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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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
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 ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
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/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
