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Several states have well-established case law holding that insurance carriers have a right to bring a direct malpractice action against defense counsel they retained to defend an insured, as long as no conflict of interest exists between the carrier and the insured. However, it is helpful to remember that in some jurisdictions, malpractice claims cannot be assigned and maintained through subrogation. Accordingly, it is a prudent reminder for all practitioners to be aware of the law surrounding this issue in their respective jurisdictions.
For example, California law prohibits the assignment of legal malpractice claims. These malpractice claims cannot be maintained through subrogation, even if the insurance carrier paid for the loss and “steps into the shoes” of the insured. Fireman’s Fund Ins. Co. v. McDonald, Hecht & Solberg, 30 Cal.App.4th 1373, 1378-79 (1994). This principle is premised on the public policy of protecting the integrity of the uniquely personal and confidential attorney-client relationship. See Goodley v. Wank & Wank, Inc., 62 Cal.App.3d 389, 133 (1976). However, California has a narrow exception for instances when a successor insurer seeks to maintain a malpractice claim of its predecessor insurer as part of a larger commercial transaction between insurance companies. Fireman’s Fund, 30 Cal.App.4th at 1383; see also White Mountains Reinsurance Co. of Am. v. Borton Petrini, LLP, 221 Cal. App. 4th 890, 909-10 (2013) (finding that successor insurance carrier assumed the former insurer’s rights and obligations, including the right to recoup any corresponding losses due to the malpractice of insurance-appointed defense counsel).
On the other hand, an insurance policy may expressly provide an insurer the right to contractual subrogation. Such was the case in Arch Ins. Co. v. Kubicki Draper, LLP, 318 So. 3d 1249, 1253 (Fla. 2021), where the Florida Supreme Court held that an insurer has standing to maintain a legal malpractice action against counsel hired to represent its insured where the insurer is contractually subrogated to the insured’s rights under the policy. In stark contrast to California, Florida rejected the public policy concern that the assignment of legal malpractice actions could convert those claims into a commodity to be exploited to parties to whom the attorney never owed a legal duty. Id. at 155.
Given the differing approaches across states, insurers and attorneys alike should ensure that they understand the governing law in their jurisdictions. FMG’s professional liability and insurance coverage attorneys are ready to assist if you have any questions. For more information, contact Albert Alikin at [email protected], Jaemie Paraon at [email protected], or your local FMG attorney.