Guest v. Allstate Ins. Co.

• Decision Date: 25 October 2010
• Docket Number: Nos. 31,602, 31,603.,s. 31,602, 31,603.
• Citation: 244 P.3d 342,2010 -NMSC- 047,149 N.M. 74
• Parties: Suzanne GUEST and The Guest Law Firm, P.C., Plaintiffs-Respondents/Plaintiffs-Petitioners, v. ALLSTATE INSURANCE COMPANY, Defendant-Petitioner/Defendant-Respondent.
• Court: New Mexico Supreme Court

244 P.3d 342

149 N.M. 74

2010 -NMSC- 047

Suzanne GUEST and The Guest Law Firm, P.C., Plaintiffs-Respondents/Plaintiffs-Petitioners,

v.ALLSTATE INSURANCE COMPANY, Defendant-Petitioner/Defendant-Respondent.

Nos. 31,602, 31,603.

Supreme Court of New Mexico.

Oct. 25, 2010.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Jennifer A. Noya, Albuquerque, NM, Kirkland & Ellis, L.L.P., Richard C. Godfrey, Andrew A. Kassof, Chicago, IL, for Petitioner/Respondent.

Tucker Law Firm, P.C., Steven L. Tucker, Santa Fe, NM, The Guest Law Firm, P.C., Suzanne Guest, Phoenix, AZ, for Respondents/Petitioners.

OPINION

BOSSON, Justice.

{1} A jury awarded Plaintiff Suzanne Guest, an attorney, a multi-million-dollar verdict against her former client, Defendant Allstate Insurance Co. The jury found that Allstate had breached its contract to defend and indemnify Guest in a lawsuit that was filed against her and Allstate by a former insured of Allstate. The bulk of Guest's $1,800,000 compensatory damages award was for ten years worth of future earnings that she claimed Allstate would have paid her in legal fees had it not breached the promise to defend and indemnify her. We affirm the Court of Appeals in holding that the trial court properly submitted the question of liability based on breach of contract to the jury.

{2} We are persuaded, however, that Guest's recovery of unearned attorney fees from her former client threatens the essential trust that lies at the core of any attorney-client relationship—a relationship which ethically is and must be terminable at the discretion of the client. We therefore overturn on public policy grounds the jury's award of future earnings. We also reverse the Court of Appeals holding that Allstate's promise to defend and indemnify Guest was not an insurance contract as defined by statute. We affirm in part, reverse in part, and remand for further proceedings.

BACKGROUND

{3} This dispute arose out of a 1997 car accident and subsequent attempt by an Allstate insured to collect on a modest uninsured motorist policy. Such humble beginnings sparked a round robin of vitriolic litigation culminating in this, the fifth written appellate opinion since 2007. See Durham v. Guest, 2009-NMSC-007, 145 N.M. 694, 204 P.3d 19; Guest v. Allstate Ins. Co., 2009-NMCA-037, 145 N.M. 797, 205 P.3d 844;Guest v. Berardinelli, 2008-NMCA-144, 145 N.M. 186, 195 P.3d 353; Durham v. Guest, 2007-NMCA-144, 142 N.M. 817, 171 P.3d 756. We hope this will be the last word on the matter. We are not optimistic.

{4} Guest represented Allstate in the resulting dispute with Allstate's insureds, Jamie Deveney and Travis Durham (the Durhams), in their uninsured motorist claim against Allstate. At that time Guest, a private attorney, performed considerable legal work for Allstate and Allstate insureds that constituted a large percentage of her practice. The Durhams' claim eventually went to arbitration, where they were awarded $45,000 from Allstate—an amount $31,000 more than Allstate's highest offer. See Durham v. Guest, 2007-NMCA-144, ¶ 5, 142 N.M. 817, 171 P.3d 756.

{5} The Durhams then sued Allstate and Allstate's adjuster, alleging bad faith insurance practices, conspiracy, and fraud. These 2001 claims arose out of a set of internal policies and practices that Allstate had adopted, allegedly to enhance its corporate profits at the expense of its insureds by denying or artificially limiting their claims. Through their attorney, David Berardinelli, the Durhams also took the unusual step of suing Guest for her role as Allstate's attorney in the arbitration proceedings, alleging violations of the New Mexico Insurance Code, aiding and abetting a violation of fiduciary duty, unjust enrichment, malicious abuse of process, malicious defense, and prima facie tort. Guest v. Berardinelli, 2008-NMCA-144, ¶ 3, 145 N.M. 186, 195 P.3d 353. Specifically, the Durhams accused Guest of

malicious character assassination of the Durhams and of maliciously abusing process to obtain their employment and medical records outside the scope of discovery or in violation of protective orders with the intent to humiliate the Durhams, to cause or threaten them to lose their employment, to extort and intimidate them to give up their rights, and to retaliate against them for not accepting Allstate's settlement offer.

