Keck & Mahin v. Nat'l Union Fire Ins. Co.

• Decision Date: 25 May 2000
• Docket Number: No. 98-0034,98-0034
• Citation: 20 S.W.3d 692
• Parties: (Tex. 2000) Keck, Mahin & Cate, Grant Cook, and Robert A. Plessala, Petitioners v. National Union Fire Insurance Company of Pittsburgh, P.A., Respondent v. Insurance Company of North America, Respondent
• Court: Texas Supreme Court

Page 692

20 S.W.3d 692 (Tex. 2000)

Keck, Mahin & Cate, Grant Cook, and Robert A. Plessala, Petitioners v. National Union Fire Insurance Company of Pittsburgh, P.A., Respondent v. Insurance Company of North America, Respondent

No. 98-0034

IN THE SUPREME COURT OF TEXAS

Argued January 5, 2000

Decided May 25, 2000

On Petition for Review from the Court of Appeals for the Fourteenth District of Texas

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Chief Justice Phillips delivered the opinion of the Court in which Justice Enoch, Justice Owen, Justice Baker, Justice Abbott, Justice Hankinson, Justice O'Neill and Justice Gonzales joined.

Following the settlement of a third-party liability claim, the excess insurance carrier, as the insured's equitable subrogee sued the primary insurance carrier and the attorneys the primary insurer hired to defend the insured. The excess carrier alleged that it had been forced to settle the third-party claim for too much because the attorneys and primary carrier had mishandled the insured's defense. We consider two primary issues: (1) whether a release agreement, executed between the insured and its attorneys during the attorney-client relationship, bars the insurance carriers' equitable subrogation claims for legal malpractice; and (2) whether the primary carrier and attorneys may assert the excess carrier's own negligence in settling the third-party claim as an affirmative defense to the excess carrier's equitable subrogation claim. We conclude that the release agreement is not a complete bar. We further conclude that appropriate allegations of negligence or misconduct against the excess carrier may be asserted in defense to that carrier's equitable subrogation claim. Although we do not agree in all respects with the court of appeals' reasoning, we conclude that its judgment is correct, and we affirm it. 955 S.W.2d 120.

I. Procedural History

In September 1991, Wolf Point Shrimp Farm and its owner sued Granada Food Corporation for damages allegedly caused by Granada's improper processing and marketing of shrimp grown and harvested at Wolf Point the previous fall. Granada immediately hired the law firm of Keck, Mahin & Cate (KMC) as its attorneys in the suit. Shortly thereafter, KMC tendered the defense of the suit to Granada's primary insurance carrier, Insurance Company of North America (INA), and Granada's excess insurance carrier, National Union Fire Insurance Company of Pittsburgh, Pa. (National). INA's primary policy for the relevant period provided a limit of $1 million per occurrence. National's commercial umbrella policy provided an additional $9 million in excess coverage.

INA agreed to defend Granada under a reservation of right to contest coverage. Granada, which under the INA policy had the right to select its own defense counsel, chose to keep KMC. INA therefore formally engaged KMC to defend Granada in the Wolf Point litigation, with Grant Cook and Robert A. Plessala assuming primary responsibility for the defense. The excess policy did not require National to investigate or defend claims against Granada as long as another underlying insurance carrier was providing a defense. While National did have the right to associate in the defense and trial of any claim it deemed a threat to its liability, it did not exercise that right in the Wolf Point litigation.

During the litigation, Wolf Point demanded $3.6 million to settle the suit. Both INA and National were informed of the demand, but neither insurer expressed interest in settling for this amount, and KMC advised that the case could probably be settled for less than half this sum.

In January 1992, the trial court gave the Wolf Point litigation a preferential trial setting for April 28, 1992. KMC's efforts to continue the setting were unsuccessful, and the case proceeded to trial. On the first day of trial, INA tendered its policy limits to National. Two days later, National settled the suit for $7 million, and a final judgment was later signed for that amount.

Less than two years later, National filed this suit against INA and KMC to recover the money it paid to settle the Wolf Point suit. National alleged that INA and the attorneys had mishandled Granada's defense, forcing National to settle the third-party claim to protect both Granada and itself from an excess judgment. National's claims against INA included allegations of negligence, gross negligence and violations of the Texas Insurance Code, and its claim against KMC was for legal malpractice. Because all of these claims belonged to the insured, National asserted them under the doctrine of equitable subrogation.

