Opinion
No. 2009-CA-01063-COA.
January 18, 2011.
TRIAL JUDGE: HON. FRANK G. VOLLOR, DATE OF JUDGMENT: 05/29/2009
COURT FROM WHICH APPEALED: WARREN COUNTY CIRCUIT COURT
TRIAL COURT DISPOSITION: GRANTED MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM
DISPOSITION: REVERSED AND REMANDED
ATTORNEYS FOR APPELLANT: MICHAEL A. HEILMAN, CHRISTOPHER THOMAS GRAHAM, JOHN WILLIAM NISBETT
ATTORNEYS FOR APPELLEE: DAVID A. BARFIELD, STEVEN LLOYD LACEY
BEFORE LEE, P.J., IRVING AND GRIFFIS, JJ.
PROCEDURAL HISTORY
¶ 1. A series of complaints involving nursing-home liability were filed against Shady Lawn Nursing Home and Vicksburg Convalescent Home (collectively, Shady Lawn) in the Circuit Court of Warren County. The law firm of Quintairos, Prieto, Wood Boyer, P.A. (Quintairos) was hired to defend Shady Lawn.
¶ 2. Quintairos was hired by Royal Indemnity Company, Shady Lawn's insurer. Shady Lawn also held a separate excess-coverage policy with Great American E S Insurance Company, which provided insurance coverage for losses that exceeded the limits of the policy held by Royal.
¶ 3. The lawsuits against Shady Lawn resulted in a settlement. The settlement exceeded the policy limits of the Royal insurance policy. Thus, the excess policy held through Great American was implicated. Great American argues that but for Quintairos's negligent handling of the lawsuits, the implication of the excess-insurance policy would not have been necessary.
¶ 4. Great American filed a complaint against Royal and Quintairos in the Circuit Court of Warren County, asserting that their respective actions in mishandling the defense of Shady Lawn resulted in an unnecessarily large settlement against Shady Lawn. Great American asserted causes of action against Quintairos for legal malpractice, negligence, gross negligence, negligent misrepresentation, and negligent supervision. In the alternative, Great American sought recovery under the theory of equitable subrogation. Quintairos responded with a motion to dismiss under Mississippi Rule of Civil Procedure 12(b)(6), arguing that Great American lacked standing to file suit because there was no attorney-client relationship between Great American and Quintairos. The trial court agreed and granted the motion to dismiss.
¶ 5. Great American now appeals, asserting the following issues: (1) an action may be brought against Quintairos regardless of whether an attorney-client relationship existed because Great American had relied on representations made by Quintairos, and (2) an excess-insurance carrier can maintain a cause of action against counsel hired by the primary carrier through equitable subrogation. Finding that the trial court erred in dismissing Great American's action, we reverse and remand this case for further proceedings consistent with this opinion.
FACTS
¶ 6. Shady Lawn held liability insurance through Royal in the amount of $1 million and $3 million in the aggregate. Shady Lawn also held an excess policy through Great American, which provided coverage of $8 million per occurrence and $16 million in the aggregate. The excess policy attached when primary coverage was exhausted. Royal hired Quintairos to defend the cases filed against Shady Lawn. Quintairos sent Royal and Great American periodic updates regarding the status of proceedings and estimated settlement value of the cases.
¶ 7. Great American alleges 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 contends 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.
STANDARD OF REVIEW
¶ 8. An appellate court employs a de novo standard of review of a motion to dismiss under Mississippi Rule of Civil Procedure 12(b)(6). Rose v. Tullos, 994 So. 2d 734, 737 (¶ 11) (Miss. 2008). Such a motion for failure to state a claim challenges the legal sufficiency of the complaint. Id. In order to affirm an order granting dismissal on a Rule 12(b)(6) motion, "[t]he allegations in the complaint must be taken as true, and there must be no set of facts that would allow the plaintiff to prevail." Id. (citing Ralph Walker, Inc. v. Gallagher, 926 So. 2d 890, 893 (¶ 4) (Miss. 2006)).
DISCUSSION
¶ 9. Great American's argument on appeal can be condensed into the following issue: whether an excess-insurance carrier can pursue a legal-malpractice claim against an attorney retained by the primary-insurance carrier to represent the insured. In the alternative, if a direct action is not allowed, can the excess-insurance carrier recover through equitable subrogation? This issue has not yet been decided in Mississippi.
¶ 10. The elements of a legal-malpractice claim are: (1) an attorney-client relationship, (2) "negligence on the part of the lawyer in handling his client's affairs entrusted to him," and (3) "proximate cause of the injury." Byrd v. Bowie, 933 So. 2d 899, 904 (¶ 15) (Miss. 2006). It is undisputed that Quintairos and Great American did not have an attorney-client relationship. Great American argues that it has standing to pursue a direct claim of negligence despite the absence of an attorney-client relationship because it had detrimentally relied on representations made by Quintairos.
¶ 11. Great American argues that Century 21 Deep South Properties, Ltd. v. Corson, 612 So. 2d 359 (Miss. 1992) provides guidance on this issue. In Century 21, the Mississippi Supreme Court found that privity was not a necessary element of a legal-malpractice claim for negligent title work. Id. at 373. Century 21 relies on Mississippi Code Annotated section 11-7-20, which states in relevant part: "In all causes of action for . . . economic loss brought on account of negligence, . . . privity shall not be a requirement to maintain said action." Relying on this code section, the supreme court stated: "Today we modify the requirements of legal malpractice actions based on an attorney's negligence in performing title work by abolishing the requirement of attorney-client relationship and extending liability to foreseeable third parties who detrimentally rely, as we have done in cases involving other professions." Century 21, 612 So. 2d 374.
