Never Sue a Defendant Who Is Broke

Is Lawyer’s Failure to Determine Insurance and Assets of Defendant Malpractice?

One of the most important things a plaintiff’s lawyer does when he or she takes on a case is determine if the defendant has liability insurance or assets sufficient to pay any judgment that may be obtained. If the defendant is judgment proof no matter how successful the trial the case is not worth the time of the plaintiff or the lawyer.

In Patric J. LeHouillier and LeHouillier & Associates, P.C., v. Della Gallegos, 2019 CO 8, Supreme Court Case No. 17SC312, Supreme Court of the State of Colorado, (January 28, 2019) an attorney malpractice case was founded on professional negligence and asked the supreme court to decide who—the client or the attorney—bears the burden to prove that any judgment that could have been obtained against the underlying defendant would or would not have been collectible.

FACTS

Della Gallegos had to undergo three cranial surgeries after her radiologist, Dr. Steven Hughes, failed to detect an obvious brain tumor on an MRI scan three years earlier. Had Dr. Hughes discovered the tumor in 2006, Gallegos could have treated it with cheaper, and less invasive, radiosurgery. The highly invasive cranial surgeries damaged Gallegos’s vision, hearing, and memory.

Gallegos retained an attorney, Patric LeHouillier, to sue Dr. Hughes for medical malpractice. But LeHouillier later decided not to proceed with the suit, concluding it did not make economic sense. He and Gallegos disagree over whether he actually informed her of this decision. In any event, the statute of limitations lapsed on the claims Gallegos could have brought against Dr. Hughes.

Gallegos then sued attorney LeHouillier and his firm, claiming that LeHouillier’s negligence prevented her from successfully suing Dr. Hughes for medical malpractice.

LeHouillier claims that he met with Gallegos and informed her of his decision to end his representation of her, but he kept no written records memorializing the meeting or his decision. Gallegos contends that the alleged conversation never took place and that she was not aware that LeHouillier had dropped her case. The statute of limitations lapsed on the medical malpractice claims that Gallegos could have brought against Dr. Hughes.

The trial court agreed with LeHouillier that Gallegos bore the burden of proving collectibility. But it ruled that Gallegos had provided sufficient evidence to permit the jury to decide whether the judgment against Dr. Hughes was collectible. The jury ultimately found that Dr. Hughes had committed medical malpractice by failing to diagnose Gallegos’s brain tumor in 2006. It also found that LeHouillier and his firm had breached their professional duty of care by not pursuing the case against Dr. Hughes. Finally, the jury found that Gallegos suffered over $1.6 million in present and future damages.

In a 2-1 decision, the court of appeals reversed and remanded for a new trial.

ANALYSIS

Determining which party bears the burden of proof is a question of law. A legal malpractice claim founded on professional negligence asserts that an attorney breached his or her professional duty of care in a way that proximately injured a client. In cases such as this one, the client claims that her attorney’s malpractice prevented her from prevailing in a lawsuit. To prevail on this type of attorney malpractice claim, the client must prove that but for the attorney’s negligence, she would have won a favorable judgment against the underlying defendant. This requirement is often referred to as proving the “case within a case.”

Over ninety years ago, in Lawson v. Sigfrid, 262 P. 1018 (Colo. 1927), the Supreme Court recognized that if an attorney malpractice plaintiff could not have collected a judgment from the defendant in the underlying case because that defendant was insolvent, then the plaintiff was not entitled to damages in the attorney malpractice case. It has long been clear that proving the case within a case in an attorney malpractice suit includes resolving the question of whether the judgment in the underlying case would have been collectible.

Because the collectibility of the underlying judgment is essential to the causation and damages elements of a client’s professional negligence claim against her attorney, we now expressly hold that the client-plaintiff bears the burden to prove that the underlying judgment was collectible.

Requiring Plaintiff to Prove Collectibility Aligns with Tort Theory

Where, as here, a legal malpractice claim is founded on professional negligence, the plaintiff must prove duty, breach, causation, and damages (as in every negligence case).

