Title: Lifestar Response of Alabama, Inc. v. Admiral Insurance Company
Citation: N/A
Docket Number: 1060776
State: Alabama
Issuer: Alabama Supreme Court
Date: February 6, 2009

REL:02/06/2009
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2008-2009
____________________
1060776
____________________
Lifestar Response of Alabama, Inc.
v.
Admiral Insurance Company
Appeal from Montgomery Circuit Court 
(CV-05-1392)
BOLIN, Justice. 
This appeal arises out of a legal-malpractice action
brought by Lifestar Response of Alabama, Inc. ("Lifestar"),
against its defense lawyers and Admiral Insurance Company
("Admiral") for failing to have a default judgment set aside
1060776
2
in the underlying case, the details of which are set out in
Lifestar Response of Alabama, Inc. v. Lemuel, 908 So. 2d 207
(Ala. 2004). 
Underlying litigation 
The facts, as summarized in Lemuel, supra, are as
follows:
"On November 19, 1998, Lifestar and Care entered
into an 'Asset Purchase Agreement' pursuant to which
Lifestar purchased all of the assets of Care. Care
was in the business of operating a basic and
advanced 
life-support 
ambulance 
and 
medical-
transportation service.  Lifestar identified itself
in the agreement as an Alabama corporation having
its principal place of business in Holtsville, New
York, and Care identified itself as an Alabama
corporation having its principal place of business
at 939 South Perry Street, Montgomery, Alabama
36104. That location was conveyed to Lifestar in the
transaction. Other features of the transaction
pertinent to the issues in this case were that 'the
corporate name "Care Ambulance Service of Alabama,
Inc." and any derivative thereof in the State of
Alabama and East of the Mississippi River and any
and all fictitious names used by [Care] and ...
telephone numbers and facsimile numbers or pager
numbers utilized by [Care]' were sold to Lifestar,
and Care agreed to 'change its corporate name to a
name dissimilar' and to discontinue using the name
Care Ambulance Service in the State of Alabama,
except as might be required in order to collect
accounts receivable generated before the closing of
the asset-purchase transaction. Lawrence Branch, a
'key employee' who was 'in charge of running the
day-to-day operation' of Care, was to stay on as an
employee of Lifestar for two years.
1060776
3
"Care ceased business operations and Lifestar
assumed the operation of the ambulance service.
Lifestar continued to use  the tradename 'Care
Ambulance Service,' advertising itself by that name
in the Montgomery area telephone directory, also
using the shorter tradename, 'Care Ambulance.'
"On November 8, 2000, Darnell Eugene Lemuel
became ill at his home in Montgomery. His wife,
Mildred 
Lemuel, 
and 
their 
daughter, 
Naquita
McDonald, were with him.  Late that night Ms.
McDonald telephoned emergency '911' and within two
or three minutes two employees of 'Care Ambulance'
arrived.  The circumstances of what they did, or
omitted to do, on that occasion will be discussed
later in this opinion; eventually they transported
Mr. Lemuel to Baptist Medical Center South. His
condition was critical when he arrived at the
hospital, and he was pronounced dead at that
facility on November 10.
"On November 7, 2002, Ms. Lemuel, both as the
administratrix of Mr. Lemuel's estate and in her own
right, sued 'Care Ambulance Service of Alabama,
Inc.' and the two employees who had attended to Mr.
Lemuel, designated by the fictitious names 'ABC' and
'DEF.'  The complaint alleged that Care, 'a
corporation registered in the State of Alabama with
principal place of business at 939 South Perry
Street in Montgomery, Alabama,' had been contacted
after Mr. Lemuel had 'passed out' in his house and
that, 
although 
the 
responding 
employees 
were
informed that he was on medication for high blood
pressure and diabetes and observed that he was
drifting in and out of consciousness, they 'made no
effort 
to 
provide 
appropriate 
life 
support
measures.'  The complaint charged that the two
employees breached their duty to provide emergency
medical treatment in various specified respects and
that Care had failed to employ and dispatch properly
qualified personnel.  The summons directed service
on Care at its South Perry Street address, to
1060776
4
Branch's attention.  Deputy Glenn Mannich of the
Montgomery 
Sheriff's 
Department 
delivered 
the
summons and complaint to the Perry Street address on
January 7, 2003, and Karen Robertson, employed by
Lifestar as its human resource manager, accepted the
service and signed Deputy Mannich's 'service log.'
At the hearing conducted on July 22, 2003, on
Lifestar's motion to set aside the default judgment,
Deputy Mannich testified that he had served 'eight
or ten papers' on Care Ambulance Service at the
Perry Street address during the preceding four years
and that Robertson was 'one of the people that does
accept the papers for the company.'  He confirmed
that she had previously signed for the papers on
behalf of 'Care Ambulance Service of Alabama, Inc.'
