State and County Mut. Fire Ins. Co. v. Young
| Decision Date | 31 May 2007 |
| Docket Number | Civil Action No. 3:04-CV-123. |
| Citation | 490 F.Supp.2d 741 |
| Court | U.S. District Court — Northern District of West Virginia |
| Parties | STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY, Plaintiff, v. William Prentice YOUNG, Defendant. |
Kerrie Wagoner Boyle, P. Gregory Haddad, MacCorkle, Lavender, Casey & Sweeney, PLLC, Morgantown, WV, for Plaintiff.
Christina S. Terek, Flaherty, Sensabaugh & Bonasso, PLLC, Wheeling, WV, Erica M. Baumgras, Jeffrey M. Wakefield, Flaherty, Sensabaugh & Bonasso, PLLC, Charleston, WV, Ralph C. Young, Hamilton Burgess Young & Pollard, PLLC, Fayetteville, WV, for Defendant.
MEMORANDUM ORDER DENYING DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS
Pending before this Court is a Motion for Judgment on the Pleadings filed by defendant William Prentice Young (Doc. 58), in which the defendant asserts that the plaintiff lacks standing to assert a claim for legal malpractice against the defendant due to the absence of an attorney-client relationship between the insurer and the attorney which it retains to represent the interests of the insureds.
This legal malpractice action arises out of a civil action in this Court styled Miller v. Pruneda, 3:02-CV-42, emanating from an automobile accident occurring on July 6, 2000. State and County Mutual Fire Insurance Company (hereinafter "State & County") contacted William Prentice Young ("Young") to defend the interests of Eric Pruneda and Carlos DeLuna dba A.B. Farms (hereinafter "the insureds"). State & County and Young subsequently executed an employment agreement, including a retainer and hourly pay rate for Young's representation of the insureds in the underlying automobile accident. Although Young was never in contact with his clients1, he proceeded to defend the insureds pursuant to his employment contract with State & County. During the course of litigation, Young admittedly failed to respond to discovery and dispositive motions. State & County subsequently settled the automobile accident suit on May 9, 2003. The insurer alleges in this action that defendant Young's sub-par representation of the insureds forced it to settle the underlying claims for amounts in excess of their true value. It was from defendant Young's alleged neglect that the current litigation ensued.
Because this Court is a federal court sitting in diversity, it must apply West Virginia substantive law to determine whether the plaintiff has standing in this case. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). "Where state law is unclear on an issue, this Court must interpret the law as it appears that the West Virginia Supreme Court of Appeals would. See Wells v. Liddy, 186 F.3d 505, 528 (4th Cir.1999). Here, the Supreme Court of Appeals has not ruled on the particular issue before the Court.
Under West Virginia law, "[i]n a suit against an attorney for negligence, the plaintiff must prove three things in order to recover: (1) [t]he attorney's employment; (2) his/her neglect of a reasonable duty; and (3) that such negligence resulted in and was the proximate cause of loss to the plaintiff." Syllabus Pt. 1, Calvert v. Scharf 217 W.Va. 684, 619 S.E.2d 197 (2005). See also Sheetz, Inc. v. Bowles Rice McDavid Graff & Love, PLLC, 209 W.Va. 318, 333 n. 13, 547 S.E.2d 256, 271 n. 13 (2001) (same); Armor v. Lantz, 207 W.Va. 672, 681, 535 S.E.2d 737, 746 (2000) (same); McGuire v. Fitzsimmons, 197 W.Va. 132, 136-37, 475 S.E.2d 132, 136-37 (1996) (same); Keister v. Talbott, 182 W.Va. 745, 748-49, 391 S.E.2d 895, 898-99 (1990).
The West Virginia Supreme Court of Appeals has held that "[w]here a malpractice claim involves a matter for which the plaintiff directly hired the attorney, there is no question that a duty was owed." Calvert v. Scharf 217 W.Va. 684, 690, 619 S.E.2d 197, 203 (2005). Furthermore, the Court explained that a separate duty is only required "where there is no employment relationship between the lawyer and the malpractice plaintiffs." Id. (emphasis added). In this case, State & County hired defendant Young to represent its insureds. Defendant Young further admits that an employment relationship existed. Accordingly, because the insurance company hired defendant Young to serve as defense counsel for the insured, it need not show additional evidence of a duty.