Proving collectibility, therefore, necessarily follows from the rule that plaintiffs must prove causation.

Relatedly, in a legal malpractice claim alleging that an attorney mishandled an underlying case, the measure of a client-plaintiff’s damages is the amount of the underlying judgment that could have been collected. A plaintiff must prove by a preponderance of the evidence that she has in fact suffered damage. Such damages must be actual, not mere speculation or conjecture. If the lost judgment was uncollectible, then the client-plaintiff has not incurred any legally cognizable damages.

Requiring Plaintiff to Prove Collectibility Is Not Unfair or Unduly Onerous

Evidence concerning a defendant’s insurance or lack thereof is usually precluded because such evidence might improperly influence the jury’s determination of liability. The policy concerns underlying the rule do not apply in a legal malpractice case because the coverage question pertains not to the attorney, but to the defendant in the underlying action. So, the risk that a jury would conflate coverage of the underlying defendant and liability of the attorney is low. Moreover, to avoid jury confusion, courts could bifurcate the trial on the collectibility issue.

Alternatively, a client-plaintiff could depose the underlying defendant to explore his or her net worth. In fact, a plaintiff could also satisfactorily prove collectibility by showing sufficient unencumbered assets—such as titled assets or real estate—information available through public records.

Placing the burden with the attorney-defendant to prove uncollectibility forces the attorney to “prov[e] a negative,” which is a much more onerous burden than requiring the client-plaintiff to prove collectibility. The attorney-defendant must first negate the underlying defendant’s insurance coverage, a task arguably no more difficult than proving it. But then, to prove insolvency, the attorney must reconstruct the underlying defendant’s entire financial position, accounting for all of his or her assets and liabilities. This presents a much more onerous burden.

Here, Gallegos failed to prove that the underlying judgment against Dr. Hughes would have been collectible. Gallegos introduced the 2010 letter that LeHouillier wrote to Dr. Hughes recommending that the doctor put “[his] professional liability carrier on notice.” Gallegos argues that because Dr. Hughes never responded to the letter that he lacked insurance, it can be reasonably inferred that he must have had insurance, thus evincing the collectibility of the underlying judgment.  Although Dr. Hughes did not inform LeHouillier that he did not have liability coverage, he also did not inform LeHouillier that he did have liability coverage. Dr. Hughes simply did not respond at all.

Despite a statutory mandate that a physician must carry insurance, there is no evidence that Dr. Hughes actually complied. The jury had no evidentiary basis from which to infer that Dr. Hughes carried professional liability insurance or that any judgment against him would have been collectible.

The Supreme Court held that because the collectibility of the underlying judgment is essential to the causation and damages elements of a client’s negligence claim against an attorney, the client-plaintiff bears the burden of proving that the lost judgment in the underlying case was collectible and that the court of appeals erred in concluding that in an attorney malpractice case, the attorney-defendant should bear the burden of proving that any underlying judgment would have not been collectible. The judgment was reversed and remanded for a new trial.

ZALMA OPINION

At the moment, the lawyer is protected against a judgment of more than $1 million. If the plaintiff can prove the doctor had insurance, owned real property or had a bank account he will lose. The suit could have been avoided if he determined the assets and insurance of the doctor before he dropped the case and if he had simply sent a letter to the plaintiff telling her that he would not pursue the case and that if she wished to proceed she needed a new lawyer. He did not. He did not even memorialize the conversation he claimed to have had with the plaintiff advising her he dropped the case. If he gave the client evidence the doctor was broke there would have been no litigation.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

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 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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Zalma on Property and Casualty Insurance

The earnings of almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother’s milk of the law profession. The civil defense lawyer is paid by an insurer for each hour he or she works. The civil plaintiffs’ lawyer is usually paid by taking a percentage of any judgment entered in favor of the plaintiff, which judgment is usually paid by the defendant’s insurer.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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