Shaya B. Pacific, LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP , 827 N.Y.S.2d 231 ( 2006 )

OPINION OF THE COURT

Fisher, J.

The principal issue presented on this appeal concerns whether a law firm, retained by a primary carrier to defend its insured in a pending action, has any obligation to investigate whether the insured has excess coverage available and, if so, to file a timely notice of excess claim on the insured’s behalf.

I

On April 1, 2000, Kazimierz Golebiewski was seriously injured while performing demolition work at the premises of the plaintiff, Shaya B. Pacific, LLC. As a result, Golebiewski and his wife commenced a personal injury action against the plaintiff and others. In July 2000 the plaintiffs primary carrier, Certain Underwriters at Lloyd’s of London (hereinafter Lloyd’s), retained the defendant, Wilson, Elser, Moskowitz, Edelman and Dicker, LLP to defend the plaintiff in the personal injury action.

The policy limit of Lloyd’s’ primary policy was $1,000,000. Golebiewski was seeking damages of $52,500,000. Consequently, on January 25, 2001, a representative of Lloyd’s wrote to the plaintiff, stating in relevant part:

“As you know suit has been filed in this matter. We must advise you that the demand in the suit papers of $52,500,000 is in excess of your policy limits of $1,000,000 per occurrence. As such you may wish to engage counsel of your own choice at your own expense to act on your behalf in regards to any potential excess judgments. We can advise that we are continuing the defense of this matter on your behalf through the Law Offices of Wilson, Elser, Moskowitz, Edelman & Dicker.

“Furthermore you may wish to check with your insurance agent to determine if any excess insurance coverage is in force. If so we would urge you to quickly notify any excess insurance carrier of this suit situation.”

In February 2003 Golebiewski was awarded summary judgment against the plaintiff on the issue of liability under Labor Law § 240 (1). On or about April 24, 2003, before the commencement of the trial on the issue of damages, the defendant law firm, on the plaintiff’s behalf, tendered the case to National Union Fire Insurance Company (hereinafter National Union) for further defense and for indemnification with respect to the excess claim. National Union had issued a commercial umbrella policy to Greendel Developers, Ltd. (hereinafter Greendel). Greendel was not a party to Golebiewski’s action against the plaintiff, and its relationship to the plaintiff, if any, was not revealed in the record before us.

In any event, by letter dated May 14, 2003, and addressed, inter alia, to both Greendel and the plaintiff, National Union declined the tender and disclaimed coverage on the ground that it had not received timely notice of Golebiewski’s action. Additionally, National Union claimed it had no information to confirm that the plaintiff was an insured under the excess policy.

On or about October 22, 2003, Golebiewski obtained a judgment against the plaintiff on his Labor Law claim in the principal sum of $5,694,320, and his wife obtained a judgment against the plaintiff on her derivative claim in the principal sum of $795,000. On March 8, 2004, the plaintiff commenced the instant action against the defendant law firm, asserting causes of action sounding in legal malpractice and breach of contract. In its complaint, the plaintiff claimed that the defendant had been negligent in failing to advise National Union of the underlying action or, alternatively, that its failure to do so constituted a breach of contract.

The defendant law firm thereafter moved to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7), arguing that (1) the plaintiff failed to establish its status as an insured under the National Union policy, and therefore could not establish causation, (2) any negligence on the defendant’s part was not a proximate cause of the loss of excess coverage because the firm was retained more than three months after the plaintiff first became aware of the need to notify any excess carrier, and approximately two months after the plaintiff became aware of the Golebiewski action, and (3) in any event, as the defense counsel provided by the plaintiffs primary carrier, the defendant law firm had no duty to advise the plaintiff concerning coverage issues. The Supreme Court granted the motion and dismissed the complaint. This appeal followed.

