A New York State court ruled that there was no obligation to defend or indemnify an insured in an underlying litigation because the operative complaint did not allege that the insured was acting in his professional capacity as a law firm. Napoli Shkolnik, PLLC v. Greenwich Ins. Co., 2021 WL 1618270 (NY Sup. Ct., App. Div. April 27, 2021).
The insured law firm was sued for allegedly withholding contingency fees in violation of a fee-sharing joint representation agreement. The plaintiff also raised a cause of action for negligence based on allegations that the insured made false statements. The firm filed the lawsuit under its professional liability policies, but major and excess carriers refused coverage. The insured then filed a complaint against the insurers, who requested the dismissal.
The court concluded that the underlying litigation was based on actions that the insured had taken as a business and not in its professional capacity as a law firm, so it did not involve the liability policies. professional. The court noted that, while the operative complaint alleged that the insured had committed professional misconduct or fraud in handling his clients’ cases, these “shotgun” allegations were insufficient to trigger coverage because no cause. action was based on these facts. The court also recognized that the operative complaint raised a cause of action for negligence, but nonetheless determined that it did not involve the policies because this collection theory was not based on the fault claims. professional or fraud. Since there was no possible factual or legal basis on which the insurers could possibly have been obliged to compensate the insured, the court ruled that it was appropriate to rule in favor of the insurers.