EMERGING ISSUES IN LEGAL MALPRACTICE DEFENSE

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1 FDCC Winter Meeting Hyatt Grand Champions Resort Indian Wells, California February 26 March 5, 2011 EMERGING ISSUES IN LEGAL MALPRACTICE DEFENSE Presented by Professional Liability Section Richards H. Ford WICKER, SMITH, O HARA, McCOY & FORD, P.A. Miami Ft. Lauderdale West Palm Beach Orlando Tampa Naples Jacksonville Copyright by Federation of Defense & Corporate Counsel, N. 56th Street, Tampa, FL Reproduction of the contents hereof for noncommercial purposes is permitted.

2 EMERGING ISSUES IN LEGAL MALPRACTICE DEFENSE BY RICHARDS H. FORD One of the emerging issues in legal malpractice defense is trying to defuse the situation in which a plaintiff s lawyer attempts to set up an insurance carrier for a claim of bad faith. We will address the various means by which plaintiffs lawyers attempt to set an insurance company up for bad faith, and strategies that defense counsel can utilize in order to fend off these efforts. The standard factual scenario in which a plaintiff will attempt to set up an insurance carrier for bad faith must always begin with an occurrence with significant injuries and inadequate policy limits. This can take various forms. It can be one catastrophic injury involving professional malpractice. The claim can be initiated with a motor vehicle accident in which there are multiple injuries or deaths with only a single insurance policy to respond. Typically, in these scenarios, liability on the part of the defendant is clear. A questionable liability case will not generally trigger this type of analysis. The exposure that the insured faces must be well in excess of the policy limits that are available to answer the claim. This can easily present itself in the form of a motor vehicle accident in which the insurance policy that is available to respond to the accident is for $50, or less, while the medical expenses alone will greatly exceed that policy limit. The plaintiff s lawyer then makes a policy limit demand. However, there will always be some nuance in the policy limit demand. The plaintiff s lawyer will not only request the payment of the policy limit, however additional conditions will be placed on the settlement of the case. These conditions can take on various forms, and how defense counsel responds to these conditions can mean the difference between whether a carrier is sued for bad faith or not, and whether the carrier will have the option of pursuing a claim for legal malpractice against defense counsel. The most common conditions are time limit demands. Plaintiffs will often condition settlement on the tender of policy limits within a certain period of time, usually 30 days or fewer, and sometimes as quickly as 7 to 10 days. This puts added pressure on defense counsel to perform an evaluation of the exposure that a given claim represents. 1

3 Another condition that can be placed on the settlement of the claim is specific language contained within the release. The plaintiff s counsel may request that specific language be included in a release in order to effectuate settlement. The specific language that the plaintiff s counsel may request could address the maintenance of claims against other entities arising out of the same transaction or occurrence. The language that plaintiff s counsel may request could even be completely arbitrary or capricious, or it could be language to the effect that the defendant and insurance carrier are agreeing that by entering into the settlement, the plaintiff is not waiving any particular rights that the plaintiff may have to pursue other entities. In a classic example, the plaintiff may request that language be included in the release in which the defendant and the insurance carrier are agreeing to something which they do not even have the right to agree to in the first place, making the language a complete legal nullity. However, as will be noted below, if counsel does not agree to the specified language, there may not be an agreement, and the settlement at policy limits could be jeopardized. As an example, a plaintiff may request that language be included in the release that by entering into the settlement of the claim in exchange for the payment of policy limits, the plaintiff does not waive the right to pursue criminal restitution against the negligent tortfeasor. This would arise in a hypothetical situation in which a drunk driver caused a serious motor vehicle accident, and the drunk driver ended up going to prison as a result of the incident. If the plaintiff s lawyer requests language in the release that by entering into the settlement agreement the plaintiff is not waiving the right to pursue criminal restitution against the driver, the carrier would do well to agree to the language, even if as a practical matter the language would have no legal effect, because the carrier and the driver have no control over an award of criminal restitution. Another condition of settlement that plaintiffs lawyers often demand are financial affidavits. Financial affidavits are designed to provide proof under oath that an insured has no collectible assets outside of the insurance policy. Once again, if a plaintiff s attorney requests a financial affidavit confirming the fact that a defendant has no collectible assets outside of the value of the insurance policy, the wise course is to provide that affidavit, even if there is no requirement under the law to do so. Acquiescing to the plaintiff s lawyer s demand may seem unpalatable at the time, however it is in the insurer s best interests to make sure that in a case involving clear liability and damages that far exceed the policy limits, all steps should be taken to ensure that the settlement is completed. This 2

