Insurer's Suit Against Insured's Defense Counsel Barred by Insured's Settlement

Insurer's Suit Against Insured's Defense Counsel Barred by Insured's Settlement

   By William T. Barker, Partner, SNR Denton

In American National Property & Casualty Co. v. Ensz & Jester, P.C., American National sued the defense counsel it had retained to defend its insured for malpractice.  Allegedly that malpractice resulted in an excess judgment and a bad faith claim that American National was obliged to settle.  But the insured had settled separately with defense counsel, and that settlement was held to bar American National's claim.  This commentary examines the case and its implications for insurers that wish to hold defense counsel responsible for an excess judgment.

The summary judgment evidence indicated that the lawyers had advised American National of settlement value based on the plaintiff's medical expenses at the outset of the case and never told it of additional expenses or updated the estimate of settlement value.  Nor did they tell American National of a policy limits settlement offer.  After an excess judgment, the insured sued both American National and the lawyers, settling with both.  American National then sought to recover its payments from the lawyers.

The court found the claim barred by a statute providing that:

When an agreement by release, covenant not to sue or not to enforce a judgment is given in good faith to one of two or more persons liable in tort for the same injury or wrongful death, such agreement shall not discharge any of the other tort-feasors for the damage unless the terms of the agreement so provide; however such agreement shall reduce the claim by the stipulated amount of the agreement, or in the amount of consideration paid, whichever is greater. The agreement shall discharge the tort-feasor to whom it is given from all liability for contribution or noncontractual indemnity to any other tort-feasor. The term "noncontractual indemnity" as used in this section refers to indemnity between joint tort-feasors culpably negligent, having no legal relationship to each other and does not include indemnity which comes about by reason of contract, or by reason of vicarious liability.  [Emphasis added.]

As the commentary observes:

But for the effect of the insured's settlement, it would seem that American National would have had a good claim to recover its settlement payment, if proper information about the settlement value of the case and the opportunity to settle for policy limits would have led it to settle.  Even if a Missouri insurer were not ordinarily a client of the lawyer it retains to represent its insured, American National requested and received legal opinions from Ensz, which would establish existence of an attorney-client relationship.  Moreover, even apart from any such relationship, it was clearly in Kurtz's interest for Ensz to keep American National informed of facts that might have led it to settle the case within its policy limits, so American National might well have (1) been equitably subrogated to any claim Kurtz had against Ensz or (2) had a third-party beneficiary claim of its own.  [Footnotes omitted]

The commentary examines the analysis used to conclude that the settlement with the insured barred American National's claims.  It then considers steps to be taken by insurers wishing to hold defense counsel responsible in similar circumstances and alternate arguments that American National might have made in its case.

William T. Barker is a partner in the Chicago office of SNR Denton, L.L.P., with a nationwide practice representing insurers in complex litigation, including matters relating to coverage, claims handling, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is a member of the Editorial Board of the New Appleman on Insurance Law Library Edition and a Consulting Author of the New Appleman Insurance Law Practice Guide. He has published over 100 articles and speaks frequently on insurance and litigation subjects. He was a Contributing Editor and then Editor of Bad Faith Law Report until that publication merged with Insurance Litigation Reporter, where he is currently Senior Contributing Editor and Editorial Board Director. He has been described as the leading lawyer commentator on the connections between procedure and insurance. See Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 n.4 (1995). Mr. Barker is a member of the American Law Institute.

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Download a free copy of the unenhanced version of the decision in Am. Nat'l Prop. & Cas. Co. v. Ensz & Jester, P.C., 2011 Mo. App. LEXIS 1382 (Mo. Ct. App. Oct. 25, 2011).

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