced with a Bellefonte question, which it avoided by holding that whether the certificate placed a cap on the policy was not timely raised. In TIG Premier Ins. Co. v Hartford Acc. & Indem. Co. (35 F Supp 2d 348, 350 [SD NY 1999]), the court sidestepped Bellefonte by applying California law, which allows use of extrinsic evidence to reveal a “latent ambiguity” in a contract that “appears unambiguous on its face.” Accordingly, the court reviewed extrinsic evidence showing that reinsurers commonly pay expenses in addition to limits. Finding a genuine issue of fact, the court denied the motion for summary judgment. In addition, arbitrators have apparently declined to follow Bellefonte, at least in some cases {see Monin and Brady, Reinsurance Disputes: Death of the Handshake, 61 Def Couns J 529, 538 n 22 [Oct. 1994]; Monin and Brady, Updating Reinsurance Law Developments: The Gloves are Beginning to Come Off, 63 Def Couns J 219, 223 [Apr. 1996]; see also Wilker and Lenci, Much Ado About Nothing: A Response Regarding Bellefonte’s Reach, 9-10 Mealey’s Litig Rep Reinsurance 16 [1998] [stating that “arbitration panels, even those sitting in the Second Circuit, are free to ignore Bellefonte, Unigard, and Allendale’’ and suggesting that “most properly constituted arbitration panels will not follow those decisions or any generalized Bellefonte rule unless it is shown that it was clearly the cedent’s and reinsurer’s intention not to cover expenses in addition to the liability limit of the certificate in question”]).

      . “Reinsurance, like any other contract, depends upon the intention of the parties, to be gathered from the words used, taking into account, when the meaning is doubtful, the surrounding circumstances. Custom or usage is presumed to enter into the intention when it is found as a fact, not only that it existed, but was uniform, reasonable and well settled, and either known to the parties when the contract was made, or so generally known as to raise a presumption that they had it in mind at the time” (170 NY at 99).


author: G.B. Smith, J.

text:
    [822 NE2d 777, 789 NYS2d 470]
    U.S. Underwriters Insurance Company, Appellant, v City Club Hotel, LLC, et al., Appellants-Respondents, and Marek Szpakowski et al., Respondents.
    Argued November 16, 2004;
    decided December 16, 2004

      POINTS OF COUNSEL

      Bryan Cave LLP, New York City (Mark J Bunim, Alan Garten and Matthew K. Fleming of counsel), for appellants-respondents.
    I. An insured who prevails in a declaratory judgment action should be awarded costs and attorneys’ fees. (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12; U.S. Underwriters Ins. Co. v Mesiftah Eitz Chaim of Bobov, 210 AD2d 218; United States Fid. & Guar. Co. v New York, Susquehanna & W. Ry. Corp., 277 AD2d 1026; Christiansburg Garment Co. v Equal Empl. Opportunity Commn., 434 US 412; Alyeska Pipeline Serv. Co. v Wilderness Socy., 421 US 240; F.D. Rich Co., Inc. v United States for Use of Indus. Lbr. Co., Inc., 417 US 116; Nationwide Mut. Ins. Co. v Welch, 988 F Supp 629; Chase Manhattan Bank v Each Individual Underwriter Bound to Lloyd’s Policy No. 790/ 004A89005, 258 AD2d 1; U.S. Underwriters Ins. Co. v Weatherization, Inc., 21 F Supp 2d 318.) II. Appellants should be awarded costs and attorneys’ fees based upon the special circumstances of this case. (First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64; Hartford Ins. Co. v County of Nassau, 46 NY2d 1028; Allegany Co-op Ins. Co. v Williams, 216 AD2d 894; U.S. Underwriters Ins. Co. v Weatherization, Inc., 21 F Supp 2d 318; U.S. Underwriters Ins. Co. v Manhattan Demolition Co., 250 AD2d 600.)

