In U.S. Specialty Insurance Company v. Burd, No. 6:09-cv-231 (U.S. Dist. Ct. M.D. Fla. June 14, 2011), the Court held that defense counsel was potentially liable for malpractice to the insurance company that had retained him to defend one of its policyholders, due to the tripartite relationship. The ruling itself is not remarkable; it is the context in which the issue arose that makes the case worthy of discussion. The defense lawyer, in an attempt to deny that the insurer was a client, argued that the existence of the insured’s potential liability in excess of the policy limits created a conflict of interest that would defeat the existence of the tripartite relationship. Unfortunately for the defense lawyer, the Court found that the mere prospect of an excess judgment, by itself, does not necessarily disqualify counsel from his dual representation of the insurer and the policyholder. At trial, however, judgment was entered in favor of Burd. U.S. Specialty filed an appeal in the 11th Circuit Court of Appeals, which is currently pending.
The underlying tort liability suit was straightforward. During a routine operation at the Valiant Air Command ("VAC"), a war bird museum in Titusville, Florida, one 76-year-old man was killed and a 15-year-old was seriously injured. VAC was insured by U.S. Specialty Insurance Company ("USSIC") under an airport premises liability policy with limits of $1,000,000. There were no illusions about the severity of the injuries or the value of the case. “Everyone involved knew early on that the value of the claims exceeded the $1,000,000 policy limit.” The problem for the defense lawyer was that only $850,000 was offered in settlement; the plaintiffs’ policy limits demand went unanswered, and eventually, USSIC settled for $9,000,000 pursuant to a settlement agreement.
Although Florida follows the rule that a tripartite relationship normally exists between the insurer, the insured, and the lawyer retained to represent the insured, the defense lawyer attempted to invoke the exception to the rule, recognizing that the lawyer may not represent both the insurer and the insured when a disqualifying conflict of interest exists. Citing R.C. Wegman Construction Co. v. Admiral Insurance Co., 629 F.3d 724, 728, 730 (7th Cir. 2011), for the proposition that “once an excess judgment becomes a nontrivial probability, a conflict arises which throws the interests of the insurer and the insured out of alignment,” the defense lawyer argued that a conflict existed which precluded his representation of USSIC. The district court rejected reliance on Wegman, finding that
The ruling of the court in Wegman was rather simple - an insurer has a duty of good faith to keep its insured informed. The case did not involve the lawyer's duty of care or any conflict that would affect the lawyer's duty to Admiral or Wegman. Indeed, the court assumed that the lawyer had a duty to inform Admiral about the excess exposure so that Admiral could so inform its insured.
The conclusion reached by the Court reflects the old adage that “if it looks like a duck, quacks like a duck, it probably is a duck.” The Court was swayed by the nature and extent of the lawyer’s communications with USSIC affirming the existence of a tripartite relationship. An appendix is attached to the opinion, summarizing Burd’s actions. The defense lawyer never acted in any way inconsistent with his representation of the defendant at the behest of the insurer. He considered the insurer his client from the beginning to the end of the suit, and his conduct did not reflect any sense of being “independent counsel,” or solely or zealously representing the insured’s interests, adverse to the insurer.© 2013 Neal, Gerber & Eisenberg LLP.