221 Cal. App. 4th 890
Cal. Ct. App.2013Background
- Modern Service issued an auto policy to insured Flora Cuison; Cuison was sued after an accident and a statutory $100,000 offer to compromise expired without response in 2005.
- Borton Petrini LLP (Borton) was retained to defend Cuison and billed Modern Service (via claims administrator Country); Borton allowed the offer to lapse.
- Modern Service’s California insurance business and related liabilities (including the Cuison policy) were transferred through a series of corporate transactions to White Mountains (via Mutual Service and Stockbridge); payments to Borton shifted accordingly.
- White Mountains ultimately paid a large settlement and sued Borton for legal malpractice, alleging Borton’s failure to accept the policy-limits offer caused excess liability and defense costs.
- The trial court held the malpractice cause of action accrued while Modern Service was the client and concluded White Mountains had only an assigned claim; it ruled malpractice claims are not assignable under California law and entered judgment for Borton.
- The Court of Appeal reversed, adopting a narrow exception to California’s general rule against assignment where a malpractice claim is incidental to a larger commercial transfer of assets and liabilities to a successor insurer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether White Mountains has standing to sue for malpractice after acquiring Modern Service’s business | White Mountains: it succeeded to Modern Service’s rights and liabilities in the corporate transfer, including the malpractice claim; assignment was incidental to a broader asset transfer | Borton: malpractice claims are nonassignable as a matter of California public policy; therefore White Mountains lacks standing | Held: Standing exists — a narrow exception applies when claim transfer is incidental to a larger commercial transfer to a successor that assumed assets/liabilities and was not a former adversary |
| Whether public policy reasons that bar assignment apply when insurer-client communications were via a third-party claims administrator | White Mountains: communications through a claims administrator reduce the personal/confidential nature concerns supporting nonassignability | Borton: same policy concerns apply regardless of claims administration | Held: Policy concerns are not implicated in these facts (tripartite insurer-insured-attorney relationship via administrator) |
| Whether assignment here created a marketplace for malpractice claims or involved a ‘‘naked’’ claim | White Mountains: the malpractice claim was part of a comprehensive transfer of an insurer’s book of business, not sold as a standalone commodity | Borton: any assignment of malpractice claims risks commercialization and increased litigation | Held: No commerce in naked claims occurred; the malpractice cause was incidental to the transferred business and not a distinct tradable commodity |
| Whether involuntary or successor transfers (e.g., bankruptcy/creditor assignments) are distinguishable | White Mountains: successor-in-interest transfers to an insurer that assumed related liabilities differ from involuntary or market assignments | Borton: prior cases disallow assignments including involuntary ones; the result should apply here | Held: Court distinguishes this fact pattern from involuntary or adversarial assignments (which remain disfavored); narrow exception applies to commercial successor transfers |
Key Cases Cited
- Goodley v. Wank & Wank, Inc., 62 Cal.3d 389 (Cal. 1976) (seminal California decision barring assignment of legal malpractice claims on public policy grounds)
- Jackson v. Rogers & Wells, 210 Cal.App.3d 336 (Cal. Ct. App. 1989) (refused to allow assignment where claims implicated attorney-client confidentiality and could cause mischief)
- Kracht v. Perrin, Gartland & Doyle, 219 Cal.App.3d 1019 (Cal. Ct. App. 1990) (extended nonassignability to involuntary assignments to former adversaries)
- Fireman’s Fund Ins. Co. v. McDonald, Hecht & Solberg, 30 Cal.App.4th 1373 (Cal. Ct. App. 1994) (insureds’ insurers precluded from proceeding by subrogation absent statutory authorization)
- Baum v. Duckor, Spradling & Metzger, 72 Cal.App.4th 54 (Cal. Ct. App. 1999) (barred bankruptcy-trustee/creditor assignments of corporate malpractice claims under California policy)
- Richter v. Analex Corp., 940 F.Supp. 353 (D.D.C. 1996) (allowed assignment where successor assumed liabilities in an asset purchase and claim was not sold to a stranger)
- Cerberus Partners, L.P. v. Gadsby & Hannah, 728 A.2d 1057 (R.I. 1999) (permitted malpractice claim assignment as part of a larger commercial loan acquisition transferring attendant rights and duties)
- Learning Curve Int’l, Inc. v. Seyfarth Shaw LLP, 911 N.E.2d 1073 (Ill. App. 2009) (found exception where malpractice claim transfer was a minor part of a merger/escrow arrangement among parties with aligned interests)
- St. Luke’s Magic Valley Reg’l Med. Ctr. v. Luciani, 293 P.3d 661 (Idaho 2013) (held assignment valid where successor assumed assets and liabilities and policy rationales for the general bar did not apply)
- Fifield Manor v. Finston, 54 Cal.2d 632 (Cal. 1960) (prior California precedent limiting subrogation of nonassignable claims)