WA Video Explaining What Happens When Retained Defense Counsel Provides an Incompetent Defense

There appears to be a growing trend in the United States where insurers file malpractice suits against counsel retained to defend their insureds. When an insurer retains a defense lawyer to represent its insured only to find they are incompetent or committed malpractice in providing the defense, rather than admit the error in choosing a poor lawyer for the insured the insurer sues the lawyer for malpractice seeking reimbursement for the amount paid to indemnify the insured.

Where the insurer retained defense counsel and there was no reservation of rights, courts have allowed the primary insurer to bring a cause of action against the attorney for malpractice, finding that the attorney represents the insurer, along with the insured, where they have common interests.

Insurance defense counsel must manage their potential exposure to suits brought against them by insurers who ask them to defend insureds. This should cause defense counsel to reevaluate the limits of their malpractice policies and to understand all the potential parties who may bring a malpractice claim against them.

Likewise, insurers should recognize their own exposure with respect to claims of vicarious liability. They must also select defense counsel with the utmost care and diligence because they may not be able to sue their chosen defense counsel if a mistake occurs. Insurers also need to make sure that the attorneys who represent their interests make appropriate disclosures to the insured’s independent counsel.

Great American attempted to sue its defense counsel for providing an incompetent defense to one of its insureds in Great American Insurance Co. v. Dover, Dixon Horn. The Eighth Circuit Court brought relief to the insurance defense bar when it refused to allow the insurer to successfully sue counsel—retained to defend an insured—for legal malpractice. The law of Arkansas only allows malpractice actions to be filed against those with whom the parties are in privity.