Uncovered

The New York Appellate Division for the First Judicial Department reversed an order requiring an insurer to defend a law firm

This declaratory judgment action involves the issue of whether certain transactions among the plaintiffs and nominal defendant Jane Kurtin fall within the “insured’s status” and “business enterprise” exclusions to coverage in plaintiffs lawyers’ professional liability insurance policy (policy) issued by defendant American Guarantee and Liability Insurance Company (AGLIC). Broadly stated, these exclusions apply where a lawyer is sued for malpractice and the claim also arises in whole or in part from the lawyer’s status as the manager of a business enterprise in which the lawyer has a controlling interest.

Kurtin was a client of plaintiff Lee & Amtzis, LLP (law firm). She commenced an action in the Superior Court of New Jersey against the law firm, both partners individually, and Astoria Station, LLP (Kurtin v R. Randy Lee, Esq., et al., Super Ct, Somerset County, docket No. SOM-L-1098-10) (New Jersey action). In the New Jersey action, Kurtin asserted claims for breach of contract, non-payment of two promissory notes which she held and were made, respectively, in 2006 and 2010, and unjust enrichment based upon the non-payment of those notes. Kurtin also asserted claims for legal malpractice/negligence against the law firm and each of its named partners. In connection with her malpractice/negligence claims, Kurtin alleged that when she entered into these loans, Lee was not only the “managing member” of Astoria Station, he was also a practicing attorney and partner of the law firm, which had the same address as Astoria Station. Kurtin claimed that the attorneys had induced her to proceed with certain financial transactions in which they had a financial interest; they failed to recommend that she obtain independent legal counsel; they had allowed their legal services to her to be influenced by their own business ventures outside the practice of law; and the attorneys knew their interests and Kurtin’s interests were adverse.

The court

Here, we have a well developed record showing that plaintiffs’ activities on Kurtin’s behalf are of a hybrid nature and, therefore, excluded from coverage…

 Since Lee was a partner in the law firm, by assuming dual roles of providing legal advice to a client, while simultaneously pursuing his own business interests, Lee placed himself, his law partner and the law firm firmly within the exclusions in the professional policy plaintiffs seek protection under. Consequently, under the Business Enterprise Exclusion, it is immaterial that Amtzis did not have an interest in Astoria Station; AGLIC still has no duty to provide him with a defense in the New Jersey action.

(Mike Frisch)