Commercial Litigation and Arbitration

Excess Carrier Barred from Asserting Malpractice Claim Against Insured’s Counsel Who Was Selected by Primary Carrier

From Federal Ins. Co. v. No. Am. Specialty Ins. Co., 47 A.D. 3d 52,m 847 N.Y.S.2d 847 (1st Dep’t 2007):

"New York courts impose a strict privity requirement to claims of legal malpractice; an attorney is not liable to a third party for negligence in performing services on behalf of his client" ***.

Strict adherence to the rule prohibiting legal malpractice claims by non-clients serves an important policy consideration. An attorney's paramount duty is to protect zealously the interests of his or her client, and if that duty is breached and the breach proximately causes injury, the attorney may be subject to a malpractice claim, but only by his or her client. While, concededly, third parties may be interested in the actions by another's attorney and even benefit therefrom, that circumstance does not give rise to a duty on the part of the attorney to the third party. Were it otherwise, the attorney would be faced with the constant burden of weighing all the competing interests attendant upon such diverse obligations to the potential detriment of his or her client, to whom he owes undivided fidelity.

Nor has Federal pleaded sufficient facts to demonstrate a relationship with Rivkin "so close as to touch the bounds of privity" (Allianz Underwriters, 13 AD3d at 175). While, as noted, strict privity is generally required to maintain a cause of action for legal malpractice, a relationship of near privity may, in limited circumstances not present here, be sufficient to sustain a legal malpractice claim (see id.). The exception applies in cases of negligent misrepresentation (see Prudential Ins. Co. of Am. v Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 605 N.E.2d 318, 590 N.Y.S.2d 831 [1992] [attorney may be held liable to third parties for submitting a false opinion letter upon which a third party relied]).

Although, as noted, this Court, in Allianz, sustained a legal malpractice claim on the basis of equitable subrogation, it ruled, in dictum, that on the facts presented on the motion to dismiss, the excess insurer also stated a near privity relationship sufficient to sustain the complaint. In Allianz, near privity was properly alleged because (1) [the law firm] knew that its advice as to whether to commence a third-party action would be relied upon by third parties; (2) Allianz relied on Underberg's advice and (3) Underberg communicated its advice that a third-party action would fail to the third parties, who relied on it (13 AD3d at 175).

Here, no such allegations of near privity are found in either the complaint or the record. Federal's decision to settle the [underlying] action was not based on any affirmative Rivkin representation upon which it relied. Rather, it settled the action because, as it concedes, the case against its insured was clear and the settlement amount was reasonable. In deciding to settle, Federal was advised by its own separate counsel, upon whose advice it relied.

Denial of counsel’s motion to dismiss reversed.

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