Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

NATIONAL UNION INS. CO. v. DOWD & DOWD

April 20, 1998

National Union Insurance Company, individually, and National Union Insurance Company, as Subrogee of Schneider National Carriers, Inc., Plaintiffs,
v.
Dowd & Dowd, P.C., an Illinois Professional Corporation, and Patrick C. Dowd, Robert J. Golden, Jeffrey E. Kehl, and Patrick J. Ruberry, individually, Defendants.



The opinion of the court was delivered by: NORGLE

OPINION AND ORDER

 CHARLES R. NORGLE, SR., District Judge:

 Before the court is Defendants' Motion to Dismiss. For the following reasons, the motion is granted in part, and denied in part.

 I. BACKGROUND

 On September 2, 1997, Plaintiffs, National Union Insurance Company, individually, and National Union Insurance Company, as subrogee of Schneider National Carriers, Inc. ("National Union"), filed a two-count complaint against Defendants, Dowd & Dowd, P.C., an Illinois professional corporation, and Patrick C. Dowd, Robert J. Golden, Jeffrey E. Kehl, and Patrick J. Ruberry, individually (collectively "Dowd & Dowd"), for legal malpractice. This case arises out of Dowd & Dowd's representation of Schneider National Carriers, Inc. ("Schneider"), and its driver, Henry Howard ("Howard"), in a personal injury case.

 On June 29, 1992, Howard, while operating a Schneider semi-tractor trailer, collided with a stationary lift truck. Immediately before the collision, John Miksis ("Miksis") was standing on a mechanical lift platform suspended over the intersection of Indiana State Highway 6 and Highway 35, changing a lightbulb in the traffic control signal. As a result of the collision, Miksis was thrown from the lift platform to the street, and sustained severe injuries, including brain damage and the loss of control of his legs.

 Miksis filed a lawsuit against Schneider and Howard in the United States District Court of the Northern District of Indiana. Schneider had a self-insured retention *fn1" for $ 3 million and excess insurance *fn2" for $ 5 million with National Union. Schneider retained Dowd & Dowd to represent and defend Schneider and Howard. After trial, a jury awarded Miksis $ 10 million in damages, but also found Miksis 20 percent at fault for the accident. The trial court thus entered a verdict against Schneider and Howard for $ 8 million. The verdict was upheld on appeal. Consequently, Schneider paid the first $ 3 million and National Union paid the remaining $ 5 million.

 National Union then brought the instant legal malpractice claim against Dowd & Dowd. Dowd & Dowd moves to dismiss, and argues that an excess insurer cannot maintain a legal malpractice action against the insured's defense attorney.

 II. DISCUSSION *fn3"

 The court will deny a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) unless "it is impossible [for the plaintiff] to prevail 'under any set of facts that could be proved consistent with [his] allegations.'" See Albiero v. City of Kankakee, 122 F.3d 417, 419 (7th Cir. 1997) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984)). In reviewing the plaintiff's complaint, the court must accept all well-pleaded factual allegations in the complaint as true, and draw all reasonable inferences therefrom in the light most favorable to the plaintiff. See Gutierrez v. Peters, 111 F.3d 1364, 1368-69 (7th Cir. 1997).

 In Illinois, to state a cause of action for legal malpractice, the plaintiff must plead: (1) that the attorney owed the plaintiff a duty of care arising from an attorney-client relationship; (2) that the defendant breached that duty; and (3) that as a proximate cause, the plaintiff suffered actual damages. See Kling v. Landry, 292 Ill. App. 3d 329, 686 N.E.2d 33, 37, 226 Ill. Dec. 684 (Ill. App. Ct. 1997). Dowd & Dowd argue that National Union cannot state a cause of action for legal malpractice because it cannot establish the first prerequisite, an attorney-client relationship.

 In response, National Union argues that an attorney-client relationship existed, and advances two theories in support of its position. *fn4" First, National Union argues that Dowd & Dowd had two clients, the self-insured (Schneider) and the excess insurer (National Union). Second, National Union argues that Dowd & Dowd owed it a duty of care because Schneider retained Dowd & Dowd for the direct and/or primary benefit of National Union. Alternatively, National Union argues that it, as the excess insurer, is equitably subrogated *fn5" to Schneider's legal malpractice action against Dowd & Dowd.

 The Illinois Supreme Court has not had occasion to address the issues presented here, nor have the Illinois Appellate Courts. In this case of first impression, National Union asks the court to expand Illinois law and predict that the Illinois Supreme Court would recognize an excess insurer's direct or derivative right to maintain a legal malpractice action against the insured's defense attorney. Given that the court has little guidance from the Illinois courts, it would be far more preferable to certify the issue to the Illinois Supreme Court. However, District Courts do not have that luxury in Illinois. *fn6" See Ill. Comp. Stat. S. Ct. Rule 20. Hence, it is incumbent upon the court to predict how the Illinois Supreme Court would decide these novel issues. See Allen v. Transamerica Ins. Co., 128 F.3d 462, 466 (7th Cir. 1997). In so doing, the court will extrapolate from existing statements of Illinois law and will consider law from other jurisdictions only insofar as they are consistent with the principles of Illinois law. See Zenith Ins. Co. v. Employers Ins. of Wausau, 141 F.3d 300, 1998 U.S. App. LEXIS 5993, 1998 WL 138772, at *3 (7th Cir. 1998).

