No Coverage for Lawsuit Based Only on Insured Law Firm’s Business Decisions

A New York state court held that there was no duty to defend or indemnify an insured in connection with an underlying litigation because the operative complaint did not allege that the insured was acting in its professional capacity as a law firm.  Napoli Shkolnik, PLLC v. Greenwich Ins. Co., 2021 WL 1618270 (N.Y. Sup. Ct., App. Div. Apr. 27, 2021).

The insured law firm was sued for allegedly withholding contingency fees in violation of a fee-sharing joint representation agreement.  The claimant also asserted a cause of action for negligence based on allegations that the insured made false representations.  The firm tendered the litigation under its professional liability policies, but the primary and excess carriers denied coverage.  The insured then filed suit against the insurers, who moved to dismiss.

The court concluded that the underlying litigation was premised on actions that the insured took as a business and not in its professional capacity as a law firm, such that it did not implicate the professional liability policies.  The court noted that, while the operative complaint alleged that the insured had committed malpractice or fraud in its handling of its clients’ cases, these “shotgun” allegations were insufficient to trigger coverage because no cause of action was premised on those facts.  The court also recognized that the operative complaint asserted a cause of action for negligence, but nonetheless determined that it did not implicate the policies because that theory of recovery was not based on the allegations relating to malpractice or fraud.  Because there was no possible factual or legal basis on which the insurers could have eventually been obligated to indemnify the insured, the court held that it was proper to rule in favor of the insurers.