An appellate court in New York has affirmed a trial court's decision refusing to dismiss a legal malpractice case alleging a failure to advise about insurance coverage, ruling that the lawyers had not demonstrated that a policy exclusion had precluded coverage and that any failure to advise had not proximately caused damage to the clients.
The Case
The plaintiffs retained Robert L. Pryor, A. Scott Mandelup, and Pryor & Mandelup, LLP (collectively, the “lawyers”), to represent them in an action filed against them by CIT Healthcare, LLC. The CIT action included allegations that the plaintiffs, as directors and officers of several corporations, had aided and abetted the corporations in committing acts of fraud and conversion.
After the lawyers withdrew as counsel for the plaintiffs, the plaintiffs filed a lawsuit against them, alleging that the lawyers had committed legal malpractice by failing to advise them that they had coverage for the CIT action under a “Directors and Officers” coverage section of an insurance policy issued by National Union Fire Insurance Company of Pittsburgh, Pa., to one of the corporate entities the plaintiffs controlled.
The lawyers moved for summary judgment, asserting, among other things, that any failure on their part to advise the plaintiffs of the existence of insurance coverage had not proximately caused the plaintiffs any damages because a policy exclusion would have barred coverage with respect to the CIT action.
The trial court denied the motion and the lawyers appealed.
The National Union Policy
The National Union policy provided:
The Insurer shall not be liable to make any payment for loss in connection with any Claim made against any Insured … (a) arising out of, based upon or attributable to the committing of any criminal, fraudulent or dishonest act if any final adjudication establishes that such criminal, fraudulent or dishonest act occurred
(Emphasis added.)
The policy also provided that the insured would reimburse the insurer for advanced defense costs:
in the event and to the extent that the Insureds or the Company shall not be entitled under the terms and conditions of this policy to payment of such Loss.The Appellate Court's Decision
The appellate court affirmed.
In its decision, the appellate court explained that, in an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney's breach of this duty proximately caused the plaintiff to sustain actual and ascertainable damages. The appellate court added that, to succeed on a motion for summary judgment, the defendant in a legal malpractice action must present evidence in admissible form establishing that the plaintiff was unable to prove at least one of these essential elements.
In this case, the appellate court found, the trial court had correctly determined that the lawyers had failed to meet their prima facie burden of demonstrating that the plaintiffs could not prove the element of proximate cause due to the policy exclusion.
In the appellate court's opinion, in light of the fact that the CIT action had not been finally adjudicated, and because the policy conditioned applicability of the exclusion on a “final adjudication establish[ing] that [a] criminal, fraudulent or dishonest act occurred,” the lawyers had failed to demonstrate that the exclusion clearly applied to preclude coverage with respect to the CIT action, or, at the very least, that the exclusion was “subject to no other reasonable interpretation.”
The case is Soni v. Pryor, No. 16545/11 (N.Y. App.Div. 2d Dep't May 11, 2016). Attorneys involved include: L'Abbate, Balkan, Colavita & Contini, LLP, Garden City, N.Y. (Anthony P. Colavita of counsel), for appellants; Robert T. Bean, Brooklyn, NY, for respondents.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].