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Privity Defense Defeats Insurance Company’s Legal Malpractice Claim

May an insurance company sue the defense firm that it hired where it alleges that the defense firm did not meet the standard of care? In Florida, according to Arch Insurance Company v. Kubicki Draper, 4-D17-2889, the insurance company may not file suit because it lacks privity with the law firm.  The insurance company alleged that it hired the firm to defend a case for one of its insureds. The law firm allegedly failed to raise the statute of limitations defense, which caused the insurance company to incur a loss.

The privity defense holds that a plaintiff cannot sue a defendant unless he was “in privity” with that defendant. Here, even though the insurance company hired the law firm to defend its insured, there was no privity because the law firm was responsible only to its client, the insured. The court rejected the insurance company’s public policy arguments:

The insurer nevertheless argues public policy and common sense dictate that an insurer should be able to pursue legal malpractice claims against defense counsel retained to represent its insureds. According to the insurer:

Logic dictates that an insurer can pursue a legal malpractice claim against the law firm it hired for its insured because it retained the law firm to protect the insured’s rights, and a law firm is liable for the malpractice it commits. Currently, no Florida appellate court has issued a decision on point addressing an insurer’s standing to pursue a claim for legal malpractice against the law firm it hired to defend its insured. However, several Florida federal courts have issued opinions predicting Florida law’s recognition of an insurer’s right to pursue a malpractice claim against the law firm it retained for its insured if the malpractice increased the insured’s exposure and the insurer paid to resolve the claim against the insured [citing Nova, Koeppel, and Burd].

Precluding an insurer from bringing a malpractice action against the law firm retained for its insured would have dire consequences. Essentially, law firms would be shielded from liability resulting from their malpractice. Both Florida federal courts and courts from other jurisdictions have discussed at length the important policy reasons supporting their decision to allow an insurer to seek redress for . . . legal malpractice against the law firm it retained for its insured. See, e.g., Koeppel, 629 F. Supp. 2d at 1300 (denying an insurer’s right to pursue its insured’s legal malpractice claim serves only the interests of retained defense counsel by providing blanket protection from legal malpractice claims); Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W. 2d 480, 485 (Tex. 1992) (“Refusal to permit the excess carrier to vindicate that right would burden the insurer with a loss caused by the attorney’s negligence while relieving the attorney from the consequences of legal malpractice.”); see also Great. Am. E&S Ins. Co. v. Quintairos, Prieto, Wood & Boyer, P.A., 100 So. 3d 420, 424 (Miss. 2012) (en banc) (“We hold only that, when lawyers breach the duty they owe to their clients, excess insurance carriers, who — on behalf of the clients — pay the damage, may pursue the same claim the client could have pursued. Holding otherwise would place negligent lawyers in a special category of protection.”).

We understand the insurer’s public policy argument. However, we are bound to follow the law as it exists, not as the insurer argues it ought to be. Our supreme court has recognized only two situations in which a third party was permitted to pursue a legal malpractice claim against counsel who was not in privity with the third party, neither of which applies here: (1) a will drafting situation, see Angel,512 So. 2d at 194 (“The only instances in Florida where this rule of privity has been relaxed is where it was the apparent intent of the client to benefit a third party. The most obvious example of this is the area of will drafting.”); and (2) a private placement situation, see Cowan Liebowitz & Latman, P.C. v. Kaplan, 902 So. 2d 755, 757 (Fla. 2005) (“[B]ecause lawyers preparing private placement memoranda, like independent auditors, owe a duty to those who rely on statements contained in their published documents, parties may assign claims for legal malpractice committed in preparing them.”).

Based on the record before us, where nothing indicates that the law firm was in privity with the insurer, or that the insurer was an intended third-party beneficiary of the relationship between the law firm and the insured, we are unwilling to expand the field of privity exceptions to apply to this case. Thus, we affirm the circuit court’s conclusion that the insurer lacked standing to pursue a professional negligence claim against the law firm in the underlying action.

This case is an outlier. In Illinois, an insurance company can sue a law firm it hired where the law firm is alleged to have breached the duty of care. Governmental Interinsurance Exchange v. Judge, 850 N.E.2d 183 (2006).