"In an affidavit dated July 16, 2003, in support
of Lifestar's motion to set aside the default
judgment and its objection to the plaintiff's motion
to amend the judgment, Robertson stated that she had
no personal recollection of the delivery of the
summons and complaint but stated:
"'If I was personally delivered a copy of
the Summons and Complaint in the Lemuel
lawsuit, 
I 
would 
not 
have 
read 
the
Complaint, nor noted the identity of the
person or company being served. I would
have given the Complaint to Vanessa Hill,
our billing clerk, to forward to the home
office 
of 
Lifestar 
along 
with 
other
business documents usually transmitted to
our home office.'
"Lifestar has not undertaken to account otherwise
for the disposition of the summons and complaint,
although its attorney acknowledged at the July 22
hearing: 'I'm not going to say the ball didn't get
dropped here as far as wherever this suit went,' and
Lifestar states in its principal brief to this Court
that '[a]s far as can be determined, the Complaint
served upon Karen Robertson was transmitted to the
1060776
5
home office of Lifestar, but from there it is
unclear as to its routing.' (Lifestar's brief, p.
39.)
"No appearance was filed on behalf of Care, and
the plaintiff's attorney, Timothy C. Halstrom,
applied for a default judgment. On May 16, 2003,
Judge Price signed an order scheduling 'a hearing on
default damages' for May 28. According to Judge
Price's subsequent order of July 31, 2003, notice of
that hearing was issued by the circuit clerk to Care
at its Perry Street address. (The order scheduling
that hearing bears the notation at its bottom 'cc:
Timothy Halstrom, Esq.; Lawrence S. Branch, Pro
Se.')  No one appeared at the May 28 hearing except
Halstrom, Ms. Lemuel, McDonald, and Dallas Johnson,
an expert witness.  Testimony was given by Ms.
Lemuel, McDonald, and Johnson, and numerous exhibits
were introduced. At the conclusion of the hearing
Judge Price entered a default judgment in favor of
the plaintiff in the amount of $5,000,000.
"On June 3, 2003, Halstrom received a telephone
call from an individual identifying himself as Bob
Fraulich, a representative of Lifestar. According to
Halstrom's representations made to Judge Price
without objection at the July 22 hearing on the
motion to set aside the default judgment, Fraulich
was calling from New York, was aware of the default
judgment against Care, and explained that '"Care is
not 
that 
company. 
We 
are 
Lifestar 
Response
Corporation Alabama, Inc., doing business as Care
Ambulance Service. So you have got the wrong one,
you can't collect the judgment."'  In its brief to
this Court, Lifestar states, 'Actually what was said
by 
Lifestar's 
representative 
was 
the 
Default
Judgment was taken against the wrong party, not that
Lemuel had sued using the "wrong name."' (Lifestar's
brief, p. 9.)
"Based on that information, Halstrom filed a
motion, reciting the content of that telephone
1060776
6
conversation and including other information, to
amend the judgment to operate against 'Life Star
Response Corp. of Alabama d/b/a Care Ambulance
Service.'  Copies of the motion were sent by mail to
Fraulich and to 'Life Star Response Corp. of Alabama
d/b/a Care Ambulance Service.'  The motion mailed to
Lifestar was duly received at the Perry Street
address the following day.
"On June 12 attorney Jack B. Hinton, Jr.,
entered his notice of appearance on behalf of Care.
The following day Halstrom faxed to him a copy of
the motion to amend the judgment. Also on that day,
Judge Price entered an order setting Halstrom's
motion for hearing on June 26, with copies to
Halstrom and Hinton. On June 23, 2003, attorney
B[e]rt P. Taylor filed a notice of appearance on
behalf of 'Lifestar Response of Alabama, Inc., d/b/a
Care Ambulance Service,' and a motion seeking a
continuance of the June 26 hearing on the basis that
he and his client 'just recently learned' of the
default judgment and the motion to amend.  On June
24 Taylor filed a 'corrected motion to continue
hearing,' reidentifying his client as 'Lifestar
Response of Alabama, Inc., d/b/a Care Ambulance,'
combining 'Life' and 'Star' in the name of the
corporate entity and dropping 'Service' at the end
of its tradename.  Halstrom filed an amendment to
his 
motion, 
asking 
that 
the 
defendant 
be
redesignated as 'Lifestar Response of Alabama, Inc.,
d/b/a 
Care 
Ambulance 
Service.' 
 
Judge 
Price
rescheduled the hearing on all pending motions for
July 14; that hearing was ultimately conducted on
July 22.
"On July 18, 2003, Care filed a motion to set
aside the default judgment pursuant to Rule 55(c),
Ala. R. Civ. P., and Rule 60(b)(1), (4), and (6),
Ala. R. Civ. P.; on that same day, Lifestar filed
its 'objection to plaintiff's motion to amend
judgment and motion to set aside default judgment.'
