Stonewall Surplus Lines Insurance Co. v. Drabek ( 1992 )

NYE, Chief Justice,

dissenting.

I respectfully dissent. The principal issue in this case is whether, under Texas law, an excess carrier can maintain a legal malpractice suit against the attorneys which the primary carrier retained to defend the common insureds. Since I believe that persons outside the attorney-client relationship do not have a cause of action for injuries they might sustain due to the attorney’s failure to perform or his negligent performance of a duty owed to his client, I would affirm the trial court’s judgment.

Stonewall Surplus Lines Insurance Company, the excess carrier, sued United States Fidelity & Guaranty Company, the primary carrier, and Jaime A. Drabek and the law firm of Hirsch, Glover, Robinson, & Sheiness (the attorneys which USF & G hired to defend the common insureds), alleging that: (1) USF & G, in compliance with its primary insurance terms and provisions, appointed Hirsch, Glover to defend the insureds; (2) USF & G, as the primary carrier, owed Stonewall a fiduciary duty to conduct a defense, to handle the claim in good faith, and to use due care in conducting the defense; (3) Hirsch, Glover’s negligence caused the trial court to strike the insureds’ pleadings; (4) Hirsch, Glover’s negligence was imputed to USF & G, because Hirsch, Glover was acting as the sub-agents of USF & G; and (5) USF & G violated its duty to Stonewall, proximately causing damages to Stonewall.

Hirsch, Glover moved for summary judgment on the bases that: (1) under Texas law, an attorney does not owe a duty to a non-client; and (2) nothing that Hirsch, Glover did or did not do proximately caused Stonewall any damages. The trial court granted summary judgment favorable to Hirsch, Glover and severed Stonewall’s suit against Hirsch, Glover from its suit against USF & G.

Texas follows the majority view that persons outside the attorney-client relationship do not have a cause of action for injuries they might sustain due to the attorney’s failure to perform or his negligent performance of a duty owed to his client. Dickey v. Jansen, 731 S.W.2d 581, 582 (Tex.App. — Houston [1st Dist.] 1987, writ ref’d n.r.e.). In the absence of privity of contract, an attorney owes no duty to third-party non-clients. Draper v. Garcia, 793 S.W.2d 296, 301 (Tex.App. — Houston [14th Dist.] 1990, no writ); First Mun. Leasing Corp. v. Blankenship, Potts, Aikman, Hagin & Stewart, 648 S.W.2d 410, 413 (Tex.App. — Dallas 1983, writ ref’d n.r.e.); Bell v. Manning, 613 S.W.2d 335, 339 (Tex. Civ.App. — Tyler 1981, writ ref’d n.r.e.). Texas authorities have consistently held that third parties do not have standing to sue attorneys on causes of action arising out of their representation of others. Graham v. Turcotte, 628 S.W.2d 182, 184 (Tex. App. — Corpus Christi 1982, no writ) (mortgagor could not sue mortgagee’s attorney claiming excessive fees were exacted on foreclosure); Martin v. Trevino, 578 S.W.2d 763, 770 (Tex.Civ.App. — Corpus Christi 1978, writ ref’d n.r.e.) (doctor was not allowed to sue plaintiff’s attorneys for alleged bad-faith medical malpractice claims); Swafford v. Holman, 446 S.W.2d 75, 79 (Tex.Civ.App. — Dallas 1969, writ ref’d n.r.e.) (third party could not sue attorney for wrongful attempt to enforce a foreclosure); Morris v. Bailey, 398 S.W.2d 946, 948 (Tex.Civ.App. — Austin 1966, writ ref’d n.r.e.) (third party may not file a claim against an attorney because he filed a motion for continuance).

In Bryan & Amidei v. Law, 435 S.W.2d 587 (Tex.Civ.App. — Fort Worth 1968, no writ), the court stated:

It is a general rule that the duties of the attorney which arise from the relation of attorney and client, are due from the attorney to his client only, and not to third persons. The latter have not retained or employed the attorney, nor has he rendered any services for them, at their request or in their interest. No privity of contract exists between them and the attorney. For such injuries, therefore, as third persons may sustain by reason of the failure or neglect of the attorney to perform a duty which he owed to his client only, they have no right of action against the attorney.

Id. at 593.

Stonewall argues that under the doctrines of direct duty and equitable subrogation, the attorneys hired by the primary insurer to defend the jointly insured liability claim owe a duty to provide a reasonably skillful defense to both the insured and the excess carrier. However, Stonewall does not cite any Texas cases allowing an excess insurer to assert a legal malpractice action against the attorneys hired by the primary insurer to defend the common insureds. And at least one court has refused to allow an excess insurer to bring a malpractice claim (as subrogee of the insured) against counsel hired by the primary carrier. American Employers’ Ins. Co. v. Medical Protective Co., 165 Mich.App. 657, 419 N.W.2d 447 (1988), appeal denied, 431 Mich. 856 (1988). In that case, a physician had $200,000 of primary insurance and $1 million of excess insurance. The physician was sued for malpractice, and the primary insurer hired a law firm to defend the suit. The malpractice action resulted in a $900,-000 verdict against the physician. The excess insurer then sued the law firm and the primary insurer, alleging negligence and legal malpractice on the part of the law firm. The trial court granted summary judgment in the law firm’s favor on the basis that the excess insurer had no recognizable cause of action. On appeal, the excess insurer argued that the doctrine of equitable subrogation entitled it to pursue a malpractice action against the law firm. In affirming the trial court’s ruling, the court of appeals held:

Although the plaintiff excess insurer may be characterized as an equitable subrogee of the insured physician, it may not sue the insured’s defense attorney for legal malpractice. To hold otherwise would in our judgment acknowledge a direct duty owed by the insured’s attorney to the excess insurer and would be tantamount to saying that insurance defense attorneys do not owe their duty of loyalty and zealous representation to the insured client alone. Such a holding would contradict the personal nature of the attorney-client relationship, which permits a legal malpractice action to accrue only to the attorney’s client, [citations omitted] Such a holding would also encourage excess insurers to sue defense attorneys for malpractice whenever they are disgruntled by having to pay within limits of policies to which they contracted and for which they received premiums. Were this to occur, we believe that defense attorneys would come to fear such attacks, and the attorney-client relationship would be put in jeopardy.