 A. Direct Claim

 A legal malpractice claim is primarily a tort claim for negligence based upon an attorney's failure to exercise the requisite degree of skill and care in representing his client. See Christison v. Jones, 83 Ill. App. 3d 334, 405 N.E.2d 8, 9, 39 Ill. Dec. 560 (Ill. App. Ct. 1980). However, the duty allegedly breached arises by a contract for legal services. Id. "The attorney-client relationship is a voluntary, contractual relationship that requires the consent of both the attorney and client." In re Chicago Flood Litig., 289 Ill. App. 3d 937, 682 N.E.2d 421, 425, 224 Ill. Dec. 860 (Ill. App. Ct. 1997). Once the attorney-client relationship is formed, "the attorney owes his client the utmost degree of fidelity, honesty, and good faith." Christison, 405 N.E.2d at 10.

 The fiduciary relationship between an attorney and his client is personal and confidential. See id. at 10-11. "In recognition of the personal character of the relationship, it has always been jealously guarded and restricted to the parties involved." Id. Thus, it is well established in Illinois that only a client can assert a legal malpractice claim. See Kleinwort Benson North Am., Inc. v. Quantum Fin. Serv. Inc., 181 Ill. 2d 214, 225, 692 N.E.2d 269, 274, 229 Ill. Dec. 496, 1998 WL 66744, at *5 (Ill. 1998) (citing Christison, 405 N.E.2d at 8). Here, National Union advances two theories to show that an attorney-client relationship was formed between itself and Dowd & Dowd. The court will address each theory in turn.

 1. Tripartite Relationship

 First, National Union maintains that Dowd & Dowd, by representing National Union's insured, Schneider, also represented Schneider's excess insurer, National Union. In order to support this position, National Union argues that the Illinois Supreme Court would expand what is sometimes referred to as the "tripartite relationship" among an attorney, an insured and a primary insurer *fn7" , to recognize that the attorney also owes a fiduciary duty to the excess carrier.

 In Illinois, it has long been recognized that an attorney retained by a primary insurer to represent its insured has a fiduciary duty to two clients: (1) the insured and (2) the primary insurer. See Maryland Cas. Co. v. Peppers, 64 Ill. 2d 187, 355 N.E.2d 24, 30-31 (Ill. 1976); Mobil Oil Corp. v. Maryland Cas. Co., 288 Ill. App. 3d 743, 681 N.E.2d 552, 561, 224 Ill. Dec. 237 (Ill. App. Ct. 1997); Cincinnati Co. v. West Am. Ins. Co., 287 Ill. App. 3d 505, 679 N.E.2d 91, 96, 223 Ill. Dec. 147 (Ill. App. Ct. 1997). Consequently, either the insured or the primary insurer can sue the retained attorney for legal malpractice. See Smiley v. Manchester Ins. & Indemnity Co. of St. Louis, 71 Ill. 2d 306, 375 N.E.2d 118, 16 Ill. Dec. 487 (Ill. 1978) (insurer sued the retained attorney); Rogers v. Robson, Masters, Ryan, Brumund and Belom, 74 Ill. App. 3d 467, 392 N.E.2d 1365, 30 Ill. Dec. 320 (Ill. App. Ct. 1979) (insured sued the retained attorney).

 National Union argues that the Illinois Supreme Court would likewise recognize an excess insurer's right to bring a legal malpractice claim since "there is no logical reason to distinguish between a primary insurer and an excess carrier in determining when an insurer may sue for malpractice." (National Union's Resp. at 6.) This argument, however, completely ignores the fact that primary insurers actually contract with the attorney for his legal services.

 "In Illinois an insurer is obligated to defend an action against an insured when the complaint in that action sets forth allegations which bring the claim potentially within the coverage of the insurance policy." Nandorf, Inc. v. CNA Ins. Co., 134 Ill. App. 3d 134, 479 N.E.2d 988, 991, 88 Ill. Dec. 968 (Ill. App. Ct. 1985) (citing Peppers, 64 Ill. 2d 187, 355 N.E.2d 24). A primary insurer's duty to defend its insured generally includes the right to select the attorney and to control the litigation. Id. Since the primary insurer contracts with the attorney, pays the attorney's legal fees, and directs the litigation or settlement of the claim, it stands to reason that the primary insurer is one of the attorney's clients. *fn8" See In re Chicago Flood Litig., 289 Ill. App. 3d 937, 682 N.E.2d 421, 425, 224 Ill. Dec. 860 (Ill. App. Ct. 1997) ("The attorney-client relationship is a voluntary, contractual relationship that requires the consent of both the attorney and client.").

