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Federal court decides if insurer must cover malpractice lawsuit

Insurance companies offer their products to protect people in the event of unforeseen circumstances. New York consumers purchase insurance because they can't predict the future, and insurance companies assume the risk for them. However, it would not be a fair risk to the insurance provider if the client already knew trouble was on the way and didn't say anything before purchasing insurance. In fact, one insurance company in another state has filed a complaint in federal court because of just such a situation.

The insurance provider approved the application of an attorney for malpractice insurance, which became effective on Aug. 1. The lawsuit claims that the same day the company agreed to insure the attorney, one of the attorney's clients filed a malpractice lawsuit against him and the law firm. The malpractice claim alleges that the attorney breached his duties as general counsel to Sovereign Holdings, with millions of dollars at stake.

Reportedly, the malpractice claim had been in the wind for some time. The insurance company became aware of numerous emails and correspondence between the lawyer and Sovereign Holdings, an investment management company. The emails expressed the company's intention to sue the attorney for acts and omissions that allegedly took place during a divorce proceeding and involved a bank loan of almost $20 million. Nevertheless, the attorney indicated on his application for insurance that he had no pending or potential legal claims against him.

In this case, the insurance company is asking a federal court to rule that it is not responsible for covering the lawsuit, which is now underway. In situations in New York and beyond where an insurance company determines it should not have to honor a policy because the insured may have misled the company on the application, the parties may need a higher authority to decide the matter. For the best results, the assistance of an attorney skilled in insurance law is recommended.

Source: argusleader.com, "Insurer accuses lawyer of not disclosing malpractice claim", Jonathan Ellis, Nov. 17, 2017

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