II

To begin with, it is important to emphasize that this appeal comes to us from an order granting a prediscovery motion to dismiss, not an order granting summary judgment. The standards governing such prediscovery motions are familiar. A motion to dismiss made pursuant to CPLR 3211 (a) (1) will fail unless the documentary evidence that forms the basis of the defense resolves all factual issues as a matter of law, and conclusively disposes of the plaintiffs claim (see McCue v County of Westchester, 18 AD3d 830, 831 [2005]; see also Held v Kaufman, 91 NY2d 425, 430-431 [1998]; Leon v Martinez, 84 NY2d 83, 88 [1994]; Trade Source v Westchester Wood Works, 290 AD2d 437, 438 [2002]; Teitler v Pollack & Sons, 288 AD2d 302 [2001]). Moreover, a motion to dismiss made pursuant to CPLR 3211 (a) (7) will fail if, taking all facts alleged as true and according them every possible inference favorable to the plaintiff, the complaint states in some recognizable form any cause of action known to our law (see e.g. AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 590-591 [2005]; Leon v Martinez, supra at 87-88; Hayes v Wilson, 25 AD3d 586 [2006]; Marchionni v Drexler, 22 AD3d 814 [2005]; Rinaldi v Casale, 13 AD3d 603, 604-605 [2004]). Whether the complaint will later survive a motion for summary judgment, or whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of a prediscovery CPLR 3211 motion to dismiss (see EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]).

In light of these standards, and considering the circumstances of the case and the arguments advanced by the parties, the defendant law firm would be entitled to dismissal pursuant to CPLR 3211 (a) (1) if it could establish either that the letter dated January 25, 2001, conclusively proved that the scope of its representation never encompassed any responsibility with respect to possible excess coverage or, alternatively, that the disclaimer letter of May 14, 2003, conclusively established that the plaintiff was not an insured under the excess policy. To succeed on its motion to dismiss pursuant to CPLR 3211 (a) (7), the defendant would have to establish either that, as a matter of law, it owed the plaintiff no duty to identify and notify potential excess carriers or, alternatively, that any negligence on the defendant’s part in failing to do so, as a matter of law, did not proximately cause the loss of excess coverage.

m

The defendant failed to show that the January 25, 2001, letter from Lloyd’s to the plaintiff conclusively established that the scope of the firm’s representation was limited. The letter stated only that the plaintiff “may wish to engage” separate counsel to act on its behalf with respect to any “potential excess judgments” beyond the $1,000,000 primary policy limits, and invited the plaintiff to investigate any possible excess coverage. The letter also confirmed that Lloyd’s was “continuing the defense of this matter on [the plaintiff’s] behalf through the Law Offices of [Wilson Elser].”¹ Thus, the letter, standing alone, failed to resolve conclusively all material issues of fact regarding the scope of the defendant’s representation.

The dissent would place on the plaintiff the initial burden of pleading sufficient evidentiary facts to establish that the scope of the defendant’s representation specifically included the duty to investigate excess coverage. Legal malpractice actions, however, are not subject to special pleading requirements (compare CPLR 3014 with CPLR 3016). Thus, a legal malpractice plaintiff need not, in order to assert a viable cause of action, specifically plead that the alleged malpractice fell within the agreed scope of the defendant’s representation. Rather, a legal malpractice defendant seeking dismissal pursuant to CPLR 3211 (a) (1) must tender documentary evidence conclusively establishing that the scope of its representation did not include matters relating to the alleged malpractice. The defendant here has failed to do so.

Likewise without merit is the defendant’s contention that any negligence on its part could not have been a proximate cause of the plaintiffs loss of excess coverage because the disclaimer letter of May 14, 2003, conclusively established that the plaintiff was not an insured under the National Union policy. Contrary to the view expressed by our dissenting colleague, we find that the disclaimer letter itself is, at best, inconclusive, stating only that the plaintiff “[is] not listed as [a] named insured[] on the Policy” and that National Union had “no information to confirm [that the plaintiff is an insured] as defined in Section IV (E) [of the Policy].” Having failed to tender a copy of the underlying policy, the defendant cannot conclusively establish that such policy afforded the plaintiff no coverage. Thus, that branch of the defendant’s motion which was to dismiss the complaint pursuant to CPLR 3211 (a) (1) should have been denied.

Nor did the defendant establish that the plaintiffs claim for excess coverage was already stale by July 2000, when the defendant law firm was first retained. Although the plaintiff arguably had knowledge of Golebiewski’s accident in April 2000, it is unclear when the plaintiff first learned that his claim might exceed the limits of the primary policy. Moreover, inasmuch as the plaintiff was not a named insured under the National Union policy, it is unclear when the plaintiff first knew, or first should have known, that such policy might afford excess coverage for the accident. These questions raise issues of fact that, at minimum, warrant the development of a full record.²

IV

We turn, then, to the central question presented on this appeal: Whether a law firm retained by a carrier has any duty to ascertain whether the insured it was hired to represent has available excess coverage, or to file a timely notice of excess claim on the insured’s behalf. The issue is best addressed by examining two questions. The first is whether, under ordinary circumstances, an attorney retained directly by a defendant in a personal injury action has any obligation to investigate the availability of insurance coverage for his or her client and to see that timely notices of claim are served; the second is whether, if such an obligation exists, it also binds an attorney who is retained to defend a personal injury action, not by the defendant directly, but by the defendant’s carrier.

