Transfer of Malpractice Claims? Sometimes…
Many states do not permit the assignment of legal malpractice claims. This anti-assignment rule is based on the well-rooted policy that legal malpractice claims are uniquely personal and therefore cannot be assigned. Since malpractice claims typically involve the nature of the attorney’s duty to the client and the confidentiality of the attorney-client relationship, the theory goes that malpractice claims should not be subject to assignment out of fear of creating a “market” for these claims to the highest bidder. A recent decision suggests that there may be at least one exception to this rule.
In White Mountains Reinsurance Company of America v. Borton Petrini, LLP, the California Appeals Court considered this issue and created a “narrow” exception. The plaintiff, White Mountains Reinsurance Co. sued a law firm retained to represent an insured. White Mountains alleged that the firm failed to accept a settlement offer that was well below the full verdict value of the case. However, White Mountains did not retain the law firm. Rather, the firm was retained by a prior insurer, Modern Service Insurance Company, which was purchased by White Mountains.
In its defense, the firm argued that the suit was improper because it was not hired by White Mountains and therefore the claim constituted an improper assignment of a legal malpractice claim. The appellate court disagreed and held that White Mountains had standing to bring the suit. Central to its ruling was the fact that White Mountains had acquired the prior insurer’s entire book of insurance business. The court held that while a legal malpractice claim is not typically assignable, an action is transferable when the assignment is incidental to a larger commercial transfer of assets, rights, obligations and liabilities between insurance companies.
This case provides for a narrow exception to the general anti-assignment rule under a particular set of facts.