4 is because if the settlement for whatever reason is not completed, and this is the purpose for which the insurance carrier retained counsel, if the insurer becomes exposed to a claim for bad faith, that will form the basis of a claim for legal malpractice against defense counsel. The more difficult scenario presents itself when the plaintiff makes a fake settlement offer. This could include a demand for the payment of policy limits, but tied to conditions that are not easily understood, or are susceptible of different interpretations. Every effort should be made to clarify the nature of the settlement demand being made so that the defendant and the insurer can comply with whatever requirements the plaintiff s counsel presents. However, defense counsel must take care to ensure that in the effort to clarify the nature of the demand being made, the approach that defense counsel makes is not misconstrued as a rejection of the original settlement proposal and a counteroffer. Defense counsel should take care to inquire about the nature of the settlement demand being made by making a specific reference to the fact that the inquiry is merely an effort to clarify an otherwise ambiguous or vague settlement demand, and is specifically is not a rejection of that settlement demand with a counteroffer. If this specific language is not included in any written inquiry regarding clarification of an otherwise vague or ambiguous settlement demand, the plaintiff s counsel may interpret the response as a rejection and counteroffer, and ultimately a claim that the predicate of a bad faith claim against the insurance carrier has been established. Once the decision is made to accept the settlement proposal the carrier will arrange for the tender of the settlement check. Care should be taken in this step, as is true with every step along this process, to make sure that all requirements of state law have been followed. Tender is often susceptible of differing interpretations, and you can be sure that the plaintiff s counsel s definition of tender will require the physical delivery of the settlement check to the plaintiff s counsel. Even if this is not your own personal definition of the term tender, the wiser course is to affect physical delivery of the settlement check within whatever time constraints the plaintiff s counsel demands. Care should also be taken with regard to the payee of the settlement check. Typically, the payee will be identified as the plaintiff and the plaintiff s attorney. There should be no deviation from this standard in order to ensure compliance with the demand. Obviously, defense counsel must protect the interests of the client and the carrier, and so unreasonable demands by plaintiff s counsel must be still be rejected. For 3

5 example, defense counsel does not have to exceed to an absurd demand such as the plaintiff s counsel demanding that only counsel s name appear on the settlement check. However, all reasonable demands regarding the identity of the payees should be followed. This is especially important if the plaintiff has a Medicare lien. One of the approaches to satisfying a Medicare lien in order to avoid litigation with the Center for Medicare and Medicaid Services is to include the Medicare recovery contractor or Medicare itself as a named payee on the settlement check. This will undoubtedly be treated as a rejection and counteroffer by the plaintiff s counsel, and could serve as a basis for the plaintiff s counsel to argue that the carrier has acted in bad faith, thereby exposing the carrier to extra contractual damages, and defense counsel to a potential legal malpractice claim. Just as the language of the settlement check is important, so too is the language of the release. It is understood that any settlement is going to require the execution of the release in order to protect the interests of the entities making the payment to settle the claim. However, defense counsel should not put onerous language in the release, once again out of concern that the plaintiff s counsel will consider such language a rejection and counteroffer, rather than a mere confirmation of the settlement agreement. The language of the release should contain the basic requirements of your state s law. Additional terms that were not bargained for should be omitted from the proposed release. For example, if there was not an explicit confidentiality provision agreed upon by counsel, it should not appear for the first time in the language of the proposed release that is being sent to the plaintiff s counsel. Likewise, any concerns regarding the satisfaction of liens should also be approached with care. Obviously, a defendant does not want to make a payment to settle a claim only to be exposed to claims from lienholders whose interests have not been satisfied by the proceeds of the settlement. This is the type of issue that should be addressed with a clarification correspondence sent to plaintiff s counsel, with a specific reference to the fact that the inquiry is merely for clarification, and does not constitute a rejection and counteroffer to the plaintiff s demand. All of the care that defense counsel utilizes in confirming and completing a settlement agreement under the circumstances is an effort to fulfill what is referred to as the mirror image rule. A mirror image rule is a basic element of contractual formation. If there are disagreements as to material terms of a settlement agreement then a settlement contract has not been formed, and the plaintiff can argue that the demand for policy 4

