Supreme Court clears way for excess insurers to pursue claims against counsel

An Oct. 18 Mississippi Supreme Court decision has the potential to change the state’s legal malpractice insurance market and increase premiums for lawyers who carry it.

The holding arose out of a dispute between an excess insurance carrier who sued a primary carrier’s counsel.

A former resident’s estate sued Shady Lawn Nursing Home and Vicksburg Convalescent Home, claiming the facilities were negligent and offered inadequate care.

Shady Lawn’s primary insurance carrier, Royal Indemnity Co., hired attorneys to defend against the lawsuit. The health care facility also had an umbrella insurance policy with Great American E&S Insurance Services, whose coverage only kicked in if the claim exceeded $1 million.

Because of that threshold, Great American was not required to defend Shady Lawn until the primary carrier’s policy limits had been exhausted. Great American asked for, and received, status updates from Royal Indemnity’s counsel as the litigation proceeded through Warren County Circuit Court.

Defense counsel’s initial evaluation of the case put the settlement value between $150,000 and $400,000, well below the $1-million mark that would have to be reached before Great American’s coverage would be activated. The evaluation noted that counsel would have to designate expert witnesses to offer testimony on Shady Lawn’s behalf; the evaluation said one had been contacted but not yet retained.

In November 2003, Royal Indemnity assigned the case to Quintairous, Preito, Wood and Boyer, a law firm with offices in South Florida. The deadline then for both sides to designate expert witnesses was Dec. 15, 2003. Plaintiff’s counsel met that deadline; Quintairous did not.

The status report Quintairous provided to Great American, about a month after the expert witness deadline, pegged the value of the case at $250,000 in compensatory damages, and a trial value of $500,000, still well under the excess carrier’s $1-million threshold.

After the trial court denied Quintairous’ attempt to designate an expert witness, the firm raised the settlement value of the case to between $3 million and $4 million. Royal Indemnity tendered its policy limits, and Great American’s coverage was in play.

Great American eventually paid an undisclosed amount to settle the lawsuit. The company then sued Quintairous, claiming legal malpractice and negligence because the firm had missed the deadline to designate expert witnesses, driving up the value of the case and bringing the excess coverage into play.

Great American claimed it was entitled to recover damages under the theory of equitable subrogation, a legal theory based on the principles of equity and objective fairness.

The trial court granted Quintairous’ motion to dismiss, which was based on the firm’s argument that it had no attorney-client relationship with Great American, making a claim of legal malpractice impossible. The Mississippi Court of Appeals reversed that decision, finding that Great American had established that it did have an attorney-client relationship with Quintairous because the firm had provided status updates about the original litigation involving Shady Lawn.

The Mississippi Supreme Court’s opinion, split 5-4 with partial concurrences and dissents, held that Great American could pursue a claim of equitable subrogation from Quintairous, but could not pursue a claim of legal malpractice and negligence because the company had not established that it had an attorney-client relationship with Quintairous. The court did rule that an excess carrier has the same right to pursue a claim against counsel that primary carriers enjoy.

“Holding otherwise would place negligent lawyers in a special category of protection,” Justice Jess Dickinson wrote in the majority opinion.

The high court remanded the case back to Warren County Circuit Court for Great American to pursue its claim against Quintairous based on equitable subrogation alone.

“The entities most affected are people who write legal malpractice insurance, who are now reinsurers for excess insurers, in a manner of speaking,” said Matt Steffey, professor at Mississippi College School of Law in Jackson. “They kind of have that role even though they have no ability to monitor litigation in the same way an excess insurer could. You’ve put the liability on an entity that is less able to influence the litigation, and that seems to be inefficient and undesirable from a policy perspective.”

In terms of lawyers, Steffey said, the court took care to say that it does not impose another client relationship, but it does place on them liability in the absence of duty.

“And that seems a little odd,” he said. “That seems unrealistic, because if there’s another potential plaintiff out there, even under equitable subrogation, it will certainly affect lawyer behavior. It seems to be inconsistent with what we expect out of liability.”

Steffey said the decision could create an uneven situation because it holds that counsel be held accountable, but does not expressly say to whom.

“It is a notable change in the law. The net effect of this would seem to be increased malpractice premiums. It will at least marginally change the way lawyers behave. I believe it will make lawyers feel like they’re under an additional legal duty. And it will frighten those who write legal malpractice policies.”

The Mississippi Defense Lawyers Association filed an amicus brief related to the case. MDLA president Trey Byars said last week that the organization would have no comment because the litigation will continue either via a motion for rehearing at the supreme court, or in Warren County Circuit Court.

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