ACE American Insurance v. Sandberg, Phoenix & Von Gontard, PC.
900 F. Supp. 2d 887
S.D. Ill.2012Background
- Two insurers filed a legal malpractice suit against Sandberg, Phoenix & Von Gontard and two of its lawyers for defense failures in a state court products liability case (Brough v. Safariland).
- The Brough case involved injuries from a police raid; a sanctions order found defense counsel’s discovery violations and struck pleadings.
- Plaintiffs allege the sanctions and defense failures caused Safariland to settle for inflated amounts; insurers seek subrogation recovery and a direct legal malpractice claim.
- The amended complaint asserts conventional subrogation claims (Counts I–II), equitable subrogation claims (Counts III–IV), and a direct malpractice claim (Count V) by Federal.
- Phoenix moved to dismiss under Rule 12(b)(6) arguing lack of contractual right, lack of standing for inequitable subrogation, and lack of a direct malpractice claim under Missouri/Illinois law.
- The court denied dismissal, analyzing choice of law, subrogation theories, and the plausibility of the claims
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether conventional subrogation claims are plausibly pled without attaching the full policies | ACE and Federal pled contractual rights and relevant policy provisions | Phoenix requires attachment of full policies to verify coverage and exclusions | Counts I–II survive 12(b)(6) despite lack of attached policies |
| Whether equitable subrogation claims by excess/umbrella insurers are viable | Illinois law would recognize equitable subrogation to prevent injustice | Illinois would not recognize such claims or would apply public policy limits | Counts III–IV survive; Illinois has the most significant relationship and would recognize equitable subrogation by ACE/Federal |
| What choice of law governs equitable subrogation claims | Illinois law should apply under most significant relationship test | Missouri/other states have competing theories | Illinois law applies to equitable subrogation claims against Phoenix |
| Whether Federal can bring a direct legal malpractice claim against Phoenix | Illinois law recognizes direct malpractice claims by a primary insurer against defense counsel | Could be barred if Federal is not a true primary insurer due to self-insured retention | Count V survives 12(b)(6) as facially plausible; resolution on the merits later |
Key Cases Cited
- National Union Ins. Co. v. Dowd & Dowd, 2 F.Supp.2d 1013 (N.D. Ill. 1998) (recognized equitable subrogation against defense attorneys by an excess insurer)
- TIG Ins. Co. v. Giffin Winning Cohen & Bodewes, P.C., 444 F.3d 587 (7th Cir. 2006) (attorney malpractice claims may be pursued by subrogation)
- Querrey & Harrow, Ltd. v. Transcontinental Ins. Co., 885 N.E.2d 1235 (Ind. 2008) (excess insurer’s right to equitable subrogation under Indiana law)
- Learning Curve International, Inc. v. Seyfarth Shaw, LLP, 392 Ill.App.3d 1068 (Ill. App. 2009) (discusses assignment vs. subrogation for legal malpractice claims)
- Dix Mut. Ins. Co. v. LaFramboise, 149 Ill.2d 314, 597 N.E.2d 622 (Ill. 1992) (subrogation origins in equity; right arises by payment)
- Neal v. Baker, 194 Ill.App.3d 485, 551 N.E.2d 704 (Ill. 1990) (attorney-client fiduciary duties; limitations on nonclients)