6 limits has been rejected. This is an issue in states in which bad faith has to be determined by whether the insurance carrier could have and should have settled a claim for within policy limits had it been acting in its insured s best interests in mind. The concern is lessened in states that apply the totality of the circumstances approach to bad faith. In cases in which the mirror image rule is used to defeat a finding that a settlement agreement has been breached, the plaintiff rejects the tender, and the carrier is immediately threatened with a bad faith lawsuit. Under these circumstances, the danger exists that the carrier will then point the finger at defense counsel, because the purpose in retaining defense counsel was to effectuate a settlement, and the failure to adhere to the mirror image rule results in a scuttling of the settlement, and threats to recover extra contractual damages. This will put the insurance carrier and defense counsel at odds with one another. The carrier will take the position that defense counsel had an obligation to effectuate settlement in order to protect the interests of the insurance carrier. Defense counsel s obligation under the circumstances is to the insured, not to the carrier. There is a split of authority among the states on whether an insurance carrier can bring a claim for equitable subrogation against defense counsel. In New York, a direct claim is not allowed. See Lavanant v. General Accident Insurance Company, 561 N.Y.S.2d 164 (N.Y. App. Div. 1990). Other courts have found that a direct claim is allowed. See, e.g., General Security Insurance Company v. Jordan, Coyne & Savits, LLP, 357 F.Supp.2d 951 (E.D. Va. 2005). Every case is factually different, and in order to make sure that the facts are clear, counsel should make sure that all communication is in writing, so that when the situation deteriorates, there is documentation of all steps taken. Of course, when this occurs, the worst case scenario could be that the insurance carrier, now exposed to a bad faith claim, fires defense counsel not only from the claim giving rise to the potential bad faith litigation, but from all other cases that defense counsel is handling for that particular carrier. Defense counsel must then also consider the possibility of placing its own malpractice carrier on notice of a potential claim. There are certain tips to follow in order to avoid this potentially explosive scenario. First, the carrier should retain counsel to represent its interests separate and apart from the counsel retained to represent the insured, and to effectuate settlement. Second, it cannot be emphasized enough that when defense counsel is handling a claim of clear liability with damages exposure far in excess of policy limits, when responding to a 5

7 policy limit demand, defense counsel should take all reasonable steps to adhere to the mirror image rule. Do not give plaintiff s counsel any opportunity to claim that the settlement opportunity was lost by some action by defense counsel, and that as a result the plaintiff s counsel is going to pursue a claim for bad faith. Following the mirror image rule will protect defense counsel, and hopefully avoid the pitfalls inherent in this potential bad faith scenario. Richards W. Ford Managing Partner Wicker, Smith, O Hara, McCoy & Ford, P.A. Orlando, Florida Tel: (407) Fax: (407) Web: wickersmith.com 6

8 RICHARDS H. FORD Richards H. Ford is a Managing Partner in the firm s Orlando office. In his 20+ year career, Mr. Ford has engaged in active civil trial practice, focusing on the defense of professional and corporate institutions. He has tried over 100 civil jury trials, including professional negligence, products liability, construction litigation, medical malpractice, automobile liability, transportation liability and general civil litigation cases. Mr. Ford earned a Bachelor of Arts degree with honors from the University of Florida in 1976 and a Juris Doctor from Boston University in He became a member of the Florida Bar in 1979 and received his initial training at the prosecutor s office, working for Janet Reno. In the last two years of his service, he became a Division Chief in charge of prosecuting primarily defendants charged with murder and/or rape. An AV rated attorney by Martindale-Hubbell, Mr. Ford is also a Board Certified Civil Trial Lawyer, certified with The National Board of Trial Advocacy and a Board Certified Civil Trial Specialist. In addition, he actively lectures on trial advocacy techniques and various legal Issues throughout the state. Mr. Ford joined Wicker Smith in 1983 and except for a six month hiatus, has been with the firm ever since. In 1988, he was asked to open the Orlando office, which has since grown to become one of the largest of the firm s seven Florida locations. Among several honors, Mr. Ford has been named a Florida Super Lawyers from 2006 to He has also been listed among Florida Trend s Legal Elite from 2004 to In 2006, he was appointed to the Fellows of the American Bar Foundation, an exclusive legal organization that limits its membership to one-third of one percent of lawyers licensed to practice in each jurisdiction. ADMITTED TO PRACTICE 1979, Florida 1981, U.S. District Court, Southern District of Florida including Trial Bar 1989, U.S. District Court, Middle and Northern Districts of Florida 1996, U.S. Court of Appeals, Eleventh Circuit EDUCATION: Boston University (J.D., 1979) University of Florida (B.A., with honors, 1976) Rijks Universiteit te Utrecht, Utrecht, The Netherlands ( ) 7

9 LEGAL CERTIFICATION: Board Certified Civil Trial Attorney, The Florida Bar Board of Legal Specialization and Education Board Certified as a Civil Trial Advocate by the National Board of Trial Advocacy PROFESSIONAL & CMC AFFILIATIONS: HONORS: The Florida Bar Health Law Section American Bar Association Orange County Bar Association Florida Defense Lawyers Association (Board of Directors ) Central Florida Medical Malpractice Claims Council (President 1998) International Association of Defense Counsel American Board of Trial Advocates Defense Research Institute Florida Hospital Association Florida Health Care Association Transportation Lawyers Association Federation of Defense & Corporate Counsel, 2007 USLAW NETWORK Board of Directors Appointed to Fellows of the American Bar Foundation 2006 Florida Trend s Florida Legal Elite for Florida Super Lawyers