Law firms want insurance coverage. They cannot operate in real estate and other high asset litigation without insurance coverage. Whether through inadvertence, or because telling the carrier of earlier inchoate claims against the law firm will drive up the cost of coverage, it is a fatal error not to list all claims against the law firm in obtaining new or recurring coverage.

Allied World Assur. Co. (U.S.) Inc. v Golenbock Eiseman Assor Bell & Peskoe, LLP, 2025 NY Slip Op 01421 Decided on March 13, 2025 Appellate Division, First Department is a situation where coverage was denied.

“Defendant law firm represented nonparty Workspace, Inc. regarding certain real estate sales from 2015-2017. One of the properties, a unit in 106 Spring Street in Manhattan, sold in 2015, and by virtue of the sale the purchaser became a shareholder in Workspace. In November 2017, the purchaser sued Workspace in the action captioned 106 Spring Street LLC v. Workspace, Inc., index No. 657050/2017 [Sup Ct, New York County] (the 106 Spring Street Action), alleging that Workspace, by concealing certain documents and facts both during the 106 Spring Street sale and thereafter, acted to deprive the purchaser of significant monetary benefits in the pending sale of another of Workspace’s properties at 93 Mercer Street in Manhattan. The 93 Mercer Street transaction never closed due to, among other things, the pendency of the 106 Spring Street Action, resulting in an alleged loss to Workspace’s shareholders of more than $18 million.

In 2018, Workspace and defendant entered into a tolling agreement, which set forth that Workspace “believes that it may hold claims against [defendant] . . . and wishes to preserve the Claims — if any — until the final adjudication of the [106 Spring Street Action].” The tolling agreement also provided that defendant “believes that it may hold claims against Workspace for unpaid legal fees,” and that “[t]he parties desire to avoid litigation at this time.” Finally, the parties entered into the agreement “to toll the statute of limitation on their claims against one another at this time.”

Years later, plaintiff insurer issued a claims-made policy to defendant for the period of August 1, 2021 to August 1, 2022. The policy expressly defined a “claim” to include “a request to toll or waive a statute of limitations made to or against any Insured seeking to hold such insured responsible for any Wrongful Act.” The policy defines a Legal Services Wrongful Act as “any actual or alleged act, error or omission committed by any Insured, solely in the performance of or failure to perform Legal Services.” Finally, the “No Prior Knowledge” condition precedent to coverage required that “prior to August 1, 2019, no Insured had any basis (1) to believe that any Insured had breached a professional duty; or (2) to foresee that any fact, circumstance, situation, transaction, event, or Wrongful Act [*2]might reasonably be expected to be the basis of a Claim against any Insured.” Defendant did not disclose the tolling agreement or the related 106 Spring Street Action to plaintiff prior to the policy’s issuance.

On August 3, 2021, Workspace initiated an action against defendant for legal malpractice allegedly committed from 2015 through 2017 in connection with the 106 Spring Street sale and the ultimately aborted 93 Mercer Sale (the Workspace Action).^[FN1] On August 9, 2021, defendant requested coverage in the Workspace Action from plaintiff, and on August 27, 2021, plaintiff agreed to provide a defense while reserving its rights. During its investigation of the Workspace Action, plaintiff subsequently learned that defendant had entered, and failed to disclose, the tolling agreement in August 2018. On August 16, 2022, plaintiff insurer denied coverage to defendant on the grounds that the claim pre-dated the policy, and that the policy’s no prior knowledge condition was not satisfied.

Supreme Court granted plaintiff’s motion for summary judgment on its first two causes of action, declaring that there is no coverage for defendant under the policy because (i) the claim predates the policy, and (ii) the policy’s prior knowledge condition was not satisfied. We affirm based on Supreme Court’s reasoning.

While the Workspace Action was commenced during the policy’s coverage term, the legal malpractice claims set forth in the action predate the policy’s effective period. It is undisputed that defendant and Workspace, its former client, entered into the tolling agreement prior to the policy period, and defendant’s argument that the tolling agreement is ambiguous or otherwise insufficient to constitute a “claim” is unavailing. The policy specifies that a tolling agreement seeking to hold defendant responsible for “any Wrongful Act” (including acts constituting legal malpractice) establishes a claim.”

“The tolling agreement establishes that defendant had both subjective and objective knowledge of a potential legal malpractice claim sufficient to trigger an obligation to disclose such fact to plaintiff under the policy. The tolling agreement expressly states that Workspace believed it may hold claims against defendant, and that such claims were preserved pending the outcome of the 106 Spring Street Action. Lastly, defendant’s own reserved claims for unpaid legal fees provide further support for such conclusion. Accordingly, by virtue of the tolling agreement and the parties’ exclusive attorney-client relationship, defendant knew or should have known that Workspace sought to preserve its potential claims regarding defendant’s legal representation during the transactions underlying the 106 Spring Street Action.”