      Miranda & Sokoloff LLP, Mineóla (Steven Verveniotis and Jason B. Gurdus of counsel), for appellant.
    I. The insurance contract, the applicable law and sound public policy warrant a response in the negative to the questions presented to the Court. (Rekemeyer v Empire Mut. Ins. Co., 60 AD2d 492; Nationwide Mut. Ins. Co. v Welch, 988 F Supp 629; Mighty Midgets v Centennial Ins. Co., 47 NY2d 12; Great N. Ins. Co. v Dayco Corp., 637 F Supp 765; New York Mar. & Gen. Ins. Co. v Tradeline [L.L.C.], 266 F3d 112; Safeguard Ins. Co. v Angel Guardian Home, 946 F Supp 221; Greenburgh Eleven Union Free School Dist. v National Union Fire Ins. Co. of Pittsburgh, PA, 304 AD2d 334; Broquedis v Employers Mut. Liab. Ins. Co. of Wis., 45 AD2d 591; Sukup v State of New York, 19 NY2d 519; Employers Mut. Cas. Co. v Key Pharms., 75 F3d 815.) II. The special circumstances of this case constitute further reason not to penalize an insurance carrier that has acted reasonably towards its insured and sought to adjudicate the rights and obligations of all concerned as to several claims asserted against/amongst the various defendants. (Johnson v General Mut. Ins. Co., 24 NY2d 42; National Cas. Ins. Co. v City of Mount Vernon, 128 AD2d 332; Allstate Ins. Co. v Aetna Cas. & Sur. Co., 123 Misc 2d 932; United States Fid. & Guar. Co. v New York, Susquehanna & W. Ry. Corp., 277 AD2d 1026; U.S. Underwriters Ins. Co. v Mesiftah Eitz Chaim of Bobov, 210 AD2d 218.)

      Melito & Adolfsen, EC., New York City (Ignatius John Melito and S. Dwight Stephens of counsel), and Wiley Rein & Fielding LLP, Washington, D.C. (Laura A. Foggan, John C. Yang and David P. Sullivan of counsel), for Complex Insurance Claims Litigation Association, amicus curiae.
    I. The established rule in the United States is that litigants pay for their own court expenses. (Buckhannon Bd. & Care Home, Inc. v West Virginia Dept. of Health & Human Resources, 532 US 598; Chambers v NASCO, Inc., 501 US 32; Alyeska Pipeline Serv. Co. v Wilderness Socy., 421 US 240; Day v Woodworth, 13 How [54 US] 363; Arcambel v Wiseman, 3 Dallas [3 US] 306; Fleischmann Distilling Corp. v Maier Brewing Co., 386 US 714; Blue Cross & Blue Shield of N.J., Inc. v Philip Morris, Inc., 190 F Supp 2d 407; Key Tronic Corp. v United States, 511 US 809; Unbelievable, Inc. v National Labor Relations Bd., 118 F3d 795; Roadway Express, Inc. v Piper, 447 US 752.) II. The American Rule should apply here and not the policyholder’s attempt to broaden a narrow exception. (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12; Employers Mut. Cas. Co. v Key Pharms., 75 F3d 815; City of Buffalo v J.W. Clement Co., 28 NY2d 241; Sukup v State of New York, 19 NY2d 519; Johnson v General Mut. Ins. Co., 24 NY2d 42; Puritan Ins. Co. v Eagle S.S. Co. S.A., 779 F2d 866; Great N. Ins. Co. v Dayco Corp., 637 F Supp 765; Safeguard Ins. Co. v Angel Guardian Home, 946 F Supp 221; Chicago Tit. Ins. Co. v Federal Deposit Ins. Corp., 172 F3d 601; Newmont Mines Ltd. v Hanover Ins. Co., 784 F2d 127.) III. Extending the exception to the American Rule to the situation where an insurer has defended its policyholder would disserve the public interest. (Buckhannon Bd. & Care Home, Inc. v West Virginia Dept. of Health & Human Resources, 532 US 598; Alyeska Pipeline Serv. Co. v Wilderness Socy., 421 US 240; Sukup v State of New York, 19 NY2d 519; Barnes Found. v Township of Lower Merion, 242 F3d 151; Nationwide Mut. Ins. Co. v Welch, 988 F Supp 629; Fleischmann Distilling Corp. v Maier Brewing Co., 386 US 714; F.D. Rich Co., Inc. v United States for Use of Indus. Lbr. Co., Inc., 417 US 116.)

