Court: Insurer Can’t Bring Subrogation Claim Against Attorney

September 17, 2008

Insurers are not allowed to bring equitable subrogation actions premised on professional negligence against attorneys, the Colorado Court of Appeals has ruled.

According to State Farm Fire and Casualty Co., as subrogee of Running Bear Homeowners Association v. Robert G. Weiss and Weiss and Van Scoyk LLP, attorney Robert Weiss drafted an association covenant for Running Bear Homeowners Association. The HOA wanted to amend its covenant to limit rental periods to not less than 30 days, and Weiss incorrectly advised his client that they could make the amendment without the consent of people who owned the individual units.

When a unit owner sued the HOA for lost rental income, the HOA settled, and then submitted a claim to State Farm for $52,000.

State Farm then initiated an equitable subrogation action against the attorney, based on the theory of professional malpractice. Weiss claimed State Farm couldn’t bring a professional negligence claim against it because State Farm was not the attorney’s client — the HOA was. Yet State Farm opposed the motion and submitted the HOA’s waiver of its attorney-client privilege. The trial court granted the motion.

“If we allow insurers to bring equitable subrogation actions premised on professional negligence against attorneys. There is no question that allowing such claims will increase the number of lawsuits. This burdens both the legal profession and the justice system and would ultimately restrict the availability of competent legal services,” the appeals court wrote.

The appeals court ruled that the trial court properly dismissed State Farm’s claim, and the case was remanded for an award
of reasonable attorney fees incurred on appeal.

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Source: Colorado Courts

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