JASCO TOOLS INC v. AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY

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Supreme Court, Appellate Division, Fourth Department, New York.

JASCO TOOLS, INC., Plaintiff-Appellant, v. AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY and Federal Insurance Company, Defendants-Respondents.

Decided: March 31, 1999

PRESENT:  DENMAN, P.J., LAWTON, HAYES, PIGOTT, JR., and HURLBUTT, JJ. Cynthia Anne Constantino, Rochester. William H. Helferich III, of counsel, Harter Secrest & Emery, Rochester, for plaintiff-appellant. Roy Albert Mura, of counsel, Law Office of Roy A. Mura, Buffalo, for defendant-respondent Federal Ins. Co. James Gocker, of counsel, for defendant-respondent American Mfrs. Mutual Ins. Co.

 Plaintiff is a defendant in an action brought in Federal court on behalf of its employees who participated in plaintiff's 401(k) Savings Plan (Plan).   The complaint alleges that plaintiff negligently handled records of the Plan, causing a loss of investment.   Plaintiff contends that, under a comprehensive commercial general liability policy issued by defendant American Manufacturers Mutual Insurance Company (American) and a commercial excess umbrella policy issued by defendant Federal Insurance Company (Federal), it is entitled to a defense and indemnification in the action in Federal court.   Because this is a declaratory judgment action, Supreme Court erred in dismissing the complaint rather than declaring the rights of the parties (see, Pless v. Town of Royalton, 185 A.D.2d 659, 660, 585 N.Y.S.2d 650, aff'd 81 N.Y.2d 1047, 601 N.Y.S.2d 455, 619 N.E.2d 392).   We thus modify the judgment by reinstating the complaint and granting judgment in favor of defendants declaring that defendants are not required to defend and/or indemnify plaintiff in the action in Federal court.

 American's comprehensive commercial general liability policy provides coverage for damages that plaintiff is legally obligated to pay to an employee because of plaintiff's “negligence, errors or omissions in the Administration of Employee Benefit Programs”.  “Administration” is defined in pertinent part as “[h]andling records in connection with the Employee Benefit Programs”.   The policy contains two relevant exclusions, for claims based on the failure of an investment to perform as represented by plaintiff, and for claims based on the investment or noninvestment of funds.   We agree with the court that the exclusions are unambiguous and apply to the facts of this case (cf., New Hampshire Ins. Co. v. Jefferson Ins. Co., 213 A.D.2d 325, 327, 624 N.Y.S.2d 392).   Although the complaint in the underlying action in Federal court alleges negligence in the administration of the Plan, the injury sustained by the employees is based upon the failure of an investment and thus the exclusions apply.   Plaintiff's reliance on Matter of Maryland Cas. Co. v. Economy Bookbinding Corp. Pension Plan & Trust, 621 F.Supp. 410 (D.N.J. 1985), is misplaced.   In that case, there were no exclusions.   In any event, the court found that the failure of the plan administrator to examine a trust checking account to detect acts of embezzlement involved “handling records” within the policy coverage, while the failure to collect accounts receivable involved a “task associated with the management of investment funds, not with the administration of the [p]lan” (Matter of Maryland Cas. Co. v Economy Bookbinding Corp. Pension Plan & Trust, supra, at 414).   Here, the complaint in the underlying Federal action alleges that plaintiff failed to review documentation to check collateral, insurance and security for an investment, which is “a task associated with the management of investment funds” and thus not covered by the policy.

 We note that the contention of Federal that its policy does not include employee benefit liability coverage is lacking in merit.   Because American's policy included employee benefit liability coverage, and “commercial general liability” was listed by Federal on its schedule of underlying insurance policies, Federal's excess coverage must include employee benefit liability coverage.

Judgment unanimously modified on the law and as modified affirmed without costs and judgment granted.

MEMORANDUM: