New York Court Limits Insured's Malpractice Suit Against Anderson Kill Law Firm

Posted on December 2, 2009 by Mike Aylward

In recent months, there have been press reports of client claims against the Anderson Kill firm by disgruntled clients whose representation was handled by a paralegal who passed himself as a lawyer on various insurance coverage cases as well as products liability actions. A new opinion of the First Department of the New York Supreme Court in Natural Organics, Inc. v. Anderson Kill and Olick, P.C., 2008 N.Y. slip op. 08472 (App. Div. November 17, 2009) considers aggrieved policyholders can sue the firm for malpractice in such circumstances.

The case in question involved a large insurance coverage matter that AKO had apparently told Natural Organics was worth at least $1.3 million. Several years later, the case settled for $750,000. Thereafter, Natural Organics learned that one of the lead attorneys involved in the case was, in fact, a paralegal who had never been to law school or passed the bar. Natural Organics sued AKO, seeking the difference between $1.3 million and the $750,000 settlement as well as all the legal fees billed in the interim arguing that it would have obtained a more favorable result had it been represented by lawyers.
 

In affirming the trial court’s dismissal of the plaintiff’s malpractice claims, the First Department ruled that the allegations in the plaintiff’s complaint had failed to support any inference that, but for the defendant’s alleged negligence, the plaintiffs would have obtained a more favorable result. Further, the court ruled that the malpractice claims must be dismissed with prejudice as re-pleading a new set of facts would now be barred by the statute of limitations. Additionally, the First Department affirmed the lower court’s dismissal of the plaintiff’s breach of contract claims insofar as allegations based upon a breach of professional standards was duplicative of the malpractice claim.

The First Department ruled, however, that Natural Organics was entitled to proceed with a lawsuit against AKO for $70,000, the amount that the law firm had billed out for Brian Valerie claiming that he was a licensed attorney. The court ruled that, at this early stage of the proceedings, it cannot be said that these particular damages were too speculative.

Although the Appellate Division’s opinion is brief and contains few details concerning the back story to the dispute, subsequent reports in the Wall Street Journal and the New York Times indicate that the “lawyer in question, Brian Valery was a 32-year old paralegal who fooled the firm into believing that he was a lawyer and masqueraded as such for two years.” Valerie is scheduled to be arraigned on criminal charges of perjury and impersonating a lawyer. Valery went to work for Anderson Kill as a paralegal in 1996. In 2004, he told the firm that he had passed the bar. According to filings in a state proceeding in Connecticut, it appears that Anderson Kill never confirmed his account and hired him as an associate where he continued to work until October 2007 when the deception finally came to light.
 
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Alabama Supreme Court Holds Insurer Not Liable for Malpractice of Retained Defense Counsel

Posted on March 6, 2009 by Diane Polscer

In Lifestar Response of Alabama, Inc. v. Admiral Ins. Co., 2009 Ala. Lexis 39, Lifestar Response of Alabama, Inc. (“Lifestar”) brought a legal malpractice action against its defense lawyers and its insurer, Admiral Insurance Company (“Admiral”), for failing to have a default judgment set aside in the underlying action. Admiral had agreed to defend Lifestar under a reservation of rights. The primary question before the Court was whether Admiral could be held vicariously liable for the alleged negligence of defense counsel. Lifestar alleged Admiral had a duty to defend Lifestar in the underlying action and that Admiral retained defense counsel as Admiral’s agent to perform the defense obligation. (There was some dispute over whether Admiral first retained defense counsel or if Lifestar retained them and Admiral then agreed to pay their fees, but that did not appear relevant to the Court’s ultimate decision.) Lifestar essentially argued that Admiral breached its insurance contract by providing a substandard defense and that because defense counsel were agents of Admiral, defense counsel’s negligence and/or wantonness should be imputed to Admiral.

 

In making its decision, the Court noted that some jurisdictions have held that an insurer is not vicariously liable for the actions of insurer retained defense counsel, while other jurisdictions have held that the insurer is so liable. The Court then noted that where an insurer is defending under a reservation of rights, as here, the Court had previously adopted the enhanced good faith standard that the insurer and retained defense counsel must follow, as established by the Washington Supreme Court in Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381, 715 P.2d 1133 (1986). In this context, defense counsel represents only the insured, and not the insurer. Furthermore, Admiral would not control counsel’s professional judgment as that would be prevented by the attorney’s ethical obligation to the client, Lifestar. The Court further adopted the reasoning of Feliberty v. Damon, 72 N.Y.2d 112, 120, 527 N.E.2d 261, 265 (1988) that 1) the duty to defend is delegable by its very nature because insurers are not attorneys, 2) the paramount interest counsel represents is the insured’s, not the insurer’s, and 3) the insured’s remedy for defense counsel malpractice is an action against defense counsel. The Court then held that Admiral could not be vicariously liable for defense counsel’s alleged negligence or wantonness, further pointing out that “an insurance company is prohibited from practicing law and must rely on independent counsel to conduct litigation.”
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