New York Court Denies Defense Costs Under Professional Liability Policy Where Insured May Have Been Serving Two Masters

Law Offs. of Zachary R. Greenhill P.C. v. Liberty Ins. Underwriters, Inc. (N.Y.A.D., May 21, 2015)

The New York Appellate Division, First Department, held that the insured under a lawyers professional liability policy was not entitled to summary judgment on the issue of recovering defense costs from a malpractice action because there was an issue of fact as to whether the policyholder’s conduct fell under certain policy exclusions. At issue were two exclusions; the first was an “equity interests” exclusion, which excluded malpractice coverage for claims arising from legal services provided to an organization that the insured had an ownership interest in. The second “capacity exclusion” excluded coverage for claims arising from the policyholder providing services as a director, officer, etc., of an organization other than that of the named insured. The court held that the transaction at issue indicated that the policyholder may have been serving two masters in structuring a deal that it had a financial interest in. If this was the case, both theequity interests and capacity exclusion could apply to preclude the policyholder from recovering defense costs; therefore, it held that summary judgment was premature until discovery could be had to uncover facts relevant to the applicable exclusions.