      Nixon Peabody LLP, New York City (Aidan M. McCormack and Rajika Bhasin of counsel), for CNA Insurance Companies, amicus curiae.
    I. The American Rule is a fundamental principle of jurisprudence that should not be undone by this Court. (Matter of A.G. Ship Maintenance Corp. v Lezak, 69 NY2d 1; Bank of N.Y. v Fleet Bank, 176 Misc 2d 21; United States Fid. & Guar. Co. v Braspetro Oil Servs. Co., 369 F3d 34; Summit Val. Indus. Inc. v United Bhd. of Carpenters & Joiners of Am., 456 US 717; Arcambel v Wiseman, 3 Dallas [3 US] 306; Great N. Ins. Co. v Dayco Corp., 637 F Supp 765; Grimsey v Lawyers Tit. Ins. Corp., 31 NY2d 953; Gold v Nationwide Mut. Ins. Co., 273 AD2d 354; Mazzuoccolo v Cinelli, 245 AD2d 245; Prime Ins. Syndicate, Inc. v B.J. Handley Trucking, Inc., 363 F3d 1089.) II. There is no “inherent inequity” in the American Rule. (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12; Johnson v General Mut. Ins. Co., 24 NY2d 42; Glens Falls Ins. Co. v United States Fire Ins. Co., 41 AD2d 869, 34 NY2d 778; Sukup v State of New York, 19 NY2d 519; American Motorists Ins. Co. v E.R. Squibb & Sons, 95 Misc 2d 222; Brown v United States Fid. & Guar. Co., 46 AD2d 97; Doyle v Allstate Ins. Co., 1 NY2d 439; Safeguard Ins. Co. v Angel Guardian Home, 946 F Supp 221.) III. Departing from the American Rule would provide no incentive for insurers to submit disputes to the courts. (Nationwide Mut. Ins. Co. v Welch, 988 F Supp 629.)

      Anderson Kill & Olick, PC., New York City (Eugene R. Anderson and William G. Passannante of counsel), and Amy Bach, San Francisco, California, for United Policyholders, amicus curiae.
    I. Insurance policies are not ordinary commercial contracts. II. There is a quagmire when the insurance company breaks its promise. (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12; Alyeska Pipeline Serv. Co. v Wilderness Socy., 421 US 240.) III. That insurance is different is shown in the growing trend towards awarding attorneys’ fees to successful policyholders. (Riviera Beach Volunteer Fire Co., Inc. v Fidelity & Cas. Co. of N.Y., 388 F Supp 1114.) IV New York law provides guidance to clarify the recovery of attorneys’ fees by policyholders regardless of a breach of the duty to defend. (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12.)
   OPINION OF THE COURT

G.B. Smith, J.

The United States Court of Appeals for the Second Circuit, by two certified questions, has asked this Court to clarify whether an insured who prevails in an action brought by an insurer seeking a declaratory judgment that it has no duty to defend or indemnify the insured, may recover attorneys’ fees expended in defending against the declaratory judgment action regardless of whether the insurer provided a defense to the insured. We answer that question in the affirmative.

Plaintiff, U.S. Underwriters Insurance Company, issued a commercial general liability policy for the policy period of May 15, 1999 to May 15, 2000, to defendants City Club Hotel, LLC and Shelby Realty, LLC, as named insureds, in connection with renovation work City Club was to perform on Shelby’s property. On April 27, 2000, while performing the renovation work, Marek Szpakowski, a construction worker employed by City Club, fell from a scaffold and sustained serious injuries. In July 2000, U.S. Underwriters received notice of Szpakowski’s claim and a copy of his counsel’s letter to Shelby informing it that it might be sued. When the insurer confirmed receipt of the notice of claim, it identified City Club and Shelby as “Our Insured.”

In November 2000, Mr. Szpakowski and his wife brought a personal injury action in Supreme Court asserting various labor and industrial law claims against Shelby, Forthright Development, LLC and Metropolitan Hotels, LLC. A copy of the verified complaint was sent to U.S. Underwriters on or about December 13, 2000. By letter dated December 20, 2000, approximately five months after it received notice of the claim, the insurer disclaimed coverage of City Club and Shelby with respect to the claims based on the employee exclusion clause of the policy, but nonetheless provided Shelby a defense in the underlying action.

In September 2002, U.S. Underwriters, asserting diversity jurisdiction, brought the instant action in the United States District Court for the Southern District of New York seeking a declaratory judgment that it has no duty to defend or indemnify defendants Shelby, City Club, Forthright and Metropolitan, or their named officers. The insurer moved, and defendants subsequently cross-moved, for summary judgment. The District Court granted summary judgment to defendants on the issue of disclaimer of coverage, finding that the disclaimer was untimely as a matter of law. The court, however, denied defendants’ motion to recover attorneys’ fees incurred in successfully defending the declaratory judgment action, ruling that attorneys’ fees were not warranted because U.S. Underwriters did not breach the duty to defend.

