Legal Malpractice for Insurance Companies?

In what looks to be a case of first impression an insurance company is being held responsible for the conduct of their in-house counsel.

In the case of Hilson v. Geico General Ins. Co, 2015 WL 1380094 (11th Cir. Mar. 27, 2015) an insurance company is being held liable for the legal malpractice of its in-house defense attorney and the decision may have opened the door for a whole new line of cases regarding insurer liability.

The Hilson case appeared to run the same insurance playbook that is often seen in auto accident cases. In the Hilson case there was a low limit ($10,000) bodily injury policy in question and the injured party made a demand for the full policy limit. In response, and which happens regularly, the insurance company only offered $5,000 as a pre-suit settlement offer. As a result litigation ensued and Geico’s in-house attorney defended the litigation.

As part of the defense Geico’s counsel discovered that a surgical recommendation was made regarding the plaintiff’s injuries and which predated the lawsuit. This lead Geico’s counsel to make a full policy offer. However, because it took almost 14 months for the insurance company to make a full policy offer the Plaintiff was no longer willing to accept the $10,000 policy limit. The case proceeded to trial and the jury returned a high six figure verdict.

After the trial the Plaintiff filed a bad faith claim alleging that Geico should have tendered the $10,000 to avoid litigation. But in addition to the bad faith litigation a malpractice lawsuit was also filed. To the detriment of Geico, a claim adjuster for Geico testified that it was the responsibility of the defense lawyer to get all relevant medical records and had she have known of the surgical recommendation earlier she would have tendered the full policy immediately. Ultimately the second case went to trial where the jury found that there was legal malpractice.

In defense of the malpractice claim, and verdict on appeal, Geico argued that since it did not (and could not) interfere with the independent professional judgment of its in-house counsel, it was not exercising control over them sufficiently to establish a basis for respondeat superior (an employer being responsible for the actions of employees performed within the course of their employment). However, the trial court stated that if Geico wanted to wade into the law firm business, they are going to have to take the good with the bad.

The Eleventh Circuit upheld and affirmed the trial court ruling and may have establish another avenue of insurer liability in cases where legal malpractice may be plead.