Associated Industries Insurance Company, Inc. v. Wachtel Missry LLP
- Lorna Schofield
- 1:21-cv-03624
- U.S. District Court · Southern District of New York
- 4
In Associated Industries Insurance v. Wachtel Missry, Judge Schofield granted the insurer’s motion and denied Kleinhendler’s motion concerning coverage defenses.
Associated Industries Insurance Co., Inc., Wachtel Missry LLP, and Howard Kleinhendler, particularly regarding whether estoppel or laches required Associated Industries to provide insurance coverage.
What happened
Associated Industries Insurance Co., Inc. sought a ruling that it did not have to defend or cover Wachtel Missry LLP and Howard Kleinhendler in related malpractice litigation. The court had previously ruled for the insurer, subject to the defendants’ defenses of estoppel and laches.
Kleinhendler argued that the insurer waited too long to deny coverage and that the delay harmed him. He also argued that the insurer controlled the related litigation and that he would have chosen different counsel if he had known about the insurer’s position.
The court granted Associated Industries’ motion for summary judgment and denied Kleinhendler’s motion. Judge Schofield ruled that the insurer promptly reserved its rights, that its ten-month investigation period was not unreasonable, and that Kleinhendler’s claimed harm resulted from accepting a defense subject to that reservation rather than from delay.
The detailed version
- Associated Industries Insurance Company, Inc. v. Wachtel Missry LLP · No. 1:21-cv-03624
- Lorna Schofield
- Dec. 23, 2022
Background
Associated Industries Insurance Co., Inc. sought a declaratory judgment that it was not obligated to defend or indemnify Wachtel Missry LLP and Howard Kleinhendler, a former partner at Wachtel Missry, against claims in related litigation in the Eastern District of New York. In a September 8, 2022, order, the court granted Associated Industries’ motion for judgment on the pleadings, subject to the defendants’ affirmative defenses.
The remaining dispute concerned Kleinhendler’s defenses of estoppel and laches. Estoppel can prevent an insurer from denying coverage when it unreasonably delays its disclaimer and the insured is prejudiced by the delay. Laches is an equitable defense based on delay that prejudices the opposing party. The parties’ correspondence was treated as cross-motions for summary judgment on those defenses. Wachtel Missry and Associated Industries later reported reaching a settlement in principle, while Associated Industries and Kleinhendler jointly requested a ruling on their cross-motions.
Notice and Claimed Prejudice
Associated Industries received notice of a potential coverage obligation on August 21, 2019. The next day, it confirmed receipt of the demand and stated that it was not waiving any policy terms and expressly reserved all rights. On September 18, 2019, it again stated that its investigation was ongoing and that it reserved all rights. On June 19, 2020, it sent Wachtel Missry a letter disclaiming coverage.
The policy stated that Wachtel Missry agreed to act for every insured regarding giving and receiving notices. The court therefore treated the reservation of rights sent to Wachtel Missry as notice to Kleinhendler as well. Kleinhendler asserted that he did not personally receive the disclaimer until July 2021, when the lawsuit was filed. He claimed prejudice from Associated Industries’ control of the related litigation and bankruptcy proceedings, the financial burden of defending himself without coverage, and his decision to accept counsel he allegedly would not have chosen if he had known about the reservation of rights.
Ruling
The court granted Associated Industries’ motion for summary judgment and denied Kleinhendler’s motion. It held that Kleinhendler had not shown the delay and prejudice required for either estoppel or laches.
Regarding delay, the court held that Associated Industries provided notice of its reservation of rights one day after receiving the pre-suit demand. Because the insurer expressly reserved its rights in writing, the ten-month period before it sent the disclaimer was not unreasonable. Regarding prejudice, the court held that the alleged harm from Associated Industries’ control of the related litigation resulted from Wachtel Missry’s decision to accept a defense subject to a reservation of rights, rather than from any delay by Associated Industries in asserting its rights. The remaining parties were ordered to submit a joint proposed judgment consistent with this order and the September 8, 2022, order.
Read the full 4-page opinion on CourtListener, the free public archive maintained by the Free Law Project.