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Stranger Danger: Georgia Joins Minority View and Allows Assignability of Legal Malpractice Claims

Posted on: April 2nd, 2013

By: Dana Maine

Legal malpractice carriers be aware that you will now be on the hook for defending your insureds in actions brought by strangers to any attorney-client relationship. The Georgia Supreme Court just answered the question on the minds of Georgia attorneys and legal malpractice practitioners across the country – legal malpractice claims are assignable in Georgia, as long as they are not presented in the nature of a personal injury. Villanueva v. First American Title Insurance Company, 2013 WL 1092589 (March 18, 2013). A unanimous Georgia Supreme Court, with seemingly little difficulty, determined that Georgia’s assignability statute (O.C.G.A. § 44-12-24) unequivocally directed the outcome of this case.

The facts of the case are not unusual. The defendant-attorney, Derick Villanueva, began working with the Moss Firm in January 2007. Three months later, he opened a new firm, Moss & Villanueva, with his boss George Moss. Shortly thereafter, in May 2007, Villanueva acted as the closing attorney and settlement agent for a mortgage refinance. As part of that transaction, Villanueva signed closing instructions issued by Homecomings Financial, LLC, which was replacing two prior mortgages on the property, totaling almost $1.2 million. As part of the closing instructions, Villanueva acknowledged that he was to pay off the earlier mortgages.

As part of the closing activities, Homecomings wired the refinance funds to an escrow account used by Villanueva’s old firm, because the account for the new firm had not been established at the time of the closing. Unfortunately, a non-lawyer who had access to the escrow account withdrew funds from the account and the previous mortgages were not paid in full.

Homecomings’ title insurer, First American Title Insurance Company, paid off the balances on the previous mortgages. Thereafter, First American filed suit against Villaneuva accusing him of committing malpractice by failing to pay off the mortgages. First American based its malpractice claim on its right as assignee from Homecomings, which was included in the closing protection letter First American issued to Homecomings.

In reaching its decision, the Georgia Supreme Court cited to the general rule that permits assignment of a right of action “if it involves, directly or indirectly, a right of property,” while “[a] right of action for personal torts or for injuries arising from fraud to the assignor may not be assigned.” O.C.G.A. § 44-12-24. The Court held that the damage involved in the case involved financial loss which is akin to injury to property; therefore, the malpractice claims are assignable. Discounting the public policy concerns relied upon by the majority of state courts to bar the assignment of legal malpractice claims, the Georgia Court said the legislature has not seen fit to amend the Georgia statute to prohibit the assignment of these claims. Therefore, the Court saw no reason to read the prohibition into the statute.

The vast majority of legal malpractice claims involve financial loss and will now be assignable in Georgia. The pool of potential plaintiffs for legal malpractice claims has just expanded exponentially. Insurers can be expected to cover the increased risk with a corresponding increase in premiums. As a practical matter, in these difficult economic times, malpractice insurance now represents an additional source of funds from which a disgruntled litigant can seek recompense.

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