Professional liability insurer had standing to sue defense counsel for legal malpractice

by Chris Graham and Joseph Kelly

Carolina Casualty Ins. Co. v. Gallagher Sharp, Case No. 1:10cv2492 (N.D. Ohio April 16, 2013)

Carolina Casualty’s legal malpractice action arose from an underlying legal malpractice claim. The Insured law firm’s defense counsel negotiated a high-low agreement in the underlying litigation under which the plaintiff could recover at most the remaining policy limits and at worst $100,000 even if there was a defense verdict. The judgment exceeded remaining policy limits and the high-low agreement was found unenforceable. While an appeal was pending, the parties agreed on a second high-low agreement with a low amount of $1.75 million. The Insured prevailed on appeal, but was liable for $1.75 million under the second high-low agreement. Carolina Casualty paid the judgment and sued defense counsel for legal malpractice arguing it would’ve only had to pay $100,000 if the first high-low agreement was enforceable.

The court granted summary judgment to Carolina finding it had standing to sue because privity existed between Carolina and defense counsel prior to the first high-low agreement as their interests were aligned. While the court denied Carolina summary judgment on the issue of breach, the court did grant summary judgment to Carolina on the issue of causation because the second high-low agreement was a foreseeable result of the first unenforceable high-low agreement.

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