Care asserted in its motion that Lifestar had faxed
1060776
7
to it on May 29 a copy of Judge Price's May 16 order
setting the hearing on damages for May 28 and that,
upon receiving that order, Care had faxed a copy of
it to its legal counsel in California. Care alleged
that it had a meritorious defense because, among
other things, 'it was not the entity involved in the
alleged medical malpractice made the subject of this
suit.'  Care asserted that no unfair prejudice would
result to the plaintiff if the default judgment was
set aside and disclaimed any culpable conduct on its
part, pointing out that its corporate name had been
sold to Lifestar and that '[t]he first information
made available to the former "Care Ambulance Service
of Alabama, Inc.," was at or around the time of the
hearing 
on 
the 
default 
judgment.' 
 
Claiming
alternatively that the default judgment was void as
to it because of lack of service, Care attached the
affidavit of Branch, who attested that Care had not
operated any ambulance companies after the sale of
the service to Lifestar and that he was not at the
Perry Street address on the date the summons and
complaint were served, being then at his residence
in Desert Hot Springs, California. He stated that he
had not authorized Robertson to accept any service
on his behalf.
"Lifestar asserted in its motion that its
employees rendered no medical treatment to Mr.
Lemuel because 'Montgomery Fire Department Medics
were on the scene at the time of arrival by the
Lifestar ambulance and provided all medical care
during 
transport 
in 
connection 
with 
medical
personnel on staff at the hospital.'  Lifestar
argued that the default judgment was void because
Robertson was not authorized to accept service on
behalf of Care. In its only reference to Rule 55(c),
Ala. R. Civ. P., Lifestar argued that the default
judgment was due to be set aside because:
"'Care Ambulance Service of Alabama, Inc.,
was not the entity performing the acts made
the basis of Plaintiff's Complaint and,
1060776
8
therefore, 
cannot 
be 
held 
legally
accountable for said alleged wrongful
conduct. 
The 
ambulance 
transportation
provided plaintiff's decedent was through
Lifestar not the named defendant. The named
defendant has a very meritorious defense to
the Plaintiff's claims. To enforce a
default judgment against Care Ambulance
would be manifestly unjust.'
"Lifestar contended that the judgment could not be
amended as the plaintiff was requesting because
'Care Ambulance Service of Alabama, Inc., is not a
tradename being used by Lifestar.'  Lifestar argued
that the plaintiff had not sued a tradename but,
rather, '[t]he face of the Complaint clearly
reflects 
suit 
against 
an 
existing 
Alabama
corporation and does not designate the nature of the
suit as being related to a Complaint against the
entity doing business as "Care Ambulance."' As
evidentiary support, Lifestar annexed the affidavits
of Robertson and Keith Bryan, its regional vice
president.
"Concerning the incident involving Mr. Lemuel,
Bryan's affidavit states:
"'I have reviewed the records of Lifestar
and 
determined 
Darnell 
Lemuel 
was
transported by a Lifestar ambulance on
November 8, 2000, from his residence at
3345 S. Perry Street, to [Baptist Medical
Center]-South. Attached is the Statistical
Data Report, Baptist Health Admissions Fact
Sheet, and Run Report signed by the
Lifestar employees making the run.  The
Lifestar employees did not render EMT
medical services to Mr. Lemuel.  The
Montgomery Fire Department Fire Medics were
on the scene at the time of arrival,
accompanied Mr. Lemuel in the transport to
the hospital, and provided all medical
1060776
9
treatment to the patient in conjunction
with medical personnel at the hospital with
whom they were in contact.
"'Pursuant to Ordinance 25-98, City of
Montgomery, 
Montgomery 
Fire 
Department 
Fire
Medics are in charge at the scene in all
matters concerning patient care and patient
transport.  The protocol requires an
ambulance crew to work under the direction
of the officer or fire medic in command of
a scene where care is being provided by
fire department personnel. This protocol
was followed by the Lifestar ambulance crew
in connection with the transport of Mr.
Lemuel.
"'The Lifestar ambulance crew did not
perform the medical care criticized by the
Plaintiff in the Lemuel lawsuit described
above, which is alleged to have caused the
death of Mr. Lemuel on November 10, 2000,
two days following his transport to the
hospital by the Lifestar ambulance.'
"The 
referenced 
'Statistical 
Data 
Report,
Baptist Health Admissions Fact Sheet, and Run
Report' have been closely examined, and none contain
any express reference to the presence on the scene
of any Montgomery Fire Department personnel.
"On July 22, 2003, Judge Price conducted a
hearing on all pending motions. Halstrom, Hinton,
and Taylor were present. The only witness called was
Deputy Mannich. Hinton argued on behalf of Care that
it existed only 'as a shell' after it sold its
entire business to Lifestar 'lock, stock, and
barrel.'  He acknowledged that by the time the
Lemuel action was filed, Branch had relocated to
California and Care had not thereafter maintained in
Alabama a registered office or a resident registered
agent for service, as required by § 10-2B-5.01, Ala.
1060776
10
Code 1975. Hinton argued that Care had a meritorious
defense inasmuch as it had not been involved in any
way in the response to the Lemuel home.
