Motion sequence numbers 002 and 003 are consolidated for disposition. [*2]

Plaintiff Bear Wagner Specialists, LLC (Bear Wagner) instituted this action against the three defendant insurers, seeking defense coverage for two separate claims, one based on civil suits filed against it, and one based on criminal prosecutions instituted against two Bear Wagner employees. The complaint alleges five causes of action: (1) a declaration that the insurers are responsible for providing defense coverage for these claims; (2) breach of contract; (3) breach of fiduciary duty; (4) breach of good faith and fair dealing; and (5) reasonable attorneys' fees.

In motion sequence 002, defendant Indian Harbor Insurance Company (Indian Harbor), an excess insurer, moves, pursuant to CPLR 3211 (a) (7), to dismiss the third, fourth and fifth counts of Bear Wagner's first amended complaint.

In motion sequence 003, Bear Wagner moves, pursuant to CPLR 3212, for partial summary judgment, to declare that defendants National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), an AIG company, American International Specialty Lines Insurance Company (AISLIC), an AIG company, and Indian Harbor are required to provide coverage for the defense costs incurred by Bear Wagner in defending the civil actions filed against it, and defending the criminal prosecution of two of its employees (count I of the complaint). Defendants cross-move, pursuant to CPLR 3212, for summary judgment, declaring that they are not required to provide such coverage, and to dismiss the complaint against them.

Bear Wagner is a registered broker-dealer and specialist member of the New York Stock Exchange, and is in the business of buying and selling securities on behalf of clients. In furtherance of its business, in 2003, Bear Wagner purchased insurance policies from the three defendants. The National Union policy was a Directors, Officers and Private Company Liability Insurance Policy; the AISLIC policy was a primary Investment Management Insurance Policy, referred to as a professional errors and omissions policy (E & O policy); and the Indian Head policy was an excess E & O policy. These policies covered the period from June 1, 2003, to June 1, 2004.

Prior to June 1, 2003, the Securities and Exchange Commission (SEC) instituted an investigation of several firms, including Bear Wagner, and found that these firms illegally profited from violating federal securities laws between the period 1999 through 2003. As a result of the SEC's findings, Bear Wagner agreed to disgorge over $10 million in profits, and to pay a civil penalty in excess of $5 million.

Following the publication of the SEC's findings and Bear Wagner's settlement, a number of investors instituted suits against it, alleging that they suffered damages as a result of Bear Wagner's unlawful trading practices. These lawsuits are referred to by the instant parties as the "civil actions."

In a letter dated June 4, 2004, Bear Wagner notified National Union and AISLIC of these civil actions. On June 7, 2004, Bear Wagner's broker sent an e-mail to Indian Harbor, attaching a one-page Notice of Claim, which was followed by a letter dated June 11, 2004, in which Bear Wagner notified Indian Harbor of these actions. Each of these letters requested coverage pursuant to the insurance policies. National Union and AISLIC, through an AIG affiliate, denied coverage by letters dated July 27, 2004.

On July 27, 2004, National Union denied coverage based on a policy exclusion that precluded coverage for claims "arising out of, based upon, or attributable to the gaining in fact of any profit or advantage to which an Insured was not legally entitled," and "arising out of, based [*3]upon or attributable to the committing in fact of any criminal, fraudulent or dishonest act, or any willful violation of any statute, rule or law." In its letter denying the claim, National Union stated that, because the civil actions were based on the SEC's findings that Bear Wagner violated federal securities laws, the above-referenced policy exclusions apply.

National Union further denied coverage, pursuant to the Professional Errors and Omissions Exclusion, Endorsement No. 9 to the policy, which states:

"Insurer shall not be liable to make any payment for Loss

in connection with any Claim(s) made against any Insured(s)

alleging, arising out of, based upon or attributable to any

Insured(s)' performance or failure to perform professional

services for others for a fee, or any act(s), error(s) or omission(s)

relating thereto."

National Union asserted that, because the civil actions allege that Bear Wagner failed to perform professional services properly, which injured the plaintiffs, it does not have to pay out on the policy.

National Union also stated that the majority of the relief sought in the civil actions does not constitute "Loss" under the policy, for which it might be liable. The policy states that "Loss" shall not include:

"(1) civil or criminal fines or penalties imposed by law,

(2) taxes, (3) any amount for which the Insureds are not

financially liable or which are without legal recourse

to the Insureds ... or (6) matters which may be deemed

uninsurable under the law pursuant to which this policy

shall be construed."

This letter stated that National Union denied coverage for the Complaints contained in the notice of claim, which constituted the civil actions against Bear Wagner.

