It is not uncommon for subrogation counsel to file suit in the name of the insured for a variety of reasons. The most obvious is when counsel represents the insured for their uninsured losses or their deductible. However, there are times that for tactical reasons, counsel files suit in the name of the insured to try and avoid the bias that often accompanies an action filed in the name of the carrier. Although the deductible may be accounted for in a suit filed in the name of the insured, if the insured suffered any uninsured losses, they may not be included unless counsel has entered into a retention agreement with the insured. Unless a proper agreement is in place, the carrier and subrogation counsel run the risk of being sued by a disgruntled insured whose uninsured losses were not included in the carrier’s suit. There is a simple solution to avoid such a problem – make it clear to the insured whether or not their claims are included in the lawsuit, especially when suit is filed in the name of the insured.
A perfect example of what can happen when the insured is not advised whether their uninsured losses are included in the carrier’s action occurred in Sandman v. Quincy Mut. Fire Ins. Co., et al. (Mass. App. No. 10 – P-2080 January 25, 2012). The case stemmed from Quincy Mutual’s subrogation action against a heating oil delivery company that spilled 100 gallons of fuel oil in Elaine Sandman’s property during a delivery. Quincy Mutual covered the remediation costs to clean up the oil spill, which was over $200,000, but denied coverage for damage to Sandman’s personal property due to a policy exclusion. Quincy Mutual then retained subrogation counsel to recover its remediation costs from the oil delivery company.
Approximately two weeks after the spill, as Sandman was looking for an attorney to represent her uninsured losses, Quincy Mutual’s subrogation counsel contacted her and introduced himself as the attorney hired by Quincy Mutual to pursue her claims against the oil delivery company. For the next five years, counsel consistently led Sandman to believe he represented her interests as well as those of Quincy Mutual. Most of those representations were oral, but in one letter counsel sent to Sandman, he referred to her as a client and stated that, “[o]nce we receive the final figure suit will be entered in the Superior Court against parties responsible for damages to your property.” Counsel never informed Sandman that he had not filed suit on her behalf and was only seeking to recover the damages Quincy Mutual paid out on her claim. Sandman assisted counsel in answering interrogatories, and he represented her at her deposition. When the case settled in the spring of 2009, counsel informed Sandman, for the first time, that he was only representing Quincy Mutual. Counsel then told Sandman he could not assist her in pursuing her claims against the oil delivery company because he had a conflict of interest as Quincy Mutual’s attorney. By that time, Sandman’s claims were barred by the statute of limitations.
Sandman sued both Quincy Mutual and its subrogation counsel for misrepresentation, malpractice, negligent affliction of emotional distress, violation of the implied covenant of good faith and fair dealing, and violations of G.L.c. 93A (the Massachusetts Consumer Protection Act). Sandman claimed Quincy Mutual’s subrogation counsel told her that Quincy Mutual had hired him to pursue her uninsured losses as well as the subrogated claim, but failed to do so. Sandman’s claim against Quincy Mutual was that it was vicariously liable for the malpractice and misrepresentations of its subrogation counsel. Quincy Mutual argued that it could not be vicariously liable for the representations and professional negligence of its subrogation counsel because as an attorney and an independent professional, counsel had a non-delegable duty of care to Sandman.
Fortunately, the court agreed and relied on the holding in Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass. 387 (2003), wherein the Massachusetts Supreme Judicial Court held that since an insurer is not permitted to practice law, it must rely on independent counsel for the conduct of the litigation, and in doing so, does not assume a non-delegable duty to present an adequate defense or representation of the insured. Id. at 408-409. The Court went on to hold that since the conduct of the litigation is the responsibility of trial counsel, the insurer is not vicariously liable for the negligence of the attorneys who conduct the defense or representation of the insured. Id.
In dismissing Sandman’s Complaint against Quincy Mutual, the court held there was no basis upon which Quincy Mutual may be vicariously liable for its subrogation counsel’s malpractice because it was counsel who controlled the strategy, conduct, and daily details of representation of the insured, and counsel’s ethical obligations to the insured prevented the insurer from exercising the degree of control necessary to justify the imposition of vicarious liability. Although Sandman’s action against Quincy Mutual was dismissed, her malpractice suit against Quincy Mutual’s subrogation counsel is still pending.
Although the insured’s action against Quincy Mutual was dismissed, the entire suit could have been avoided if subrogation counsel had clearly spelled out whether or not the insured’s uninsured claims were being pursued in the carrier’s action against the defendant tortfeasor. If counsel had entered into a retention agreement with the insured to represent her uninsured losses, the details of the representation would have been spelled out as required by the Massachusetts Rules of Professional Conduct. Subrogation counsel’s failure to enter into a retention agreement with the insured, and failure to advise the insured that her losses were not being pursued, caused his client, the property insurance carrier, to be dragged into a lawsuit unnecessarily. It also landed him in a malpractice suit. In order to avoid a similar situation from occurring in the future, counsel has to make the insured aware of their role in the case and whether or not the insured’s uninsured losses are being represented in any lawsuit.