In its appeal to the Second Circuit, U.S. Underwriters challenged the District Court’s finding that its disclaimer of coverage was untimely. Defendants challenged the denial of attorneys’ fees. The Second Circuit affirmed and held that U.S. Underwriters’ disclaimer of coverage as to Shelby, Forthright and Metropolitan was untimely as a matter of law; that U.S. Underwriters is obliged to defend and indemnify Shelby in the underlying action; and that the complaint against defendants City Club and the named officers must be dismissed as these parties do not seek coverage under the policy. As to whether attorneys’ fees can be awarded to defendants, the Second Circuit noted a division in interpreting the relevant law and certified the following two questions to this Court:

“1. Whether, in a case in which an insurance company has brought a declaratoiy judgment action to determine that it does not have obligations under the policy but has defended in the underlying suit, a defendant prevailing in the declaratory judgment action should be awarded attorneys’ fees expended in defending against that action?
“2. Whether, in the special circumstances of this case, attorneys’ fees should be awarded to one or more of the defendants?” (369 F3d 102, 113 [2d Cir 2004].)

We accepted certification (2 NY3d 787 [2004]) and now answer the first question in the affirmative as to Shelby, a named insured under the policy. Since it is not clear what is meant by the “special circumstances of this case,” we decline to answer the second question, concluding it is more appropriate for the District Court or the Second Circuit to resolve this issue.

It is well settled in New York that a prevailing party may not recover attorneys’ fees from the losing party except where authorized by statute, agreement or court rule (see Chapel v Mitchell, 84 NY2d 345, 349 [1994], quoting Hooper Assoc., Ltd. v AGS Computers, Inc., 74 NY2d 487, 491 [1989]; Mighty Midgets, Inc. v Centennial Ins. Co., 47 NY2d 12, 21-22 [1979]). However, an insured who is “cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations,” and who prevails on the merits, may recover attorneys’ fees incurred in defending against the insurer’s action (Mighty Midgets, 47 NY2d at 21). The reasoning behind Mighty Midgets is that an insurer’s duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer’s declaratory judgment action.

In the instant case, it is undisputed that Shelby, a named insured under the policy, was cast in a defensive posture by U.S. Underwriters in their dispute over whether the insurer had a duty to defend and indemnify Shelby in the underlying personal injury action. Further, it is undisputed that Shelby successfully defended against the insurer’s summary judgment motion and thereby prevailed in the matter.

Based on Mighty Midgets, Shelby is entitled to recover attorneys’ fees. We hold that under Mighty Midgets, an insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys’ fees regardless of whether the insurer provided a defense to the insured. Given that the expenses incurred by Shelby in defending against the declaratory judgment action arose as a direct consequence of U.S. Underwriters’ unsuccessful attempt to free itself of its policy obligations, Shelby is entitled to recover those expenses from the insurer. In other words, Shelby’s recovery of attorneys’ fees is incidental to the insurer’s contractual duty to defend.

Accordingly, certified question No. 1 should be answered in the affirmative and certified question No. 2 not answered.

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

Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.17 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question No. 1 answered in the affirmative and certified question No. 2 not answered.

       In their briefs and at oral argument before this Court, counsel had differing views as to what the “special circumstances” were.


author: Memorandum.

text:
    [816 NE2d 184, 782 NYS2d 395]
    The People of the State of New York, Respondent, v Rashan Yates, Appellant.
    Decided June 24, 2004
    APPEARANCES OF COUNSEL

      Proskauer Rose LLP, New York City (Jeremy R. Feinberg of counsel), for appellant.

      Paul A. Clyne, District Attorney, Albany (Christopher D. Horn of counsel), for respondent.
   OPINION OF THE COURT

Memorandum.

The order of the Appellate Division should be affirmed. The arresting officer testified that he believed that defendant, the sole passenger in a lawfully stopped taxi, was attempting to exit the vehicle too quickly to have paid his fare, in violation of Penal Law § 165.15. Under these circumstances he properly detained defendant temporarily for the limited purpose of ascertaining from the driver whether defendant had in fact paid his fare. We need not now resolve the broader issue whether a police officer may, as a matter of course, compel a passenger to remain inside a lawfully stopped vehicle (see People v McLaurin, 70 NY2d 779, 781 [1987]).

Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo, Read and R.S. Smith concur; Chief Judge Kaye taking no part.

