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Court Holds in Favor of Law Firm After Client Goes Behind Its Back to Insurer

By: Chris Lindstrom

In Fitts v. Richards-Smith, No. 06-15-00017-CV, 2016 WL 626220 (Tex. App.—Texarkana February 17, 2016), the Sixth Court of Appeals in Texarkana issued an interesting opinion that demonstrates the inherent conflict in an attorney representing both the passenger and driver in an automobile accident, the perils of a client acting without the advice of his attorney, and reiterates the differences between a breach of fiduciary duty claim and legal malpractice claim.

George Fitts purchased an automobile insurance policy from his brother Billy’s wife, Frieda, with limits of $250,000 and an umbrella policy of $5 million.  George, Billy and a third brother William, were all involved in an automobile collision when George ran into the back of a truck making an illegal left turn.  As a result of the accident, George was killed and both Billy and William were severely injured.  

George’s estate, Billy and William all hired the same law firm and filed suit against Lexus for products liability claiming that the vehicle suddenly accelerated.    The law firm never had the brothers sign any conflict of interest waiver and never advised them that there was potentially a claim against George for causing the accident.

Without telling their attorney, Billy and Frieda made a claim under George’s primary insurance policy, and settled for the $250,000 policy limits.  As part of the settlement, Billy released George and his primary insurer from liability.  Billy then tried to collect under George’s umbrella policy.  That claim was denied because Billy had released George from any liability. 

Not happy with that result, Billy sued his lawyers for breach of fiduciary duty and legal malpractice.  The basis of both claims was that the lawyers failed to advise Billy that he had a valuable claim against George and failed to disclose to him that the lawyers had a conflict of interest in representing all three brothers.  Billy claimed that if that disclosure had been made, he could have collected under the umbrella policy.

The lawyers moved for summary judgment on the basis the legal malpractice claim could not be fractured into a breach of fiduciary duty claim.  The correct styling of the cause of action was important because it would affect what evidence of damages had to be shown by Billy to recover against the law firm.

The law firm argued that they had no way of knowing that a conflict of interest existed because Billy told them that he did not think George was at fault.  Billy’s response was that since the police report concluded George caused the accident and because the insurance company’s investigation concluded that a produce defect on the vehicle was not likely, the lawyers had knowledge of a claim against George.

The trial court granted summary judgment for the lawyers.  On appeal, Billy argued that a separate breach of fiduciary duty case from the legal malpractice case could be maintained based on the unique facts of this case. 

Under Texas law, a client can sue an attorney for breach of fiduciary duty case separate from legal malpractice if “the claim cannot be characterized as advice, judgment, or opinion arising from the attorney-client relationship.”  The Sixth Court of Appeals disagreed that this case presented the fact pattern to meet that standard.   The question in a breach of fiduciary case is “whether an attorney obtained an improper benefit from representing a client.”  In a legal malpractice case, the focus is “whether an attorney adequately represented a client.”

In affirming the summary judgment, the Sixth Court of Appeals explained that Billy’s claim that the lawyers did not advise him of the viability of the claim against George or disclose the conflict of interest was a direct challenge to the adequacy of the representation.  Therefore, it was characterized as a legal malpractice claim.  Because Billy did not allege “the type of dishonesty or intentional deception” usually associated with a breach of fiduciary duty case, the lawsuit was properly considered legal malpractice.

Since the court determined the claim was legal malpractice, the issue of the actual damages caused by the law firm’s malpractice was the next relevant issue.  Given that he signed a settlement with his primary insurer that released George from liability, Billy could not establish that the inability to recover under the umbrella policy was the result of any legal malpractice.

The Sixth Court of Appeals explained that “there are several ways to reserve the right to purse an umbrella carrier while exhausting a primary carrier’s policy limits, settling with a primary carrier and executing an unambiguous release of the insured, without reserving the right to purse the umbrella carrier in the release, is not one them.”