• Indiana Court of Appeals Holds Excess Insurer May Not Sue Insured's Attorneys for Legal Malpractice
  • April 10, 2007
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • Querrey & Harrow, Ltd., et al. v. Transcontinental Insurance Company, __N.E.2d__, 2007 WL 505791 (Ind. App. 2007)

    Brief Summary
    The court held that an excess carrier could not bring a legal malpractice action against counsel for the insured and the primary carrier under an equitable subrogation theory as such a theory would be contrary to the Indiana rule of non-assignability of legal malpractice claims. The court also held that on the facts as adduced, the excess carrier could not assert that it had an express or implied attorney-client relationship with counsel for the insured and the primary carrier.

    Complete Summary
    Buicky Boriboune was injured while using a trampoline made by Jumpking, a company owned by ICON Health & Fitness, Inc.(“ICON”). A product liability suit was filed on his behalf against Jumpking, which was self insured for $250,000. Liberty Mutual Insurance Company provided primary coverage above the self insured retention and excess coverage was provided by the Transcontinental Insurance Company (“CNA”). Liberty Mutual retained Querrey & Harrow, Ltd., James N. Kosmond, Gretchen Cepek, Sanders Pianowski, LLP and Robert A. Sanders (collectively “Querrey and Sanders”) to defend Jumpking. Once the excess carrier was put on notice of the claim by ICON, confidential client communications between the attorneys and ICON/Jumpking were provided to CNA from ICON. Id. at *5. The case was ultimately settled for $6.3 million. Id. at *1.

    CNA filed a legal malpractice claim against the defense attorneys alleging that if the attorneys from Querrey and Sanders raised a timely non-party defense, the case could have been settled or a verdict obtained that was significantly less than $6.3 million, and that absent their malpractice, CNA would not have had to pay anything under the excess coverage. Querrey and Sanders filed motions for summary judgment which were denied by the lower court on the ground that the excess carrier was equitably subrogated to the rights of its insured and so could recover damages for malpractice against the insured’s defense attorneys. Id. at *2.

    The appellate court noted that Indiana recognizes only one exception to the general rule that a plaintiff must be in privity of contract with a lawyer in order to sue the lawyer for malpractice, an exception that is limited to omitted beneficiaries under a will. See Keybank National Association v. Shipley, 846 N.E.2d 629 (Ind. Ct. App. 2006). The court also noted that public policy concerns dictate that legal malpractice claims may not be assigned because such assignments would weaken the duty of loyalty and the duty to maintain client confidentiality. See Picadilly, Inc. v. Raikos, 582 N.E.2d 338 (Ind. 1991).

    CNA framed its claim as one of equitable subrogation in order to avoid these Indiana rules. CNA argued that the law “should not create a class of special, protected defense attorneys who commit malpractice with impunity.” 2007 WL 505791 at *3.

    The court reviewed case decisions from other jurisdictions and agreed with those which held that subrogation amounted to an impermissible assignment since “each operates to transfer from one person to another a cause of action against a third, and the reasons of policy which make certain causes of action nonassignable would seem to operate as forcefully against transfer of such causes of action by subrogation.”  Capitol Indemnity Corp. v. Fleming, 58 P.3d 965 (2002). Subrogation of a legal malpractice claim to an excess insurer would result in a conflict of interest for the defense attorneys who may place their self interest in avoiding a suit by a third party or the third party’s interests above those of the client. In addition, because the client still has the right to pursue a malpractice claim against the defense attorney, the attorney is not getting a “free ride.” 2007 WL 505791 at *4.

    Significance of Case
    Indiana has joined the ranks of states that prevent a non-client from using equitable theories to sue lawyers for malpractice even though the malpractice may directly and foreseeably have harmed the non-client. One cannot, however, predict with certainty whether other jurisdictions that have not yet addressed this issue will or will not follow the Indiana approach.