"Taylor argued that because Care Ambulance
Service of Alabama, Inc., was nonetheless 'still a
valid entity' the summons and complaint directed to
it was ineffectual as service on or notice to
Lifestar. Taylor argued that although Lifestar had
been the entity that did respond to the emergency
call for medical assistance at the Lemuel residence,
it had not provided any medical care to Mr. Lemuel.
Taylor asserted:
"'[T]he care that was provided to Mr.
Lemuel, whatever that care may have been,
was 
provided 
by 
the 
Montgomery 
Fire
Department medic department. They were on
the scene. They're the ones that called us.
They're the ones that rode in the ambulance
with the patient to the hospital. They're
the ones by ordinance that have exclusive
control 
and 
jurisdiction 
over 
the
situation.'
"Judge Price responded to that argument to point out
that the testimony at the May 28, 2003, hearing had
been to the contrary, prompting Taylor to insist
'[b]ut they are wrong--that is what I am saying.'
When Judge Price noted that Lifestar had had the
opportunity to appear at the May 28 hearing and
present its defense, Taylor insisted '[b]ut we
weren't sued.  And we weren't put on notice, which
is the whole point.'
"Concerning his motion to amend the judgment,
Halstrom argued that 'Care Ambulance Service' was a
tradename under which Lifestar operated and that,
under all the circumstances, the judgment against
Care Ambulance Service of Alabama, Inc., should be
recognized as a judgment against Lifestar.  He
relied on Ex parte CTF Hotel Management Corp., 719
1060776
11
So. 2d 205 (Ala. 1998), as his principal authority.
Taylor responded that the defendant in Ex parte CTF
was designated by a tradename under which the entity
served with process did business, whereas here
Lifestar had 'never done business as Care Ambulance
Service of Alabama, Inc.'  Taylor argued that the
whole purpose of service is 'notice' and that
because Lifestar was not properly named it was not
'put on notice.'
"Halstrom pointed 
out 
that 
the 
complaint 
clearly
described the particular ambulance service involved
in the incident and that Lifestar would have known
from that description that it had provided that
service.  Halstrom proved that in an action filed in
the Montgomery Circuit Court five months before the
Lemuel action, the name of the defendant served had
been identical to the name of the defendant served
in this case, and Lifestar had answered the
complaint, acknowledging that it was in fact the
entity being sued. Specifically, in that other
action another wrongful-death claim was brought
against 'Care Ambulance Service of Alabama, Inc.,'
and the summons directed service on Branch at the
Perry Street address. Service by certified mail was
effected on Vanessa Hill at that address.  On July
10, 2002, Lifestar filed an answer, introduced by
the statement: 'Comes now the Defendant, Life Star
Response Corp. of Alabama, d/b/a Care Ambulance
Service (incorrectly designated as Care Ambulance
Service 
of 
Alabama, 
Inc. 
in 
plaintiff's
Complaint)....'
"In his order of July 31, 2003, Judge Price
summarized the testimony he had heard at the July 22
hearing 
on 
damages, 
reviewed 
the 
pertinent
procedural events of the case, and held that it
should have been apparent to the on-site personnel
of Lifestar upon receipt of the summons and
complaint in the Lemuel action that the complaint
'stated a claim for damages against the entity doing
business under the name "Care Ambulance Service"
1060776
12
based on the alleged wrongful acts of the employees
of "Lifestar."'  He stated that Lifestar was aware
of 
its 
obligation 
to 
answer 
the 
complaint
designating the wrongdoer as Care Ambulance Service
of Alabama, Inc., as evidenced by the answer it
filed in a prior action and the fact that it
operated 
under 
the 
tradename 
'Care 
Ambulance
Service.'  Judge Price concluded that Lifestar had
received actual notice of a claim against it
asserting negligence of its employees and simply
'took a calculated risk in not appearing to defend.'
Judge Price expressed his opinion that the default
was the result of culpable conduct by Lifestar,
pointing out that Lifestar had misrepresented itself
to the courts in Montgomery County by names other
than its true legal name. He denied the motions to
set aside the default judgment and granted the
motion to amend it, directing the court clerk to
substitute 'Lifestar Response of Alabama, Inc.,
d/b/a Care Ambulance Service' for 'Care Ambulance
Service, Alabama, Inc.' in the default judgment.
"Care has not appealed from Judge Price's order.
Lifestar appeals, asserting (1) that the default
judgment was void because service of process was
insufficient as to both it and Care; (2) that if the
judgment was not void, it should have been set
aside; (3) that if the judgment was not void and not
otherwise due to be set aside, it was error for
Judge Price to substitute Lifestar as the judgment
debtor; and (4) that the $5,000,000 default judgment
was excessive."
908 So. 2d at 209-14.
On December 3, 2004, this Court held that Lifestar did
not show that it was entitled to have the default judgment set
aside as void for lack of jurisdiction because the purpose of
service is to notify the defendant of the action being brought
1060776
13
against the defendant and Lifestar was served with notice
under its tradename, through one of its local employees;
Lifestar never argued that the employee was not authorized to
accept service; and Lifestar had answered complaints in other
unrelated 
actions 
against 
it 
under 
its 
tradename.
