merican Continental Insurance Co. v. Weber & Rose, P.S.C.

• Decision Date: 13 November 1998
• Docket Number: 1997-CA-001185-MR
• Parties: AMERICAN CONTINENTAL INSURANCE CO., APPELLANT v. WEBER & ROSE, P.S.C., APPELLEE
• Court: Kentucky Court of Appeals

[1]

997 S.W.2d 12

[2]

AMERICAN CONTINENTAL INSURANCE CO., APPELLANT

v. WEBER & ROSE, P.S.C., APPELLEE

[3]

NO. 1997-CA-001185-MR

[4]

Kentucky Court of Appeals

[5]

November 13, 1998

[6] Before: Gudgel, Chief Judge; Guidugli and Schroder, Judges.

[7] Brief And Oral Argument For Appellant: Harry L. Mathison Henderson, KY Brief For Appellee: Gary M. Weiss Carl D. Frederick Karla W. Katakis Louisville, KY Oral Argument For Appellee: Gary M. Weiss Louisville, KY [8] The opinion of the court was delivered by: Gudgel, Chief Judge [9] RENDERED: November 13, 1998; 2:00 p.m. TO BE PUBLISHED

[10] Commonwealth Of Kentucky Court Of Appeals

[11] APPEAL FROM JEFFERSON CIRCUIT COURT HONORABLE GEOFFREY P. MORRIS, JUDGE ACTION NO. 92-CI-1795

[12] OPINION AFFIRMING AND REMANDING

[13] This is an appeal from a summary judgment, dismissing a cross-claim, granted by the Jefferson Circuit Court. The principal issues are (1) whether this jurisdiction should permit an excess insurer to be subrogated to an insured's right to assert a malpractice action against a law firm which the primary insurer employed to represent the insured, and (2) whether such an excess insurer alternatively falls within the class of persons whom the services of the insured's law firm are intended to benefit, such that the excess insurer may maintain a malpractice action against the law firm for damages. As to both of these issues, the circuit court granted a summary judgment in favor of the law firm. Because we agree with the circuit court's Conclusions, we affirm. [14] Bryan Gordon filed a negligence action for damages against the insured, N.K.C. Hospital, Inc. (NKC), concerning injuries he sustained in a fire on NKC's premises. After a trial, the jury returned a verdict in favor of Gordon in the amount of $2,900,000. NKC was self-insured with respect to the first two million dollars of the judgment. However, it had in force and effect an excess insurance policy, issued by appellant American Continental Insurance Company (ACIC), which allegedly provided coverage for the remainder of NKC's obligation under the judgment. NKC appealed, but Gordon's judgment eventually was affirmed by the supreme court, and NKC demanded that ACIC satisfy its liability for a portion of the judgment. ACIC refused and instead filed a declaratory judgment action, seeking an adjudication that it was not liable on the excess policy both because there was no coverage for this particular loss, and because NKC had not given it timely notice of the claim. Appellee law firm Weber & Rose, P.S.C., (Weber & Rose) intervened in the action, seeking declaratory relief adjudicating that it could not be found liable to ACIC for malpractice in connection with its representation of NKC regarding Gordon's claim. ACIC responded by filing an answer and a cross-claim for damages, alleging that Weber & Rose had committed legal malpractice by failing to plead, as an affirmative defense to Gordon's tort action against NKC, the exclusive remedy provisions of the Workers' Compensation Act. In due course, the court granted Weber & Rose a summary judgment on the ground that it could not be adJudged liable to ACIC for malpractice. The court dismissed ACIC's cross-claim, and this appeal followed. First, ACIC contends that the court erred by refusing to permit it, as an excess insurer, to be subrogated to its insured's right to file a malpractice claim against the law firm which represented the insured. We disagree. ACIC correctly points out that some courts have held that a primary insurer is liable to an excess insurer for acts of bad faith or negligence which occur during the course of defending the insured. While some of these courts have concluded that a primary insurer owes a direct duty to the excess insurer by virtue of an implied obligation, see Hartford Accident and Indemnity Co. v. Michigan Mutual Insurance Co., 463 N.E.2d 608 (N.Y. 1984), others have instead afforded an excess insurer a right to proceed against a primary insurer by means of a subrogation action. See Ranger Insurance Co. v. Travelers Indemnity Co., 389 So.2d 272 (Fla. App. 1980). In light of the fact that some courts permit excess insurers to proceed against primary insurers for negligence and bad faith, ACIC urges us to follow the lead of Texas courts, which permit excess insurers to also maintain malpractice actions against attorneys employed by primary insurers on behalf of insureds. ACIC argues that doing otherwise discourages an insured from demanding competent counsel, while simultaneously both imposing a burden on the primary insurer and relieving the insured's counsel of liability for legal malpractice. However, while it is true that Texas permits an excess insurer to bring a malpractice action against an insured's attorney based upon subrogation theories, see American Centennial Insurance Co. v. Canal Insurance Co., 843 S.W.2d 480 (Tex. 1992), we are not persuaded that Kentucky should adopt such a course. Indeed, we are convinced that adopting such a rule would be inimical to the preservation of traditional and longstanding concepts associated with attorney-client relationship, as recognized by Kentucky law. An attorney-client relationship is personal in nature. Automobile Club Insurance Co. v. Lainhart, Ky. App., 609 S.W.2d 692 (1980). Moreover, it is a fiduciary relationship which imposes upon the attorney the duty to exercise "the most scrupulous honor, good faith and fidelity" to his or her client's interest. Daugherty v. Runner, Ky. App., 581 S.W.2d 12, 16 (1978). Our courts are under a duty to protect and preserve this relationship for the benefit of the general public. See In re Gilbert, 274 Ky. 187, 118 S.W.2d 535 (1938). Clearly, given the foregoing principles, ...