Appeals court rules for insurer in lawyers professional liability case

A federal appeals court on Thursday affirmed a ruling in favor of an AmTrust Financial Services Inc. unit in a lawyers professional liability coverage dispute, holding that an underlying lawsuit involving a lawyer’s position with an unrelated business was not covered by the policy.

AmTrust unit Associated Industries Insurance Co. Inc. issued a lawyers professional liability policy to New York law firm Wachtel Missry LLP, that provided limits of $5 million per claim and in the aggregate, according to court papers in Associated Industries Insurance Co., Inc. v. Howard Kleinhendler, Wachtel Missry LLP.

Associated sued the law firm and former partner Howard Kleinhendler in U.S. District Court in New York seeking a declaratory judgment that its policy did not provide coverage to the firm or Mr. Kleinhendler in an underlying lawsuit concerning a real estate company because it did not involve professional services provided by either.

Mr. Kleinhendler formed a company to acquire property in which he was both a stockholder and executive vice president, according to the complaint in the case.

The district court ruled in the insurer’s favor and the decision was affirmed by a three-judge panel of the 2nd. U.S. Circuit Court of Appeals in New York. “As relevant here, the insurance policy contained an explicit exclusion for activities undertaken in the capacity of an officer of another business enterprise,” the decision said.

“Kleinhendler contends that AIIC has a duty to defend him in the lawsuit” because he “alleges some acts that could give rise to claims covered by the insurance policy,” it says.

However, “In short, all of Mr. Kleinhendler’s potential liability” in the underlying lawsuit “stems at least in part from his position” with the other company, the ruling said.

“Therefore, the district court properly concluded that AIIC’s policy exclusion applied” and it does not have a duty to defend Mr. Kleinhendler in the underlying litigation.

Mr. Kleinhendler, who represented himself, and the insurer’s attorneys did not respond to a request for comment.