Additionally, we held that Lifestar was not entitled to have
the default judgment set aside because Lifestar presented an
unsupported assertion that its employees merely provided
transportation and that other parties were negligent in the
care of Mr. Lemuel; Lifestar never asserted that the plaintiff
would not be unfairly prejudiced by setting aside the default
judgment; and Lifestar failed to provide a reasonable
explanation for its failure to timely respond to the
complaint.  Last, we held that Lifestar was not entitled to
appellate review of the punitive-damages award because
Lifestar never sought a hearing on the issue of damages or
raised that issue in the trial court.  Ultimately, Lifestar
settled the Lemuel action for $2,000,000 as satisfaction for
the default judgment.
Related Litigation
1060776
14
After the default judgment was entered in her favor,
Mildred Lemuel filed a garnishment action in state court,
claiming that Admiral, as Lifestar's primary insurer, was
liable for a portion of the $5,000,000 default judgment
against 
Lifestar. 
 
Markel 
American 
Insurance 
Company
("Markel") was Lifestar's excess-insurance carrier.
Admiral responded to Lemuel's garnishment action by
removing the action to the United States District Court for
the Middle District of Alabama and by filing a declaratory-
judgment action in the federal court, seeking a judgment
declaring that it was not liable for the default judgment.
See Lemuel v. Admiral Ins. Co., CV-03-1101, and Admiral Ins.
Co. v. Lemuel, CV-03-D-1102-N.  In its declaratory- judgment
action, Admiral argued that, contrary to the terms of its
policy with Lifestar, Lifestar failed to notify it of Mildred
Lemuel's action until after the default judgment had been
entered and that, because of the delay in notice, Admiral was
not required to pay any portion of the default judgment.
Markel, which did not receive notice of the Lemuel action
until almost a year after Admiral, also filed a declaratory-
judgment action in federal court seeking a declaration that
1060776
15
Lifestar's untimely notice constitutes a breach of the notice
provision of its policy with Lifestar.  See Markel American
Ins. Co. v. Lifestar Response of Alabama, Inc., d/b/a Care
Ambulance, CV- 04-D-942-N.  The federal district court
consolidated the three cases.  
On January 23, 2006, the federal district court concluded
that the default judgment was not covered under the applicable
insurance policies and granted the summary-judgment motions
filed by Admiral and Markel.  Lemuel v. Admiral Ins. Co., 414
F. Supp. 2d 1037 (M.D. Ala. 2006).  In its opinion, the court
defined the substantive issue as whether Lifestar gave timely
notice of Lemuel's claims and legal action to Admiral and
Markel, in light of the express conditions in the policies
that the insured give notice "'as soon as practible/possible'
and [that it] forward suit 'papers immediately.'"  414 F.
Supp. 2d at 1048.  The first issue addressed by the court was
a choice-of-law question.  Lemuel and Lifestar contended that
the parties to the Admiral policy contractually agreed that
New York law would govern.  Alternatively, they argued that
Alabama's application of the principle of lex loci contractus
would yield the same result -– i.e., New York law would govern
1060776
16
-– because the insurance contract was issued and delivered in
New York.  Admiral contended that an equally valid argument
could be made for applying Alabama law because Lifestar is an
Alabama corporation doing business in Alabama or, in the
alternative, an exception to the principle of lex loci
contractus applies because performance and coverage of the
policy was to occur in Alabama.  The federal district court
concluded that there was no conflict between New York law and
Alabama law as to the issues disputed and that when there is
no conflict the court did not have to determine which state's
law governed.  The court determined that under the law of both
states when an insurance policy contains as a condition
precedent to coverage that the insured provide prompt notice
of a claim or an action, the insured must comply with that
condition in a timely manner and that, absent a valid reason
for the untimely delay, the notice is deemed unreasonable.
The federal district court stated that the date Lifestar
had actual notice of the Lemuel action was a pivotal factual
issue in determining whether Lifestar timely notified Admiral
and Markel of the Lemuel action.  Admiral asserted that
Lifestar, as a party in the state court proceedings, was
1060776
17
barred by the doctrines of collateral estoppel and/or res
judicata from relitigating the findings of the state court as
to the date Lifestar received notice of the litigation in the
Lemuel action.  According to Admiral, because this Court
affirmed the Montgomery Circuit Court's judgment, which was
based, in part, on a finding that Lifestar received actual
notice of Lemuel's complaint on January 7, 2003, the federal
district court was bound by that finding, and Lifestar could
not relitigate the issue in the federal proceedings.  Lifestar
argued that neither collateral estoppel nor res judicata
precluded it from demonstrating when it actually received
notice that Lemuel's complaint was filed against Lifestar.