INA denied responsibility and asserted a cross-claim against KMC for malpractice and an affirmative defense against National, based on the excess carrier's contributory negligence or comparative responsibility. KMC also denied responsibility and affirmatively pled that a release agreement between it and the insured barred National's and INA's claims. KMC additionally asserted affirmative defenses of contributory negligence and comparative responsibility against National. All parties filed motions for summary judgment.

The trial court's rulings on these motions eliminated for trial all but National's negligence claim against INA. The trial court granted summary judgment for KMC on the two insurance carriers' subrogation claims for malpractice because of the KMC-Granada release agreement. The trial court also granted partial summary judgment for National, rejecting INA's and KMC's affirmative defenses of contributory negligence and comparative responsibility. Finally, the trial court granted INA a partial summary judgment, eliminating National's claims of gross negligence and Insurance Code violations. After resolving these motions, the trial court severed National's and INA's claims against KMC, assigned these claims a new cause number, and rendered a final judgment that the two insurers take nothing against KMC. National and INA appealed.

The court of appeals affirmed in part,¹ reversed in part, and remanded the cause to the trial court. 955 S.W.2d 120. Concluding that the Granada-KMC release was not a bar to the insurance carriers' malpractice claims, the court reversed the take-nothing summary judgment and remanded these claims to the trial court. The court also reversed the trial court's ruling on National's motion for summary judgment, holding that KMC and INA could raise National's comparative responsibility as a defense. The court, however, limited the relevant time period for proving this defense to National's conduct after INA's tender of the primary policy limits. Because we agree that these claims must be remanded to the trial court for further proceedings, we affirm the court of appeals' judgment. We agree that KMC and INA can raise National's comparative responsibility in defense to the respective negligence claims against them. We further agree that KMC was not entitled to summary judgment on the release, although we disagree with how the court of appeals construed that agreement.

II. The Release

KMC and Granada signed the release on April 10, 1992, a little more than two weeks before the Wolf Point trial was to begin. According to KMC, Granada owed it a substantial sum for past legal services unrelated to Wolf Point and wanted to clear that debt from its balance sheet. Thus, in exchange for KMC's promise to forgive these unpaid fees, Granada released KMC from "all demands, claims or causes of action of any kind whatsoever, statutory, at common law or otherwise, now existing or that might arise hereafter, directly or indirectly attributable to the rendition [of] professional legal services by KMC to Granada between June 1, 1988 and April 1, 1992." The trial court concluded that the release of "all demands, claims or causes of action" was broad enough to cover the Wolf Point litigation. The court of appeals construed the release more narrowly, however, concluding that the parties' intention "in entering into this release was to resolve the issue of unpaid fees, not to release KMC from any and all legal malpractice claims." 955 S.W.2d at 129. Because INA, not Granada, was paying for the Wolf Point defense, the court of appeals concluded that it was not included within the release.

A. Scope of the Release

KMC complains that the court of appeals erroneously implies "unpaid fees" as a limitation on its consideration under the release. KMC submits that its consideration for the agreement is set forth in paragraph 2 which, in plain language, releases any and all claims Granada may have against KMC directly or indirectly attributable to KMC legal services between June 1, 1988 and April 1, 1992. Unpaid legal fees are not mentioned.

Unpaid fees are only mentioned in the recitals at the beginning of the agreement and again in the first numbered paragraph which sets out Granada's consideration for the release. The agreement begins:

WHEREAS, KMC has performed legal services for Granada since June of 1988;

WHEREAS, as of the date written above, Granada owes KMC a substantial sum for outstanding and unpaid invoices for professional legal services rendered to Granada up to April 1, 1992 (the "Unpaid Fees");

WHEREAS, KMC and Granada desire to resolve the issue of the Unpaid Fees to their mutual satisfaction; and

WHEREAS, KMC has advised Granada in writing that independent representation is appropriate in connection with the execution of this Agreement.

NOW, THEREFORE, in exchange for the mutual promises, agreements and releases herein contained, KMC and Granada do hereby agree as follows:

* * *

Paragraphs 1 and 2 immediately follow and set out the consideration to Granada and to KMC for the agreement. In paragraph 1, KMC forgives Granada for all unpaid legal fees for services rendered between June 1, 1988 and April 1, 1992:

1. KMC hereby releases, and by these presents does hereby release, acquit and forever...