On the first question, the defendant law firm contends that there is no authority in this state for the proposition that a legal malpractice action may be maintained against an attorney for failing to investigate an insurance coverage issue or for failing to notify a client’s carrier of a potential claim. We disagree (see Fireman’s Fund Ins. Co. v Farrell, 289 AD2d 286 [2001]; cf. Perks v Lauto & Garabedian, 306 AD2d 261 [2003]).

Moreover, Darby & Darby v VSI Intl. (95 NY2d 308 [2000]), relied on by the defendant, does not support its position. In that case, a corporate client asserted a claim for legal malpractice based on its law firm’s failure to advise it of possible coverage under a CGL policy for expenses relating to a patent infringement action. In upholding the dismissal of the legal malpractice claim, the Court of Appeals noted that the corporate client’s claim “is based on a then novel theory that patent insurance coverage was available under an ‘advertising liability’ clause in general liability policies” (id. at 312). After noting that “the theory of such coverage remained largely undeveloped at the time of [the law firm’s] representation, with only a handful of courts, particularly in California, finding a duty to defend patent infringement claims,” the Court held that the law firm “should not be held liable for failing to advise [the clients] about a novel and questionable theory pertaining to their insurance coverage” (id. at 314). The Court did not hold, however, that an attorney may never be held liable for failing to discover available insurance coverage. Indeed, by stressing the “novel and questionable” nature of the theory of coverage involved in the case (id.), the Court may well have been implying that, had the availability of coverage been clear at the time of the representation, a different result would have been reached.

In any event, it seems self-evident that the question whether, in the ordinary case, an attorney could be found negligent for failing to investigate insurance coverage would turn primarily on the scope of the agreed representation—a question of fact— and on whether, in light of all relevant circumstances, the attorney “failed to exercise the reasonable skill and knowledge commonly possessed by a member of the legal profession” (Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, 96 NY2d 300, 303-304 [2001]; see Darby & Darby v VSI Intl., supra at 313; Levy v Greenberg, 19 AD3d 462 [2005]). We cannot say, as a matter of law, that a legal malpractice action may never lie based upon a law firm’s failure to investigate its client’s insurance coverage or to notify its client’s carrier of a potential claim.³

The defendant nevertheless contends that, whatever the duty of counsel retained directly by a defendant, the duty of counsel appointed and paid by an insurance carrier is more limited. Indeed, the defendant argues that insurance defense counsel never has any obligation to investigate coverage issues, as that “would violate every principle of the tri-partite relationship that exists between an insurer, an insured, and appointed defense counsel.”

The subject of the so-called tripartite relationship of insured, insurer, and insurance defense counsel has been extensively examined (see generally Silver and Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke LJ 255 [1995]; see also Pryor and Silver, Defense Lawyers’ Professional Responsibilities: Part II—Contested Coverage Cases, 15 Geo J Legal Ethics 29 [2001]; Baker, Liability Insurance Conflicts and Defense Lawyers: From Triangles to Tetrahedrons, 4 Conn Ins LJ 101 [1997-1998]; Jerry, Consent, Contract, and the Responsibilities of Insurance Defense Counsel, 4 Conn Ins LJ 153 [1997-1998]). In some jurisdictions, an attorney retained by a carrier has been held to have a lawyer-client relationship only with the insured (see e.g. Barefield v DPIC Cos., Inc., 215 W Va 544, 558, 600 SE2d 256, 270 [2004]; In re Rules of Professional Conduct & Insurer Imposed Billing Rules & Procedures, 299 Mont 321, 333, 2 P3d 806, 814 [2000]; Atlanta Intl. Ins. Co. v Bell, 438 Mich 512, 475 NW2d 294 [1991]; First Am. Carriers, Inc. v Kroger Co., 302 Ark 86, 90, 787 SW2d 669, 671 [1990]; Continental Cas. Co. v Pullman, Comley, Bradley & Reeves, 929 F2d 103, 108 [2d Cir 1991]; see also Jackson v Trapier, 42 Misc 2d 139 [1964]). In others, the attorney-client relationship may, under certain conditions—including the absence of a conflict of interest—extend to the carrier as well (see e.g. General Sec. Ins. Co. v Jordan, Coyne & Savits, LLP, 357 F Supp 2d 951 [ED Va 2005]; Spratley v State Farm Mut. Auto. Ins. Co., 78 P3d 603 [Utah 2003]; Gulf Ins. Co. v Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 79 Cal App 4th 114, 125-127, 93 Cal Rptr 2d 534, 542-543 [2000]; Pine Is. Farmers Coop v Erstad & Riemer, PA., 649 NW2d 444 [Minn 2002]; cf. Paradigm Ins. Co. v Langerman Law Offs., PA., 200 Ariz 146, 24 P3d 593 [2001]).

