No Implied-In-Fact or Quasi Contract Exists between Law Firm and Client's Excess Insurer
The District of Columbia Court of Appeals has recently determined that attorneys may not recover their fees from someone other than the client who hired them. Jordan Keys & Jessamy, LLP v. St. Paul Fire and Marine Ins. Co., 870 A.2d 58 (D.C. Ct. App. 2005).
In Jordan Keys, a hospital was sued for medical malpractice. The hospital had a $1 million self-insured retention (SIR) under an excess liability insurance policy. The hospital retained defense counsel with whom it executed a retainer agreement. After the law firm had accumulated more than $67,000 in fees, the hospital sought bankruptcy protection. This automatically stayed the medical malpractice lawsuit and the attorneys were unsecured creditors with regard to their unpaid fees. The bankruptcy court later lifted the stay when the medical malpractice plaintiffs agreed to pursue recovery only from the hospital's excess insurer. The excess insurer then took over the hospital's defense and immediately replaced the hospital's defense counsel with counsel of its own choosing. The excess insurer also wanted the hospital's original defense firm to turn over its complete file. The law firm eventually turned over the non-work-product portion of the file without payment, and sued the insurer for payment of its fees, claiming breach of implied-in-fact contract and, alternatively, unjust enrichment (quasi-contract).
The insurer moved to dismiss on the ground that the plaintiff law firm had an express retainer agreement with the hospital and had filed a proof of loss in the bankruptcy court so there could be no breach of contract or unjust enrichment where it was undisputed that the law firm's rights were governed by its express contract with the hospital. The trial court granted the motion to dismiss.
The appellate court affirmed, first addressing plaintiff's implied-in-fact contract theory. An implied-in-fact contract is a true contract requiring all of the elements of an express contract. The only difference between an implied-in-fact contract and an express contract is that the former is not in writing or fully expressed orally; it is instead inferred from conduct. For one to recover under an implied-in-fact contract, the following requirements must be met: 1) valuable services rendered; 2) for the benefit of the person sought to be charged; 3) which services were accepted by the person sought to be charged, used and enjoyed by him or her; and 4) under such circumstances as reasonably notified the person sought to be charged that the person rendering the services expected to be paid by him or her.
Here, the court found it unnecessary to determine whether plaintiff had satisfied the first three elements, because it had not satisfied the fourth. There was no indication that the plaintiff law firm had ever notified the excess insurer that it expected to be paid by the excess insurer. To the contrary, the contract with the hospital expressly stated that payment would be made by the hospital. Further, the filing of the proof of claim in the bankruptcy action evidenced an expectation by the firm to still be paid by the hospital even though it would likely not recover its full fee.
The appellate court likewise rejected plaintiff's unjust enrichment theory. Unjust enrichment is a quasi contract, i.e. a legal fiction designed to provide a contract remedy where, under the circumstances, equity and justice would warrant a recovery. The excess insurer argued – and the appellate court agreed – that where there is an actual express contract – such as that between the plaintiff law firm and the hospital – the principals of quasi contract and unjust enrichment do not apply. The appellate court then rejected the law firm's argument that the excess carrier should pay its fees because the firm was concurrently representing the interests of both the hospital and the excess insurer because the excess insurer had a stake in the defense in the event of a verdict in excess of $1 million. “[T]he hospital's bankruptcy significantly altered the legal terrain,” the court wrote. “[Plaintiff] had expected to be fully compensated by the Hospital, and its client's bankruptcy shattered these expectations. Nevertheless, in the absence of some unanticipated and unjust enrichment of [defendant], the loss resulting from the Hospital's inability to meet its obligations must be borne by the party that contracted with the Hospital, namely, [plaintiff].”
First, an express contract will trump quasi contract equitable claims. And second, if you are an excess carrier, do not enter into any agreements with defense counsel who you do not expect to use in the event that the underlying SIR or underlying insurance exhausts.•