Seven Mississippi Rush: State’s Appeals Court Allows Excess Insurer to Get Two Hands on Negligent Defense Counsel

Seven Mississippi Rush: State’s Appeals Court Allows Excess Insurer to Get Two Hands on Negligent Defense Counsel

Randy Maniloff   Randy J. Maniloff, White and Williams, LLP

This is usually the part of Binding Authority where I say something silly - sometimes Sophomoric - and then attempt, with mixed results, to connect it to the coverage decision under review. Some of you have told me that this is also the only part of Binding Authority that you actually read. If you are one of those, take comfort in knowing that you are not alone.

But this issue of Binding Authority is all serious. That is the only way that I can express my thanks for your tremendous support for "General Liability Insurance Coverage - Key Issues In Every State." After less than two weeks on sale the book went into a second printing. It is currently almost sold-out on Amazon (and a few copies from Amazon retailers) and I've been told by Oxford University Press that its supply is very low. The readers of Binding Authority have been a huge factor in the book's early success. After all, there are only so many copies I can get my relatives to buy. Jeff and I both express our sincere thanks for your support and the kind words about the book that some of you have shared. [If you attempt to order the book, and are informed that it is back-ordered, I have been told by Oxford that this back-order period will be very short.]

Moving on...This issue's decision from the Mississippi Court of Appeals in Great American E&S Insurance Company v. Quintairos, Prieto, Wood & Boyer does not involve a "coverage" issue, in the usual sense of that term. However, it clearly involves the amount of an insurer's liability for a covered claim.

At issue was whether an excess insurer can sue its insured's defense counsel, alleging that, because counsel mishandled the defense, it resulted in an unnecessarily large settlement, which increased the excess insurer's liability. It is not entirely surprising that a situation like this would arise.

In general, defense counsel is chosen by the primary insurer. Unlike the primary insurer, who may have a long panel relationship with defense counsel, the excess insurer may not know defense counsel from Adam. The excess insurer may not be getting the same frequency of status reports as the primary insurer - and may not be as involved in day to day activities as the primary insurer. Not to mention that, if defense counsel is not making the excess insurer aware of the true potential for an unfavorable outcome, or painting too rosy of a picture of the insured's liability or damages, then the excess insurer may not be monitoring the case as closely as it otherwise would, if it were known to be a case that had a greater chance of impacting its policy.

Given all of this, when a case goes south, it may come as more of a surprise to the excess insurer than the primary insurer. Clients do not like surprises. What's more, if defense counsel commits malpractice, or fails to accurately report on the problems in a case, it may be no harm - no foul for the primary insurer. After all, the claim may have exhausted the primary limits no matter what defense counsel did. The consequences of defense counsel malpractice, or overly optimistic reporting, are no doubt greater for the excess insurer than the primary insurer.

Here was the situation in Great American - a brief, clear and to the point opinion.

Shady Lawn Nursing Home was named as a defendant in nursing home liability suits. Shady Lawn was insured by Royal under a primary policy and had an excess policy through Great American. Royal hired the Quintairos firm to defend the cases against Shady Lawn. Quintairos sent Royal and Great American periodic updates regarding the status of proceedings and estimated settlement value of the cases. However, Great American alleged that the status updates consistently undervalued the underlying cases so as to intentionally avoid giving Great American notice that its excess coverage may be needed. Other concerns with the Quintairos firm were that the partners and trial counsel were not licensed to practice law in Mississippi and the attorneys had failed to designate medical experts in a timely manner. Great American contended that it did not learn of these problems until Quintairos issued a litigation report valuing the expected cost of the case to be between $3 million and $4 million. Quintairos had previously projected the cost to be $500,000. Great American at 3.

The Mississippi Court of Appeals first held that the excess insurer could not bring a direct claim for malpractice against defense counsel. The court held that, because no Mississippi case law existed abolishing the requirement of an attorney-client relationship in regard to an excess insurer, the Court did not have authority to sanction a direct action for legal malpractice. Id. at 7.

However, the court held that Great American could recover through equitable subrogation, which would permit Great American to enforce the existing duties of defense counsel to the insured and recover damages if negligence is found. Id.

The Great American court explained its decision as follows:

It is logical that an excess-insurance carrier should be allowed to pursue a claim in the insured's place. Shady Lawn had no incentive to pursue a legal-malpractice claim against Quintairos even if it believed Quintairos to be negligent because it had insurance in place to pay the settlement. Also, Royal had no incentive to pursue a claim if it believed the settlement value to be at or near the policy limits of the primary coverage regardless of the alleged malpractice. The only winner produced by an analysis precluding liability would be the malpracticing attorney. We recognize that a possibility exists that this may result in frivolous claims by excess-insurance carriers; but, for this Court to prohibit legitimate claims would leave the attorney who allegedly committed malpractice free from consequences if the primary insurer declined to pursue a claim. Also, we find that a conflict is not created by allowing Great American to seek equitable subrogation against Quintairos for legal malpractice. Great American and Shady Lawn have the same interest in this litigation - Shady Lawn's competent representation. Further, Quintairos has already shared attorney-client communications and work product with Great American in the underlying cases.

Id. at 7-8 (citation and internal quotes omitted).

The moral of the story for defense counsel is obvious, as is the significance of the right that the Great American court handed to excess insurers. Again, when a case goes south, the consequences for an excess insurer can be monumental, while the consequences for the primary insurer may be non-existent.

Download a copy of Great American E&S Insurance Company v. Quintairos, Prieto, Wood & Boyer.

Please let me know if you have any questions.

Randy J. Maniloff
White and Williams LLP
1800 One Liberty Place | Philadelphia, PA 19103-7395
Direct Dial: 215.864.6311 | Direct Fax: 215.789.7608

The views expressed herein are solely those of the author and not necessarily those of the firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. The term "Binding Authority" is used herein for literary purposes only and is not an admission that any case discussed herein is in fact binding authority on any court.

Read more Binding Authority newsletters.

Randy J. Maniloff is a Partner in the Business Insurance Practice Group at White and Williams, LLP in Philadelphia.  He concentrates his practice in the representation of insurers in coverage disputes over various types of claims.  He writes frequently on insurance coverage topics for a variety of industry publications.  Maniloff's views on coverage issues have been quoted by numerous media including The Wall Street Journal, The New York Times, USA Today, Associated Press and Dow Jones Newswires.  In January Maniloff published "General Liability Insurance Coverage: Key Issues In Every State," a book addressing the law in all 50 states on twenty key liability insurance coverage issues (Oxford University Press) (Co-authored with Professor Jeffrey Stempel of the University of Nevada Las Vegas Boyd School of Law).

State of Mississippi subscribers can access the Lexis enhanced version of the Great Am. E&S Ins. v. Quintairos, Prieto, Wood & Boyer, 2011 Miss. App. LEXIS 20 (Miss. Ct. App. Jan. 18, 2011) decision with summary, headnotes, and Shepard's. subscribers can further research this issue at Legal Malpractice Suits by Excess Insurers Against Defense Counsel Hired by Primary Insurers, 4-24 Appleman on Insurance § 24.08 (Matthew Bender).

For more information about LexisNexis products and solutions connect with us through our corporate site.