Failing to check whether the claim against your client might be covered by insurance can get you in hot water — or at least keep you there, preventing a speedy exit from a malpractice suit, as a Florida lawyer recently learned.

In Pharma Supply, Inc. v. Stein (PACER access ID required), the client alleged it retained the lawyer to “defend its interests” in the underlying suit.  At the time, the client had an active insurance policy that would have provided coverage and a defense in the underlying case.  The lawyer, however, allegedly failed to review the client’s insurance policies, and didn’t place the insurer on notice.  Later, the insurer joined the client’s defense, but refused to reimburse the client for fees and expenses paid before then.  The client subsequently sued the lawyer and his firm in federal district court for professional negligence, among other things.

In their motion to dismiss, the lawyer  and his firm contended that they had been retained solely to defend the client in the underlying case, and that failing to inquire into the client’s insurance coverage did not breach a duty to the client.

The court rejected that argument.  It ruled that the former client’s allegation that it had retained the lawyer and his firm to “defend its interests” was enough to survive a motion to dismiss.  A duty to defend the client’s interests could also encompass developing claims against third parties, such as the insurer, that might owe indemnification to the client, the court said.  Indeed, the court said, opinions from some jurisdictions have suggested that

[I]n certain circumstances a litigation attorney may have a duty to inquire into a client’s own insurance coverage as a way to provide for alternative recovery or soften the impact of the litigation.

Cases decided in California, Georgia and Alaska for example, point to such a duty, as does a recent New York Appellate Division case.  (In a different case in 2000, however, the New York Supreme Court held that a lawyer did not have a duty to advise the clients about a “novel and questionable theory pertaining to their  insurance coverage.”)

The defendants in the Pharma Supply case have moved for reconsideration of the court’s ruling denying their motion to dismiss; that motion, converted by the court to a motion for summary judgment, remains pending.

One way to address the issue of client insurance is to raise it in your engagement letter.  Asking the client in writing to inform you if there might be insurance that would cover the claim can help identify and resolve any concerns at the front end of a matter.

 

 

Divorce DecreeAfter winning more than $250,000 at trial, the fiancée of a deceased postal worker came up short in the District of Columbia Court of Appeals based on lack of privity between her and the lawyers who mishandled the decedent’s divorce.

In Scott v. Burgin, the fiancée and the decedent had lived together for years, and he had filled out forms to make her the beneficiary of his Post Office retirement benefits.  In January 2006, the fiancée met with a lawyer, asked him to handle decedent’s divorce from his wife, and discussed the pension issue with him.  By then, decedent already had terminal bone cancer.

A year later, decedent himself met with the lawyer, and signed a retainer agreement — but it took 11 more months and repeated contacts from the fiancée before the lawyer finally served a divorce complaint on decedent’s wife.  When decedent died in April 2008, he was still married, and therefore the Post Office denied the fiancée’s claim to survivor benefits.  The benefits went to decedent’s wife, instead.

Reversing the trial court, the court of appeals held that the fiancée lacked standing and was not within the lawyer’s “ambit of care.”  Reciting the well-established rule, the court said that lawyers have duties to their clients, not to third parties.  But notwithstanding a lack of privity, third party claims can be sustained where the malpractice plaintiffs are the direct and intended beneficiaries of the lawyer’s services.

The classic situation, the court held, arises in the context of will-drafting, where the lawyer has a duty of care to the intended beneficiaries, and the beneficiaries have a direct benefit consisting of a legally enforceable right to their inheritance.   In contrast, the court said, a divorce decree does not provide a direct benefit to the fiancée of the divorcing client.  Rather, the aim of the divorce is the end of the marriage, and the only parties directly concerned are the married couple and their minor offspring.

If the fiancée were allowed to recover here, the court said, it would expose lawyers to “unforeseen and unmanageable liability” to anyone who would indirectly benefit from the end of the client’s marriage — such as a frustrated creditor whose debtor would have been paid but for the mishandled divorce.

The take-away from this case:   The trend in modern cases is to recognize that a lawyer has a duty of care that can extend beyond those strictly in privity with the lawyer-client contract.  But different jurisdictions approach the question in different ways that can result in different outcomes.  The District of Columbia Court of Appeals in Scott cited and distinguished the intended-beneficiary situation, and thus the lawyer escaped liability.  The intended-beneficiary exception to the rule of privity is common across the U.S.  But other jurisdictions have considered or adopted different approaches, such as California’s multi-criteria balancing test, set out in 1961 in Lucas v. Hamm.  Therefore, evaluating your risk of exposure to claims from third parties requires careful analysis.