Id. 419 N.W.2d at 448-49; see also Continental Casualty Co. v. Pullman, Comley, Bradley & Reeves, 929 F.2d 103, 106-07 (2nd Cir.1991) (excess insurer which had been subrogated to the rights of its insured may not maintain legal malpractice action against the insured’s attorney on that basis).

Stonewall cites two New York cases that are said to find a duty of care running from the law firm to the excess carrier. Hartford Accident & Indem. Co. v. Michigan Mut. Ins. Co., 93 A.D.2d 337, 462 N.Y.S.2d 175 (1st Dept.1983), affd, 61 N.Y.2d 569, 475 N.Y.S.2d 267, 463 N.E.2d 608 (1984);¹ Great Atl. Ins. Co. v. Wein-stein, 125 A.D.2d 214, 509 N.Y.S.2d 325 (1st Dept.1986).² These cases are factually dissimilar to the case before this Court on appeal and do not serve as authority for Stonewall’s contention that Hirsch, Glover owed it a duty of care. My concern is not with the progress of New York law, but the state of the law in Texas.

Here, Hirsch, Glover’s summary judgment evidence included attorney Jaime Drabek’s affidavit. He stated that Hirsch, Glover was hired to represent only the insureds and Apolinar Delgado in the underlying suit. Stonewall was not Hirsch, Glover’s client in the suit, and Hirsch, Glover did not have a contract or an agreement (oral or written) with Stonewall to represent it in the suit. Hirsch, Glover did not receive any payment or consideration from Stonewall in connection with Hirsch, Glover’s representation of its clients. He also said that Stonewall never told Hirsch, Glover that it believed or assumed that Hirsch, Glover was its attorney in the suit.

Stonewall’s response to Hirsch, Glover’s summary judgment motion included the affidavits of attorney Wilton Chalker and E.A. Anderson. Mr. Chalker stated that Stonewall hired him to represent it in the underlying suit and that Hirsch, Glover represented the insureds and Apolinar Delgado. He said that Hirsch, Glover advised him on the status of the case regarding liability, damages, evaluation of witnesses, procedural developments, evaluation of gross negligence, punitive damages, and discovery progress. He relied on Hirsch, Glover to conduct the defense. According to Mr. Chalker, Hirsch, Glover recommended settling the suit for $1.8 million.

E.A. Anderson, Stonewall’s claims manager, stated that from January, 1988, to April, 1988, Hirsch, Glover advised him on the status of the case regarding liability, damages, evaluation of witnesses, procedural developments, evaluation of gross negligence, punitive damages, and discovery progress. In April, 1988, Stonewall hired Wilton Chalker to represent its interest in the suit. Mr. Chalker’s role was to monitor the litigation and advise and assist Mr. Anderson in evaluating the case so that Mr. Anderson could make a determination regarding Stonewall’s exposure. He said that Hirsch, Glover recommended that the case be settled for $1.8 million.

Based upon this evidence, Stonewall was not Hirsch, Glover’s client in the underlying suit, and no privity of contract existed between those two parties. Stonewall could monitor the litigation through its own attorney, Wilton Chalker, and assure itself that USF & G was living up to its responsibilities as a primary carrier.

A definite public policy interest exists to ensure that an attorney owes his or her uncompromised allegiance to a client. If an attorney, hired by the primary carrier to defend the insured, is placed in the position of owing a duty to a third-party excess carrier, absent privity of contract, then the potential threat of excess carriers bringing suits against an attorney in this posture would undermine the duty of loyalty which the attorney owed to the insured. I would hold that Stonewall does not have a cause of action against Hirsch, Glover for their alleged failure to perform a duty which they owed to the common insureds. See Draper, 793 S.W.2d at 301; Dickey, 731 S.W.2d at 582; First Mun. Leasing Corp., 648 S.W.2d at 413; Bell, 613 S.W.2d at 339. I would affirm the trial court’s judgment.

GERALD T. BISSETT,³ J., joins in the dissent.

1 . In Hartford, New York’s High Court found that the defendant primary insurer owed the excess carrier the same duty to act in good faith that the primary insurer owed to its own insureds. The case is devoid of any discussion about what obligation, if any, is owed by an insured’s counsel to an excess carrier.

2 . In Weinstein, an intermediate appellate court found that the complaint stated a cause of action when it alleged that defense counsel owed a duty to exert his best efforts on behalf of the insured and excess carrier, the latter a subrogee of the former. There, the court noted the possibility of serious ethical violations because the attorney had purportedly represented co-defendants with adverse interests.

3 . Assigned to this Court by the Chief Justice of the Supreme Court of Texas pursuant to Tex. Gov’t Code Ann. § 74.003 (Vernon 1988).