HARTFORD INS. CO. OF MIDWEST

v.

KOEPPEL

Hartford’s lawsuit arises from its retention of Defendant Steven Koeppel (“Koeppel”), a member of the Florida Bar and a shareholder of Defendant Yeslow & Koeppel, to handle a demand letter from an attorney representing an individual injured in an accident with one of Hartford’s insureds. Presently before the Court is Defendants’ motion to dismiss pursuant to Rules 12(b)(1) and (6) of the Federal Rules of Civil Procedure. The motion has been fully briefed.

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On April 8, 2009, this Court held a motion hearing.

1. Applicable Standards

Defendants move to dismiss Hartford’s complaint pursuant to Rule 12(b)(1), contending that Hartford does not have standing to brings its claims against Defendants and therefore the Court lacks subject matter jurisdiction. Defendants also move to dismiss Hartford’s complaint pursuant to Rule 12(b)(6), arguing that Hartford fails to state a claim upon which relief may be granted.

The Eleventh Circuit Court of Appeals has provided the following standard for deciding Rule 12(b)(1) motions:

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Attacks on subject matter jurisdiction under [Federal Rule of Civil Procedure] 12(b)(1) come in two forms. “Facial attacks” on the complaint require the court merely to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes of the motion.... “Factual attacks,” on the other hand, challenge the existence of subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits, are considered.

Lawrence v. Dunbar,

919 F. 2d 1525, 1528-29 (11th Cir.1990) (internal quotation marks and citations omitted). Defendants assert a facial attack in this case. Thus Hartford “is afforded safeguards similar to those provided in opposing a Rule 12(b)(6) motion ...”

Id.

at 1529 (citing

Williamson v. Tucker,

645 F. 2d 404, 412 (5th Cir.1981)).

When reviewing a defendant’s Rule 12(b)(6) motion, a court must accept all of the allegations in the plaintiffs complaint as true and construe the facts in a light most favorable to the plaintiff.

GJR Invs. v. County of Escambia,

132 F. 3d 1359, 1367 (11th Cir.1998). Pursuant to Federal Rule of Civil Procedure 8(a), the plaintiff need only provide “a short and plain statement of the grounds upon which the court’s jurisdiction depends,” “a short and plain statement showing that the pleader is entitled to relief,” and “a demand for judgment for the relief the pleader seeks.” As the United States Supreme Court has recently provided, however, “a plaintiffs obligation to provide the ‘grounds’ of his ‘entitlement to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do.”

Bell Atl. Corp. v. Twombly,

550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007).

II. Factual Allegations and Procedural Background

On March², 2005, while operating his automobile, Ronald Davis (“Davis”) collided with a motorcycle driven by Gaspare Oliveri, III (“Oliveri”), in Lee County, Florida. (Compl. ¶ 7.) Oliveri suffered significant injuries in the accident.

(Id.

¶ 8.) At the time of the accident, Davis and his wife, Elizabeth Sturgis (“Sturgis”) were insured under an automobile liability policy issued by Hartford.

(Id.

¶ 9.) The policy had a liability limit of $100,000 applicable to the accident.

(Id.)

Oliveri subsequently filed a claim against Davis and Sturgis (hereafter collectively the “Insureds”). After being contacted about the accident, Hartford assessed that Oliveri’s claim would greatly exceed the policy limit.

(Id.

¶ 10.) On March 9, 2005, Hartford tendered the policy’s limit by delivering a check to Oliveri along with a proposed release of his claim against the Insureds.

(Id.)

Oliveri did not negotiate the $100,000 check or execute Hartford’s proposed release.

(Id.

¶ 12.)

Hartford thereafter informed the Insureds that Oliveri’s damages exceeded the policy limit and thus they were exposed to potential liability for a judgment in excess of the policy limit.

(Id.

¶ 13.) Hartford therefore advised the Insureds to retain personal legal counsel.

(Id.)

On or about April¹, 2005, the Insureds retained attorney Pablo Lense to represent them in defense of Oliveri’s claim.

(Id.

¶ 14.)

Hartford thereafter continued to pursue a settlement of Oliveri’s claim within the policy limit with Oliveri’s attorney.

(Id.

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¶ 18.) Hartford shared information it received regarding Oliveri with the attorney retained by the Insureds.

(Id.

¶¶ 17, 19.)

On August⁴, 2005, Oliveri’s attorney issued a time sensitive policy limit demand letter to Hartford, offering to settle Oliveri’s claim for

inter alia

a check for the $100,000 policy limit and a “mutual notarized general release.”

(Id.

¶ 22.) Hartford thereafter sent a copy of the demand letter to the Insureds’ personal attorney.

(Id.

¶ 23.) On August 25, 2005, Hartford retained Koeppel “to properly accept the ... [demand letter], including drafting and delivering the ‘mutual notarized general release.’ ”

(Id.