 Excess insurers, on the other hand, do not have the duty to defend the insured. See Am. States Ins. Co. v. Liberty Mut. Ins. Co., 291 Ill. App. 3d 336, 683 N.E.2d 510, 512, 225 Ill. Dec. 342 (Ill. App. Ct. 1997). The rationale behind this rule is the recognition that excess insurance and primary insurance provide distinct types of coverage. See Royal Ins. Co. v. Process Design Assoc., Inc., 221 Ill. App. 3d 966, 582 N.E.2d 1234, 1242, 164 Ill. Dec. 290 (Ill. App. Ct. 1991). Primary insurance is primary insurance coverage that attaches immediately upon the happening of the occurrence or accident that exposes the insured to potential liability. Id. Excess insurance, however, is secondary insurance coverage that does not attach until a predetermined amount of primary insurance is exhausted. Id.

 Since the excess insurer generally has no legal or contractual duty to defend, "the excess carrier typically has no right to select counsel or direct counsel's actions, and in many cases will have no active involvement in the ongoing litigation until such time as it appears that the excess policy coverage might be implicated." Hall F. McKinley, III, G. Randall Moody, & Peter B. Barlow, Issues in the Selection of Counsel and Control of Litigation When the Insured has a Self-Insured Retention, 32 Tort & Ins. L.J. 769, 773 (1997). Thus, unlike a primary insurer, an excess insurer has no direct relationship with the attorney retained to defend an action against the insured.

 Illinois courts' recognition of the tripartite relationship is premised upon the recognition of the primary insurer's legal duty to retain and pay for an attorney to defend an action against its insured. See Nandorf, Inc., 479 N.E.2d at 991 ("Generally, the insurer's duty to defend includes the right to assume control of the litigation."). As such, the court is convinced that the Illinois Supreme Court is likely to restrict the tripartite relationship to an attorney, an insured, and an insurer who retains the attorney. Here, National Union does not allege that it retained Dowd & Dowd. In fact, National Union admits that it was Schneider who retained Dowd & Dowd to represent and defend the interests of Schneider and Howard. (Compl. at P 12.) Thus, under the theory of the tripartite relationship, no attorney-client relationship existed between National Union and Dowd & Dowd; therefore, Dowd & Dowd owed no fiduciary duty to National Union. Accordingly, to the extent that Count I of National Union's complaint attempts to state a legal malpractice claim based on this theory, Dowd & Dowd's motion to dismiss is granted.

 As a final point on this particular issue, the court notes that National Union argues that "other jurisdictions have expressly found that defense counsel owes a duty to an excess insurer." (National Union Resp. at 7 (emphasis in original).) Yet National Union only cites to an unpublished opinion in American International Adjustment Co. v. Galvin, No. 92 CV 160 (N.D. Ind.), rev'd on other grounds, 86 F.3d 1455 (7th Cir. 1996). Relying on the unpublished opinion of Galvin, National Union argues that the United States District Court of the Northern District of Indiana "found that, based in part upon the Illinois appellate court decision in Nandorf, an excess carrier has standing to bring a malpractice action against defense counsel since the attorney owes a duty to the excess insurer, as well as to the insured." (National Union's Resp. at 7.) However, National Union's interpretation of the Galvin opinion is misguided.

 In Galvin, the District Court stated that the specific issue before the court was "whether an attorney retained by an insurance company has a duty to the insurer as well as the insured." Galvin, No. 92 CV 160, at 7 (emphasis added). The District Court held that an attorney retained by an insurance company to represent its insured owes a duty to the insurer. Id. at 10. On appeal, whether the insurer actually retained the insured's attorney was not an issue. See Galvin, 86 F.3d at 1459 ("The main issue on appeal is. . . whether the district court correctly ruled that Galvin's conduct was malpractice as a matter of law."). The Seventh Circuit did, however, note that the insured tendered its defense to its liability insurer. Id. at 1458, n.1. Thus, the insurer was allowed to pursue its legal malpractice action against the attorney it retained to represent its insured in the underlying personal injury action. Id.; see also Galvin, No. 92 CV 160, at 7-10. Since the insurer in Galvin, unlike National Union, retained the attorney it later sued, National Union's reliance upon Galvin is misplaced.

 2. Third-Party Beneficiary

 Second, National Union contends that it can prove facts to establish that Schneider retained Dowd & Dowd for the direct and/or primary benefit of National Union. Hence, National Union argues that the Illinois Supreme Court would recognize National Union as a third-party beneficiary. In addition, National Union argues that "the nature of National Union's relationship with Defendants and Schneider is an issue of ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.