ATTORNEYS FOR APPELLANTS ATTORNEY FOR APPELLANTS ATTORNEYS FOR APPELLEE
QUERREY & HARROW, LTD., SANDERS PIANOWSKI, LLP AND TRANSCONTINENTAL INS. CO.
JAMES N. KOSMOND, AND ROBERT A. SANDERS
GRETCHEN CEPEK Andrew A. Crosmer
Edward W. Hearn Rubino, Ruman, Crosmer, Smith,
Robert D. Brown Johnson & Bell, LTD Sersic & Polen
Spangler, Jennings & Dougherty, P.C. Highland, Indiana Dyer, Indiana
Merrillville, Indiana
Gary A. Grasso
James J. Stamos/George M. Hoffman Grasso, Bass & Williams, P.C.
Stamos & Trucco, LLP Burr Ridge, Illinois
Chicago, Illinois
______________________________________________________________________________
In the
Indiana Supreme Court FILED
May 13 2008, 3:30 pm
_________________________________
CLERK
No. 45S03-0708-CV-307 of the supreme court,
court of appeals and
tax court
QUERREY & HARROW, LTD.,
JAMES N. KOSMOND, GRETCHEN CEPEK, SANDERS PIANOWSKI, LLP., AND
ROBERT A. SANDERS, INDIVIDUALLY,
Appellants (Defendants below),
v.
TRANSCONTINENTAL INSURANCE COMPANY,
Appellee (Plaintiff below).
_________________________________
Appeal from the Lake Superior Court, No. 45D05-0401-CT-264
The Honorable Robert A. Pete, Judge
_________________________________
On Transfer from the Indiana Court of Appeals, No. 45A03-0601-CV-36
_________________________________
May 13, 2008
Dickson, Justice.
Addressing an issue of first impression in Indiana, the Court of Appeals holds that an ex-
cess insurer may not bring an action for legal malpractice against the insured's attorneys. Querry
& Harrow v. Transcontinental Ins. Co., 861 N.E.2d 719 (Ind. Ct. App. 2007). We agree and now
adopt this opinion as to all issues addressed. Ind. Appellate Rule 58(A)(1).
The principal argument addressed by the Court of Appeals is whether or not to extend the
availability of equitable subrogation to excess insurance policy carriers to enable them to sue the
attorneys of its insured for legal malpractice. Emphasizing the paramount importance of a law-
yer's duties of client loyalty and maintaining client confidentiality, the court considers Indiana
decisions concerning the doctrine of equitable subrogation and the prohibition against assign-
ments of legal malpractice actions. It also explores the decisions of various other jurisdictions
that have considered the same or related issues. We find that the analysis and conclusion of the
Court of Appeals are sound and proper.
In a secondary issue, the Court of Appeals finds no material issue of fact existed indicat-
ing an attorney-client relationship between the insured's attorneys and the excess insurer. The
court finds that communications between the insured's attorneys and the excess insurer fell "far
short" of implying that the attorneys consented to represent their client, the insured, and the in-
sured's excess insurer. We agree.
We adopt the opinion of the Court of Appeals. This cause is remanded for the entry of
summary judgment in favor of the appellants-defendants.
Shepard, C.J., and Rucker, J., concur. Boehm, J., concurs in result. Sullivan, J., dissents with
separate opinion.
2
Sullivan, Justice, dissenting.
In this case, an insurance company that had paid $3,740,000 as part of a settlement of a
personal injury claim sued the law firms and lawyers for its insured on a theory of equitable sub-
rogation, contending that the law firms and lawyers had committed professional negligence by
not timely raising a non-party defense to the claim. The trial court denied the defendant law
firms’ and attorneys’ motions for summary judgment, but the Court of Appeals reversed. This
Court has decided to adopt the opinion of the Court of Appeals.
There are a number of aspects of this case that suggest to me that the plaintiff insurance
company would be unlikely to prevail — the size of the settlement compared to the estimated
value of the claim, the likelihood of sound strategic reasons for not raising a non-party defense,
etc. But I do not agree with my colleagues that equitable subrogation is never available to enable
an insurer to recover for losses it incurs that are caused by the malpractice of its insured’s attor-
ney.
