Tennessee Supreme Court Rules Insurers May Be Held Vicariously Liable for Abuses of Retained Counsel
April, 2002
In Givens v. Mullikin, 2002 Tenn. LEXIS 153 (Tenn. 2002), the Tennessee Supreme Court recognized that an insurance company may be held vicariously liable “for the tortious acts or omissions of an attorney hired to defend an insured, if the acts or actions were directed, commanded, or knowingly authorized by the insurer” (emphasis supplied). Although the Court based its holding on agency principals, dicta within the Givens opinion suggests the true concern is one of conflicts of interest which arise when insurers exert influence over counsel that have been retained to defend policyholders. In subsequent jurisprudence, the Court has relied on the Givens holding and upheld a direct action against an insurer for interference with a business relationship. Trau-Med of America, Inc. v. Allstate Ins. Co., 71 S.W.3d 691 (Tenn. 2002).
Facts
After a 1988 traffic accident, Allstate Insurance Company retained Hal Nichols, “a highly competent and effective Memphis attorney”, to defend its insured in a lawsuit filed by Givens. After discovery had been substantially completed, Allstate replaced Mr. Nichols with the Richardson Law Firm, and discovery began anew. According to Givens, the defendant already had the information requested by the Richardson firm, and the additional discovery was purely meant to harass, cause unnecessary expense and weaken her resolve.
Givens was subjected to a second deposition which lasted eight hours and probed every medical condition she had ever experienced. Additional interrogatories were interposed totaling over two-hundred questions with sub-parts. Defendant also served approximately seventy subpoenas for records from nearly every records custodian possibly possessing records of Givens’ health or work history.
Givens filed a second suit for abuse of process. Rather than suing the Richardson firm, Givens named Allstate and its insured, alleging that each was vicariously liable for the tortious actions of the Richardson firm. Allstate moved to dismiss for failure to allege facts upon which relief could be granted. The trial court denied the motion,and the appellate court affirmed. Defendant then sought review from the Supreme Court of Tennessee.
Analysis
Judge William Barker, speaking for the Court, first noted that generally an insurer does not control “the attorney’s performance, dictate the strategy or tactics employed, or limit the attorney’s professional discretion with regard to the representation [of the insured].” Therefore, the relationship between the insurer and its attorney is that of principal to independent contractor. “[A] principal is not generally liable for the tortious acts of an independent contractor”. However, the Court recognized that an insurer can be subject to vicarious liability where it has “directed, commanded, or knowingly authorized” tortious acts of retained counsel.
The court did go on to state that it suspected that cases in which an insurer may be held liable under an agency theory “will be rare indeed,” expressly noting that it was not holding that an insurer may be held vicariously liable for the acts or omissions of its hired attorney based merely upon the existence of the employment relationship alone, or that an insurer could be held liable for acts or omissions resulting solely from the exercise of the retained attorney’s independent professional judgment. “In all cases,” the Court wrote, “a plaintiff must show that the attorney’s tortious actions were taken partly at the insurer’s direction or with its knowing authorization.”
Subsequent Application of Givens
The Tennessee Supreme Court recently applied the Givens holding in Trau-Med of America, Inc. v. Allstate Ins. Co., 71 S.W.3d 691 (Tenn. 2002). In Trau-Med, the Court permitted a suit for vicarious liability to proceed against Allstate for allegedly “directing” the litigation strategies of counsel in six matters in order to weaken a medical provider affiliated with plaintiff’s attorneys. As part of its business, Trau-Med, a physician practice management company, accepts referrals from plaintiff’s lawyers representing uninsured personal injury victims who are otherwise unable to afford medical care. Trau-Med is compensated for its services out of recovery from defendants.
Allegedly, Allstate’s agents let plaintiff’s attorneys know that Trau-Med was on its “hit list” and that claimants would become “embroiled in unnecessary and expensive litigation.” Then Allstate allegedly “directed” attorneys retained to defend its policyholders to file motions with the alleged intent to damage Trau-Med. The Court found that plaintiff had stated a cause of action against the insurer for attempting to interfere with Trau-Med’s business dealings.
Learning Point:
The growth of bad faith litigation in recent years, and its added expense to liability insurers, is difficult to ignore. The motivation behind both the bad faith jurisprudence and Givens liability is, in its simplest form, the protection and safeguarding of the attorney-client privilege from the exertion of insurer influence and power. The Givens court’s holding and language, as well as its alacrity in applying the rule in Trau-Med, should serve as a warning to insurers that the courts may look to further protect the attorney-client privilege by imposing additional “deterrents to abuse.”
Trau-Med indicates significant judicial interest in the area and will likely encourage plaintiff’s lawyers to raise this issue anew and seek to expand the rule. An insurer which limits its input into litigation decisions and focuses on the interests of the insured will be significantly insulated from Givens liability. Insurer involvement of the type alleged in Trau-Med should always be avoided.
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