Id.

{6} In the fateful act that led to the litigation before us now, Guest demanded that Allstate provide her with a legal defense in the Durhams' lawsuit and with indemnification in the event of an award in Durhams' favor against her. Allstate agreed to defend Guest and provided her with an attorney, Stephen Simone, who proposed to file a motion to dismiss on her behalf. Simone explained to Guest that Allstate had decided to take the Durhams' claims to trial and had agreed to defend her through the conclusion of the matter. He further explained that Guest could choose to have Simone handle her motion to dismiss, or she could opt for separate counsel. Guest chose the latter option, and Allstate hired Stephen Royce to represent her against the Durhams.

{7} When Allstate notified Guest that Royce would be her attorney, it did so in a letter acknowledging its agreement to provide her with a defense but mentioning nothing about indemnification. Through Royce, Guest repeatedly requested written confirmation of Allstate's agreement to indemnify her, but Allstate did not respond. The indemnification question did not turn out to be pivotal, however, because the Durhams eventually dismissed their complaint, without prejudice, in late 2001.

{8} In early 2002, the Durhams filed a second lawsuit, echoing their original claims, but expanding the allegations against both Allstate and Guest. Guest renewed her demand for a defense and indemnification, but this time Allstate refused, suggesting instead that she seek coverage from her own professional liability insurer. Guest was "shocked" by Allstate's refusal; she viewed Allstate's promise to defend her as a contract, which was still binding because the new complaint was a continuation of the original lawsuit. Believing Allstate to have breached that contract, Guest became concerned that an ethical conflict was developing that would force her to refrain from accepting any additional legal work from Allstate. Allstate's referrals amounted to at least 85 percent of Guest's law practice.

{9} Guest's professional liability insurer appointed counsel and began representing her against the Durhams. Guest and her new attorney met with Simone and Allstate and demanded that Allstate honor its obligationto defend and indemnify her. Allstate refused; Guest then returned all but two of her active cases to Allstate. Guest believed that the two cases she retained had advanced so far that Allstate's insureds would suffer prejudice if she withdrew. Guest also requested that Allstate refrain from sending her any new legal work for at least six months, so that she could evaluate whether she could continue to represent Allstate in the future. Ten days later, Guest again demanded that Allstate honor its promise to defend and indemnify her, but received no response.

{10} A few months later, the Durhams offered to dismiss the complaint against Guest with prejudice on the condition that Allstate waive its right to remove the case to federal court. Allstate refused, though Simone had previously informed Guest that Allstate never intended to file for removal. Guest testified at trial that Allstate's refusal to accommodate her dismissal from the Durham proceedings—based on "a false reason"—had undermined her trust in Allstate as a client and led her to conclude that she could never represent Allstate again. By Thanksgiving 2002, Guest had completed all of her pending Allstate cases, closed her law practice, and moved to Phoenix, Arizona. At about the same time, the trial court dismissed all of the Durhams' claims against her except the one for malicious abuse of process.

{11} Shortly thereafter, in early 2003, Guest's professional liability insurer went into receivership, leaving her unrepresented. Guest again demanded that Allstate honor its promise to defend and indemnify her, and this time Allstate agreed. In a letter dated March 19, 2003, Allstate denied that it had previously abandoned its agreement to defend and indemnify her, but it agreed to do so now because "the circumstances surrounding this case and [Guest's] request [were] unique." That letter, containing the only written description of Allstate's agreement to defend and indemnify her, stated: "Allstate is willing to provide to you a defense and indemnification. Indemnification will not be provided for any ultra vires acts, which is consistent with the original defense provided to you." Allstate gave Guest her choice of counsel, and again she selected Royce.

{12} Throughout 2003 and early 2004, Guest, the Durhams, and the Durhams' attorneys, David Berardinelli and Cheryl McLean, engaged in increasingly hostile settlement negotiations regarding Guest's dismissal. Early in 2003, Guest indicated that she was willing to agree to a zero-dollar, mutual release. However, Guest later reversed her position because of "new allegations about some pretty horrendous things [Berardinelli] was claiming [she] did...." Guest felt that the new allegations went too far, and she decided that any settlement would be unacceptable if she were required to release the Durhams or Berardinelli from any future lawsuit she might bring against them. "I simply said ... that's it, I am ... defending myself, the facts are coming out, the truth is coming out, and if it means it goes to the end, it goes to the end."

{13} One particular episode reveals the caustic tone of the negotiations as they evolved. In September 2003, the Durhams made a Rule 1-068 NMRA offer of settlement to Guest, seeking to dismiss their claims against her with prejudice for no money in return for a mutual release of liability and a confidentiality order....