Querrey & Harrow, Ltd. v. Transcontinental Insurance Co.

Citations: 861 N.E.2d 719; 2007 Ind. App. LEXIS 268; 2007 WL 505791Docket: 45A03-0601-CV-36

Court: Indiana Court of Appeals; February 19, 2007; Indiana; State Appellate Court

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Defendants-Appellants Querrey. Harrow, Ltd., along with individual attorneys James N. Kosmond, Gretchen Cepek, and Robert A. Sanders, are appealing a trial court decision that denied their motions for summary judgment in a legal malpractice suit initiated by Plaintiff-Appellee Transcontinental Insurance Company (CNA). The underlying case involved product liability litigation where Jumpking, represented by the Querrey and Sanders firms, settled a claim for $6.3 million after a lawsuit was filed by Buicky Boriboune and his mother due to injuries sustained on a trampoline. Jumpking was self-insured for the first $250,000, with its primary insurer, Liberty Mutual, covering up to $5 million, but ultimately had less than $3 million available due to erosion in coverage. CNA, as the excess insurer, provided $10 million in coverage and contributed $3.74 million to the settlement.

CNA's malpractice claim asserts that the attorneys failed to raise a non-party defense in a timely manner, which could have reduced the settlement amount. The key issues consolidated for appeal include whether Indiana law permits an excess insurer to sue attorneys for malpractice, whether a genuine attorney-client relationship existed between CNA and the attorneys, and whether CNA's claim was timely filed. The appellate court's role is to review summary judgment denials, ensuring no genuine material fact disputes exist and that the moving party is entitled to judgment as a matter of law. The court will analyze pleadings and evidence without weighing credibility, resolving doubts in favor of the nonmoving party. The appellate court ultimately reverses and remands the case with instructions.

In cases of summary judgment where no facts are disputed and the issue is purely legal, the review is conducted de novo. Querrey and Sanders argue that the trial court incorrectly ruled that CNA, as an excess insurer, can initiate a legal malpractice claim against the attorneys of its insured. The trial court, supported by CNA’s argument, held that an excess insurer, being subrogated to the rights of its insured, can seek damages for attorney malpractice. This matter is novel in Indiana, prompting both parties to reference cases from other jurisdictions.

Typically, a plaintiff can only sue a professional for negligent advice or representations if there is a contractual privity or if the professional had actual knowledge of the plaintiff’s potential impact from their actions. Indiana law has recognized a limited exception allowing will beneficiaries to file malpractice claims against the will's drafter despite the absence of privity, due to the intent to confer benefits on the beneficiary.

In previous rulings, such as Keybank, it was reiterated that the privity requirement is essential to prevent lawyers from prioritizing third-party interests over those of their clients, which could undermine the attorney-client loyalty. Public policy also prohibits the assignment of legal malpractice claims, as this could compromise the lawyer’s duties of loyalty and confidentiality.

CNA does not claim to be a third-party beneficiary but asserts its right to recover damages through equitable subrogation. This doctrine is recognized in Indiana, allowing a party that pays a debt on behalf of another to step into their shoes. CNA contends that its claim for equitable subrogation is not affected by the traditional privity requirement or the prohibition against assigning legal malpractice claims.

CNA contends that allowing a class of protected defense attorneys to avoid liability for malpractice is inappropriate. Various federal and state courts have examined if an excess insurer can file a legal malpractice claim against an insured's attorney, with many jurisdictions rejecting such actions based on public policy. Courts like Essex Insurance Co. v. Tyler have determined that permitting excess insurers to sue attorneys interferes with the attorney-client relationship and undermines the prohibition on the assignment of legal malpractice claims. Similarly, Fireman's Fund Insurance Co. v. McDonald, Hecht, Solberg asserted that public policy prevents insurers from disrupting this relationship through subrogation. Other cases, such as National Union Fire Insurance Co. v. Salter and American Continental Insurance Co. v. Weber, Rose, P.S.C., reinforced that allowing such claims contradicts the personal nature of the attorney-client relationship. However, some jurisdictions, as seen in National Union Insurance Co. v. Dowd, Dowd, P.C., have recognized potential interference but prioritized the need for accountability in malpractice, allowing excess insurers to pursue claims against attorneys under equitable subrogation. In that case, an excess insurer sued an insured's attorney under Illinois law, with predictions that the Illinois Supreme Court would permit such claims.

The Dowd court evaluated various jurisdictional cases and concluded that the minimal damage to the attorney-client relationship permitted prioritizing public policy favoring attorney accountability for malpractice over protecting the personal nature of that relationship. CNA contends that a legal malpractice suit initiated by an excess insurer through equitable subrogation does not disrupt the attorney-client relationship, as it merely enforces existing duties of defense counsel to the insured. CNA further asserts that there is no conflict when an excess insurer’s liability is not based on tactical decisions by trial counsel that could create conflicting interests between the insured and insurer. 

The court aligns with jurisdictions recognizing subrogation as an assignment, noting that public policy against the assignability of certain causes of action applies similarly to subrogation. Indiana law prohibits assignments of legal malpractice actions due to the inherent potential for conflict, emphasizing that an attorney's loyalty should not be compromised. The court disagrees with arguments suggesting that the risk of an attorney avoiding malpractice defense is worth more than preserving the attorney-client relationship. Even if the insured may be less vigilant with excess insurance, they retain the right to pursue malpractice claims, ensuring attorneys are still accountable.

CNA also raises a public policy argument concerning the attorney-client privilege as a potential violation of the 'open courts' provision of the Indiana Constitution, but fails to provide relevant case law or a substantial argument for this claim. The trial court mistakenly ruled that CNA could pursue a legal malpractice claim against the attorneys of another entity. It found that there was a factual dispute regarding whether CNA was merely a 'remote excess insurer,' noting that CNA received confidential communications about the underlying litigation, which treated it within the attorney-client relationship boundaries. Consequently, the court determined that the defendants' motion could not be granted based on this issue alone.

An attorney-client relationship can be implied through the actions of the parties rather than requiring an explicit agreement, as established in *In re Matter of Kinney*. However, evidence of mutual consent between the attorney and client is necessary for this relationship to exist. In the case at hand, correspondence from CNA to ICON, dated over a year post-alleged legal malpractice, fails to demonstrate any indication of dual representation at the time of the alleged malpractice or thereafter. Consequently, there is no material fact issue regarding whether ICON's attorneys consented to represent both their client and the excess insurer. Querrey argues that the trial court incorrectly found a factual question regarding whether CNA timely filed their legal malpractice claim within the two-year statute of limitations. The court agrees with the trial court's assessment but notes that this determination's significance is diminished by the resolution of prior issues. The case is remanded with instructions for the trial court to grant summary judgment in favor of Querrey and Sanders. Additionally, it is noted that Querrey and Sanders' reliance on an unreported federal case is improper for precedent unless designated for publication. The issue of whether an excess insurer can pursue claims against a primary insurer for negligent defense under equitable subrogation has not been decided by Indiana appellate courts, though some federal courts suggest it may be permissible. Lastly, Sanders raised a waiver issue in his brief but incorrectly conceded it was waived due to the trial court's certification order; interlocutory appeals stem from the original order, not a specific issue.