Key Decisions

December 2013 – A Legal Malpractice Action Was “Assignable” Where The Corporate Malpractice Plaintiff Is Acquired

(filed under: Key Decisions | December 19, 2013)

A Legal Malpractice Action Was “Assignable” Where The Corporate Malpractice Plaintiff Is Acquired

White Mountain Reinsurance Company of America v. Borton Petrini, LLP
(Cal. Ct. of App., 3d Dist.), filed November 26, 2013, published November 26, 2013

Modern Service Insurance Company issued an auto insurance policy to Flora Cuison. The policy had a $100,000 limit on bodily injury liability per person.

While the policy was in force, Cuison caused an automobile accident that seriously injured Karen Johnson. As a result, Johnson sued Cuison. Cuison was purportedly served with the complaint in the action, along with an undated 30-day offer to compromise for the $100,000 policy limits.

Country Insurance & Fidelity Services, the claims administrator acting on behalf of Modern Service, engaged the Borton Petrini law firm to defend Cuison in the action. Borton Petrini took the case, representing Modern Service and Cuison. Borton Petrini allegedly allowed the offer to compromise to expire without a response.

As the result of what might be described as a series of mergers and acquisitions, White Mountain Reinsurance Company of America took over Modern Service’s insurance business in California, assuming responsibility for the claim against Cuison. Among other things, White Mountain paid legal fees for Borton Petrini’s services in defending Cuison.

Eventually, White Mountain paid substantially more than the policy limits to settle the claim against Cuison. It did so because Modern Service had failed to settle within the applicable policy limits even though it had an opportunity to do so.

White Mountain then sued Borton Petrini for legal malpractice for failing to address the settlement offer that had been made when the case against Cuison was initiated.

The trial court held that White Mountain lacked standing to sue Borton Petrini because White Mountain had acquired its claim by way of an assignment and actions for legal malpractice are not assignable in California.

The Court of Appeal reversed.

The general rule is that legal malpractice actions are not assignable in California. Despite the general rule, the court found a narrow exception for instances in which a plaintiff’s action for legal malpractice was acquired as part of a larger transaction, such as that which occurred when White Mountain took over Modern Service’s insurance business. The policy reasons for prohibiting an assignment of a cause of action for legal malpractice did not apply in such an instance.