Legal Malpractice: Claims and Coverage Issues Facing Insurance Defense Counsel

1. Legal Malpractice:Claims and Coverage Issues Facing Insurance Defense Counsel Christopher Buckman, Director RPA Insurance Services 5290 DTC Parkway, Suite 140 Greenwood Village, CO 80111 303.818.0552 chrisb@rpamerica.com Andrew R. McLetchie, Esq. Fowler, Schimberg & Flanagan, P.C. 1640 Grant Street, Suite 150 Denver, CO 80203 303.298.8603 a_mcletchie@fsf-law.com

2. From: bo@ [mailto:codla.org bo@codla.org] Sent: Monday, February 24, 2014 11:18 AMTo: Andrew McLetchieSubject: Legal Mal and Marijuana in the Workplace - CDLA Ethic and General CLEs Legal Malpractice Concerns and Coverage Problems Facing Insurance Defense LawyersPresented by Andrew McLetchie, Esq. Fowler, Schimberg & Flanagan, P.C. and Chris Buckman, RPA Insurance ServicesMr. McLetchie and Mr. Buckman will present on professional liability and coverage issues specifically relevant for insurance defense counsel. They will illustrate several fact patterns that could result in legal malpractice claims against insurance defense lawyers, and the potential implications arising from these fact patternsThursday February 27, 20144:30 - 5:30 CLE (ethic)5:30 - 6:30 Hosted Happy HourPanzano at Hotel Monaco909 17th StDenver, CO 80202

3. Is this presentation about “freshly baked” lawyers?

4. ENDORSEMENT THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. COLORADO MARIJUANA AND MEDICAL MARIJUANA EXCLUSION The following exclusion is added to Section V. EXCLUSIONS: This insurance does not apply: To any “claim” for “damages” that is alleged to be caused in whole or in part by the consumption of marijuana or medical marijuana by any “insured.”

5. Top Ten Legal Malpractice Claims made against Defense Lawyers

6. 1. Type of Claim: Slander/Libel by attorney Area of Practice: PI - Defense 2. Type of Claim: Improper Handling of Documents Area of Practice: Workers Compensation -Defense 3. Type of Claim: Unsatisfactory settlement Area of Practice: Construction Defect Defense 4. Type of Claim: Ineffective Trial Strategy Area of Practice: Products Liability Defense 5. Type of Claim: Failure to investigate case Area of Practice: Auto Case Defense 6. Type of Claim: Malicious Prosecution Area of Practice: Employment Practice (Sex Harassment) Defense 7. Type of Claim: Improper handling of settlement documents Area of Practice: Insurance Bad Faith Defense 8. Type of Claim: Failure to obtain consent/inform client Area of Practice: Professional Liability Defense 9. Type of Claim: Planning Error – Procedure Choice Area of Practice: Project Policy/A&E Defense 10. Type of Claim: Sex with client/ Disciplinary Action Area of Practice: OPPS!! – Family Law Attorney

7. FACT PATTERN NO. 1The Case Of Unconstitutional Substituted Service And The Unauthorized Entry Of Appearance

8. Substituted service is effected upon Drunk Driver under C.R.S. § 42-7-414(3)(a) and C.R.C.P. 4(f).

9. (3)(a) The insurance carrier that issues a motor vehicle liability policy accepted as proof under this article shall include the following provision in the policy contract: “If the insured's whereabouts for service of process cannot be determined through reasonable effort, the insured agrees to designate and irrevocably appoint the insurance carrier as the agent of the insured for service of process, pleadings, or other filings in a civil action brought against the insured or to which the insured has been joined as a defendant or respondent in any Colorado court if the cause of action concerns an incident for which the insured can possibly claim coverage. Subsequent termination of the insurance policy does not affect the appointment for an incident that occurred when the policy was in effect. The insured agrees that any such civil action may be commenced against the insured by the service of process upon the insurance carrier as if personal service had been made directly on the insured. The insurance carrier agrees to forward all communications related to service of process to the last-known e-mail and mailing address of the policyholder in order to coordinate any payment of claims or defense of claims that are required.”

10. (f) If service of process is made on the insurance carrier under this subsection (3) and the court enters judgment or the insurance carrier agrees to a settlement for the damages caused by the absent insured, the amount of the insurance carrier's liability shall not exceed the policy limits of the coverage. A judgment or settlement obtained using service of process on the carrier shall not bar the injured person from subsequently making personal service on the person who caused the injury and seeking additional remedies provided by law.

11. No one can find Drunk Driver anywhere. • The Complaint contains negligence claims. • The policy limit is $100,000.

12. ABC Insurance Company retains Danny Defense Lawyer to represent Drunk Driver. • Danny Defense Lawyer enters an appearance for Drunk Driver without obtaining Drunk Driver’s consent or “informed consent” to do so.

13. Plaintiff’s counsel makes a policy limits demand. • ABC Insurance Company refuses to settle. • The case is tried and a $250,000 verdict is entered against Drunk Driver. • The carrier refuses to pay the verdict.

14. After verdict, Plaintiff’s counsel, who has been continuing to exercise due diligence, finally finds Drunk Driver after his return from Mexico and serves him with Rule 69 Interrogatories and takes a debtor examination under Rule 69. • Assets are uncovered and Plaintiff’s counsel attempts to collect the judgment from Drunk Driver.

15. Drunk Driver sues Danny Defense Lawyer for malpractice. • Drunk Driver sues ABC Insurance Company for failing to settle the case within the policy limits.

