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February 13, 2012

Legal Update
William L. Boesch

Appeals Court: Insurer protected from liability for conduct of its lawyer in subrogation case

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A recent decision of the Massachusetts Appeals Court has extended the protection afforded to insurers against potential liability based on the conduct of the outside lawyers they hire.

In Sandman v. Quincy Mutual Fire Ins. Co.,1 a divided panel of the Court rejected a homeowner’s claim against her insurer after it pursued its own subrogated claims against a third-party tortfeasor while the statute of limitations expired on the homeowner’s personal claims. The homeowner claimed that the lawyer for the insurer misled her about handling her claims against the tortfeasor, and failed to protect her interests. The Appeals Court held that because the homeowner claimed she had an attorney-client relationship with the lawyer, the case was governed by Herbert A. Sullivan, Inc. v. Utica Mutual Ins. Co.,2 which protects an insurer from vicarious liability for malpractice by a lawyer the insurer appoints to represent an insured under a liability policy. Thus, the Court held, the claim against the insurer here was properly dismissed.

The case arose from an incident in March 2004, in which a heating-oil truck’s delivery line burst while fuel was being pumped into homeowner Elaine Sandman’s basement. Her homeowner’s insurer, Quincy Mutual, paid for the clean-up costs, and hired attorney Frank Fragomeni to pursue a subrogation action against the delivery company. Because Quincy Mutual’s policy did not provide coverage for damage to Sandman’s personal property, she had her own potential claim against the delivery company.

According to Sandman’s allegations, Fragomeni contacted her to talk about the case, and led her to believe that Quincy Mutual had asked him to handle her personal claims as well—an impression he continued to convey over the ensuing years as he and Sandman worked together on the case. But Fragomeni later settled the insurer’s subrogated claims without obtaining compensation for Sandman, at a point when the statute of limitations had lapsed on any action she might have brought against the delivery company. Fragomeni then took the position that he had only ever represented Quincy Mutual, and indeed could not have represented Sandman because her interests were in conflict with the insurer’s.

Sandman sued both Fragomeni and Quincy Mutual for, among other things, malpractice and misrepresentation. While the Appeals Court decision suggests that her pleadings may have been less than precisely clear, Sandman appears to have claimed that if, on the one hand, the insurer indeed authorized Fragomeni to represent Sandman’s interests as well as its own, then the insurer thereby assumed liability for Fragomeni’s subsequent negligent handling of Sandman’s claim, which took place within the scope of his work as Quincy Mutual’s lawyer. On the other hand, if the insurer did not authorize Fragomeni to represent her, or if his role as the insurer’s attorney indeed precluded him from also representing Sandman, then his statements to the contrary were misrepresentations made within the scope of his work on the insurer’s behalf, for which it should likewise be vicariously liable.

Both the superior court and the majority of the Appeals Court panel concluded that neither theory stated a viable claim against Quincy Mutual. As noted, the Appeals Court began with Sandman’s claim—one the parties and the Court accepted as adequately pleaded—that she formed an attorney-client relationship with Fragomeni, making him potentially liable for malpractice in failing to protect her interests. Assuming such a relationship existed, the Appeals Court reasoned, then in performing his work for Sandman, Fragomeni owed her exclusive duties of loyalty and care, making him not an agent but an independent contractor with respect to Quincy Mutual, and insulating the insurer from vicarious liability for the lawyer’s negligence, under Herbert A. Sullivan, Inc. v. Utica Mutual Ins. Co.

As the dissent pointed out, however, the Court gave little attention to Fragomeni’s undisputed simultaneous role as the attorney for Quincy Mutual in pursuing its subrogated claims—a relationship that did not exist between the insurer and lawyer in Sullivan. The majority emphasized that there was no allegation that Fragomeni was the insurer’s employee, or that the insurer sought to exercise any control over Fragomeni’s “performance of his professional duties in the representation of Sandman,” or that it “directed, commanded, or knowingly authorized the acts or omissions of Fragomeni.” The dissent, on the other hand, viewed Sandman’s allegations as sufficient to establish that Fragomeni at all times acted with the actual authority of Quincy Mutual and within the scope of his role as its counsel, and on this basis found the case distinguishable from Sullivan.

The Appeals Court’s resolution of Quincy Mutual’s potential liability left Sandman free to continue pursuing her claims against Fragomeni, and for this reason the fact that the dispute with the insurer went as far as it did may be anomalous. The case certainly provides an object lesson for lawyers in Fragomeni’s not-uncommon position as to the importance of expressly defining one’s role and relationship to insurer and insured. Whether the decision leaves any room for potential claims against insurers working through lawyers with their insureds—claims based on different facts, or better pleading—remains open to question.

For more information, please contact William L. Boesch or your attorney contact at SRBC.

This Alert was prepared for the clients and friends of Sugarman, Rogers, Barshak & Cohen, P.C. It is provided for educational and informational purposes only and is not a substitute for professional advice on your specific legal situation.

1 51 Mass.App.Ct. 188 (Jan. 25, 2012). Justices Grasso and Kantrowitz were in the majority, and Justice Brown dissented.

2 439 Mass. 387 (2003).