On July 27, 2004, AISLIC denied coverage based on the following exclusion provisions of its policy: section 1 (1), precluding coverage for "any actual or alleged fraud, dishonesty, criminal or malicious acts or omissions ... ; section 1 (2) precluding coverage for "any actual or alleged gaining of any profit or advantage to which the Insured is not legally entitled ...; section II (4), as amended by Endorsement No. 6, which does not provide coverage for "any actual or alleged Wrongful Act occurring prior to the Continuity Date specified in Item 6 of the Declarations." The Continuity Date so specified is June 1, 2000.

AISLIC also denied coverage based on Exclusion II (15) of the AISLIC policy, which precludes coverage for:

"(a) any actual or alleged use by any Insured of, or

(b) any actual or alleged aiding and abetting by an

Insured in the use of, or

(c) actual or alleged participating after the fact by

any Insured in the use of,

non-public information in a manner prohibited by the

laws of the United States, including, but not limited [*4]

to, the Insider Trading and Securities Fraud Enforcement

Act of 1988 (as amended), Section 10 (b) of the Securities

Exchange Act of 1934 (as amended) and Rule 10 (b)-5

thereunder, any state, commonwealth, territory or subdivision thereof, or the laws of any other jurisdiction,

or any rules or regulations promulgated under any of the

foregoing."

In addition, AISLIC stated that the type of loss Bear Wagner would engender from these civil actions is precluded under its policy's Exclusion II (11):

"fines, penalties, the multiple portion of multiple

damages, taxes, nonpecuniary relief, any amount for which

the Insured is not financially liable or which is without

legal recourse to the Insured, or matters which may be

deemed uninsurable under the law pursuant to which this

policy shall be construed; not withstanding the foregoing,

Loss shall include awards of punitive or exemplary damages

(where insurable by law) in an amount not greater than the

amount of compensatory damages awarded."

This denial letter sent by AISLIC closes by saying that Bear Wagner could provide it with additional information which might warrant a re-evaluation of its conclusion.

On June 23, 2003, Indian Harbor sent a letter to Bear Wagner's broker, in which it reserved its rights to deny coverage based on untimely notice, stating that the notice it received was sent at least seven months after the claim arose. However, at that time, it requested additional information from Bear Wagner, which it never received.

Based on these denials of coverage, Bear Wagner has been paying all of the defense costs associated with these civil actions, which are still ongoing.

On or about April 11, 2005, the United States Attorney for the Southern District of New York filed two separate indictments against Kevin M. Fee (Fee) and Frank A. Delaney (Delaney), both traders employed by Bear Wagner, alleging illegal profits from interpositioning and trading ahead. These indictments were based on the same facts and circumstances that formed the basis of the SEC investigation and findings. These two criminal matters were disposed of by the filing of nolle prosqui orders in 2006. The criminal proceedings were not reported to either National Union or AISLIC until May, 2007, more than two years after the indictments, and approximately seven months after the nolle prosqui orders.

By letter dated July 17, 2007, National Union denied coverage, basing its denial on the same bases as it denied coverage in the civil actions, and incorporated that denial letter by reference. National Union also stated that it was reserving its rights to deny coverage based on the timeliness of the notice of the indictments.

By letter dated January 11, 2008, AISLIC denied coverage, based on a provision in its policy that denies coverage for any settlement of claim made without AISLIC's prior written consent, and because Bear Wagner retained counsel for Fee and Delaney over two years prior to reporting the matter to AISLIC. This letter was written in response to Bear Wagner's letter to AISLIC, dated December 19, 2007, in which it requested coverage for the costs incurred in [*5]defending the criminal actions. AISLIC's letter incorporated by reference the denial letter issued to Bear Wagner with respect to the civil actions.

Indian Harbor asserts that it is not responsible for the defense costs incurred by Bear Wagner because Bear Wagner did not obtain the prior written consent of Indian Harbor or AISLIC, the primary insurer, before it incurred the defense costs, and because Indian Harbor did not receive notice of the criminal indictments for more than two years after they had been filed. Indian Harbor states that it only received notice of the criminal proceedings in the December 19, 2007, letter that Bear Wagner sent to AISLIC, which was then forwarded on to Indian Harbor. Indian Harbor states that it never received a notice of claim directly from Bear Wagner, the insured.