The defendant argues, in effect, that it had an attorney-client relationship with Lloyd’s as well as with the plaintiff, and that, with respect to insurance coverage, the interests of its two clients were in conflict. Assuming without deciding that in New York a law firm retained by a carrier to represent its insured may have an attorney-client relationship with both, and assuming further that such was the case here, we see no conflict of interest in the circumstances at bar.

Both the plaintiff and Lloyd’s had a shared interest in defeating the Golebiewskis’ claim and in securing a defense verdict. Beyond that, Lloyd’s’ interest was in keeping the verdict as low as possible and below its policy limit. If the verdict could not be kept within its policy limit, Lloyd’s had no interest in the amount by which that limit was exceeded. The plaintiffs interest, on the other hand, was to see that the verdict remained within its overall coverage. Thus, while the plaintiff had an important interest in the existence, availability, and amount of excess coverage, Lloyd’s did not.

We recognize that a conflict may have arisen here had the issue concerned the scope or nature of the coverage afforded to the plaintiff by Lloyd’s’ primary policy. But Lloyd’s had no interest in the existence or extent of excess coverage available to the plaintiff and therefore the defendant would not have breached any duty owed to Lloyd’s by advising the plaintiff on issues of excess coverage. Thus, we reject the defendant’s contention that to have given such advice would have violated the tripartite relationship.

Consequently, just as we are unprepared to say, as a matter of law, that a failure to investigate the existence of excess insurance coverage may never give rise to a legal malpractice action against an attorney retained directly by a defendant in a personal injury action, we take the same view with respect to an attorney who is retained, not by the defendant directly, but by its carrier. Accordingly, the defendant’s prediscovery motion to dismiss the cause of action sounding in legal malpractice should have been denied.

The Supreme Court properly dismissed the cause of action to recover damages for breach of contract, however, as it was merely duplicative of the legal malpractice claim (see Shivers v Siegel, 11 AD3d 447 [2004]; Ferdinand v Crecca & Blair, 5 AD3d 538, 539 [2004]; Magnacoustics, Inc. v Ostrolenk, Faber, Gerb & Soffen, 303 AD2d 561, 562-563 [2003]; Senise v Mackasek, 227 AD2d 184, 185 [1996]).

1 . Moreover, we note that the interpretation of the letter now pressed by the defendant is inconsistent with the defendant’s act, in April 2003, of tendering the plaintiffs notice of claim to National Union.

2 . The dissent again would place on the plaintiff, at the pleading stage, the burden of establishing, through specific evidentiary facts, that notice would have been timely if given in July 2000, when the defendant was first retained. The CPLR, however, imposes no such specific pleading requirement. It is sufficient for the complaint to allege that the defendant’s failure to timely notify the excess carrier resulted in the loss of coverage. Causation—or lack thereof—may properly be challenged by way of a motion for summary judgment once a factual record has been developed.

3 . The dissent recognizes that “there may be situations where an attorney in the representation of a client may have a duty to investigate the existence of additional insurance coverage” (dissenting op at 47). Nevertheless, as stated earlier, the dissent would hold, as a matter of law, that no viable malpractice claim can be asserted unless the plaintiff specifically pleads evidentiary facts sufficient to establish the existence of such duty under the particular circumstances of the case. Such a holding would, in effect, work a judicial amendment of CPLR 3016 by adding legal malpractice to the list of actions subject to specific pleading requirements.