According to the court, shortly before trial on the malpractice claims against Buchanan, Leonard wrote to Buchanan’s insurer advising the insurer to settle. Leonard revealed to the insurer that, prior to the malpractice lawsuit, Buchanan admitted to bankruptcy fraud. Buchanan’s insurer withdrew coverage based upon Leonard’s disclosure of Buchanan’s admission of fraud.
Buchanan sued his insurer for coverage and won. Buchanan then sued Leonard for malpractice, arguing that Leonard’s disclosure of Buchanan’s admission of fraud was a breach of loyalty. Leonard asserted that the litigation privilege immunized his statements to Buchanan’s insurer.
Litigation Privilege Not Absolute
An attorney is absolutely privileged to publish defamatory statements before or during the course of a judicial proceeding if the attorney participates as counsel and the statement has some relation to the proceeding. Courts have described the litigation privilege “as indispensable to the due administration of justice, as its purpose is to allow both lawyers and litigants the ability to speak and write freely without restraint for fear of an ensuing tort action,” says Karen P. Randall, Roseland, NJ, cochair of the ABA Section of Litigation’s Professional Liability Litigation Committee Attorneys’ Liability Subcommittee.
The litigation privilege “applied very broadly to nearly all tort claims,” notes Randall. Buchanan emphasizes, however, thatan attorney is prohibited from asserting the litigation privilege as an affirmative defense to a malpractice claim “based upon statements the attorney made in the course of a judicial proceeding where . . . it is alleged that the attorney breached his duty to the client by failing to adhere to accepted standards of legal practice.”
Buchanan relied on a decision in a similar California malpractice claim and a prior New Jersey case holding that the litigation privilege does not protect attorneys from violations of the disciplinary rules. “The litigation privilege should not apply to a client’s allegations of ethical misconduct against his or her attorney. The privilege is not absolute,” says Sherilyn Pastor, Newark, NJ, cochair of the Section of Litigation’s Insurance Coverage Litigation Committee.
Section leaders agree that the litigation privilege should broadly safeguard lawyers from most potential claimants, but should yield to claims by attorneys’ former clients. “The litigation privilege appropriately ensures that an attorney’s duty of effective and vigorous representation will not be compromised by concerns that entirely professional conduct in a judicial proceeding will expose the attorney to future litigation,” notes Pastor. “[A]s long as an attorney is acting in good faith and without an intent to harm,” courts should apply the litigation privilege broadly, adds Randall.
Lawyer Breached Confidentiality by Disclosure to Insurer
While Buchanan is unlikely to substantially change attorneys’ behavior, the case illuminates the dangers of the tripartite relationship among a lawyer sued for malpractice, the lawyer’s insurer, and the defense counsel selected and paid for by the insurer. Of the three, only the relationship between the insured lawyer and his or her defense counsel is an attorney-client relationship. Retained defense counsel must balance fulfilling their contractual obligations to insurance companies, such as keeping insurers fully informed about significant developments in the case, with fulfilling their obligations to clients, such as maintaining attorney-client privilege.
Appointed counsel “understand their professional responsibilities to their clients, and that those obligations are not diminished by the fact that their client is insured,” adds Pastor. Insurer-retained “defense attorneys should use care in reporting circumstances of client’s illegal or unethical conduct which may take a subject claim out of coverage, or face the risk of exposing himself to a claim for legal malpractice,” says Randall.
Unfortunately, this scenario may arise again if lawyers fail to heed Buchanan’s warning. “The potential for an actual or apparent conflict of interests which arises where defense attorneys obtain information which may take a claim out of coverage occurs quite commonly,” states Randall. “Although defense counsel’s ethical obligations run to the policyholder client, appointed defense counsel may—whether consciously or not—put the interests of the insurer that pays its bills and sends it work ahead of those of its policyholder client,” concludes Pastor.
Joseph Callanan is an associate editor for Litigation News.