In the instant action, Bear Wagner is seeking the costs it incurred in defending the civil actions, which are still ongoing, as well as the criminal proceedings, which have concluded. Bear Wagner's position is that, based on the insurers' denial of claim for the civil actions, the insurers repudiated the policies, which relieved Bear Wagner of its notification and consent obligations under those contracts. Furthermore, Bear Wagner maintains that the incidents giving rise to the civil actions are covered by the policies, because the acts complained of were not based on Bear Wagner performing services for a fee.^[FN1]

Conversely, the insurers contend that they merely denied coverage for the civil actions, but did not repudiate the policies, and, therefore, that Bear Wagner failed to fulfill the conditions precedent in the policies required to invoke defense coverage for the criminal proceedings. Furthermore, the insurers maintain that the events giving rise to the civil actions, as well as the criminal proceedings, are precluded from coverage for the reasons articulated in the denial letters issued in response to the claims for coverage for the civil actions.

"The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case [internal quotation marks and citation omitted]." Santiago v Filstein, 35 AD3d 184, 185-186 (1st Dept 2006). The burden then shifts to the motion's opponent to "present evidentiary facts in admissible form sufficient to raise a genuine, triable issue of fact." Mazurek v Metropolitan Museum of Art, 27 AD3d 227, 228 (1st Dept 2006); see Zuckerman v City of New York, 49 NY2d 557, 562 (1980). If there is any doubt as to the existence of a triable fact, the motion for summary judgment must be denied. See Rotuba Extruders, Inc. v Ceppos, 46 NY2d 223, 231 (1978).

The relief sought in the instant matter is to declare that the defendant insurance companies are required to pay all of Bear Wagner's costs in defending both the civil actions and the criminal proceedings.

As a general proposition:

"A duty to defend is triggered by the allegations

contained in the underlying complaint. The inquiry [*6]

is whether the allegations fall within the risk of

loss undertaken by the insured [and it is immaterial]

that the complaint against the insured asserts

additional claims which fall outside the policy's

general coverage or within its exclusory provisions."

BP Air Conditioning Corp. v One Beacon Insurance Group, 8 NY3d 708, 714 (2007).

In its complaint, Bear Wagner asserts that the allegations appearing in both the civil actions and the criminal proceedings are events covered by the policies in question. However, before reaching this argument, I turn to the defendant insurers' arguments that Bear Wagner's failure to provide timely notice of the claims, and its failure to obtain the written consent of the insurers prior to settling the criminal actions, relieve them of their defense obligations.

At the outset, it must be noted, that in denying coverage for the civil actions, the insurers did not base the denial on untimely notice or failure to obtain written consent prior to defending the lawsuits.^[FN2] As a consequence, the insurers cannot raise those arguments at this time as a defense to the claims arising from the underlying civil actions.

"An insurer's notice of disclaimer must promptly apprise

the claimant with a high degree of specificity of the

ground or grounds on which the disclaimer is predicated.

Of course, an insurer may reserve the right to disclaim

on such different or alternative grounds as it may later

find to be applicable. However, [an] insurer must give

written notice of disclaimer on the ground of late notice

as soon as is reasonably possible after it learns of the

[claim] or of grounds for disclaimer of liability, and

failure to do so precludes effective disclaimer. Because

of the insurer's duties to disclaim promptly and with

specificity, New York law establishes that an insurer is

deemed, as a matter of law, to have intended to waive a

defense to coverage where other defenses are asserted, and

where the insurer possesses sufficient knowledge (actual

or constructive), of the circumstances regarding the

unasserted defense."

Estee Lauder, Inc. v OneBeacon Insurance Group, LLC, 62 AD3d 33, 35 (1st Dept 2009).

Therefore, since the timeliness of the notice of claim is evident immediately upon receipt of such notice, the insurers' failure to deny coverage based on this ground is waived with respect [*7]to the civil actions, and the validity of the denial of claim for the civil actions must rest or fall on the grounds specified by the insurers in the letters of denial: the underlying actions involved dishonest conduct and violations of law which are excluded from coverage.

Bear Wagner argues that the allegations in the civil complaints do not indicate that the plaintiffs were injured by Bear Wagner's actions that resulted in a fee to Bear Wagner, which is a preclusion appearing in Endorsement 9 of the E & O policies. Bear Wagner maintains that, because the acts found by the SEC to be violative of federal securities laws involved making a market, by which the Bear Wagner employees traded for their own books, not for clients, and derived no profit thereby, the policies do not exclude coverage. However, that all of the civil action complaints allege that those plaintiffs were injured by Bear Wagner's violation of federal securities laws, and that the denial letters specified grounds in addition to those appearing in Endorsement 9 for the denial of claim.

Section 4 (c) of the National Union policy states that National Union

"shall not be liable to make any payment for Loss in

connection with a Claim made against an Insured:

...

(c) arising out of, based upon or attributable to the

committing in fact any criminal, fraudulent or dishonest

act, or any wilful violation of any statute or rule of

law."

