(Andy Dean)

A New Jersey lawyer has taken his liability carrier to court to compel coverage of a malpractice suit that the insurer claims arose out of an undisclosed conflict of interest.

Landmark American Insurance Co. denied coverage to Matthew Heagen, of Toms River, based on policy exclusions for conflicts and for disputes of which the insured had prior knowledge.

The underlying suit accuses Heagen of botching the sale of an auto repair shop in which he represented both sides without obtaining a waiver of the conflict.

The complaint alleges that in 2008, Michael Bertolini retained Heagen for his sale of Mike & Sons Auto Repair, in Brick, to his brother, Anthony.

The terms required Michael to loan $945,000 to Anthony, who was to obtain a $2 million life insurance policy with Bertolini as the beneficiary. Anthony obtained the $2 million policy but did not make Michael the beneficiary. Heagen knew this at the time of the closing but let the sale go through, the suit says.

Anthony later defaulted on the loan and had it discharged in bankruptcy. Michael petitioned the bankruptcy court to be named beneficiary on the $2 million policy but was able to secure only a $668,000 beneficiary interest.

Michael has an exposure of $277,000, when the $668,000 in insurance funds is subtracted from the $945,000 loan.

Anthony suffers from terminal cancer, according to the suit.

Heagen never advised the brothers there was a conflict of interest in the joint representation, the suit charges.

Heagen, in his answer, says the complaint is barred, in whole or in part, by Bertolini’s failure to mitigate damages. The answer also says the malpractice suit is time-barred.

When Landmark disclaimed coverage in the suit, Heagen filed a third-party complaint in Ocean County Superior Court, alleging the company breached its contract when it refused to cover him and his firm, Heagen, Pagano & Seems.

Heagen, who is pro se in the malpractice case and the insurance coverage dispute, said in his third-party complaint that he denies liability in connection with the underlying malpractice action. He said his internal appeal over Landmark’s denial of coverage was rejected.

The company removed the case to federal court on June 11 and the same day filed a motion to dismiss the third-party complaint in Heagen v. Landmark American Insurance Co.

Landmark said it excluded coverage based on both the prior knowledge and conflict of interest exclusions of its policy. It said Heagen exchanged multiple letters with Bertolini about their dispute in 2011 and 2012 but made no disclosure of their dispute when his firm obtained the Landmark policy in 2013.

Landmark also claimed Heagen is not entitled to coverage because the suit falls under a policy exclusion for “the insured knowingly rendering or failing to render professional services to two or more parties of divergent, varying or opposed interests, thereby creating an actual conflict of interest.”

Heagen said he intends to dispute the removal of the insurance action to federal court. Regarding the malpractice suit, he disputed the characterization that the brothers’ interests were in conflict and says that he will dispute that claim.

He added that he met with both brothers to discuss the possibility that they might end up at odds and that they orally waived the conflict but he had no written record of the waiver.

Gerald Betzner, the Morristown solo representing Bertolini, declined to comment, as did Robert Benjamin of Kaufman Borgeest & Ryan in Valhalla, N.Y., who represents Landmark.

Contact the reporter at ctoutant@alm.com.