This case is one of a growing group of cases where insurers contest their duty to defend an insured lawyer after the lawyer is sued for legal malpractice. The plaintiff, Ms. Kurtin, alleged that she was represented by the law firm in negotiating a loan with one of the principals of that firm, Randy Lee. [If true, the allegations of legal malpractice are problematic. Lee was one of the persons getting a benefit from the loan from Kurtin. He could not fairly and adequately represent her in connection with that loan transaction. Lee’s interests and those of Kurtin were directly adverse.
The lawyers gave prompt notice to their legal malpractice insurer, which denied coverage. The insurer argued that the conflict of interest between Lee and Kurtin barred coverage under the legal malpractice policy:
“AGLIC responded by letter dated August 12, 2010 (Exh. 7 to the Lee Aff.). It denied coverage to plaintiffs. First, it contended that Kurtin’s allegations of negligence, legalmalpractice, respondeat superior and breach of contract arose out of the “Insured’s” alleged conflict of interest and breach of fiduciary duty due to the fact that Lee’s ownership and management of Astoria were “adverse” to Kurtin’s. Thus, it claimed that there was no coverage for Kurtin’s claims pursuant to the following policy exclusions:
This policy shall not apply to any Claim based upon or arising out of, in whole or in part: D. the Insured’s capacity or status as:
1. an officer, director, partner, trustee, shareholder, manager or employee of a business enterprise, charitable organization or pension, welfare, profit sharing, mutual or investment fund or trust;
2. a public official, or an employee of a governmental body, subdivision, or agency unless the Insured is privately retained solely to render LegalServices to the governmental body, subdivision or agency and the remuneration for the Legal Services is paid directly or indirectly to the Named Insured;
E. the alleged acts or omissions by any Insured, with or without compensation, for any business enterprise, whether for profit or not-for profit, in which any Insured has a Controlling Interest. . . .
(Letter at 3; Exh. 7 to the Lee Aff.).
AGLIC’s letter claimed that since the Kurtin complaint alleged that the lawyers’ personal business interests (by virtue of Lee’s ownership and management of Astoria) were “adverse” to Kurtin’s there was no coverage under the Policy pursuant to Exclusion D. Thus, it refused to provide defense or indemnity coverage to Lee, Amtzis and their firm (Letter at 3-4; Exh. 7 to the Lee Aff.).
In addition, AGLIC stated that pursuant to Exclusion E, claims based upon or arising out of; in whole or in part, acts performed by an Insured for a business enterprise in which the Insured has a controlling interest are not covered by the Policy. Since the Kurtin complaint alleged that Lee is sole owner and managing member of Astoria, Exclusion E would bar coverage or defense or indemnity of such claim (Letter at 4; Exh. 7 to the Lee Aff.).
AGLIC also stated that the Kurtin complaint, seeking payment of principal and interest on her loans, failed to trigger the provision of the Policy providing coverage for claims seeking Damages as defined by the Policy. The Policy, by its terms, excluded damages consisting of “personal profit or advantage to which the Insured was not legally entitled” (Letter at 4-5; Exh. 7 to the Lee Aff.). AGLIC contended that since the Kurtin complaint sought payment of the principal and interest on the two loans alleged, Kurtin’s alleged damages were not covered by the Policy (Letter at 5; Exh. 7 to the Lee Aff.).”
The court rejected the arguments of the insurance company. It wrote: “Whether or not Kurtin’s malpractice claims may ultimately bear fruit is not before this Court. Instead, the issue is whether the allegations, liberally construed, potentially fall within the scope of the risks undertaken by AGLIC. (Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061, 1063 [2d Dept 2009]). The Court finds that they do. Kurtin’s claims in her causes of action for negligence, legal malpractice and respondeat superior all are based exclusively on the Attorney Defendants’ obligation to Kurtin, not to Astoria or to Lee individually.
Thus, the exclusions relied upon by AGLIC are patently inapplicable. That Lee is an owner of Astoria or might have been acting in Astoria’s interests instead of those of Kurtin does not change the essence of the malpractice causes of action of the New Jersey complaint, or the basis of liability, which is that the Attorney Defendants committed legal malpractice in their representation of Kurtin.”
The court also rejected the insurer’s claim that there were no damages – there were obviously damages here as Kurtin apparently sustained a financial loss relating to the loans.
Edward X. Clinton, Jr.