¶ 24.) Hartford thereafter informed the Insureds’ personal attorney of its retention of Koeppel to effectuate a settlement of Oliveri’s claim in accordance with the demand letter. (Id.

¶ 27.)

In its complaint, Hartford maintains that Koeppel negligently responded to the demand letter, resulting in Oliveri pursuing a lawsuit against the Insureds in Florida state court. Sometime before February 12, 2007 — when the state court matter was scheduled for trial — Hartford settled the ease for an amount substantially in excess of the policy limit, thereby protecting the Insureds from a potential excess judgment. (Compl. ¶ 36.) On November 30, 2007, Hartford filed this legal malpractice action against Defendants.

III. Defendants’ Arguments

Defendants argue that Hartford lacks standing to assert its legal malpractice claim against them because there was no attorney-client relationship between Hartford and Koeppel. Defendants argue that Koeppel’s attorney-client relationship was with the Insureds, alone. Defendants further argue that, pursuant to Florida law, an attorney’s liability for negligence arising out of his or her professional duties is limited to clients with whom the attorney shares privity of contract.

Defendants acknowledge that the Florida courts recognize a limited exception to the privity requirement in the area of will drafting because the client’s intent to benefit a third party in that context is “readily apparent.” (Defs.’ Mot. at 10) (citing

Espinosa v. Sparber, Shevin, Shapo, Rosen & Heilbronner,

612 So. 2d 1378, 1379 (Fla.1993).) Defendants, however, contend that the exception does not extend to this case because Hartford has not alleged any facts to suggest that the Insureds intended to benefit the insurance company in “their” contract with Koeppel. Defendants therefore argue that Hartford also lacks standing to pursue its third-party beneficiary legal malpractice and breach of contract claims.

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Lastly, Defendants argue that Hartford fails to state a claim upon which relief may be granted in its claim for equitable subrogation. Defendants argue that the claim is not viable under Florida law because the Florida courts prohibit the subrogation of legal malpractice claims.

IV. Analysis

As an initial matter, the Court believes that the factual premise of Defendants’ motion — i.e. that Hartford retained

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Koeppel only to represent the Insureds— is not supported by the allegations in Hartford’s complaint. The facts Hartford alleges — which this Court must presume true for purposes of deciding Defendants’ motion — indicate that the attorney-client relationship was between Koeppel and Hartford, not the Insureds. For example, Hartford alleges that Oliveri’s attorney “issued a time-sensitive Policy limit demand letter to HARTFORD, offering to settle the Oliveri claim ...” and that “HARTFORD decided to accept the [demand letter and] retained STEVEN KOEPPEL ... to properly accept [the demand letter] ...” (Compl. ¶¶ 22, 24.) Hartford further alleges that at least four months before Hartford retained Koeppel, it advised the Insureds to retain their own attorney to represent their interests and the Insureds in fact hired an attorney.

{Id.

¶¶ 13, 14.)

Based on these facts, it would appear that Hartford was in privity of contract with Koeppel and there would be no question as to whether Koeppel could be held liable to Hartford for the alleged negligence in the performance of his professional duties. Hartford therefore would have standing to pursue its legal malpractice claim. The Court nevertheless will address whether Hartford has standing if Defendants’ factual assumption is correct — i.e. that Hartford retained Koeppel to represent the Insureds, only.

Where federal subject matter jurisdiction is based on diversity, the district court must apply the substantive law of the jurisdiction in which it sits.

Shapiro v. Assoc. Int’l Ins. Co.,

899 F. 2d 1116, 1118 (11th Cir.1990) (citing

Erie R.R. v. Tompkins,

304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). Therefore, Florida substantive law governs the disposition of this case and the Court first must turn to Florida Supreme Court precedent.

Towne Realty, Inc. v. Safeco Ins. Co. of Am.,

854 F. 2d 1264, 1269 n. 5 (11th Cir.1988). If the state supreme court has not decided the relevant issue(s), decisions of the intermediate Florida appellate courts control absent persuasive indication that the state’s highest court would rule otherwise.

See Blanchard v. State Farm Mut. Auto. Ins. Co.,

903 F. 2d 1398, 1399 (11th Cir.1990) (citations omitted). If there are no state decisions on point, this Court “may make an educated guess as to what the Florida courts would decide if this case were presented to them.”

Smigiel v. Aetna Cas. and Sur. Co.,

785 F. 2d 922, 925 (11th Cir.1986) (citation omitted).

Neither the Florida Supreme Court nor the state’s appellate courts have expressly addressed whether an insurer can bring a legal malpractice or breach of contract claim against an attorney hired to represent its insured.

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The Florida Supreme Court has held that an attorney’s liability for negligence is limited to clients with whom the attorney shares privity of contract or a plaintiff who was an intended third-party beneficiary of the attorney-client relationship.

