Sunday, March 29, 2009

Law Firm Not Entitled to Defense of Complaint Alleging "Wanton, Willful and Malicious" Conduct

Burkhart, Wexler & Hirschberg, LLP v. Liberty Ins. Underwriters, Inc.

(2nd Dept., decided 3/24/2009)

Sometimes plaintiffs deliberately plead into coverage; sometimes they do just the opposite, so the defendant does not enjoy liability coverage.

There's no indication whether the plaintiff in the underlying action did either, but its complaint against the insured law firm asserted claims for relief for "wanton, willful and malicious" breach of fiduciary duty for misappropriating the underlying plaintiff's confidential information and trade secrets; tortious interference with contract for using this information to attempt to convert the underlying plaintiff's members and prospective members to a newly- formed competing business entity; and for "wanton, willful and malicious" misappropriation of trade secrets.

Plaintiff law firm tendered the action to its professional liability insurer, Liberty Insurance Underwriters, which denied coverage, prompting this declaratory judgment action for defense and indemnification coverage.

In AFFIRMING the motion court's order granting summary judgment to Liberty, the Second Department ruled:
In determining whether an insurance carrier has a duty to defend under a professional liability policy, the point of departure is a comparison between the complaint against the insured and the language of the policy (see Cohen v Employers Reinsurance Corp., 117 AD2d 435, 438). If the underlying action falls within the scope of risk covered by the policy, the insurer is obligated to defend (see American Home Assur. Co. v Port of Auth. of N.Y. & N.J., 66 AD2d 269, 277). On the other hand, if the allegations, on their face, do not bring the case within the coverage of the policy, there is no duty to defend or indemnify (see Lionel Freedman, Inc. v Glens Falls Ins. Co., 27 NY2d 364, 368). 

Here, Liberty established its prima facie entitlement to judgment as a matter of law declaring that it was not obligated to defend and indemnify the Burkhart Firm in the underlying action, and the Burkhart Firm failed to raise a triable issue of fact in opposition. The basic coverage provision of the Liberty policy clearly limits coverage to claims which are caused by "any actual or alleged act, error, omission or personal injury which arises out of the rendering or failure to render professional legal services." Inasmuch as there is no allegation of negligence or malpractice arising out of the Burkhart Firm's performance, or failure to perform, legal services, the claim in the underlying action does not fall within the ambit of the policy (see Tartaglia v Home Ins. Co., 240 AD2d 396; Cohen v Employers Reinsurance Corp., 117 AD2d 435; George Muhlstock & Co. v American Home Assur. Co., 117 AD2d 117). For the same reason, the Supreme Court properly denied that branch of the Burkhart Firm's cross motion which was for summary judgment.

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