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ABSENT CAUSATIONAL DAMAGES - INSURED CANNOT SUSTAIN MALPRACTICE CLAIM AGAINST CARRIER APPOINTED ATTORNEY
The Court of Appeal recently opined that where an insurer agrees to defend its insureds without a reservation of rights, and the defense counsel appointed allegedly commits malpractice, no cause of action for malpractice can be sustained absent a causational connection between the alleged malpractice and the actual damages sustained.
In this case, Western Heritage Insurance Company appointed defense attorney Jennifer Tseng to provide a defense to both of Western's insureds, the Lazy Acres Market and its third party security contractor Premier Protective Services. At the time of retention, attorney Tseng did not advise Lazy Acres or Premier that an actual or potential conflict of interest existed.
At or about that same time, attorney Terrance Bonham notified attorney Tseng that he had been retained by Lazy Acre's own insurance carrier to represent its interests in the suit - but noted that because Western Heritage had accepted Lazy Acres' defense and indemnity, he would simply monitor the suit. Although Lazy Acre's personal counsel Cappello & Noel had initially obtained an extension to respond to plaintiff's Complaint - it played no active role in the litigation during the initial stage.
In July of 2004, Cappello & Noel advised carrier appointed attorney Tseng that she had an actual or at least potential conflict of interest in representing both Lazy Acres and Premier, and that Cappello & Noel would be replacing Tseng as Lazy Acres’ counsel in that case.
Lazy Acres then requested that attorney Tseng recuse herself from representing Premier because of a continuing conflict of interest - but attorney Tseng refused. Although attorney Tseng successfully opposed a Motion to Disqualify her from the case, she subsequently resigned in July of 2004.
Lazy Acres was forced to pay for its own defense beginning in July of 2004, and Western Heritage did not respond to its requests for payment thereof. In the end, Western Heritage paid $100,000 to plaintiff Courts to settle, and the Lazy Acres defendants were dismissed without paying anything to plaintiffs Courts.
In its subsequent action against attorney Tseng, Lazy Acres alleged that, as a proximate result of Tseng's breach of fiduciary duty, Lazy Acres had sustained damages in excess of $500,000 in attorneys' fees, expert witness fees, monetary sanctions, and costs. However, in its final Decision, the Appellate Court noted that the carrier had settled the case within the policy limits, and any duty to pay further defense costs was on the part of the insurer - and not defense attorney Tseng. The Court held that because no damages were caused to Lazy Acres as a result of the alleged malpractice of attorney Tseng - the cause for malpractice could not be sustained.
For a complete copy of the Appellate Decision in this case, please click on the link below.
This important update has been brought to you by Firm Partner Timothy Lake. Mr. Lake is Chair of the Firm's Insurance Coverage and Bad Faith Practice Group, which represents various insurance carriers on a broad range of coverage issues and related matters. If you would like to speak with Mr. Lake about how he can help you with claim reduction, please contact him at (818) 205-9955.
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Related Attorney(s):
Timothy D. Lake
Related Practice Area(s):
Bad Faith and Coverage
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LOS ANGELES ORANGE COUNTY VENTURA/OXNARD CENTRAL COAST
BAY AREA SACRAMENTO LAS VEGAS RENO PHOENIX
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