Manhattan law firm D'Amato & Lynch said in recent court filings that its own legal malpractice insurer has refused to cover its dispute with an insurance company over a $1 million check that it deposited in the wrong bank account.

Meanwhile, the insurance company that brought suit over the $1 million check, First Mercury Insurance Co., is seeking to put the firm in the hands of a receiver, asking for a constructive trust to be imposed over its assets and those of Luke Lynch Jr., who is described as the firm's general partner.

The developments mark the latest challenges for D'Amato & Lynch, which was founded in 1969 by George D'Amato and eventually grew to nearly 100 lawyers. As Law.com has reported, the firm's head count has fallen steadily over the years, its website is no longer online, and it was sued earlier this year by its former landlord over allegedly unpaid rent.

A decision by D'Amato & Lynch's unnamed insurer not to fund its defense in the litigation over the $1 million check could put even more pressure on the firm. (Lynch said in an affidavit that the insurer's coverage decision was erroneous.)

The litigation over the check was filed in September by First Mercury and its claims manager Riverstone, which had hired D'Amato & Lynch to defend First Mercury policyholders in personal injury lawsuits,

The September lawsuit claims D'Amato & Lynch deposited a $1 million check into the firm's operating account even though the funds were meant to go into its trust account and ultimately pay a litigant who had sued one of First Mercury's insureds.

First Mercury said Lynch's brother, whose role at the firm could not be confirmed, admitted the money flowed into the wrong account. The insurance company also claims the firm's error and its refusal to refund the money violates New York law and the Rules of Professional Conduct.

"D'Amato & Lynch's commingling of $1 million … in the face of the attorney employee or limited partner abandonment of D'Amato & Lynch demonstrates that it is not profitable, cannot pay its bills [and] is in imminent danger of insolvency," First Mercury's lawyer, Andrew Lavoott Bluestone, wrote in a brief that seeks a receiver for the firm.

First Mercury has said in court papers that D'Amato & Lynch signed on in 2017 to be national coordinating counsel in the wide variety of cases—personal injury suits, mostly—faced by its insureds. The firm can't fulfill the deal anymore, however, partly because it doesn't have enough manpower, according to the plaintiffs.

The plaintiffs are also seeking default judgments against Lynch, the firm and Michael Haig, identified as the firm's comptroller. Three other defendants, attorneys Robert Lang, Arturo Boutin and David Boyar, have been given extra time to respond, and Lynch and the firm, represented by a team from Tarter Krinsky & Drogin, have sought a similar extension.

For its part, D'Amato & Lynch is seeking to send the case brought the insurance company to mediation or arbitration.

The law firm has said in filings this week that the 2017 agreement's "broad, multi-tiered dispute resolution clause" requires the dispute to be resolved out of court. Lynch is also a beneficiary of that agreement, his lawyers argued, and the case should be stayed in the meantime.

Howard Jacobowitz of Vouté, Lohrfink, Magro & McAndrew, who represents Boutin, said the allegations against his client "are not true." David Mollon, who represents Lang, said his client would vigorously fight the suit, saying, "none of the allegations contained in his lawsuit have anything to do with my client."

Bluestone, First Mercury's lawyer, declined to comment Thursday, and Lynch and his lawyer Richard Schoenstein of Tarter Krinsky didn't respond to comment requests. Stewart Lee Karlin, who represents Boyar, declined to comment, and contact information for Haig or any lawyer he may have retained couldn't be found.