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order affirmed, in a memorandum.


text:
    [816 NE2d 183, 782 NYS2d 394]
    In the Matter of Richard E. Cantwell, as District Attorney of Clinton County, Respondent, v Kevin K. Ryan, as Acting Judge, County Court of Clinton County, Appellant.
    Decided June 24, 2004

      APPEARANCES OF COUNSEL

      Eliot Spitzer, Attorney General, New York City (Robin A. Forshaw, Peter B. Pope, Daniel Smirlock and Wayne Benjamin of counsel), for appellant.

      New York Prosecutors Training Institute, Inc., Albany (Robert J. Conflitti and Susan L. Valle of counsel), for respondent.
   OPINION OF THE COURT

Memorandum.

The judgment of the Appellate Division should be affirmed without costs.

Days after a grand jury returned a “no true bill” in connection with intentional and depraved indifference murder charges (Penal Law § 125.25 [1], [2]) against Lawrence Crouthers, the County Court Judge learned of the concerns of a grand juror who felt it might be appropriate to reconvene the grand jury so that it could consider lesser charges. The judge arranged for the juror to appear in open court and directed the prosecutor to be present, along with the grand jury’s foreperson or assistant foreperson. The court further ordered the prosecutor to produce the grand jury minutes. After the court aired these concerns, the prosecutor stated that he had no intention of re-presenting the matter. The court issued a decision concluding that the proof would have supported the submission of at least two other charges, manslaughter in the second degree (Penal Law § 125.15) and criminally negligent homicide (Penal Law § 125.10), and ordered the prosecutor to present the case to another grand jury and to instruct it to consider those lesser charges and any other appropriate ones (see People v Crouthers, 193 Misc 2d 471, 477 [2002]).

After the prosecutor sought to reargue, the court issued a second order by “simply directing that within 45 days of this order lesser crimes [of the prosecutor’s choosing] be submitted for the second grand jury’s consideration,” and otherwise denied reargument.

The Appellate Division properly granted the District Attorney’s petition prohibiting the County Judge from enforcing its two orders (see 309 AD2d 1042 [3d Dept 2003]). The County Judge’s reliance on CPL 190.75 (3) is misplaced. That section provides that when a grand jury has dismissed a charge pursuant to section 190.75 (1) (owing to legally insufficient evidence or when the grand jury is not satisfied that there is reasonable evidence to believe that the defendant committed the crime or any other offense) it may be resubmitted to a grand jury only if the court “in its discretion authorizes or directs the people to resubmit such charge to the same or another grand jury” (emphasis supplied). Here, as the prosecution points out, the County Judge did not direct the District Attorney to resubmit the same charge that the grand jury had previously considered and dismissed. The judge directed that other or additional (i.e., lesser) charges be submitted. Accordingly, we agree with the Appellate Division that the County Judge had no authority to issue the orders in question.

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

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), judgment affirmed, without costs, in a memorandum.


text:
    [816 NE2d 186, 782 NYS2d 397]
    Ivo Stejskal et al., Appellants, v Albert Simons III et al., Respondents. (And a Third-Party Action.)
    Decided June 24, 2004

      APPEARANCES OF COUNSEL

      Profeta & Eisenstein, New York City (Fred R. Profeta, Jr., of counsel), for appellants.

      DeCicco, Gibbons & McNamara, PC., New York City (Dennis A. Breen of counsel), for respondents.
   OPINION OF THE COURT

Memorandum.

The order of the Appellate Division should be affirmed, with costs. The evidence unequivocally demonstrated that the sole purpose of the construction work was to convert what was a multiple dwelling into a one-family dwelling for the owners’ use. Thus, defendant owners were entitled to avail themselves of the one- or two-family homeowner’s exemption provided in Labor Law § 240 (1) and § 241 (see Khela v Neiger, 85 NY2d 333, 338 [1995]; Cannon v Putnam, 76 NY2d 644, 650 [1990]).

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

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order affirmed, with costs, in a memorandum.


text:
    In the Matter of Anthony Bonacci, Appellant, v Glenn S. Goord, as Commissioner of New York State Department of Correctional Services, et al., Respondents.
    Submitted May 17, 2004;
    decided June 24, 2004
   Motion for leave to appeal dismissed as untimely (see CPLR 5513 [b]). Motion for poor person relief dismissed as academic.


text:
    In the Matter of City Council of the City of Watervliet et al., Appellants, v Town Board of the Town of Colonie, Respondent.
    Submitted June 21, 2004;
    decided June 24, 2004
   Motion by New York State Department of Environmental Conservation for leave to file a brief amicus curiae on the appeal herein granted. Twenty copies of the brief may be filed and three copies served within 20 days.


