SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK IAS PART 3

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THE FRANKLIN HOLDING CORPORATION,

Plaintiff,

- against - Index No.: 605935/97

Sequence No. 001

NATIONAL UNION FIRE INSURANCE

COMPANY OF PITTSBURGH, PA.,

Defendant.

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BARRY A. COZIER, J.:

Defendant National Union Fire Insurance Company of Pittsburgh P.A. ("National Union") moves for an order, pursuant to CPLR 3211 (a)(1), dismissing the complaint.

Plaintiff , The Franklin Holding Corporation ("Franklin"), is a publicly owned investment company. Franklin purchased directors and officers insurance from the defendant National Union. In March 1995, a shareholder of Franklin, Jay Langner, sued Franklin alleging mismanagement, breach of fiduciary duty, and securities claims. Langner had served as a member of the Board of Directors of Franklin from 1987 to 1990. Franklin sought coverage from National Union. National Union disclaimed coverage based on a provision in the policy which excludes coverage for claims made by an insured. The policy definition of an "insured" includes former directors.

In support of its motion to dismiss the complaint, defendant National Union argues that the unambiguous terms of the "insured-versus-insured exclusion," excludes coverage for claims brought by a past director. Defendant also argues that the claims for breach of the duty of good faith and for punitive damages should be dismissed.

In opposition to the motion, plaintiff Franklin argues that the "insured-versus-insured exclusion" is ambiguous. Plaintiff also argues that to deny coverage in a non-collusive suit by a former director serves no valid policy or purpose. In reply, the movant argues that extrinsic evidence, such as the date Langner ceased serving as a director, the nature of Langner's underlying claims, and whether the Langner action was in fact collusive, should not be considered by the court.

DISCUSSION

Preliminarily, the Court notes that the claims for breach of the duty of good faith and for punitive damages depend entirely on plaintiff's claim for breach of contract. Thus, if plaintiff's breach of contract claim is dismissed, the entire complaint must be dismissed.

A motion to dismiss pursuant to CPLR 3211 (a) (1) may be granted where the documentary evidence submitted conclusively establishes a defense to the claims asserted as a matter of law. Leon v. Martinez, 84 N.Y.2d 83, 88 (1994). Moreover, for purposes of a motion to dismiss, the credibility of the parties is not under consideration. S.J. Capelin Assocs. v. Globe Mfg. Corp., 34 N.Y.2d 338 (1974).

In order to negate coverage on the basis of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652 (1993). Additionally, any ambiguity in the insurance contract is to be resolved in favor of the insured, particularly when the ambiguity is found in an exclusionary clause. Lavanant v. General Accident Ins. Co. of America, 79 N.Y.2d 623, 629 (1992). The language of the policy is to be interpreted consistent with common speech and the reasonable expectation and purposes of the ordinary business person. Ace Wire & Cable Co. v. Aetna Cas. & Sur. Co., 60 N.Y.2d 390, 398 (1983). If the facts alleged in the underlying complaint raise a reasonable possibility that the insured may be held liable for some act or omission covered by the policy, then the insurer must defend. Ruder & Finn v. Seaboard Sur. Co., 52 N.Y.2d 663, 669-670 (1981). Upon a motion for summary relief, the court is to compare the allegations in the underlying complaint to the terms of the policy to determine whether a duty to defend existed. Technicon Elecs. Corp. v. American Home Assur. Co., 74 N.Y.2d 66, 73 (1989).

Exclusion 4 (I) of the policy provides, in relevant part:

The Insurer shall not be liable to make any payment for Loss in connection with any claim or claims made against the Directors or Officers . . . which are brought by any Insured or the Company . . . .

In addition, Clause 2(c) of the Policy defines the terms "Insured", "Director" and "Officer" as:

[A]ny past, present or future duly elected or appointed Directors or Officers of the Company.

In Township of Center v. First Mercury Syndicate, Inc., 117 F.3d 115 (3rd Cir. 1997), the court found that the "insured-versus-insured exclusion" does not bar coverage of a wrongful discharge action even though, when the claim was made, the discharged employees were no longer employed by the Township. However, the policy at issue in Township of Center defined an "insured" as "all persons acting within the scope of their official duties who were, now are or shall be lawfully elected or lawfully appointed officials and members of the "Governmental Entity." Thus, the policy limited the definition of "insured" to those "acting within the scope of their official duties." In contrast, the instant policy contains no such limitation and, therefore, applies to all persons who are or were directors or officers, regardless of whether they are (or were) acting within the scope of their official duties. Consequently, the Court finds that the "insured-versus-insured exclusion" clearly and unambiguously precludes coverage for claims by the plaintiff's former director Langner against Franklin, the plaintiff insured. The policy clearly excludes from coverage any claims by an insured who was a director or officer during the relevant policy period, brought against another insured director or officer of the Company.

Accordingly, it is

ORDERED that the motion to dismiss the complaint is granted and the complaint is dismissed and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: November 6, 1998

ENTER:

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J.S.C.