Absent the employment relationship between the State & County and defendant Young, such a duty still exists. Regardless of the status of the defendant attorney's employment, the West Virginia Supreme Court of Appeals, as well as the Restatement, have both established that a lawyer, nevertheless, owes a duty of care in certain situations. For instance, in the Restatement (Third) of the Law Governing Lawyers, § 51(3), "[a] lawyer owes a duty to use care to a non-client when and to the extent that:
(a) the lawyer knows that a client intends as one of the primary objectives of the representation that the lawyer's services benefit the nonclient;
(b) such a duty would not significantly impair the lawyer's performance of obligations to the client; and
(c) the absence of such a duty would make enforcement of those obligations to the client unlikely."
Restatement (Third) of the Law Governing Lawyers, § 51(3).
Comment g to § 51 addresses the issue squarely:
g. A liability insurer's claim for professional negligence. Under Subsection (3), a lawyer designated by an insurer to defend an insured owes a duty of care to the insurer with respect to matters as to which the interests of the insurer and insured are not in conflict, whether or not the insurer is held to be a co-client of the lawyer (see § 134, Comment f). For example, if the lawyer negligently fails to oppose a motion for summary judgment against the insured and the insurer must pay the resulting adverse judgment, the insurer has a claim against the lawyer for any proximately caused loss. In such circumstances, the insured and insurer, under the insurance contract, both have a reasonable expectation that the lawyer's services will benefit both insured and insurer. Recognizing that the lawyer owes a duty to the insurer promotes enforcement of the lawyer's obligations to the insured. However, such a duty does not arise when it would significantly impair, in the circumstances of the representation, the lawyer's performance of obligations to the insured. For example, if the lawyer recommends acceptance of a settlement offer just below the policy limits and the insurer accepts the offer, the insurer may not later seek to recover from the lawyer on a claim that a competent lawyer in the circumstances would have advised that the offer be rejected. Allowing recovery in such circumstances would give the lawyer an interest in recommending rejection of a settlement offer beneficial to the insured in order to escape possible liability to the insurer.
Restatement (Third) of the Law Governing Lawyers, § 51 cmt. g.
The Supreme Court of Appeals, following the rationale in the Restatement, has held that a will beneficiary has standing to assert a malpractice claim alleging negligence on the part of the lawyer who drafted it. Calvert v. Scharf, supra. In so holding, the Court addressed that issue as one of first impression, and followed the majority of jurisdictions, in which "the prevailing rule is that an attorney can be liable for negligence to the intended beneficiary. ..." Calvert, 217 W.Va. at 690, 619 S.E.2d at 203. Most importantly, the Court recognized the modern trend, which allows non-clients to bring a legal malpractice cause of action. Id., 217 W.Va. at 691, 619 S.E.2d at 204. Because the Supreme Court of Appeals had not previously ruled on the issue, it looked to other jurisdictions for guidance. Today, this Court will draw from both the keen insight of the West Virginia Supreme Court of Appeals as well as jurisdictions that have expressly ruled on the issue at hand.
Much can be drawn from the Court's previous rulings on the existence of such a duty. In Aikens v. Debow, 208 W.Va. 486, 500-01, 541 S.E.2d 576, 590-91 (2000), the Court recognized that the existence of a "special relationship" may give rise to liability.2 See Calvert, supra, 217 W.Va. at 691, 619 S.E.2d at 204. In its reasoning, the Court explained the practical reasons for allowing such lawsuits. For example, in the attorney/non-client will beneficiary relationship the Court adopted a realistic approach, recognizing that "[n]o one [other than the beneficiaries] has a sufficient interest, can show damage, or possesses the [volition], to do so," Calvert, 217 at 692, 619 S.E.2d at 205. Further, in addressing whether the non-client beneficiary had standing to assert the negligence claim against the attorney-will drafter, the Court determined that the real parties who suffered the loss were the will beneficiaries. Id. Following this logic, it would appear that the Supreme Court of Appeals would likewise find that the insurance company bears the loss of its insureds. It follows that, just as will beneficiaries possess standing, so too should insurance companies.
The Court further recognized that the benefit, which the plaintiff beneficiary would have received had the will been properly executed, is so closely connected to the benefit the defendant drafter promised to the testatrix that the beneficiary should be able to enforce the contract. Calvert, 217 W.Va. at 692, 619 S.E.2d at 205 (citing Stowe v. Smith 184 Conn. 194, 197-98, 441 A.2d 81, 83 (1981)). A similar conclusion can be reached in the insurer/insured/attorney triparte relationship. In following such logic, it only seems reasonable that an insurance company may enforce the contract of the insured as the true party bearing the loss.
Furthermore, the element of foreseeability is clearly satisfied in the context of the harm caused to an insurer by the attorney who negligently...
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