Maryland bad faith/legal malpractice action against individual defense attorneys dismissed

In Cook v. Nationwide Insurance Company, Case No. PWG-13-882 (D. Md. Aug. 23, 2013), the Court considered a "dizzying array" of motions in an insurance bad faith case arising out of an excess judgment in a motor vehicle accident case tried in Maryland state court.  The federal district court denied the plaintiff's motion to remand, dismissed the case as against the non-diverse insurance defense attorneys who tried the underlying case, and set a schedule for limited discovery relating to the issue of whether there had been a settlement demand arguably within policy limits prior to the trial verdict.

In the underlying auto accident case, the insured had been driving while intoxicated and on a suspended license when he struck and injured the plaintiff's car, causing severe injuries to the plaintiff.  The insured's policy only had limits of $50,000.  The plaintiff brought suit in the Circuit Court for Prince George's County, Maryland, which ultimately resulted in a judgment of $892,050.52.  On the first day of trial, the Plaintiff had offered to settle for $71,000, an amount consisting of the policy limits of $50,000 and $21,000 in "trial costs."  The insurer had countered with an offer of $50,000 plus $4,000 in trial costs.  After the judgment was returned, the insured driver executed an assignment to Plaintiff of any and all rights he had against the insurer and the defense counsel in any claims he had as a result of the handling of the claim and the trial.

The plaintiff subsequently filed suit against the insurer, against the individual defense attorneys, and against their law office in the Circuit Court for Prince George's County, asserting one count of bad faith/negligence.  The defendants then removed the case to federal court, asserting that the individual defense attorneys who were residents of Maryland were fraudulently joined.  Immediately after removal, the defendants moved to dismiss.  Plaintiff then filed a motion to remand, and moved for leave to file an amended complaint.

Judge Grimm denied the plaintiff's motion to remand, on the grounds that he had failed to state any colorable claims against any non-diverse defendants, specifically, the defense attorneys.  The Court noted that nowhere did the complaint even allege that the attorney defendants had control over any decisions as to whether to settle the Plaintiff's claims, or that the defendant attorneys were even aware of the $71,000 settlement demand until after the insurer had rejected it.  The Court also rejected plaintiff's argument that he had stated a viable claim for legal malpractice, ruling that under Maryland law, claims for legal malpractice are not assignable, citing Claggett v. Dacy, 420 A.2d 1285, 1288 (Md. App. 1980).  Accordingly, the Court held that the assignment of the insured's claims for legal malpractice was invalid as a matter of law and cannot support a claim against the defendant attorneys.

The Court granted the plaintiff's motion to amend with regard to the count of bad faith only, to allow the plaintiff to allege that the insurer had the authority to pay the $21,000 in trial costs either as an expense or as a cost under the policy, and thus had an obligation to do so under the terms of the policy.  Arguably, if the $21,000 represented trial costs, then together with the $50,000 in policy limits, the $71,000 settlement demand may have been within policy limits.

With regard to the defendants' motion to dismiss, the Court noted that the defendants argued that the plaintiff's lowest settlement demand was $71,000, and that the insurer had offered to settle for $54,000, consisting of the policy limits of $50,000 and $4000 in costs.  The Court noted that neither party has pointed out any case in which an insurance company was held liable for bad faith after offering to settle at, much less above, its policy limits.

The plaintiff argued that the $71,000 offer was within policy limits because the additional $21,000 constituted "trial costs."  The Court held that plaintiff therefore alleged, "by the narrowest of margins", a plausible ground for relief.  Noting that under Maryland law, "costs" do not include the prevailing party's counsel fees, the Court set a schedule for expedited and limited discovery on the issue of what expenses are included in the $21,000 of alleged costs, and any good faith basis Plaintiff may have for believing that attorney's fees or or any other expenses are "costs" under the policy.

Interestingly, while on a motion to dismiss such evidence could not be considered by the Court, the defendants' motion to dismiss noted that there were numerous settlement offers made of the policy limits, the first being made about 70 days after the accident at issue.  However, the insurance company defendants evidently opted to withhold policy limits information until the plaintiff provided his medical records, and that appears not to have occurred until after suit was already filed.  Reading between the lines, it appears that plaintiff's counsel may have been angered at having had to incur significant trial preparation expenses before being informed that the policy limits were only $50,000.