text:
    Ramon Fresco et al., Respondents, v 157 East 72nd Street Condominium et al., Defendants, and DNA Construction Corp., Sued Herein as DNA Construction, Appellant and Third-Party Plaintiff-Appellant-Respondent. Lumar Restoration Corp., Third-Party Defendant-Respondent-Appellant. (And Another Action.)
    Submitted April 19, 2004;
    decided June 24, 2004
   Motions for leave to appeal dismissed upon the ground that the order sought to be appealed from does not finally determine the action within the meaning of the Constitution (see Whitfield v City of New York, 90 NY2d 777).


text:
    Sharwline Nicholson et al., Respondents, v Nicholas Scoppetta et al., Appellants, et al., Defendants.
    Submitted June 14, 2004;
    decided June 24, 2004
   Motion by The Center for Family Representation, Inc. to join as amicus curiae in the proposed brief submitted by New York Legal Assistance Group et al. granted.


text:
    Sharwline Nicholson et al., Respondents, v Nicholas Scoppetta et al., Appellants, et al., Defendants.
    Submitted May 24, 2004;
    decided June 24, 2004
   Motion by New York Legal Assistance Group et al. for leave to file a brief amici curiae on consideration of certified question herein granted to the extent that the proposed brief is accepted as filed. Two additional copies of the brief may be served within 10 days.


text:
    Sharwline Nicholson et al., Respondents, v Nicholas Scoppetta et al., Appellants, et al., Defendants.
    Submitted June 21, 2004;
    decided June 24, 2004
   Motion by Wilbur McReynolds for leave to appear amicus curiae on consideration of certified question herein granted to the extent that the proposed brief is accepted as filed. Two additional copies of the brief may be served within 10 days.


text:
    Sharwline Nicholson et al., Respondents, v Nicholas Scoppetta et al., Appellants, et al., Defendants.
    Submitted May 24, 2004;
    decided June 24, 2004
   Motion by Ohio Domestic Violence Network et al. for leave to appear amici curiae on consideration of certified question herein granted to the extent that the proposed brief is accepted as filed. Two additional copies of the brief may be served within 10 days.


text:
    In the Matter of Norman D., Appellant. Commissioner of the New York State Office of Mental Health, Respondent.
    Submitted June 1, 2004;
    decided June 24, 2004
   Motion by Donald A. Williams, District Attorney, Ulster County, for leave to file a brief amicus curiae on the appeal herein granted and the proposed brief is accepted as filed.


text:
    The People of the State of New York, Respondent, v Derek Andrades, Appellant.
    Submitted June 21, 2004;
    decided June 24, 2004
   Motion for assignment of counsel granted and Robert S. Dean, Esq., Center for Appellate Litigation, 74 Trinity Place, 11th Floor, New York, NY .10006 assigned as counsel to the appellant on the appeal herein.


text:
    The People of the State of New York, Respondent, v Thomas Hanley, Appellant.
    Submitted May 17, 2004;
    decided June 24, 2004
   Motion for assignment of counsel denied without prejudice to renewal of the motion upon submissions by the appellant showing assets or income available to him.


text:
    The People of the State of New York, Respondent, v T.J. Charles Hardy, Appellant.
    Submitted June 14, 2004;
    decided June 24, 2004
   Motion for assignment of counsel granted and Robert C. Mitchell, Esq., Legal Aid Society of Suffolk County, tnc., Arthur M. Cromarty Court Complex, 300 Center Drive, PO. Box 1697, Riverhead, NY 11901-0960 assigned as counsel to the appellant on the appeal herein.


text:
    The People of the State of New York, Respondent, v Robert Shulman, Appellant.
    Submitted June 21, 2004;
    decided June 24, 2004
   Motion by Association of the Bar of the City of New York for leave to appear amicus curiae on the appeal herein granted to the extent that the proposed brief is accepted as filed.


text:
    Ray Smith, Jr., et al., Respondents, v John Girolamo, Appellant, et al., Defendants.
    Submitted April 5, 2004;
    decided June 24, 2004
   Motion to dismiss appeal granted and appeal dismissed, with $400 costs and $100 costs of motion, upon the ground that no substantial constitutional question is directly involved.


text:
    [816 NE2d 191, 782 NYS2d 401]
    In the Matter of Leslie Dowleyne et al., Appellants, v New York City Transit Authority, Respondent.
    Decided June 29, 2004
    APPEARANCES OF COUNSEL

      Kennedy, Schwartz & Cure, EC., New York City (Arthur Z. Schwartz and Elizabeth M. Pilecki of counsel), for appellants.

