Great American Insurance Company v. AIG Specialty Insurance Company

Background

Great American sued AIG for a declaratory judgment concerning AIG’s obligation to assist in defending Houlihan, Inc. in an underlying class action. Great American was defending Houlihan in that action. Houlihan is a real estate brokerage firm operating in New York.

HomeServices of America, Inc. acquired Houlihan on January 1, 2017. AIG issued two Specialty Risk Protector Insurance Policies to HomeServices for April 1, 2018, through April 1, 2019. The policies covered HomeServices and any subsidiary, including Houlihan, for certain wrongful acts, also called Third Party Events. The policies included a duty to defend a lawsuit for a wrongful act and had a retroactive date of July 1, 2010.

The policies limited subsidiary coverage to losses arising from Third Party Events occurring or allegedly occurring after the named entity obtained management control of the subsidiary and before it ceased to have that control. The policies also stated that all related acts would be treated as having occurred when the first related act occurred. Related acts were defined to include Third Party Events that were the same, related, or continuous, or that arose from a common nucleus of facts.

Underlying Class Action

A class action was filed against Houlihan in July 2018 in the Supreme Court of the State of New York, Westchester County. The third amended complaint, filed June 10, 2019, alleged that Houlihan had, since at least January 1, 2011, represented both the buyer and seller in the same residential real estate transaction through undisclosed, non-consensual dual agency. The complaint sought damages for alleged violations of law from 2011 through June 10, 2019 and described, among other transactions, a property sale on May 22, 2017.

Parties’ Arguments

Great American argued that AIG had to contribute to Houlihan’s defense because the class action included alleged conduct occurring after HomeServices acquired Houlihan on January 1, 2017. AIG argued that it had no duty to defend because all the alleged property sales were related acts. Under AIG’s reading, the related acts were deemed to have occurred when the first alleged wrongful act occurred in 2011, before Houlihan became a HomeServices subsidiary.

Court’s Analysis

The court applied New York law because the parties’ briefs assumed that it controlled. Under that law, an insurer’s duty to defend is broader than its duty to indemnify. An insurer must defend whenever the complaint suggests a reasonable possibility of coverage. The insurer has no duty to defend only when it can establish that there is no possible factual or legal basis on which it might eventually have to indemnify the insured. If any claim arguably arises from covered events, the insurer must defend the entire action.

The court held that the AIG policies covered Houlihan as a HomeServices subsidiary for claims arising from Third Party Events occurring after HomeServices obtained management control. The class action claims constituted Third Party Events, and the claims covered conduct occurring partly after January 1, 2017, including the May 22, 2017 sale. AIG therefore had to defend Houlihan because it had not met its burden of showing that there was no possible factual or legal basis for coverage.

The court rejected AIG’s related-acts argument. It explained that post-acquisition property sales were not clearly the same or continuous as pre-acquisition sales. Although the alleged non-disclosures may have resulted from a general policy, it was not self-evident that every property sale arose from a common nucleus of facts. A more natural reading could treat activities connected to one property sale as related acts without treating separate sales as related to one another.

The court also concluded that AIG had not shown that the related-acts definition applied to the policy provision establishing when subsidiary coverage began. The term appeared in other policy provisions, including exclusions, notice, and retention provisions, but did not appear in the subsidiary-coverage limitation.

Disposition

The court granted Great American’s November 6, 2020 motion for summary judgment. It denied AIG’s December 4, 2020 cross-motion for summary judgment.