Section 2 (k) of the National Union policy defines "loss" to include defense costs, but shall not include such costs for "(6) matters which may be deemed uninsurable under the law pursuant to which this policy shall be construed."

Section 4 (i) (1) of the AISLIC policy states that the policy does not apply to "any, actual or alleged fraud, dishonesty, criminal or malicious acts or omissions ... ."

The Indian Harbor policy, which is an excess E & O policy, states in its opening paragraph: "This policy does not provide for any duty by the insurer to defend any insured."

In Millenium Partners, L.P. v Select Insurance Company (2009 WL 586127, 2009 NY Misc Lexis 496 [Sup Ct, NY County 2009] Friedman, J.), the insured sought to recover its costs of defending itself against an SEC investigation which resulted in the insured settling the matter by disgorging millions of dollars it received by market timing of mutual funds, a violation of federal securities laws.In interpreting policy provisions similar to these, Justice Marcy Friedmann held that actions that result in the disgorgement of improperly acquired funds is not a covered loss, and that defense costs based on such actions are also not covered by the insurance policy. Therefore, under current New York law, the costs of defending the subject lawsuits are not insurable as arising from violations of federal securities laws.

"[I]f the allegations interposed in the underlying

complaint allow for no interpretation which brings

them within the policy provisions, then no duty to

defend exists. [A]n insurer can be relieved of its duty

to defend if it establishes as a matter of law that

there is no possible factual or legal basis on which

it might eventually be obligated to indemnify its [*8]

insured under any policy provision, and an insured may

not by use of a shotgun' allegation, create a duty to

defend beyond that which was anticipated by the parties

when they entered into the policy contract [internal

quotation marks and citations omitted]."

Atlantic Mutual Ins. Co. v Terk Technologies Corp., 309 AD2d 22, 29 (1st Dept 2003); American Guaranty & Liability Ins. Co. v Hoffmann, 61 AD3d 410 (1st Dept 2009).

Consequently, based on the allegations of the underlying civil complaints, the insurers are under no duty to defend Bear Wagner, because the actions complained of fall within the insurance policies' exclusions for dishonest and unlawful conduct.

Turning now to the defense of the criminal proceedings, the threshold question to be resolved is whether the insurers' denials of claim for the civil actions excused Bear Wagner's policy obligations with respect to timely notification and obtaining prior written consent to settle the criminal proceedings, which resulted from the same set of underlying facts. As noted above, unlike with the civil action disclaimers, the insurers did assert untimely notice and failure to obtain written consent as grounds for the denial of coverage for the criminal proceedings, along with the grounds they asserted in the denials of coverage for the civil actions.

As stated in Seward Park Housing Corporation v Greater New York Mutual Insurance Company (43 AD3d 23 [1st Dept 2007]), there is a distinction between a contractual repudiation of an insurance policy, usually called an anticipatory breach, and the usual disclaimer of coverage for a particular claim. If an insurer repudiates the policy, the insured is relieved of its policy obligations; conversely, if the insurer merely disclaims an individual claim, the insured continues to be obligated to comply with its contractual responsibilities.

Bear Wagner insists that the insurers' denials of claim for the civil actions was a repudiation of the policies, which negated its obligation to provide timely notice of claim and/or obtain prior written consent to settle the criminal actions. To counter this contention, the insurers rely on two recent decisions.

In National Railroad Passenger Corp. v Steadfast Insurance Company (2009 WL 562610, 2009 US Dist Lexis 21311 [SD NY 2009]), the federal court, in applying New York law, stated that the defendant insurer's letter denying coverage was "better characterized as a disclaimer' of coverage rather than a repudiation.'"

"Where an insurer shape[s] its conduct in accordance

with the provisions of the contract' and explain[s]

the denial of coverage with reference to policy provisions

and exclusions,' this is a disclaimer' of coverage not

a repudiation' of the contract of insurance,"

quoting Seward Park decision, supra .

In Steadfast, the denial of coverage letter was adamant in stating that the insurer would refuse to honor any further claims, affirmatively saying that "it will not provide coverage for any other claims that may be made against [insured] as a result of the [incident in question]." This language is far more unequivocal than the denial letters here. However, even with this strong indication that future claims based on the same occurrence would be denied, the Steadfast court [*9]found that the denial was not a repudiation, and held the insured to the policy notice requirements for all future claims in which new circumstances arose that were outside the scope of the original denial letter.

Here, the denial letters never stated that all future claims would be denied, and even provided Bear Wagner with the opportunity to submit additional information for a re-evaluation of the claim by the insurers. Further, the criminal proceedings present different circumstances than those presented by the civil actions: the complaining party is different (the government as opposed to private individual); the defendants are individual employees of Bear Wagner, rather than Bear Wagner itself; and the consequences of conviction are different from a finding of civil liability.