16. Issues • What could have been done different? • Who is the client? • Ethics Opinion 91

17. Issues (cont) • Do you need the client’s authority to enter an appearance on behalf of the client? See Trujillo v. Wilson, 117 Colo. 430, 189 P.2d 147 (Colo. 1948) (“an attorney appearing for a party to an action is presumed to have authority to do so”). • See 7A C.J.S. Attorney and Client § 239 (an attorney who has been specifically authorized and requested to enter an appearance for a party has authority to do so…an attorney does not generally have the power to bind by his or appearance a party who has not authorized the attorney to act in this case…”) (collecting cases). • An unauthorized appearance by an attorney has been held binding on a party. See id. (citing Petker v. Rudolph, 168 Mic. 909, 6 N.Y.S2d 296 (Supp. 1938), aff’d, 258 A.D. 1040, 17 N.Y.S2d 1020 (1st Dep’t 1940).

18. FACT PATTERN NO. 2Turning Fact Pattern No. 1 Into An Insurance Coverage Nightmare

19. The verdict in Case No. 1 is entered on December 1, 2015. • Danny Defense Lawyer’s firm’s professional liability policy’s renewal date is January 1, 2016.

20. Effective January 1, 2016, Danny Defense Lawyer joins a new firm. • On January 1, 2017, Danny Defense Lawyer’s former firm dissolves. • On November 30, 2017, Drunk Driver sues Danny Defense Lawyer and his former firm.

21. Issues • Claims made and reported. • Prior acts. • Are the partners of the dissolved firm liable for the judgment? • See C.R.C.P. 265.

22. FACT PATTERN NO. 3Another Wrinkle Causing More Coverage Nightmares

23. Danny Defense Lawyer retires on January 1, 2015 following the verdict. • Danny Defense Lawyer’s firm dissolves one year later. • Drunk Driver sues Danny Defense Lawyer on November 30, 2016.

24. Issues • Claims made and reported policy. • Prior accident endorsement. • Tail coverage.

25. FACT PATTERN NO. 4You Are Hired By ABC Insurance Company To Represent A Builder-Vendor In A Construction Defect Case

26. Without consulting with your client or your client’s personal counsel, pursuant to the carrier’s request, you file a Third Party Complaint against the architect and engineer hired by your client to design the project.

27. Your Third Party Complaint alleges negligent design against the architect and the engineer.

28. Personal counsel finds out that you have done so and has you fired by the carrier.

29. The Plaintiff HOA moves for summary judgment arguing that your pleadings constitute a judicial admission that the project was negligently designed and that as the builder-vendor, your client was responsible and impliedly warranted the design under the Spearin Doctrine.

30. Your replacement counsel argues otherwise, but the trial court grants the Plaintiff HOA’s motion for partial summary judgment.

31. While the motion for partial summary judgment is pending, it is discovered that the architect and the engineer are judgment proof.

32. The case is tried to verdict and the carrier refuses to pay the judgment and a coverage suit ensues.

33. The builder-vendor sues you for malpractice.

34. Issues • Informed consent. • Strategy mistakes.

35. FACT PATTERN NO. 5Let’s Change The Facts To Turn This Into A Coverage Nightmare (Again)

36. In addition to being sued by the client, the attorney is sued by the carrier to recover the fees it paid to the attorney for the bad advice.

37. Can the carrier sue the attorney for legal malpractice? • No. There is no attorney-client relationship. Allen v. Steele, 252 P.2d 476 (Colo. 2011). • The legal malpractice claim cannot be assigned. Roberts v. Holland & Hart, 857 P.2d 492 (Colo. App. 1993).

38. Can the carrier sue the attorney for breach of contract to recover fees paid to the firm?

39. Coverage problem? Disgorgement.

40. FACT PATTERN NO. 6

41. Pursuant to C.R.C.P. 227(A)(2)(a)(4), an attorney files a statement with the Office of Attorney Regulation indicating the attorney has professional liability insurance on January 1, 2014.

42. On February 1, 2014, a former insurance defense client hires you to represent him concerning injuries he sustained in an automobile accident.

43. The accident occurred on December 1, 2011. • Over the course of 2014, the lawyer decides to “semi-retire” and not renew his LPL policy effective December 31, 2014. • On December 2, 2014, the defense lawyer files the Complaint after the statute of limitations has expired.

44. The Defendant is not served until January 2015. • A motion to dismiss is filed and granted in early 2015 based on statute of limitations grounds.

45. The lawyer advises his client and the client advises he intends to pursue a malpractice claim. • Client sues lawyer for professional malpractice and negligently misrepresenting that he was covered.

46. Issues Claims made and repeated. Negligent misrepresentation.

47. FACT PATTERN NO. 7You Are Defending A Client With A $1 Million Insurance Policy

48. There is significant excess exposure. • The policy is an occurrence policy. • The policy contains a consent to settle clause. • In light of the significant excess exposure, the carrier extends policy limits in settlement authority to you. • The carrier thinks that the lawyer has obtained consent to settle from the client. • The lawyer thinks the carrier has consent to settle from the client. • In reality, no one has obtained consent from the client. • The lawyer settles the case for the policy limit. • The client finds out and is not a happy camper because client knows that another claim for the policy period is likely. • However, now that the policy limit has been paid in settlement, there is no duty to defend or indemnify under this occurrence policy. • Client sues lawyer for malpractice.

49. Issues • Communicate, communicate, communicate. • Document, document, document. • Excess letter consent to settle – who sends?

50. FACT PATTERN NO. 8You Are Hired To Defend A Client Where The Complaint Alleges Both Fraud And Negligent Misrepresentation Claims