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Insurer Must Defend in High-end Miami Realty Suit *Centurion Insurance AFS*

Feb 23, 2024 (0) comment , , , , , , , ,


In the glittering world of high-end south Florida real estate, One Sotheby’s International Realty is known as one of the biggest players in the market. This month, the firm is handling the rental of NBA superstar Kevin Durant’s penthouse in Miami. Last year, it announced plans to break ground on a 31,000-square foot office building in Coral Gables, one of Florida’s poshest ZIP codes, according to news reports.

But the company, affiliated with the famed auction house in London, recently was hit with claims that it had allowed an allegedly unscrupulous agent to pressure Miami Beach condominium owners into selling before they were ready, at a below-market price, then pocketing almost $4 million from the sale.

And now, a federal appeals court decided this week, General Star National Insurance Co. cannot escape its duty to defend the realty firm in a civil lawsuit brought by the condo owners, despite exclusions built into Sotheby’s errors and omissions liability policy.

“Because a jury could hold One Sotheby’s liable without also finding conversion, the claims at issue in this case do not necessarily ‘arise from’ a dispute ‘involving’ conversion, and General Star has a duty to defend,” a panel of the 11th Circuit U.S. Court of Appeals said in its Feb. 21 opinion, upholding a lower court’s 2023 decision.

The case has national and international tendrils: General Star is a surplus and specialty carrier and a subsidiary of General Reinsurance, part of the Berkshire Hathaway conglomerate. The condo at issue is inside the swanky St. Regis Bal Harbour hotel just north of Miami Beach and was owned by Heliac Inc., a real estate holding company with a Swiss bank account, headed by two Russian nationals, a married couple. One of the principals was a shareholder in a United Arab Emirates-based company that provides helicopters, training and pilots around the world, news and court records show.

The alleged fraud and insurance coverage dispute began after Heliac hired real estate agent Gleb Klioner, who is well-known in south Florida’s Russian-speaking community, to market the St. Regis unit, the court explained. By 2020, Klioner had gone to work for One Sotheby’s but he kept the condo account. Heliac signed a listing agreement with the firm, offering the condo for almost $6 million.

But in late 2020, Klioner began pressuring the Russians to sell the unit immediately, below its listing price, warning them that the market and the U.S. economy was about to crash. The Heliac principals eventually agreed to sell at $4.2 million, the court opinion said, citing the underlying lawsuit. Heliac instructed Klioner to deposit the proceeds into its Switzerland bank account, but Klioner said he could only put the money into a Heliac operating account that he had exclusive access to.

The real estate agent then secretly wired $3.8 million from the Heliac account into his personal account, the court said. Nine days later, the helicopter firm ask him to send the sale proceeds to its Swiss bank. For the next 10 weeks, Klioner dithered, giving various reasons why the bank had not transferred the millions.

Eventually, he admitted that he had used the funds for his own purposes, the court said. Klioner has yet to repay the money. He was indicted last fall on wire fraud charges and his case is pending in federal court in the Southern District of Florida. The Heliac firm also filed suit in Miami-Dade County against Klioner and One Sotheby’s, and the realty company asked General Star to defend it.

The company’s E&O policy states clearly that General Star will pay for claims and damages. But it also contains exclusions, including one for conversion or embezzlement of funds.

Heliac’s lawsuit, however, did not focus heavily on the conversion. Instead, the complaint argued that Sotheby’s was negligent because it failed to properly train Klioner and had breached its duty to the client. The realty firm was only vicariously liable for Klioner’s conversion and misconduct, the suit claimed.

The suit, filed by Gainesville attorney Carolyn Budnik, who also incorporated the Heliac firm, and Miami lawyer Olesia Belchenko, also said Sotheby’s was responsible for the loss of revenue due to the lower sale price urged by Klioner.

Sotheby’s and General Star both asked the court to decide if the insurer had a duty to defend. The district court and the appellate judges agreed that it did, emphasizing that the coverage was not barred by the exclusions.

“The court concluded that the complaint could be fairly read to allege that Klioner did not decide to convert the sale proceeds until after the sale had already occurred,” the 11th Circuit judges noted. “So, the (lower) court reasoned, ‘the preceding actions—and the damages caused by the market differences—could not have arisen from the conversion,’ and the counts did not fall under the conversion exception to coverage.”

And that was “the whole ballgame,” the judges said.

“A jury could find One Sotheby’s liable for market-value damages related to Klioner’s negligent misrepresentations and One Sotheby’s negligent training of Klioner, without also necessarily also finding it liable for conversion and the lost sale-proceeds damages,” the opinion concluded.

Top photo: The St. Regis Bal Harbour, home of the condo, and adjacent mall. (Adobe Stock images)



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