Recent Developments in Legal Malpractice Litigation

By Elizabeth Starrs

Does a lawyer, hired by an insurance company to represent a professional in a malpractice case, have to advise the professional, his client, that he might need his own personal counsel to evaluate whether to demand that the insurance company settle on his behalf? According to the Colorado Court of Appeals in its July 10, 2008 decision in Morris v. COPIC, the answer is “yes.”

In Morris v. COPIC, Dr. Morris was sued for medical malpractice by a former patient. Dr. Morris was defended in this case by an experienced lawyer retained by COPIC Insurance Company, Dr. Morris’s medical malpractice insurance carrier. The jury returned a verdict for money damages in an amount which was greater than the insurance policy limits and Dr. Morris assigned his rights against COPIC for bad faith breach of his insurance contract to the former patient’s widow in exchange for the widow not pursuing Dr. Morris personally.

One of the issues before the Colorado Court of Appeals was the extent of information made available to Dr. Morris and upon which he could make an informed decision about whether to settle. In that regard, the Court commented that the lawyer should have sent his client copies of his letters to the insurance company about the potential size of the verdict.

The Colorado Court of Appeals also held that the insurance-company-retained lawyer had a duty to advise his client, the doctor, that he should get his own personal counsel to evaluate the impact of an adverse verdict in excess of the doctor’s policy limits and make a demand that the insurance company, COPIC, make every effort to settle the doctor’s case within the insurance policy limits.

Although this was a bad faith case against an insurance company, and although there is no evidence that the former client was critical of how the case was handled by his former attorney, the Colorado Court of Appeals made a point of indicating that the lawyer should have told Dr. Morris that he should have his own personal counsel before the trial to evaluate the potential of an excess verdict against him and should have copied Dr. Morris on his communications with the insurance company about the potential size of an adverse verdict. If this had occurred, it probably would have minimized the negative impact on Dr. Morris.

By Ross Pulkrabek

Does a guilty plea to securities fraud and theft in a criminal case bar a client from later suing her securities lawyer for legal malpractice based on bad legal advice? According to the Colorado Court of Appeals's June 12, 2008 decision in Allen v. Martin, the answer is "yes."

In Allen, the client was an officer of the Women's International Investment Network ("WIIN"). WIIN hired the defendant lawyers to advise it and Allen on the the securities law implications of certain real estate transactions.

The client later was indicted on multiple counts of conspiracy to commit securities fraud and theft in connection with the same transactions on which the lawyers advised her. She ultimately pled guilty to one count of securities fraud and one count of theft.

The client attempted to sue her former lawyers for legal malpractice, arguing that they had provided negligent legal advice, causing her indictment, and that they breached their fiduciary obligations by not coming to her aid during the ensuing prosecution. The trial court dismissed the client's claims, finding that they were barred by virtue of her guilty plea. Having admitted to securities fraud and theft, the client was in pari delicto (equally at fault) with the lawyer defendants.

The court of appeals affirmed dismissal of the legal malpractice claims, holding that a plea of guilty bars a client from attempting to show that she did not commit a crime in a legal malpractice case. The court found, however, that the client can avoid having her legal malpractice claim barred by pleading nolo contendre (no contest). The court also left open the possibility that the legal malpractice claim will not be barred so long as the client attempted to plead nolo contendre, even if the trial court or prosecution refused to accept such a plea.

Corporate executives and other business persons who find themselves being prosecuted after receiving bad advice from a lawyer would be wise to bear the Allen decision in mind and consult with experienced legal counsel about their professional negligence claims against their former lawyers before entering a plea in a criminal case.