The federal district court stated that it was bound by 28
U.S.C. § 1738, the full-faith-and-credit doctrine, to give a
state court judgment the same preclusive effect that would be
given the judgment under the law of the state in which the
judgment was entered.  The court determined that under Alabama
law the doctrine of collateral estoppel did not apply.
However, the court held that the doctrine of res judicata did
apply and that Lifestar was bound by the state court's finding
as set out in Lifestar Response of Alabama, Inc. v. Lemuel,
1060776
18
supra, that Lifestar received notice of the Lemuel action on
January 7, 2003.  The federal district court further held that
because Lifestar was notified of the Lemuel action on January
7, 2003, and because it did not notify Admiral until June 3,
2003, nearly 5 months after it received notice, Lifestar had
failed to timely notify Admiral under the terms of the
insurance policy.  Similarly, Markel was not timely notified
because Lifestar did not notify it of the Lemuel action until
May 12, 2004.      
Lifestar appealed the federal district court's decision
to the United States Court of Appeals for the Eleventh
Circuit.  While the appeal was pending, Lifestar settled its
claim against Markel for $25,000.  On January 9, 2007, the
Eleventh Circuit affirmed the federal district court's summary
judgment for Admiral and Markel.  Lemuel v. Lifestar Response
of Alabama, Inc., (No. 06-11155, Jan. 9, 2007, 11th Cir.
2007)(not selected for publication in the Federal Reporter).
In 2005, Lifestar sued, in Bergen County, New Jersey, its
insurance agent, Capacity Coverage Company of New Jersey,
Inc., for failing to give the insurance carriers timely notice
of the Lemual action.  See Lifestar Response of Alabama, Inc.
1060776
19
d/b/a Care Ambulance v. Capacity Coverage Co. of New Jersey,
Inc., CV-3951-05.  Ultimately, that case was settled for
$100,000.  
Current Litigation
On June 2, 2005, Lifestar sued its defense attorneys,
Bert P. Taylor and Taylor & Smith, P.C. ("the Taylor
defendants"), and Admiral in the Montgomery Circuit Court.
Lifestar alleged that Admiral had a duty to defend Lifestar in
any action against it and that Admiral had engaged the Taylor
defendants as  Admiral's agent to defend Lifestar in
accordance with its insurance policy and that the Taylor
defendants represented both Lifestar and Admiral in a
tripartite relationship and had failed to exercise ordinary
diligence in their representation. Lifestar alleged that
Admiral breached its contract of insurance with Lifestar by
providing a defense that was below the appropriate standard.
Additionally, Lifestar alleged that Admiral acted in bad faith
in its failure to effectively defend Lifestar.  Lifestar also
alleged that the Taylor defendants were Admiral's agents and
that as agents of Lifestar the Taylor defendants' negligence
and/or wantonness should be imputed to Admiral.  Lifestar sued
1060776
20
the Taylor defendants under the Alabama Legal Services
Liability Act, § 6-5-270 et seq., Ala. Code 1975.
On September 25, 2005, Admiral moved to dismiss the
complaint.  Admiral stated that, after the default judgment
was entered in the Lemuel action, the Taylor defendants were
retained to defend Lifestar against the judgment or to attempt
to get the default judgment set aside.  Admiral asked the
trial court to take judicial notice of the underlying
litigation in the Lemuel action and the related litigation in
the federal courts.   Admiral stated that Lifestar had
asserted in the federal litigation that New York law, rather
than Alabama law, governed Admiral's insurance policy with
Lifestar.  As a ground for granting its motion to dismiss,
Admiral argued that under New York law an insurance company
cannot be held vicariously liable for malpractice committed by
counsel it retained to defend its insured.  Admiral further
argued that although no Alabama court has addressed the issue,
the result would be the same under Alabama law because, it
argued, attorneys in Alabama are prohibited by the Alabama
Rules of Professional Conduct from allowing an insurer to
interfere with the attorney's independence of professional
1060776
21
judgment in representing the insured and because insurance
companies are forbidden from practicing law.  Admiral also
argued that under Alabama law a retained attorney is in
essence an independent contractor in relation to the person
who retained the attorney.  As another ground to grant the
motion to dismiss, Admiral argued that Lifestar's bad-faith
claim should have been raised in the federal court litigation
as a compulsory counterclaim. 
Admiral attached numerous exhibits to its motion to
dismiss 
involving 
the 
federal 
court 
and 
state 
court
litigation, including the insurance policy and a letter dated
June 19, 2003, from Admiral acknowledging receipt of the
notice of the Lemuel action from Lifestar on June 3, 2003,
noting that Lifestar had retained the Taylor defendants and
that Admiral had reserved its right to disclaim coverage or to
provide a defense.
In response to Admiral's motion to dismiss, Lifestar
argued, among other things, that Admiral's duty to provide a
defense did not arise under the insurance contract alone
because Admiral had assumed the duty to provide a defense to
Lifestar (even though it reserved its right to disclaim
1060776
This person's name is also spelled "Fraulich" throughout
1
the record and in Lifestar Response of Alabama, Inc. v.
Lemuel, supra.
