Legal malpractice insurance, which one might think is a subject reserved solely for the attorney, is truly a subject of interest to the plaintiff as well.  No insurance may lead to no settlement.  Hence…

Here the insurance company would like to disclaim on the basis that the attorney was actually doing business as an education maven while getting insurance as an attorney.  This is generally outside of the scope of legal malpractice insurance.  Now, the carrier and the attorney are battling over defense costs.

Law Offs. of Zachary R. Greenhill P.C. v Liberty Ins. Underwriters, Inc.  2015 NY Slip Op 04382  Decided on May 21, 2015  Appellate Division, First Department centers on an educational foray into China, which apparently did not go well.   “Plaintiffs, an attorney and his law firm, seek a declaration that defendants, which issued a lawyers professional liability insurance policy, were required to provide a defense and pay for all defense costs with respect to counterclaims asserted against Zachary Greenhill (Mr. Greenhill) in an underlying contract action (Zachary Greenhill and Judy Lee Greenhill v The Dwight School, The Dwight School in China LLC, Stephen H. Spahn and New York Preparatory School, Inc., Sup Ct, NY County, index No. 603653/09) (the underlying contract action). Before plaintiffs commenced this action, the underlying contract action settled and the counterclaims were dismissed. Accordingly, in this action, plaintiffs seek to recover defense costs incurred in connection with those counterclaims against them in the underlying action. Plaintiffs assert that they are entitled to such costs because defendants (the insurer) breached their duty to defend and the counterclaims do not fall within any policy exclusion.

Defendants contend that plaintiffs failed to establish any breach of the duty to defend, that plaintiffs’ motion is premature, and that they need discovery to determine whether the counterclaims fall within certain policy exclusions which apply to situations where an attorney is sued for legal malpractice, but the attorney has also engaged in certain outside business activities. We agree with defendants.”

“In the underlying contract action, the Greenhills sought to enforce a partially executed consulting agreement they claimed to have with Dwight China. Pursuant to that agreement, they were to receive semiannual consulting fees for the following services: “business development, sales and marketing appropriate to [Dwight China’s] business, legal services, contracting for legal services and government filings, contract negotiations, college and university guidance services and close and overall execution of the Company’s business plan” The consulting agreement was executed by Spahn on behalf of Dwight China and the Dwight School (Dwight entities), but neither of the Greenhills ever signed it.

In their answer to the second amended complaint in the underlying contract action, the Dwight entities and Spahn denied the enforceability of the consulting contract and alleged that Mr. Greenhill had enlisted the aid of outside counsel to structure the operating agreement in such a way that it personally benefitted the Greenhills’ interests. In addition to asserting a counterclaim against the Greenhills for repudiation of the consulting agreement, the Dwight entities and Spahn asserted a counterclaim against Mr. Greenhill for legal malpractice, alleging that “[Zachary] Greenhill had an attorney-client relationship” with them and that he breached his fiduciary duties to the Dwight entities by having them sign the consulting agreement “without fully informing [them] of his view of the possible consequences of such a signature absent the Greenhills’ signature, or advising them to seek independent counsel regarding the alleged Consulting Agreement.” The Dwight entities claimed further that Mr. Greenhill had engaged in self-dealing by using the consulting agreement as evidence of the operating agreement that had never been signed.”

“Mr. Greenhill, much like the attorneys in K2 and Lee & Amtzis, obtained a lawyer’s professional liability policy that specifically excludes coverage in where the attorney is serving two masters: his client and himself. Plaintiffs seek to distinguish K2 solely on the basis that it involved the issue of whether the insurer had to indemnify its insured as opposed to

providing a defense. If, however, coverage is excluded because of the hybrid nature of the legal representation, defense costs are also excluded (see Lee & Amtzis, 2015 NY Slip Opn 02919 *3). While the counterclaims are, in part, rooted in the legal services Mr. Greenhill provided, allegedly failed to provide, failed to provide, overall the counterclaims consist of intertwined allegations about Mr. Greenhill’s legal services to The Dwight School and Dwight China, the latter of which he appears to have had a financial interest in. Therefore, defendants have raised issues of fact whether Mr. Greenhill’s activities on behalf of the Dwight entities were of a hybrid nature, because of the allegations of self-dealing, the Greenhills’ alleged 49% ownership interest in Dwight China, and the Greenhills’ efforts in enforcing the consulting agreement, which personally benefitted them financially. At a minimum, discovery is necessary on the issue of Mr. Greenhill’s ownership interests and whether such interests come within the Equity Interests Exclusion.

Because plaintiffs have not established as a matter of law that defendants breached the policy or that the counterclaims do not fall within the policy exclusions and defendants seek discovery, the issue of whether plaintiffs are entitled to recover their defense costs from defendants is premature.”