Lawyers working for insurance companies have been exposed to significant pressures from their clients in recent years. While cost-containment billing guidelines and other measures have created significant tensions in those relationships, even the most creative, out-of-the-box management consultant for insurers is unlikely to have dreamt up the facts of a recent Mississippi Supreme Court case.
The Mississippi court nicely summarized the facts giving rise to the contretemps under examination:
“In this case, an insurance company denied coverage to an employee of one of its insureds. When the employee threatened a bad faith lawsuit, the insurance company employed a law firm which advised the insurer that the employee indeed had no coverage. The employee filed a bad faith lawsuit against the insurance company, and the trial judge, believing the employee was covered granted summary judgment to the employee. This unexpected event so shocked the insurance company that it hired new attorneys and settled the bad faith suit by paying the employee $500,000 and assigning to him its potential legal malpractice claim against its former lawyers who advised against coverage. Armed with the assignment, the employee sued the law firm and obtained a judgment.”
Baker Donelson Bearman & Caldwell v. Muirhead (Miss. Jan. 26, 2006) at 1 (emphasis added, footnote omitted). Amazingly, this decision was the capper to a decade’s worth of litigation involving an employee battery on a third party that raised questions of respondeat superior, the employee’s status at the time of the battery as an insured, and expected/intended injury. The poor Baker Donelson firm correctly assessed that under Mississippi law there was no coverage under the insurance policy issued by its client Great River Insurance Company, but found its own client (advised by another firm) selling it out to the opposition by paying cash and assigning the client’s (potential) malpractice claim to the plaintiff.
The lawfirm argued that it had not committed malpractice and that public policy barred such bizarre assignments of malpractice claims to the successful opponent in prior litigation (who was the plaintiff in the second litigation against Great River and the defendant in the first litigation with the tort plaintiff). Finding that Baker Donelson had properly advised its client as to the lack of coverage, the Mississippi Supreme Court revised the jury verdict against the lawyers, a verdict comprising $594,000 in compensatory damages (essentially the insurer’s payment to the employee (the putative insured) in settlement of the second case), $750,000 in punitive damages, and $300,000 in attorneys’ fees. In other words, the plaintiff — who was the original, alleged insured and tortfeasor — was (i) made whole for supposedly beating the third party while at work, (ii) paid for that battery claim through the settlement of the bad-faith claim he brought against his (putative) insurance company, (iii) awarded another almost $600,000 being the value of the insurance-company’s own “malpractice” claim against the lawyers advising there was no coverage for the original battery claim (advice allegedly so egregiously bad to merit punitive damages too), and (iv)received another $1.15 million in punitives and attorneys’ fees. The Mississippi Supreme Court proved why we have appellate courts, thus bringing a welcome end to this pettifoggery.