Excess Insurer Not Entitled To Maintain Legal Malpractice Claim Against Insured’s Defense Attorneys

The U.S. Eighth Circuit Court of Appeals upheld a trial court’s grant of summary judgment against Ohio Casualty Insurance Co., which had brought a legal malpractice claim against defense lawyers who estimated a potential verdict at $2.4 million.  The actual verdict, in a case involving allegations a nursing home caused a patient’s death by negligent and reckless care, was $78 million, reduced to $26 million by the Arkansas Supreme Court.  Ohio Casualty was liable for about $10 million of the award.  The case is Great American Ins. Co. and Ohio Casualty Ins. Co. v. Dover Dixon Horne, PLLC.  Here is a link to the case (hat tip: Andrew Lavoott Bluestone).

The Eighth Circuit said an Arkansas statute forbids attorney malpractice claims when the plaintiff was not in privity with the lawyer, except when certain exceptions apply, such as when the plaintiff was a third-party beneficiary of a lawyer’s services.  In the Eighth Circuit’s analysis, Ohio Casualty was not a third-party administrator because it did not hire the attorneys, who had been retained by the nursing home’s third-party administrator, and because the insurer relied on the advice of another attorney and did not have an attorney-client relationship with the lawyers it was suing.

The court also stepped on Ohio Casualty’s equitable subrogation claim, saying that it was a legal malpractice claim by another name.  This seems like the right result under the Arkansas statute and the facts, including the key facts that the defense lawyers were hired by the third-party administrator and an excess carrier normally does not have an obligation for the defense until underlying insurance is exhausted.   

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