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Got coverage? Claims-made policies, tolling agreements and “no prior knowledge” conditions

4/23/25

By: Edward Solensky Jr.

In Allied World Assurance Co. (U.S.) Inc. v. Golenbock Eiseman Assor Bell & Peskoe, LLP, No. 2024-01377, 2025 WL 793350 (N.Y. App. Div. Mar. 13, 2025), a New York appellate court examined whether coverage was afforded under a claims-made policy where a tolling agreement had been entered into by a law firm prior to the issuance of its legal malpractice policy. Allied World Assurance Company (U.S.) Inc. (“Allied”) issued the policy to Golenbock Eiseman Assor Bell & Peskoe, LLP (“the law firm”) covering the period Aug. 1, 2021, to Aug. 1, 2022. Pursuant to the policy: (1) a “claim” was defined to include “a request to toll or waive a statute of limitations made to or against any Insured seeking to hold such insured responsible for any Wrongful Act;” (2) a “Legal Services Wrongful Act” was defined as “any actual or alleged act, error or omission committed by any Insured, solely in the performance of or failure to perform Legal Services;” and (3) the “No Prior Knowledge” condition precedent to coverage required that “prior to Aug. 1, 2019, no Insured had any basis either: (a) to believe that any Insured had breached a professional duty; or (b) to foresee that any fact, circumstance, situation, transaction, event or Wrongful Act might reasonably be expected to be the basis of a Claim against any Insured.” 

The law firm was sued on Aug. 3, 2021, within the Allied policy period, for legal malpractice by Workspace, Inc., for certain real estate sales from 2015 to 2017. The lawsuit included the 2015 sale of a unit in 106 Spring St. in Manhattan, whereby the purchaser became a Workspace shareholder (“the Workspace Action”). In 2017, the same purchaser sued Workspace, alleging that it had concealed documents and facts during and subsequent to the 106 Spring Street sale and deprived the purchaser of significant monetary benefits in the pending sale of another Workspace property (the “106 Spring Street Action”). The transaction of the other Workspace property never closed due, in part, to the pendency of the 106 Spring Street Action. The Workspace shareholders claimed an $18 million-plus loss. 

Prior to the Allied policy period, in 2018, Workspace and the law firm had entered into a tolling agreement. The agreement provided that: (1) Workspace “believes that it may hold claims against [the law firm] … and wishes to preserve the Claims — if any — until the final adjudication of the [106 Spring Street Action];” (2) the law firm “believes that it may hold claims against Workspace for unpaid legal fees” and that “[t]he parties desire to avoid litigation at this time” and (3) the parties entered into the agreement “to toll the statute of limitation on their claims against one another at this time.” 

In response to the Workspace Action, the law firm requested coverage from Allied, who agreed to provide a defense while reserving its rights. Subsequently, Allied learned the law firm had failed to disclose that it had entered into the 2018 tolling agreement. Allied then denied coverage, stating that the underlying claim in the Workspace Action pre-dated the policy and the policy’s “no prior knowledge condition” was not satisfied. 

The trial court granted summary judgment to Allied, declaring the policy did not afford coverage because Workspace’s claim predated the policy and the policy’s prior knowledge condition was not satisfied. The Appellate Division affirmed, holding the tolling agreement constituted a pre-policy claim pursuant to the terms of the policy, and Allied had no duty to defend. The Appellate Division reasoned that: (1) the law firm and Workspace entered into the tolling agreement prior to the policy period and the policy specified that a tolling agreement seeking to hold the law firm responsible for “any Wrongful Act” (including acts constituting legal malpractice) established a claim; (2) the tolling agreement referenced the 106 Spring Street Action against the law firm and its prior representation of Workspace; (3) a connection existed between the 106 Spring Street Action, the tolling agreement, and the Workspace Action, as the malpractice claims asserted in the Workspace Action were based upon the law firm’s actions during the real estate transactions and (4) a Legal Services Wrongful Act, as defined in the policy, was therefore the only type of claim that reasonably could have been contemplated by the tolling agreement and the policy’s terms did not require that the tolling agreement spell out the proposed claims in detail.  

The Appellate Division further held that coverage was properly denied due to the law firm’s failure to satisfy the policy’s “No Prior Knowledge” requirement. Applying New York’s two-step subjective/objective knowledge test, the Court found: (1) the tolling agreement established that the law firm had subjective and objective knowledge of a potential legal malpractice claim sufficient to trigger an obligation to disclose such fact to Allied under the policy; and (2) the tolling agreement expressly stated that Workspace believed it may hold claims against the law firm and such claims were preserved pending the outcome of the 106 Spring Street Action. Accordingly, by virtue of the tolling agreement and the parties’ exclusive attorney-client relationship, the law firm knew or should have known that Workspace sought to preserve its potential claims regarding the firm’s representation during the transactions at issue in the 106 Spring Street Action. 

This decision illustrates the importance of disclosing potential claims that predate a policy in order to satisfy the policy’s prior knowledge condition and avoid a denial of coverage.  

For any questions or further clarification, please contact Edward Solensky Jr. at edward.solensky@fmglaw.com or your local FMG attorney. 

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and are not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.