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Insurer obligated to defend attorney in alleged kickback scheme


Evanston Insurance Co. is obligated to defend an attorney accused of participating in an insurance kickback scheme, says a federal district court in a ruling Wednesday.

Karim Arzadi, a New Jersey-licensed attorney with an office in Perth Amboy, New Jersey, and his law firm were named as defendants in a lawsuit filed by Allstate of New Jersey, a unit of Northfield Township, Illinois-based Allstate Corp., in which they were accused of participating in a kickback scheme while representing clients in personal injury matters, according to the ruling by the U.S. District Court in Newark, New Jersey in Karim Arzadi et al. v. Evanston insurance Co. and ABC Insurance Co.

Mr. Arzadi had a professional insurance liability policy with Evanston, a unit of Glen Allen, Virginia-based Markel Corp., for the period May 23, 2016, to May 23, 2017, that included a duty to defend, according to the ruling.

In January 2017, Mr. Arzadi and his law firm were named as defendants in a lawsuit in which they were charged with engaging “in a continuing fraudulent scheme that is designed to defraud the Allstate Plaintiffs… by including the payment of PIP (personal injury protection) health care benefits,” according to the ruling.

Evanston denied coverage in the matter because the plaintiffs allegedly engaged in fraudulent conduct, which, it said, “does not fall under the Policy’s definition of Professional Legal Services.”

The court ruled in Mr. Arzadi’s favor. Under the policy, Evanston must defend the plaintiffs against claims alleging a “wrongful act arising out of Professional Legal Services,” said the ruling.

The Allstate policy “contains allegation that Arzadi advised clients how to proceed with their personal injury claims, which falls squarely within the Policy’s definition of Professional Legal Services,” said the ruling.  “Indeed, if Arzadi had not been acting as an attorney, he would not have been able to commit the alleged fraudulent acts,” said the ruling.

Evanston also contended there was no coverage because the underlying claim in the Allstate suit did not allege plaintiffs were negligent in providing services, said the ruling.

The ruling said, “in interpreting the Policy according to its plain and ordinary meaning, it does not limit coverage to negligent acts only.  Indeed, the language is clear, the Policy provides that it will cover any act as long as it is connected to the insured’s profession as a lawyer,” it said, in holding Evanston has a duty to defend the attorney.