Plaintiff excess insurer appealed a judgment from the Superior Court of Alameda County (California), which sustained a demurrer to its complaint against defendant claims administrator alleging causes of action for negligence, breach of contract, negligent misrepresentation, and subrogation. The parties were counseled by a corporate attorneys for the civil litigation.
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Overview
The excess insurer issued an excess workers’ compensation policy. The insured’s contract with its claims administrator, which contained a general assignment clause, authorized the claims administrator to investigate and pay claims and required it to notify the excess insurance carrier when the excess policy required such notice. Against the recommendation of its examining doctor, and without accurately notifying the excess insurer, the claims administrator authorized surgery for a former employee. The surgery resulted in permanent injury to the employee and consequent expenses above the excess insurance threshold. The court noted that amendment after a demurrer was not necessary to preserve a cause of action for review. The court held that the claims administrator had a duty of care to the excess insurer under the exceptional circumstances of the case. The negligent misrepresentation claim was properly dismissed because reliance was inadequately pleaded. The excess insurer was a third party beneficiary of the claims administration contract under Civ. Code, § 1559. Equitable subrogation was pleaded sufficiently, and the general assignment clause did not preclude subrogation.
Outcome
The court affirmed the dismissal of the cause of action for negligent misrepresentation, reversed in all other respects, and remanded for further proceedings.
Procedural Posture
Plaintiff clients appealed a decision from the Superior Court of Los Angeles County (California), which entered summary judgment for defendant attorneys in plaintiffs’ malpractice action. The trial court held that plaintiffs’ action was barred by the two-year statute of limitations under Cal. Civ. Proc. Code § 339.
Overview
A trial court granted summary judgment to defendant attorneys on malpractice claims on the basis of the two-year statute of limitation under Cal. Civ. Proc. Code § 339. The inapplicability of the discovery rule to legal malpractice precluded a finding of defendants’ liability because plaintiff clients failed to prove that defendants were liable for the primary attorney’s misrepresentations that resulted in plaintiffs’ delay in discovering the malpractice. On appeal, the court reexamined the history of the inapplicability of the discovery rule to legal malpractice, reversing the rule and the judgment. A cause of action for professional malpractice against an attorney did not accrue until plaintiff knew, or should have known, all material facts essential to show the elements of the claim. There was no justification for the former precept excepting attorney malpractice from the discovery rule. It was a judicially created rule, and the legislature never expressed its intent on the issue. An exception to the general rule limiting such a holding to prospective cases was justified because criticism of the rule was continuous and, thus, the profession could have foreseen a change.
Outcome
The court reversed the summary judgment holding that plaintiff clients’ malpractice action against defendant attorneys was barred by the statute of limitations. The court overruled the precept that the discovery rule was inapplicable to legal malpractice and held that such a cause of action did not accrue until plaintiffs discovered, or should have discovered, the facts establishing the elements of the claim.