Bear Wagner attempts to distinguish Steadfast by arguing that the original denial was based on complaints filed against the insured that did not indicate that the accident occurred on the "job site," a condition mandated by the policy. When the complaints were amended to include the statement that the injury occurred at the job site, the insured failed to notify the insurer of this change. Bear Wagner maintains that, in order for Steadfast to apply, it is the insurers' burden to demonstrate that the criminal indictments were factually different from the civil action complaints so as to fall within the purview of the policies' exclusions. See Hotel des Artistes v General Accident Insurance Co. of America, 9 AD3d 181 (1st Dept 2004). However, the mere fact that the parties to the criminal proceedings are different should be sufficient to indicate different circumstances, especially since the government's remedies would have to differ from those of individual investors. This factor alone would require that Bear Wagner comply with policy provisions.

The defendant insurers rightly assert that a delay in alerting them to a claim "as soon as practicable," as required under the policies, constitutes a failure of a condition precedent to their obligations, and thereby vitiates the contract of insurance. Briggs Avenue LLC v Insurance Corporation of Hannover, 11 NY3d 377 (2008); Argo Corporation v Greater New York Mutual Ins. Co., 4 NY3d 332 (2005). National Union, AISLIC and Indian Harbor were not notified of the criminal proceedings until over two years after the criminal proceedings were commenced. This delay in notification, without any explanation, constitutes untimely notice as a matter of law. See 1700 Broadway Co. v Greater NY Mut. Ins. Co., 54 AD3d 593 (1st Dept 2008) (eight-month delay late as a matter of law); SBSS Realty Corp. v Public Serv. Mut. Ins. Co., 253 AD2d 583 (1st Dept 1998) (91-day delay in notification late as a matter of law).

Further, pursuant to the policy provisions, Bear Wagner agreed to refrain from incurring any defense costs without seeking the insurers' written consent, which it failed to do. Such provisions have been held to be unambiguous and enforceable, thereby negating the insurers' obligation to defend the underlying actions. Vigilant Ins. Co. v Bear Stearns Companies, Inc., 10 NY3d 170 (2008); Royal Zenith Corp. v New York Marine Managers, Inc., 192 AD2d 390 (1st Dept 1993).

Based on the foregoing, Bear Wagner's motion for partial summary judgment is denied.

The defendant insurers' cross motion for summary judgment to dismiss the complaint is granted.

The first cause of action, seeking a declaratory judgment that the insurers are responsible [*10]for Bear Wagner's defense costs for the civil and criminal actions, is dismissed for the reasons stated above. Similarly, the second cause of action, alleging a breach of contract on the part of the insurers for failing to provide defense coverage, is dismissed, since no such obligation has been found.

The third cause of action for breach of fiduciary duty is dismissed. "[A]n insurance company does not owe its policyholder a common-law fiduciary duty except when it is called upon to defend its insured." Fiala v Metropolitan Life Ins. Co., 6 AD3d 320, 322 (1st Dept 2004). Bear Wagner has failed to allege facts or circumstances that would suggest that any relationship evolved out of the ordinary arm's-length relationship created by the payment of premiums in return for a policy of insurance.

The fourth cause of action for breachof good faith and fair dealing is dismissed. As stated by in Hawthorne Group, LLC v RRE Ventures (7 AD3d 320, 323 [1st Dept 2004]),

"[a] cause of action for breach of the implied duty of

good faith and fair dealing cannot be maintained where

the alleged breach is intrinsically tied to the damages

allegedly resulting from a breach of the contract'

[citations omitted]."

Since the alleged breaches of good faith and fair dealing are tied to the allegations that the insurers breached the insurance policies by not providing defense coverage for the civil and criminal actions, this claim must be dismissed.

The last cause of action, seeking attorneys' fees, is similarly dismissed. "It is well established that an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle rights under the policy." New York University v Continental Insurance Company, 87 NY2d 308, 324 (1995); Silva v F.R. Real Estate Development Corp., 58 AD3d 449 (1st Dept 2009). Since this claim is based on Bear Wagner's action to determine its rights under the insurance policy, such cause of action cannot be maintained.

Accordingly, it is

ORDERED that plaintiff's motion for partial summary judgment is denied; and it is further

ORDERED that defendants' cross motion for summary judgment to dismiss the complaint is granted with costs and disbursements to defendants as taxed by the Clerk of the Court; and it is further

ORDERED that defendant Indian Harbor Insurance Company's motion to dismiss the third, fourth and fifth causes of action is granted; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: _______

ENTER:

____________________________

J.S.C.