150 N.E.3d 192
Ind. Ct. App.2020Background
- On Feb. 18, 2016, Nolan Clayton (permissive driver) crashed Gregory Smith’s truck; Smith was severely injured and later obtained a $21 million judgment against Clayton (jury apportioned fault).
- Progressive (Smith’s insurer) reserved rights and retained Metzger Rosta, LLC to defend Clayton; Progressive also filed a declaratory judgment action claiming no duty to defend or indemnify Clayton under the policy.
- Indiana Court of Appeals held Progressive had no contractual duty to defend Clayton (Progressive Se. Ins. Co. v. Smith).
- Clayton executed an irrevocable assignment to Smith of any assignable claims he had against Progressive and Metzger in exchange for Smith not pursuing Clayton’s personal assets.
- Smith sued Progressive (as assignee) for bad faith, vicarious liability for Metzger’s alleged malpractice, breach of duty to defend, negligent claim handling/selection of counsel; the trial court dismissed Smith’s Second Complaint and denied joinder/consolidation.
- Smith appealed; the court affirmed, holding the malpractice-based claims are not assignable and Smith failed to plead actionable breach of duty to defend or bad faith facts, and joinder/consolidation rulings were not an abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Vicarious liability for counsel (malpractice theory) | Smith: Progressive is vicariously liable for Metzger’s conduct which produced the large judgment; assignment allows Smith to pursue those claims. | Progressive: Claims amount to legal malpractice/vicarious liability for attorney conduct, which are not assignable to a third party; Smith lacks privity. | Dismissed: Court treats claim as legal malpractice derivative and unassignable under Indiana law; Smith cannot sue Progressive on that theory. |
| Breach of duty to defend / voluntarily assumed duty | Smith: Even if no contractual duty, Progressive voluntarily retained counsel and must have provided competent defense; breach of that voluntary duty supports liability. | Progressive: It had no contractual duty to defend Clayton (policy exclusion); absent a contractual duty, gratuitously assumed-duty liability is disfavored and requires specific extreme facts. | Dismissed: Court finds no contractual duty (already adjudicated) and Smith pleaded no specific facts showing an assumed-duty tort or negligent performance. |
| Bad faith (insurance duty of good faith) | Smith: Progressive acted in bad faith by directing counsel, withholding documents, and acting for its own interests to Clayton’s/Smith’s detriment. | Progressive: Smith failed to plead facts showing dishonest purpose, intentional wrongdoing, or one of the recognized Erie bad-faith categories. | Dismissed: Court finds allegations conclusory and insufficient to show bad faith or conscious wrongdoing; claim fails. |
| Joinder of parties and consolidation of actions | Smith: Clayton and Metzger should be joined or the malpractice action consolidated because claims arise from same events and Assignment splits related claims. | Progressive: Clayton assigned all rights to Smith; malpractice claims are unassignable; consolidation/joinder unnecessary and would be improper. | Denied: Trial court did not abuse discretion—Clayton had no remaining interest to mandate joinder; malpractice claims cannot be joined/assigned; no prejudice shown to justify consolidation. |
Key Cases Cited
- Picadilly, Inc. v. Raikos, 582 N.E.2d 338 (Ind. 1991) (legal malpractice claims are not assignable; public policy disfavors merchandising malpractice causes of action)
- Querrey & Harrow, Ltd. v. Transcontinental Ins. Co., 885 N.E.2d 1235 (Ind. 2008) (third-party non-client cannot sue insurer vicariously for counsel’s malpractice where malpractice claims are unassignable)
- Progressive Se. Ins. Co. v. Smith, 140 N.E.3d 292 (Ind. Ct. App. 2020) (declaratory-judgment ruling that Progressive had no duty to defend Clayton under policy exclusion)
- Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515 (Ind. 1993) (insurer’s implied duty of good faith and the Erie bad-faith categories)
- Rosby Corp. v. Townsend, Yosha, Cline & Price, 800 N.E.2d 661 (Ind. Ct. App. 2003) (discussing assignability limits for legal malpractice claims)
- Yost v. Wabash College, 3 N.E.3d 509 (Ind. 2014) (judicial imposition of liability for gratuitously assumed duties is disfavored and requires extreme circumstances)