“‘One who asserts a right of subrogation must step into the shoes of, or be substituted for,
the one whose claim or debt he has paid and can only enforce those rights which the latter could
enforce.’ . . . Consequently, in order for the insurer to assert a right of subrogation, (1) the in-
sured must have a cause of action against the purported tortfeasor, and (2) it must be equitable to
allow the insurer to enforce a right of subrogation.” Nat’l Union Ins. Co. v. Dowd & Dowd,
P.C., 2 F. Supp. 2d 1013, 1021 (N.D. Ill. 1998) (quoting and citing Dix Mut. Ins. Co. v. LaFram-
boise, 597 N.E.2d 622, 624-25 (Ill. 1992)). The plaintiff insurance company’s relationship to the
defendant law firms and lawyers tracks these elements. Its insured would clearly be entitled to
assert a claim that these defendants committed malpractice. The question, then, is not whether
the elements of an equitable subrogation claim are present here but whether, as a matter of pol-
icy, this State should recognize equitable subrogation under these circumstances.
While I acknowledge that the majority of states that have looked at this question have
reached the same result as the Court does today, some have not. In the National Union Insurance
Co. case quoted above, National Union was the excess insurance carrier for Schneider National
Carriers, Inc. 2 F. Supp. 2d at 1015. A Schneider driver was in a collision that resulted in a law-
suit against Schneider and the driver. Schneider retained Dowd & Dowd for the defense. A jury
awarded the plaintiff a judgment that exceeded Schneider’s self-insurance, and National Union
paid the remainder of the judgment. National Union then brought a legal malpractice claim
against Dowd & Dowd. Id. The United States District Court for the Northern District of Illinois
held that under Illinois law, National Union could pursue its legal malpractice claim against
Dowd & Dowd under a theory of equitable subrogation. Id. at 1022. In so holding, the court
considered general equitable principles and broader policy concerns as to the proper allocation of
the cost of attorney malpractice, see id. at 1023-24 (“Malpracticing attorneys should not enjoy a
windfall merely because the insured contracted for excess insurance coverage.”).
The Michigan Supreme Court has also applied equitable subrogation to similar facts. In
Atlanta International Insurance Co. v. Bell, Atlanta International Insurance filed a legal malprac-
tice action against Bell & Hertler. 475 N.W.2d 294, 296 (Mich. 1991). Bell & Hertler had been
hired by Atlanta International to defend Security Services, Inc., for whom Atlanta International
was the primary insurer, against a lawsuit. A judgment was entered against Security Services
that Atlanta International was required to pay. Id. Attorney Bell later admitted that Bell & Hert-
ler should have raised comparative negligence as a defense. Id. at n.2. After holding that no at-
torney-client relationship existed between Atlanta International and Bell & Hertler, the court
held that Atlanta International could pursue a claim under an equitable subrogation theory, which
the court saw as a more flexible solution. Id. at 297-98. Of equitable subrogation, the majority
wrote:
The doctrine is eminently applicable under the facts of this case. A rule of law
expanding the parameters of the attorney-client relationship in the defense coun-
sel-insurer context might well detract from the attorney’s duty of loyalty to the
client in a potentially conflict-ridden setting. Yet to completely absolve a negli-
gent defense counsel from malpractice liability would not rationally advance the
attorney-client relationship. Moreover, defense counsel’s immunity from suit by
the insurer would place the loss for the attorney’s misconduct on the insurer. The
only winner produced by an analysis precluding liability would be the malpractic-
ing attorney. Equity cries out for application under such circumstances.
Id. at 298.
2
For the reasons discussed in these cases, I would allow an insurer to bring an action under
equitable subrogation. (In a similar vein, I note that Judge Tinder predicted that our Court would
allow an excess insurer to bring an action against a primary insurer under equitable subrogation
for negligent defense of a claim against the insured. Phico Ins. Co. v. Aetna Cas. and Sur. Co. of
Am., 93 F. Supp. 2d 982, 990 (S.D. Ind. 2000).)
Any claim that an insurance company would bring against its insured’s attorney would
have to be prosecuted without access to any confidential client information of any kind whatso-
ever. But I would not close the courthouse door to an insurance company that is willing and able
to do so.
3