Plaintiff Versus Insured Defendant Versus Insurance Company
A post earlier this week in Stephen D. Rosenberg’s Boston ERISA & Insurance Litigation Blog ties in nicely with an appeal argued in front of the Supreme Court of Appeals of West Virginia on Tuesday, which was the first day of the Court’s Spring Term. Here is the Court’s calendar for the entire term.
The post was entitled “The Three Rules of the Tripartite Relationship,” which refers to the relationship established when an insurance company’s policyholder is sued, and the insurance company provides a defense as required by the policy. Even though the policyholder’s lawyer is retained and paid by the insurance company, he or she represents the policyholder’s interests exclusively. But the tripartite relationship has the potential to create conflicting loyalties on the part of the policyholder’s counsel, whose obligation to represent the policyholder may be at odds with the interests of the insurance company that has retained him or her.
Stephen linked to an article entitled "On the Horns of a Defense Counsel Dilemma," and also proposed three rules of thumb that should govern the tripartite relationship. Roy Harmon, who writes Health Plan Law, also wrote about the arrangement yesterday with a post entitled "Appointed Defense Counsel: The Small Print Enlarged."
The tripartite relationship was at issue before the Supreme Court of Appeals in Jeffrey A. Horkulic, et al. v. William O. Galloway, et al., No. 33352, which involved an underlying legal malpractice claim. Defendant Galloway’s malpractice carrier, TIG Insurance Company (“TIG”), appointed counsel for him, and he also retained his own private counsel. A dispute developed between Galloway’s appointed counsel and TIG as to whether a settlement with Horkulic had been reached. Galloway’s appointed counsel said the parties had reached a settlement, while TIG’s claims adjuster said they had not.
The sticking point between Galloway and TIG was a provision that Galloway would confess judgment in the amount of $1,500,000, but that the plaintiff would accept Galloway’s policy limits of $500,000 in satisfaction of his claim, would not pursue Galloway’s personal assets, and would not record the judgment. TIG's objection was that the plaintiff, who had also filed a third-party bad faith claim against TIG, would be able to use the confession of judgment in the bad faith case in order to establish his damages. The Circuit Court of Ohio County entered an order approving the settlement, including Galloway's confession of judgment, and TIG appealed.
As you can see from the circuit court’s order, as well as the parties’ briefs (here are TIG's brief, the plaintiff’s brief, and TIG's reply brief), the plaintiff’s appointed counsel clearly was at odds with TIG, the entity who retained and paid him. This conflict is what can make the tripartite relationship so problematic.
At the oral argument, which I watched via the Court’s webcast, TIG argued that it would be unable to challenge the confession of judgment during the prosecution of the third-party bad faith case, for the purpose of determining the plaintiff’s damages. The plaintiff’s counsel repeatedly assured the Court that TIG could object to the judgment, but as some members of the Court observed, until the bad faith case is underway and the confession of judgment becomes an issue, TIG’s concern may be premature.
Finally, one other issue that was consolidated for hearing on Tuesday with the underlying appeal was State ex rel. TIG Insurance Company v. The Honorable Arthur M. Recht, et al., No. 33353, which was TIG’s petition for a writ of prohibition against the circuit court’s award of attorney’s fees to Horkulic’s lawyer. The circuit court ordered TIG to pay attorney’s fees at the rate of $500 per hour for the work involved in enforcing the plaintiff’s settlement with TIG, which amounted to $50,750. Here are TIG’s petition, Galloway's response, and the plaintiff’s response. (Incidentally, Galloway's position was that the circuit court did not exceed its authority in awarding attorney's fees and that the amount of the award was not excessive.) The Supreme Court was not alarmed about the amount of the hourly rate, so I don’t anticipate that the Court will disturb the award.
