No Defense for Lawyer/Business Owner
Barry Zalma
Dec 13, 2023
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Post 4788
Associated Industries Insurance Company (AIIC) sued Howard Kleinhendler and his former law firm, Wachtel Missry LLP, seeking a declaration that it need not provide insurance coverage for either defendant in a lawsuit brought by Allan Applestein. Applestein sought damages for legal malpractice, breach of fiduciary duty, elder abuse, and fraud related to the 2017 sale of land in Virginia, known as the Fones Cliffs Land, to Kleinhendler’s company, the Virginia True Corporation.
In Associated Industries Insurance Company, Inc. v. Howard Kleinhendler, Defendant-Appellant, Wachtel Missry LLP, No. 23-57, United States Court of Appeals, Second Circuit (December 7, 2023) the Second Circuit resolved the dispute.
THE POLICY EXCLUSION
The insurance policy contained an explicit exclusion for activities undertaken in the capacity of an officer of another business enterprise. The district court granted judgment on the pleadings to AIIC because it determined the policy exclusion unambiguously excluded coverage due to Kleinhendler’s position with Virginia True.
CONTENTIONS
Kleinhendler contended that AIIC has a duty to defend him in the Applestein lawsuit because the lawsuit alleges some acts that could give rise to claims covered by the insurance policy, namely acts that occurred before the formation of Virgina True and acts related to the Fones Cliffs Land transaction that were unrelated to Kleinhendler’s position with Virginia True.
AIIC responded that it does not have a duty to defend him because the Applestein complaint squarely centers on the conflicted sale of the Fones Cliffs Land to Kleinhendler’s company, and its claims thus arise from Kleinhendler’s position with that company.
ANALYSIS
Under New York law, an insurer’s duty to defend is exceedingly broad. To be relieved of its duty based on a policy exclusion, an insurer has a heavy burden of demonstrating that the allegations of the complaint cast the pleadings wholly within that exclusion.
The Second Circuit noted that the issue to be resolved is whether the Applestein complaint brings claims that could potentially result in liability not arising out of Kleinhendler’s position with Virginia True and concluded that it does not. The complaint does not state any claim for liability that does not arise out of Kleinhendler’s position with his company.
Therefore, the Second Circuit concluded that AIIC carried its burden to demonstrate the exclusion applied and it has no duty to defend Kleinhendler in the Applestein suit.
That each and every claim arises from the sale of the Fones Cliffs Land to Virginia True is confirmed by the damages Applestein seeks-$7,724,200.36, apparently corresponding to the amount he lost as a result of the transaction and a loan he made to HK Consulting Group LLC (another Kleinhendler company) in connection with it, plus interest.
In short, all of Kleinhendler’s potential liability in the Applestein suit stems at least in part from his position with that company.
Therefore, the district court properly concluded that AIIC’s policy exclusion applied.
AIIC does not have a duty to defend Kleinhendler in the Applestein action.
ZALMA OPINION
There is no reason why a lawyer cannot be involved in a business outside the practice of law. It only becomes a problem if the business is involved with a client of the lawyer owner. Insurers of lawyers limit the liability coverage to the practice of law and most, like AIIC exclude coverage for actions between a lawyer owner of a non-law business and a client of the lawyer.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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No Right to Subrogation Against Tenant
Post 5231
Not Fair to Require Tenant to Pay for Damage Insured by LandlordSee the video at https://lnkd.in/gFkrp_6M and at https://lnkd.in/gQdFQBWj and at https://zalma.com/blog plus more than 5200 posts.
See the video at and at
For Insurer to Subrogate Lease Must Require Tenant to Obtain Insurance for the Benefit of the Landlord
In AmGUARD Insurance Co. v. Tyrone Ellis and Shakyra Ellis, U.S. District Court, District of Connecticut Civil No. 3:25-cv-946 (JCH) (November 19, 2025), Judge, Janet C. Hall the defendant’s Motion to Dismiss the Amended Complaint on the basis of Connecticut’s anti-subrogation doctrine required dismissal.
KEY FACTS
Landlord Michael Caldwell, a Connecticut citizen, owned a multi-family building in Windsor, Connecticut. Defendants Tyrone and Shakyra Ellis were residential tenants in the building. On or about March 1, 2025, a fire ...
Debt Resulting from Fraud is Not Dischargeable in Bankruptcy
Post 5230
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Knowing Misappropriation and Conversion of Funds is Fraud
In re Matthew Jene Tubbs (Bankr. N.D. Tex., Fort Worth Div., No. 22-42728-MXM-7; Adv. No. 23-04019-mxm), October 15, 2025 .
Key Facts
Plaintiffs (Robles) and Defendant (Tubbs) met through their church; both held leadership roles. In Feb 2021 Robles home suffered major water damage from Winter Storm Uri and insurance paid $173,000.
In the Fall of 2021: Tubbs represented to Mr. Robles that he personally built a newer house and large barn on his parents’ property “with his own hands” (except foundation/insulation). That he had 10 years’ experience overseeing window/door installations at a major home-improvement chain, was a licensed contractor (false) and carried general contractor liability insurance.
Relying on ...
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ZIFL-Volume 29 Number 22
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Post 5228
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
Read the full 20 page issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2025/11/ZIFL-11-15-2025-1.pdf
Man Bites Dog Story – Hertz Sues Alleged Fraudsters
Hertz Successfully Refuses to Pay Alleged Fraudulent Health Care Providers
Proactive Victim of Fraud Defeats Health Care Providers
More McClenny Moseley & Associates Issues
This is ZIFL’s thirty eighth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be ...
The Professional Claims Handler
Post 5219
Posted on October 31, 2025 by Barry Zalma
An Insurance claims professionals should be a person who:
Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
Understand how to repair damage to real and personal property and the value of the repairs or the property.
Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
How to Create Claims Professionals
To avoid fraudulent claims, claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
