rights in relation to the debt or claim in place of the creditor or
claimant. In the case of insurance, subrogation allows an insurer
that paid indemnity coverage or defense costs to step into in the
insured’s position and pursue a full recovery from the person or
entity primarily responsible for the loss.
Oftentimes, an insurer will use subrogation to pursue a legal malpractice claim on their behalf. In this regard, nearly all
jurisdictions in the United States permit some form of legal
malpractice action by an insurer against the firm it retains to
defend an insured.
Excess insurer claims
The excess insurer pays amounts above those covered by primary
insurance, and at times, those amounts are significant. The question in cases involving payments made by an excess insurer is
whether the excess insurer may bring an action for legal malpractice against an attorney or law firm hired by the primary insurer.
State laws vary on whether excess insurers may pursue legal
malpractice claims against attorneys who represented their insureds. The following cases demonstrate various bases used by
courts to allow or disallow an excess insurer’s claim for legal malpractice against hired counsel.
Certain courts have determined that an excess insurer may not
bring an action against hired counsel for legal malpractice. For
example, in Continental Casualty Co. v. Pullman, Comley, Bradley
& Reeves, the plaintiff excess insurer instituted an action against
the insured’s defense counsel after paying over $10 million dollars in satisfaction of a verdict against the insured.
The excess insurer argued that an attorney-client relationship
existed between itself and the law firm because: (i) it was the in-
tended and foreseeable beneficiary of the law firm’s legal services
for the insured; (ii) an actual attorney-client relationship existed
between them; and (iii) it was entitled to sue the firm under
principles of equitable subrogation.
The United States Court of Appeals for the Second Circuit
rejected these arguments. The Court determined that the plain-
tiff could not be a third-party beneficiary because the primary
purpose of the transaction was not to benefit the excess insurer.
The Court also noted that, although most states recognize an ac-
tion for equitable subrogation, the public policy of Connecticut
opposed the notion of holding attorneys liable to parties with
whom they are not in privity in this situation. There was also no
attorney-client relationship, as the attorney owed his allegiance
to the insured, not the insurance company that retained him.
A similar result was reached in St. Paul Surplus Lines Ins. Co.
v. Remley. Here, the United States District Court for the Eastern
District of Missouri held that an excess insurer could not main-
tain an equitable subrogation action against a law firm due to the
“extreme” nature of the remedy of equitable subrogation, and the
potential conflict of loyalty for the attorney to its direct client.
In St. Paul Ins. Co. v. AFIA Worldwide Ins. Co., the United
States Court of Appeals for the Fifth Circuit affirmed a Louisiana
district court’s decision to dismiss an excess insurer’s legal malpractice claim against the insured’s defense counsel. The court
reasoned that the relationship between attorney and client is one
of principal and agent. As a result, absent any privity of contract,
an attorney only makes himself liable to a third party if he exceeds the limits of his agency, or where fraud or collusion has
The Kentucky Court of Appeals also rejected an excess insurer’s argument that it should be permitted to maintain a legal malpractice action against the insured’s defense counsel. The
Court noted that allowing such an action, based upon theories
of equitable subrogation, would undermine the preservation of
traditional attorney-client relationships.
The Court also held that the excess insurer was not an intended
or foreseeable beneficiary of the legal services provided by counsel to the insured. The excess insurer had no contractual relationship with the law firm, and the law firm’s employment was
not directly or primarily intended to benefit the excess insurer.
All hope is not lost for excess insurers, as other courts have allowed such claims to proceed against hired counsel. In National
Union Ins. Co. v. Dowd & Dowd, P.C., the plaintiff excess insurer
brought a legal malpractice action against the insured’s defense
counsel after the entry of a verdict requiring the excess insurer
to pay $5 million dollars. The Court held that, although no
State laws vary on whether
excess insurers may pursue
legal malpractice claims
against attorneys who
represented their insureds.