Espinosa,

612 So. 2d at 1379-80. Yet the Court has not decided whether privity of contract exists between an insurer and the attorney the insurer retained to represent its insured or whether the insurer is an intended third-party beneficiary of the relationship between the attorney and the insured. The majority of jurisdictions to decide the issue, however,

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have concluded that the insurer is in privity of contract with the attorney hired to represent insured individuals or is a third-party beneficiary of the relationship between the attorney and the insured.

The District Court for the Eastern District of Virginia summarized the majority and minority views with respect to this issue in

General Security Ins. Co. v. Jordan, Coyne & Savits LLP,

357 F. Supp. 2d 951 (E.D.Va.2005). As the court provided: “In most jurisdictions, the retaining insurer may sue the law firm directly as its client.”

Id.

at 956. The court noted, however, that “most of the reported cases involving such suits offer no analysis of the insurer’s relationship with the law firm.”

Id.

(citing

Fremont Indem. Co. v. Carey, Dwyer, Eckhart, Mason & Spring, P.A.,

271 F. 3d 1272 (11th Cir.2001) (Florida law);

Reliance Nat’l Indem. Co. v. Jennings,

189 F. 3d 689 (8th Cir.1999) (Arkansas law);

Am. Int’l Adjustment Co. v. Galvin,

86 F. 3d 1455 (7th Cir.1996) (Indiana law);

Nw. Nat’l Ins. Co. v. Osborne,

573 F.Supp. 1045 (E.D.Ky.1983);

Smiley v. Manchester Ins. & Indem. Co.,

71 Ill.2d 306, 16 Ill.Dec. 487, 375 N.E. 2d 118 (1978)).

In those decisions where the courts provide an analysis, several “reflect the view that a ‘tripartite relationship’ exists among the insurer, insured, and counsel, with both insurer and insured as co-clients of the firm in the absence of a conflict of interest.”

Gen. Sec. Ins. Co.,

357 F. Supp. 2d at 956 (citing

Home Indem. Co. v. Lane Powell Moss & Miller,

Spratley v. State Farm Mut. Auto. Ins. Co.,

78 P. 3d 603, 607 (Utah 2003);

Gulf Ins. Co. v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone,

79 Cal.App.4th 114, 93 Cal.Rptr.2d 534, 542-47 (Cal.Ct.App.2000);

Pine Island Farmers Coop v. Erstad & Riemer, P.A.,

649 N.W. 2d 444, 452 (Minn.2002)). The following additional jurisdictions have concluded that an insurer has a direct attorney-client relationship with the attorney it retained to represent its insured.

See, e.g., State and County Mut. Fire. Ins. Co. v. Young,

490 F. Supp. 2d 741 (N.D.W.Va.2007);

Paradigm Ins. Co. v. Langerman Law Offices, P.A.,

196 Ariz. 573, 2 P. 3d 663 (1999);

Arrowood Indem. Co. v. Gibson & Behman, P.C.,

No. 08-Civ-6227 (S.D.N.Y. Dec. 17, 2008) (citing

Bovis Lend Lease, LMB, Inc. v. Seasons Contracting Corp.,

No. 00-Civ9212, 2002 WL 31729693, at *3 (S.D.N.Y. Dec.⁵, 2002);

Goldberg v. Am. Home Assurance Co.,

80 A.D.2d 409, 439 N.Y.S.2d 2 (1st Dept.1981)). Some courts follow the Restatement and “recognize an additional or substitute cause of action by the insurer as a non-client beneficiary of the firm’s legal services.”

Gen. Sec. Ins. Co.,

357 F. Supp. 2d at 956 (citing

Paradigm Ins. Co. v. Langerman Law Offices, P.A.,

200 Ariz. 146, 24 P. 3d 593, 602 (2001); Restatement (Third) of the Law Governing Lawyers § 51 cmt. g (2000)).

In

General Security Insurance,

the district court identified only two jurisdictions that preclude a direct legal malpractice liability claim by an insurer against the attorney retained to represent an insured: Michigan and Texas. 357 F. Supp. 2d at 956 (citing

Atlanta Int’l Ins. Co. v. Bell,

438 Mich. 512, 475 N.W. 2d 294, 297 (1991));

Safeway Managing Gen. Agency, Inc. v. Clark & Gamble,

985 S.W. 2d 166, 168 (Tex.App.1998). In support of their motion, Defendants cite these cases and

Lavanant v. General Accident Insurance Co.,

164 A.D.2d 73, 561 N.Y.S.2d 164 (N.Y.App.Div.1990). This Court does not believe that the Florida courts would follow the minority view represented in these decisions.

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First, there are public policy reasons for allowing an insurer to pursue a legal malpractice claim against the attorney it retained to represent an insured. As the Michigan Supreme Court reasoned in

Bell: