Law Firm Loses Outside Counsel Billing Claim

DALLAS (CN) - An insurer can select defense counsel for Texas law firm Coats, Rose, Yale, Ryman & Lee as it fights legal malpractice claims, the 5th Circuit ruled.

Navigators Specialty Insurance Co. insures Coats Rose, which was sued by a former client who sought declaratory judgment for legal malpractice and breach of fiduciary duty.

Though Navigators agreed to provide defense for Coats Rose under a reservation of rights, Coats Rose took issue with a provision of the policy that gives the insurer the right to select defense counsel.

Claiming that any attorney Navigators selected would have a conflict of interest, it retained counsel independently. The firm sued Navigators in Dallas last year when the insurer refused to cover the costs of that attorney.

After Coats Rose moved for partial summary judgment on the conflict of interest issue, Navigators cross-moved for summary judgment, claiming that it has the exclusive right to select counsel.

U.S. District Judge Sidney Fitzwater sided with the insurer in November 2011, and a three-judge panel with the New Orleans-based appellate court affirmed Monday.

"For substantially the same reasons set forth in the District Court's opinion ... we conclude that the district court committed no error warranting reversal," the unsigned opinion states.

In ruling for the insurer, Fitzwater had said: "It is not possible for an attorney selected by Navigators to control a coverage issue by conceding any part of the declaratory judgment action."

"Navigators has the same incentive as Coats does to contest the declaratory judgment action," the 11-page opinion stated. "The malpractice plaintiffs seek a declaration establishing the validity of many of the factual and legal issues underlying their malpractice and breach of fiduciary duty claims. If the state court rules in the malpractice plaintiffs' favor, this would increase the likelihood, if not resolve definitively, Coats's liability on the malpractice and breach of fiduciary duty claims and, in turn, Navigators' obligation to pay under the policy."

Kinkeade concluded that both the law firm and insurer have the same incentive to defeat both claims in the suit, and that Navigators has no preference as to which claim has a more preferential finding of liability because the policy covers compensatory damages for both.

"Because a declaratory judgment action cannot lead to independent liability but can only affect liability under the other two claims - both of which are equally covered by the policy - the result of the declaratory judgment action has no bearing on the coverage issue," Kinkeade wrote. "The court therefore holds that the declaratory judgment action in the underlying litigation does not create a conflict of interest that confers on Coats the right to select its counsel."

Houston-based Coats Rose has six offices in Texas and Louisiana. The firm represents clients in construction, labor, real estate, public finance, banking, insurance and governmental relations matters, according to its website.

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