Known Risk, No Coverage: Prior Knowledge Exclusion Applies Based on Probate Allegations
The United States District Court for the District of New Jersey, applying New Jersey law, has held that a prior knowledge exclusion barred coverage for a legal malpractice claim arising from a probate dispute because a reasonable attorney would have believed that the lawyer breached a professional duty or otherwise foreseen the potential for liability. Ascot Specialty Ins. Co. v. Mason, Griffin & Pierson, P.C., 2025 WL 2388433 (D.N.J. Aug. 18, 2025).
In December 2020, the estate of a deceased client filed a probate action alleging that a lawyer assisted the deceased client’s wife in the misappropriation of estate assets. A few months later, the lawyer’s firm purchased a professional liability policy. The policy contained a prior knowledge exclusion, which barred coverage if, prior to the inception of the policy, an “Insured has any basis (1) to believe that any Insured breached a professional duty; or (2) to foresee that any such Wrongful Act or Related Circumstances might reasonably be expected to be the basis of a Claim against any Insured.” In January 2023, the estate filed a lawsuit alleging that the insured lawyer committed legal malpractice by “knowingly,” “intentionally,” or “negligently” assisting in the tortious misappropriation of estate assets. The insurer denied coverage for the malpractice action under the prior knowledge exclusion.
In the ensuing coverage litigation, the insureds argued that the prior knowledge exclusion did not apply because their “relevant reasonable expectation was triggered by receipt of the Malpractice Action” in January 2023 and not by the filing of the probate action in December 2020, which did not include any direct legal malpractice claims against the lawyer. The court disagreed, holding that the insureds’ “subjective” knowledge of any relevant suit, act, error, or omission was irrelevant because the prior knowledge exclusion required an “objective” inquiry into whether a reasonable professional in the insureds’ position might expect a claim or suit to result. The court found that the probate action sought to disqualify the lawyer for conflicts of interest and his “knowing and intentional facilitation of” tortious transfers. The court determined that those allegations alone demonstrated that a “reasonable attorney” would either (1) believe that the lawyer breached a professional duty by allegedly assisting in the tortious transfer of estate assets; or (2) foresee that the lawyer’s alleged actions might reasonably be expected to be the basis of a future claim against any insured. The court noted that the malpractice action contained similar allegations as the probate action, further demonstrating that the insureds should have foreseen a legal malpractice claim against them. As such, the court held that the prior knowledge exclusion barred coverage for the malpractice action.
