In a win for Wiley's client, a New York intermediate appellate court, applying New York law, has affirmed that no coverage is available for a legal malpractice lawsuit because the "claim" was first made before the policy's inception when the underlying plaintiff requested a tolling agreement from the insured and independently because the prior knowledge condition precluded coverage. Allied World Assurance Co. (U.S.) Inc. v. Golenbock Eiseman Assor Bell & Peskoe, LLP, 2025 WL 793350 (N.Y. App. Div. 1st Dep't Mar. 13, 2025).
The insured, a law firm, entered a tolling agreement in 2018 with its former client which sought, among other matters, "to preserve the [client's] Claims – if any – until the final adjudication of" an underlying litigation against the client involving a transaction in which the firm represented the client. The client sued the firm in 2022. The firm sought coverage under its professional liability policy for the 2021-2022 policy period. The insurer agreed to defend the firm under a reservation of rights and filed a lawsuit seeking a declaration that there was no coverage under the policy because the "claim" was first made prior to the policy period at the time of the tolling agreement and the policy's prior knowledge condition barred coverage. The trial court granted summary judgment for the insurer.
The appellate court affirmed the trial court's decision. Affirming that the "claim" was first made prior to the policy period, the court explained that "[t]he policy specifies that a tolling agreement seeking to hold [the firm] responsible for 'any Wrongful Act' (including acts constituting legal malpractice) establishes a claim," and while "the tolling agreement did not lay out in specific detail the claims [the client] was considering against [the firm], the parties' only relationship was that of attorney-client, and the agreement explicitly referenced . . . an action against [the client] involving a real estate transaction in which [the firm] represented [the client]." The appellate court also affirmed that the prior knowledge condition independently barred coverage for the legal malpractice lawsuit because "[t]he tolling agreement establishes that [the firm] had both subjective and objective knowledge of a potential legal malpractice claim sufficient to trigger an obligation to disclose such fact to [the insurer] under the policy" and "by virtue of the tolling agreement and the parties' exclusive attorney-client relationship, [the firm] knew or should have known that [the client] sought to preserve its potential claims regarding [the firm's] legal representation[.]"
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