Miss. Code Ann. § 11-7-20 (Rev. 2004).
¶ 12. Instead of requiring an attorney-client relationship, Century 21 found that "the presence or absence of an attorney-client relationship is merely one factor to consider in determining the duty owed rather than being the single factor which establishes that a duty is owed." Id. at 373. The question then becomes: "to whom is a duty owed?" Id. Although the holding in Century 21 is limited to title work, Great American argues that this opinion establishes a precedent that privity is not required to maintain an action for negligence in other circumstances.
¶ 13. Quintairos argues that extending the principles of Century 21 to excess-insurance carriers would be against public policy. Quintairos asserts several policy arguments, including that such a claim would undermine the attorney-client privilege enjoyed by the insured. Quintairos also asserts that denying Great American the right to file a claim would not leave it without a remedy in this case. Great American had the option of protecting its interests by hiring its own attorney.
¶ 14. The jurisdictions that have ruled on this issue have taken opposing views. While we recognize these cases are not precedent, they are useful in determining policy consistent with Mississippi law. The Texas Supreme Court has specifically found that allowing equitable subrogation by an excess-insurance carrier against defense counsel would not result in the public-policy concerns raised by Quintairos. Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 481 (Tex. 1992). American Centennial provides the following explanation:
[T]he concerns of the excess and primary carriers and the insured generally overlap in ensuring that the merits of the defense are not precluded from being heard because of attorney malpractice. "The best interests of both insurer and insured converge in expectations of competent representation." Atlanta Int'l Ins. Co. v. Bell, 438 Mich. 512, 475 N.W.2d 294, 298 (1991). While in some circumstances these interests may diverge, presenting a different situation, here the excess insurers do not predicate liability on tactical decisions by trial counsel implicating conflicting interests between the insured and the insurer.
. . . .
No new or additional burdens are imposed on the attorney, who already has the duty to represent the insured. . . . If the asserted malpractice has resulted in payment of a judgment or settlement within the excess carrier's policy limits, the insured has little incentive to enforce its right to competent representation. Refusal to permit the excess carrier to vindicate that right would burden the insurer with a loss caused by the attorney's negligence while relieving the attorney from the consequences of legal malpractice. Such an inequitable result should not arise simply because the insured has contracted for excess coverage.
Id. at 484-85.
¶ 15. In Continental Casualty Co. v. Pullman, Comley, Bradley Reeves, 929 F.2d 103, 108 (2d Cir. 1991), the Second Circuit Court of Appeals took the opposing view. In denying a claim by an excess insurer, it stated:
To hold otherwise would in our judgment acknowledge a direct duty owed by the insured's attorney to the excess insurer and would be tantamount to saying that insurance defense attorneys do not owe their duty of loyalty and zealous representation to the insured client alone. Such a holding would contradict the personal nature of the attorney-client relationship, which permits a legal malpractice action to accrue only to the attorney's client. Such a holding would also encourage excess insurers to sue defense attorneys for malpractice whenever they are disgruntled by having to pay within limits of policies to which they contracted and for which they received premiums. Were this to occur, we believe that defense attorneys would come to fear such attacks, and the attorney-client relationship would be put in jeopardy.
Id. (quoting Am. Employers' Ins. Co. v. Med. Protective Co., 419 N.W.2d 447, 448-49 (Mich. Ct. App. 1988)) (internal citations omitted).
¶ 16. No Mississippi case law exists abolishing the requirement of an attorney-client relationship in regard to an excess insurer; therefore, this Court does not have authority to sanction a direct action for legal malpractice. Century 21 is instructive, but its holding is limited to the performance of title work. Mississippi Code Annotated section 11-7-20 is also instructive, but case law that was decided after the enactment of section 11-7-20 continues to require an attorney-client relationship for claims of legal malpractice. Byrd, 933 So. 2d at 904 (¶ 15); Hutchinson v. Smith, 417 So. 2d 926, 927 (Miss. 1982). However, we find Great American can recover through equitable subrogation. Subrogation would permit Great American to enforce the existing duties of defense counsel to the insured and recover damages if negligence is found.
¶ 17. Subrogation has been defined as "the substitution of one person in the place of another, whether as a creditor or as the possessor of any rightful claim, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and to its rights, remedies, or securities." Hutson v. State Farm Fire Cas. Co., 954 So. 2d 514, 517 (¶ 7) (Miss. Ct. App. 2007) (quoting Ellis v. Powe, 645 So. 2d 947, 951 (Miss. 1994)). 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." Atlanta Intern. Ins. Co. v. Bell, 475 N.W.2d 294, 298 (Mich. 1991).
¶ 18. 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.
¶ 19. We find that a fact question exists as to Quintairos's negligence. Therefore, the judgment dismissing Great American's claim against Quintairos is reversed, and this case is remanded for Great American to proceed against Quintairos.
¶ 20. THE JUDGMENT OF THE WARREN COUNTY CIRCUIT COURT IS REVERSED, AND THIS CASE IS REMANDED FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE APPELLEE. KING, C.J., IRVING, GRIFFIS, ISHEE, ROBERTS AND MAXWELL, JJ., CONCUR. BARNES, J., CONCURS IN PART AND IN THE RESULT WITHOUT SEPARATE WRITTEN OPINION. CARLTON, J., DISSENTS WITHOUT SEPARATE WRITTEN OPINION. MYERS, P.J., NOT PARTICIPATING.