22
coverage or to provide a defense) and it had done so in a
negligent manner.  Lifestar also argued that  there was a
factual issue as to whether Admiral or Lifestar had hired the
Taylor defendants and that a lawyer is an agent of the
insurance company when the lawyer is hired to defend a lawsuit
against the company's insured.   
In support of its response, Lifestar attached an
affidavit from Bert Taylor that had been filed in the federal
court litigation in support of Bert Taylor's motion to
withdraw as Lifestar's attorney because of a conflict.  In the
affidavit, Taylor stated that he was on a list of "panel
counsel" for Admiral and that in early June 2003 Bob
Froelich,  Lifestar's risk manager, had contacted him about
1
representing Lifestar in the Lemuel action.  Taylor stated
that he investigated the default judgment and that he spoke
with Froelich on June 16, 2003, and discussed with Froelich
reporting the claim to Admiral.  Taylor states that he sent
invoices to Admiral for services rendered to Lifestar because
Admiral was providing a defense to Lifestar.  Taylor also
1060776
Panel counsel is typically a list of lawyers regularly
2
used by insurers to represent their insureds.
23
stated that he sent two reports to Admiral regarding the
Lemuel action.
Admiral's motion to dismiss was argued on October 31,
2005, and continued until August 28, 2006, at which time the
trial court denied the motion and ordered that Bert Taylor be
deposed.  After Taylor's deposition was taken, Lifestar
amended its complaint, adding additional negligence and
wantonness claims against Admiral, asserting that Admiral was
negligent and/or wanton in the manner in which it supported
and supervised the Taylor defendants as Admiral's "panel
counsel."   Lifestar also asserted that Admiral was negligent
2
and/or wanton in investigating the Lemuel action and in the
manner in which it failed to challenge the excessiveness of
the default judgment.
On October 13, 2006, Admiral filed a renewed motion to
dismiss, arguing that there exists no cause of action against
an insurance company for the alleged legal malpractice of
retained defense counsel and that Admiral is not a legal-
services provider under the Alabama Legal Services Liability
Act.  Admiral argued that Lifestar's action was barred by the
1060776
24
doctrine of "judgmental immunity" or the "attorney-judgment
rule" and that the claims asserted in Lifestar's amended
complaint should be dismissed on the same grounds as the
claims in Lifestar's original complaint.  Admiral adopted and
incorporated 
its 
original 
motion 
to 
dismiss 
and 
its
supplemental material filed in support of the original motion.
Admiral also submitted a brief in support of its renewed
motion to dismiss.  In its brief, Admiral asserted that the
testimony from Bert Taylor's deposition indicated that the
Taylor defendants did not breach the standard of care and,
furthermore, that Admiral did not participate in or direct
Lifestar's defense.  Admiral quoted from Taylor's deposition
in its brief in support of the motion to dismiss and attached
to its brief a copy of Taylor's deposition.
In his deposition, Taylor stated that he had been
contacted by Lifestar's corporate risk manager, Froelich, and
asked to represent Lifestar in the Lemuel action; that he had
not been hired or assigned by Admiral to represent Lifestar;
and that Admiral had merely approved Lifestar's selection of
Taylor as a defense attorney and ultimately paid Taylor's
defense bill once the federal litigation began.  Taylor said
1060776
25
that, at Admiral's request, he had previously represented
Lifestar in another lawsuit involving Care Ambulance and that
he had been privately retained by Lifestar at various times to
work on other lawsuits that did not involve Admiral.
According to Taylor, Froelich told Taylor that he would
contact Admiral and get permission for Taylor to represent
Lifestar in the Lemuel action.  He also stated that Admiral
did not control, direct, or have any input into his defense of
Lifestar in the Lemuel action and that Lifestar's corporate
officers and attorneys supervised and directed Lifestar's
defense. 
On November 29, 2006, Lifestar filed a response to
Admiral's renewed motion to dismiss.  Lifestar asserted that
Admiral had included facts outside the pleadings in an effort
to prove that the Taylor defendants were merely exercising
attorney 
judgment 
or engaging 
in 
litigation 
strategy.
Lifestar went on to set out a time line of Bert Taylor's
actions in the Lemuel action and to cite to and quote from
Bert 
Taylor's 
deposition 
in 
arguing 
that 
the 
Taylor
defendants' actions fell below the appropriate standard.
Lifestar also referred to another civil action in Alabama in
1060776
26
which Bert Taylor had been hired by Admiral to defend
Lifestar.  Lifestar argued that when an insurance company is
defending its insured under a reservation of rights, its duty
to its insured is a heightened one.  Lifestar asserted that
Taylor originally stated that he was hired by Admiral to
defend Lifestar but that he now claims that he was not hired
by Admiral and that Admiral disavowed hiring Taylor.  Lifestar
further argued that because Admiral now states that it did
nothing to defend Lifestar, Lifestar is entitled to a judgment
against Admiral based on its failure to  do anything in
defense of its insured.    
