Insurers Must Careful When Considering Suing Counsel Appointed to Defend an Insured
There appears to be a growing trend in the United States where insurers file malpractice suits against counsel retained to defend their insureds. When an insurer retains a defense lawyer to represent its insured only to find they are incompetent or committed malpractice in providing the defense, rather than admit the error in choosing a poor lawyer for the insured the insurer sues the lawyer for malpractice seeking reimbursement for the amount paid to indemnify the insured.
Where the insurer retained defense counsel and there was no reservation of rights, courts have allowed the primary insurer to bring a cause of action against the attorney for malpractice, finding that the attorney represents the insurer, along with the insured, where they have common interests.
Insurance defense counsel must manage their potential exposure to suits brought against them by insurers who ask them to defend insureds. This should cause defense counsel to reevaluate the limits of their malpractice policies and to understand all the potential parties who may bring a malpractice claim against them.
Likewise, insurers should recognize their own exposure with respect to claims of vicarious liability. They must also select defense counsel with the utmost care and diligence because they may not be able to sue their chosen defense counsel if a mistake occurs. Insurers also need to make sure that the attorneys who represent their interests make appropriate disclosures to the insured’s independent counsel.
Great American attempted to sue its defense counsel for providing an incompetent defense to one of its insureds in Great American Insurance Co. v. Dover, Dixon Horn. The Eighth Circuit Court brought relief to the insurance defense bar when it refused to allow the insurer to successfully sue counsel—retained to defend an insured—for legal malpractice. The law of Arkansas only allows malpractice actions to be filed against those with whom the parties are in privity.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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