As the criminal trial of a New York lawyer charged with bilking lottery winners out of millions of dollars got underway this week in a federal court in Brooklyn, one insurer was likely watching closely as it will be picking up the defense costs.
A few weeks ago on June 29, U.S. District Judge Joan Azrack ruled that Fireman’s Fund’s must provide defense coverage for “lottery lawyer” Jason Kurland under a professional liability policy it issued to his former law firm.
Fireman’s Fund had tried to get out of paying for the defense, arguing that the policy did not cover criminal cases and that it precluded coverage for “proceedings seeking injunctive or other non-pecuniary relief.”
Kurland insisted that the policy did cover his defense because the prosecutors were seeking “damages” in the form of restitution for the victims of the alleged scam.
The judge shot down the insurer’s arguments, noting that an insurer’s duty to defend is “distinctly different” from its duty to indemnify. She found the policy was unclear on whether it applied only to civil suits and on whether it precluded suits seeking both monetary damages and imprisonment—a form of non-pecuniary relief.
Fireman’s Fund also argued that it would be against public policy to grant Kurland insurance coverage for alleged criminal behavior because that would “arguably incentivize the bad behavior that the criminal justice system in this country seeks to prevent.” The policy excluded coverage for any claim “[a]rising out of any dishonest, fraudulent, criminal or malicious act or omission, or deliberate misrepresentation.”
But the judge dismissed that concern, noting that New York law imposes a duty on the insurer to “provide a defense of such actions until such time as the act is ruled either by trial verdict, court ruling, regulatory ruling, or legal admission as dishonest, fraudulent, criminal, or malicious.”
The court said that Fireman’s Fund must provide a defense to Kurland in the criminal proceeding even if it ultimately need not indemnify him.
Kurland and three business partners are facing charges for conspiracy, money laundering and wire fraud. Kurland was accused by the FBI in 2020 of convincing lottery winners to place $107 million into various investments. The lottery winners ended up losing more than $80 million.
According to court filings, Kurland purported to represent dozens of lottery winners with total winnings of approximately $3 billion. Of the three in the case on trial in New York, one of the winners won the $1.5 billion Mega Millions lottery, another won the $245 million Powerball jackpot, and the third won the $150 million jackpot. They each allegedly paid Kurland and his law firm hundreds of thousands of dollars, in part so that he could advise them on how to safely invest their money. Kurland allegedly steered his clients to invest in various entities and business deals controlled and directed by his associates and received kickbacks in return, according to the filings.
“Lottery winners can’t believe their luck when they win millions of dollars, and the men we arrested this morning allegedly used that euphoric feeling to their advantage,” stated FBI Assistant Director-in-Charge Sweeney in announcing the indictment in 2020. “The FBI New York discovered how these victims were persuaded to put large chunks of their cash into investments that benefited the defendants. Rather than try their luck at the lottery, these men resorted to defrauding the victims to get rich, but their gamble didn’t pay off.”