      Richard Schoolman, Brooklyn, for respondent.
   OPINION OF THE COURT

Memorandum.

The order of the Appellate Division should be reversed and the judgment of Supreme Court confirming the arbitration award reinstated, with costs.

The Appellate Division’s vacatur cannot stand because it improperly substituted its factual finding for that of a majority of the arbitration panel.

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

On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order reversed, with costs, and judgment of Supreme Court, New York County, reinstated, in a memorandum.


text:
    Adirondack Park Agency, Respondent, v John A. Bucci et al., Appellants, et al., Defendants, and Marylee Armour, Intervenor-Appellant.
    Submitted May 17, 2004;
    decided June 29, 2004
   Motion by John and Linda Bucci for leave to appeal dismissed upon the ground that as to them the order sought to be appealed from does not finally determine the action within the meaning of the Constitution. Motion by Marylee Armour for leave to appeal denied.


text:
    Alice Clissuras, Appellant, v Concord Village Owners, Inc., et al., Respondents.
    Submitted May 3, 2004;
    decided June 29, 2004
   On the Court’s own motion, appeal, insofar as taken from the Appellate Division orders, dismissed, without costs, as untimely (CPLR 5513), and appeal, insofar as taken from letters of the Clerk’s Office of the Appellate Division, Second Department, dismissed, without costs, upon the ground that the letters do not constitute an order or judgment appealable to the Court of Appeals (see CPLR 5512 [a]; 5601; NY Const, art VI, § 3). Motion for other relief dismissed upon the ground that the Court of Appeals does not have jurisdiction to entertain it (see NY Const, art VI, § 3).


text:
    Credit Suisse First Boston Corporation, Appellant, v William Pitofsky et al., Respondents.
    Submitted May 13, 2004;
    decided June 29, 2004
   Motion for leave to appeal granted. Motion for a stay granted to the extent of staying so much of the Appellate Division order as directs the parties to proceed to arbitration.


text:
    General Motors Acceptance Corporation et al., Respondents, v Nationwide Insurance Company, Appellant.
    Submitted June 1, 2004;
    decided June 29, 2004
   Motion by Thomas R. Newman, Esq. for leave to appear amicus curiae on the motion for leave to appeal herein granted and the affirmation is accepted as filed.


text:
    [816 NE2d 561, 782 NYS2d 689]
    In the Matter of Newsday, Inc., Appellant. Robert D. Morgenthau, as District Attorney of New York County, Intervenor-Respondent.
    Decided July 1, 2004
    APPEARANCES OF COUNSEL

      Levine Sullivan Koch & SGhulz LLP, New York City (David A. Schulz, Gayle C. Sproul and Alia L. Smith of counsel), for appellant.

      Robert M. Morgenthau, District Attorney, New York City (Michael Morgan of counsel), for intervenor-respondent.
   OPINION OF THE COURT

Memorandum.

The appeal should be dismissed, without costs, on the ground that no statutory authority exists for our review of Supreme Court’s order in this criminal proceeding (see Matter of Manners [Christopher L.], 74 NY2d 734 [1989]).

Newsday’s application to intervene and obtain access to records supporting issuance of a search warrant was an application “involving a criminal investigation and the proceeding in which the order was issued was therefore a criminal proceeding” (Matter of Alphonso C. [Morgenthau], 38 NY2d 923, 924-925 [1976], citing CPL 1.20 [18] [b]; Matter of Santangello v People, 38 NY2d 536 [1976]). As it was issued in a criminal proceeding, Supreme Court’s order was not appealable to the Appellate Division under CPL article 450, nor is the Appellate Division order appealable to this Court by permission pursuant to CPL 460.20 because it is not an appealable order as defined by CPL 450.90. Remedies available to Newsday could have been via a Freedom of Information Law request (Public Officers Law § 87) or a civil proceeding pursuant to CPLR article 78 at the trial court level (see e.g. Matter of Gannett Co. v De Pasquale, 43 NY2d 370 [1977]; Matter of Associated Press v Bell, 70 NY2d 32 [1987]), from which an appeal to this Court might ultimately have been taken.

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

Appeal dismissed, without costs, by the Court of Appeals sua sponte, in a memorandum.