 

 

If you feel the grim reaper approaching, you’d better inform your clients of any looming statutes of limitations — if you don’t, your estate may be liable on a legal malpractice claim.  That’s the message of a case decided earlier this year by the New York court of appeals.

In Cabrera v. Collazo, the plaintiff first hired Collazo to pursue a wrongful death action arising from medical malpractice.  The decedent had died in November 2008, and plaintiff hired Collazo the same month.  After doing nothing for almost a year, Collazo entered into a co-counsel and fee-sharing agreement with another lawyer, Tanzman.  Collazo effectively dropped out of the case and was convicted of immigration fraud.

At some point in 2010, both lawyers stopped responding to the client’s attempts to communicate with them.

With the clock ticking, Tanzman tried to hurry the New York surrogate’s court in issuing letters of administration that were necessary to launch the medical malpractice case; he emphasized to the court that the statute of limitations would run shortly.

On October 6, 2010, the court issued the letters; but Tanzman died of cancer on October 24.  The statute of limitations on plaintiff’s wrongful death action expired 11 days later, without any complaint for wrongful death ever having been filed.

It was only eight months later that the client learned that Tanzman had died, and that her medical malpractice claim had likewise died.

In response to the legal malpractice claim against Tanzman’s estate, the executor argued that neglecting a client’s matter is not actionable if the lawyer dies before the applicable limitations period runs against the client in the underlying case.  The court of appeals rejected that argument because Tanzman knew he was ill with cancer and might die, but did nothing to protect the statute:

Tanzman died as a result of a chronic, terminal illness that he knew, or should have known, presented the immediate risk that his ability to represent his client’s interests might be impaired…

Despite this knowledge, Tanzman didn’t warn plaintiff so that she could protect her claim.

The court held that potential liability could have been avoided if Tanzman had handed off the case to a successor while there was still time to file it; but here, based on the previous neglect, that possibility was “foreclosed,” so Tanzman had a duty to take action to protect the client’s rights.  The court affirmed denial of the estate’s motion to dismiss.

This case underscores the obvious importance to your legal practice of planning ahead — even for your own demise.  Do you have a plan in place if you become ill or incapacitated?  If you die suddenly?  If not, Cabrera teaches that your estate might have to clean up the resulting mess.

Postscript:  Model Rule 1.3, comment [5] says that the duty of diligence may require solo practitioners to prepare a plan for their eventual death or disability.  The ABA has compiled a list of resources that can be helpful.

When a lawyer sues a client for unpaid fees, the client must assert any possible claim for legal malpractice as a compulsory counterclaim, the Ohio Eighth District Court of Appeals has held.   In other words:  use it or lose it.  The court upheld summary judgment in favor of a lawyer whose client failed to assert such a counterclaim.

In Harper v. Anthony, the lawyer had represented the client in a divorce case.  After the client sued for legal malpractice, the lawyer counterclaimed for unpaid legal fees.  When the client failed to answer the counterclaim, the lawyer moved for a default judgment.  The client voluntarily dismissed the malpractice claim, leaving the unanswered counterclaim for fees standing.  The trial court entered an $11,000 default judgment against the client.

When the client refiled the legal malpractice case, the lawyer moved for summary judgment, arguing that the claim was a compulsory counterclaim to the lawyer’s claim based on unpaid fees, and the client lost it by failing to prosecute it in the first action.  The trial court agreed, and the court of appeals affirmed.  (The Ohio Supreme Court declined review.)

Under Ohio Civil Rule 13(A), a counterclaim is compulsory if it is logically related to the opposing party’s claim.   This met the test, the court held, since the malpractice claim arose out of the same operative facts as the claim for fees.  

The client in Harper argued that it was inequitable to require a client to assert a legal malpractice claim at the same time as a lawyer files a suit for unclaimed fees, because the client might not know that a malpractice claim exists until after the unpaid fee dispute is resolved.

But the court of appeals rejected that argument:  under Ohio Civil Rule 13(A), a counterclaim is compulsory only if it exists at the time that the pleading is served.  The client here had discovered his alleged malpractice claim and sued on it before his former lawyer filed the unpaid-fee counterclaim.  Therefore, the client was barred from refiling the same legal malpractice claim.

When you sue a client for unpaid fees, you can often expect a counterclaim for malpractice; here, the shoe was on the other foot.  But it is worth remembering that failing to assert a compulsory counterclaim can doom any claim — whether it’s for your fees, or whether it’s a malpractice claim against you.