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A lawyer’s knowledge of his own malpractice cannot be imputed to his firm in determining whether the firm provided timely notice of possible claims to its professional liability insurer, a New York court has ruled. Manhattan landlord-tenant firm Rosenberg & Estis sued the Chicago Insurance Co. last year to compel it to provide a defense to malpractice claims arising from one partner’s misdeeds. The insurer had refused on the grounds that the partner’s knowledge of his own misconduct should be imputed to the firm. Since the malpractice took place in 1997 and 1998, and Rosenberg & Estis did not notify its insurer until 2001, Chicago argued, the law firm violated the notice provision of its policy and was not entitled to coverage. But Manhattan Supreme Court Justice Herman Cahn rejected that argument in his decision last week in Rosenberg & Estis v. Chicago Insurance Co., 600938-02. “In a firm consisting of numerous attorneys, partners and associates, it is not reasonable to impute one lawyer’s knowledge of his own wrongful actions to all,” he wrote. “It can be assumed that a ‘bad actor’ does not advise his partners or employers of his bad acts, until they are otherwise uncovered.” But Justice Cahn also included a number of caveats in his ruling, which granted Rosenberg & Estis summary judgment on its costs incurred to date and only insofar as the law firm needed to defend its malpractice suit pending the disposition of its dispute with Chicago. A showing that the firm knew about the malpractice at an earlier date or did not adequately supervise its attorneys could still affect the ultimate outcome, the judge wrote, as could evidence about firm organization. “The matter would be different if it related to a single practitioner or a very small and well-integrated firm,” Cahn wrote. The malpractice suit against Rosenberg & Estis arose from a long pattern of misconduct by former partner Lawrence M. Furtzaig. From 1990 to 2000, Furtzaig lied to five different clients about the status of their cases by falsifying court records to show clients he had made progress in their matters. Documents he forged included a judgment for possession, a judgment for $279,000 in back rent and a $3.25 million appeal bond. Furtzaig, who became a non-equity partner at the firm in 1990 and an equity partner in 2000, resigned in 2001 after his misconduct came to light. In later testimony before the Departmental Disciplinary Committee, Furtzaig blamed his misconduct on his depression and his need to maintain the appearance of success within the highly pressured environment of the law firm. In April, the New York Appellate Division, 1st Department, suspended Furtzaig from practice for five years. Rosenberg & Estis was represented in the insurance dispute by Eugene Andersen and Diana Shafter of Anderson Kill & Olick. “We think it’s a really significant victory, not just for our clients but for all policyholders,” Shafter said. “The position Chicago was taking was that no law firm could defend itself against hidden wrongdoing by any employee.” Kevin F. Cavaliere of Steinberg & Cavaliere in White Plains represented Chicago. Cavaliere declined to comment.

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