The Florida Supreme Court has held that an insurer with a duty to defend and express subrogation rights had standing to bring a malpractice action against an insured’s defense counsel. Arch Ins. Co. v. Kubicki Draper, LLP, 2021 WL 2232083 (Fla. Jun. 3, 2021).
An insured accounting firm faced a malpractice lawsuit in federal court. Its professional liability insurer retained counsel to defend the suit and ultimately settled the underlying suit, but only after defense counsel did not timely raise a statute of limitations defense. The insurer maintained that the failure to raise that defense significantly increased the cost of the settlement.
The insurer later filed a malpractice action against the insured’s defense counsel, but the trial court dismissed the action on the ground that the insurer lacked standing. The intermediate appellate court affirmed.
On appeal, the Florida Supreme Court reversed. The insurer argued that it had standing to sue defense counsel because it was contractually subrogated to the insured’s rights under its insurance policy. The court agreed. Although the court acknowledged that no privity existed between the insurer and defense counsel (and instead the privity was between the counsel and the insured), the court highlighted the policy’s subrogation provision, which provided that, “to the extent of any payment under this Policy, we [the insurer] shall be subrogated to all your [the insured’s] rights of recovery therefor against any person, organization, or entity and you shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights.” The court held that “the language of the subrogation provision is clear—[the insurer] is contractually subrogated to the rights of [the accounting firm], which would include claims for legal malpractice against counsel retained to defend the insured.” Because the insured was in privity with defense counsel, the subrogation provision allowed the insurer to “step into the shoes of the insured” and bring a malpractice action against defense counsel.