       By contrast, we note that “the direct appealability of orders granting or denying motions to quash subpoenas in criminal investigations and actions has a peculiar analytical basis” (Matter of Cunningham v Nadjari, 39 NY2d 314, 317 [1976]). Indeed, since 1936, in a line of cases originating with People v Doe (272 NY 473 [1936]), this Court has permitted direct appeal of those orders on the ground that “they were final orders in special proceedings on the civil side of a court vested with civil jurisdiction” (Cunningham, 39 NY2d at 317, citing Matter of Boikess v Aspland, 24 NY2d 136, 138-139 [1969]). In Cunningham, however, we recognized that “on a basis of stare decisis these precedents represent a formidable line of authority, however asymmetrical may appear to be the support for the rule they express and apply” (39 NY2d at 317; see also Matter of Abrams [John Anonymous], 62 NY2d 183, 192 [1984]).


text:
    In the Matter of Annette B. Orange County Department of Social Services, Respondent; Joseph B., Appellant.
    Submitted May 17, 2004;
    decided July 1, 2004
   Motion, insofar as it seeks leave to appeal from the Appellate Division order denying appellant’s motion for leave to appeal to the Court of Appeals, dismissed upon the ground that such order does not finally determine the proceeding within the meaning of the Constitution; motion for leave to appeal otherwise granted.


text:
    In the Matter of Lawrence R. Castellano, Appellant, v Juliane C. Ross, Respondent.
    Submitted May 24, 2004;
    decided July 1, 2004
   Motion, insofar as it seeks leave to appeal from the Appellate Division order that affirmed the denial of the motion for leave to reargue, dismissed upon the ground that such order does not finally determine the proceeding within the meaning of the Constitution; motion for leave to appeal otherwise denied.


text:
    Anthony DeRosa, Appellant, v J.P. Morgan Chase et al., Respondents, et al., Defendant.
    Submitted May 24, 2004;
    decided July 1, 2004
   Appeal dismissed, without costs, by the Court of Appeals, sua sponte, upon the ground that no appeal lies as of right from the order of the Appellate Division absent the direct involvement of a substantial constitutional question (CPLR 5601).


text:
    Melissa D. Kamens et al., Appellants-Respondents, v Utica Mutual Insurance Company, Respondent, and Violetta Q. Dickinson, Respondent-Appellant. Melissa D. Kamens et al., Appellants-Respondents, v Utica Mutual Insurance Company, Respondent, and Violetta Q. Dickinson et al., Respondents-Appellants.
    (Appeal No. 1.)
    (Appeal No. 2.)
    Submitted June 7, 2004;
    decided July 1, 2004
   On the Court’s own motion, cross appeals by Violetta Dickinson, in her individual and representative capacities, dismissed, each without costs, upon the ground that the two-Justice dissents at the Appellate Division are not in favor of the cross appellants {see CPLR 5601 [a]). Utica Mutual Insurance Company’s motion for a stay granted.


text:
    Robert V. Marvin et al., Appellants, v Korean Air Inc. et al., Respondents, et al., Defendant.
    Submitted May 24, 2004;
    decided July 1, 2004
   Motion for reargument granted and, upon reargument, motion for leave to appeal granted.


text:
    In the Matter of Susan McCartney, Individually and as Chairman of Preservation of Coalition of Erie County, Inc., et al., Appellants, v Dormitory Authority of State of New York et al., Respondents.
    Submitted June 7, 2004;
    decided July 1, 2004
   Motion by Preservation League of New York State, Inc. for leave to appear amicus curiae on the motion for leave to appeal herein granted and the brief is accepted as filed.


text:
    Carol A. Niznik, Appellant, v Eric Knight et al., Respondents.
    Submitted June 14, 2004;
    decided July 1, 2004
   Appeal dismissed, without costs, by the Court of Appeals, sua sponte, upon the ground that no appeal lies as of right from the unanimous order of the Appellate Division absent the direct involvement of a substantial constitutional question (CPLR 5601).


text:
    The People of the State of New York, Respondent, v Ernest Boyd, Appellant.
    Submitted June 1, 20004;
    decided July 1, 2004
   Motion for leave to appeal dismissed upon the ground that the Court of Appeals does not have jurisdiction to entertain this motion for leave to appeal from the order of County Court entered in this proceeding commenced in City Court (see NY Const, art VI, § 3 [b]; CPLR 5602).


text:
    The People of the State of New York, Respondent, v Rene Valencia, Appellant.
    Submitted June 14, 2004;
    decided July 1, 2004
   Motion to enlarge the record on appeal denied. Motion for an extension of time to file respondent’s brief granted and respondent directed to file its brief within 30 days of the disposition of this motion.