After a hearing on Admiral's renewed motion, the trial
court granted the motion on January 17, 2007, and certified
the judgment as final pursuant to Rule 54(b), Ala. R. Civ. P.
Lifestar appealed.
Analysis
In its brief to this Court, Lifestar states that its bad-
faith-failure-to-defend 
claim 
and 
breach-of-contract 
claim 
are
no 
longer 
actionable 
because 
of 
the 
federal 
court's
determination in Lemuel v. Admiral Insurance Co., supra, that
Admiral did not have a duty to provide Lifestar with a defense
1060776
27
to the Lemuel action in state court.  Lifestar states that
only its negligence and wantonness claims against Admiral "for
its failure to provide Lifestar a defense to the Lemuel claim"
are before this Court.  (Lifestar's brief, p. 6.)  Before
proceeding to our analysis of the issues raised in this case,
we must address the applicable standard of review and the
applicable law.
Standard of Review
Lifestar argues that we should apply the standard
applicable to this Court's review of the dismissal of a case
for failure to state a claim; Admiral argues that we should
apply the standard applicable to this Court's review of a
summary judgment because the trial court considered matters
outside the pleadings.  Admiral is correct.  Rule 12(b), Ala.
R. Civ. P., provides: 
"If, on a motion asserting the defense numbered (6)
to dismiss for failure of the pleading to state a
claim upon which relief can be granted, matters
outside the pleading are presented to and not
excluded by the court, the motion shall be treated
as one for summary judgment and disposed of as
provided in Rule 56, and all parties shall be given
reasonable opportunity to present all material made
pertinent to such a motion by Rule 56."
This Court has stated:
1060776
28
"'When matters outside the pleadings are
considered on a motion to dismiss, the
motion is converted into a motion for
summary judgment, Rule 12(b), Ala. R. Civ.
P.; this is the case regardless of what the
motion has been called or how it was
treated by the trial court, Papastefan v.
B&L Constr. Co., 356 So. 2d 158 (Ala.
1978); Thorne v. Odom, 349 So.2d 1126 (Ala.
1977). "Once matters outside the pleadings
are considered, the requirements of Rule
56, [Ala. R. Civ. P.], become operable and
the 'moving party's burden changes and he
is obliged to demonstrate that there exists
no genuine issue as to any material fact
and that he is entitled to a judgment as a
matter of law.'  C. Wright & A. Miller,
Federal Practice & Procedure, Civil, §
1366 at 681 (1969)." Boles v. Blackstock,
484 So. 2d 1077, 1079 (Ala. 1986).'  
"Hornsby v. Sessions, 703 So. 2d 932, 937-38 (Ala.
1997)." 
Robinson v. Benton, 842 So. 2d 631, 634 (Ala. 2002). 
In the present case, both sides addressed matters outside
the pleadings, including the related litigation and Bert
Taylor's deposition.  The trial court did not exclude any of
the matters outside the pleadings, and when matters outside
the pleadings are presented to and not excluded by the trial
court, the motion will be treated as a summary-judgment
motion.  Rule 12(b), Ala. R. Civ. P.  Additionally, it appears
that both sides acquiesced in the trial court's consideration
1060776
Alabama law has long recognized the right of parties to
3
an agreement to choose the law of a particular state to govern
the agreement.   Lifestar contended that it and Admiral agreed
in the insurance contract that New York law would apply and
that a contractual choice-of-law provision may be broad enough
to apply to both contract claims and tort claims in certain
circumstances.  The policy between Lifestar and Admiral, which
was issued in New York, provides that "[t]he terms of this
policy which are in conflict with the statutes of the state
wherein this contract is issued are hereby amended to conform
29
of matters outside the pleadings either by submitting or by
referring to evidence beyond the pleadings; therefore, notice
by the trial court that it would consider matters outside the
pleadings would not have been necessary under Rule 56, Ala. R.
Civ. P. Cf. Graveman v. Wind Drift Owners' Ass'n, 607 So. 2d
199 (Ala. 1992)(nonmovant, like the movant, filed materials in
addition to the pleadings).  Accordingly, we will review this
case under the standard applicable to a summary judgment.
Applicable Law
Alabama law follows the traditional conflict-of-law
principles of lex loci contractus and lex loci delicti.  See
Liberty Mut. Ins. Co. v. Wheelwright, 851 So. 2d 466 (Ala.
2002).  Under the principles of lex loci contractus, a
contract is governed by the law of the jurisdiction within
which the contract is made.  Cherry, Bekaert & Holland v.
Brown, 582 So. 2d 502 (Ala. 1991).   Under the principle of
3
1060776
to such statutes."  However, this language conforming the
provisions of the policy with state law does not operate as a
choice-of-law provision and should not be treated as such.
The plain language of that provision states only that where
the policy conflicts with state law the state law will apply
to conform the policy to the statute; such language does not
indicate an intent by Lifestar and Admiral to apply New York
law to the construction and validity of the agreement, much
less to any tort claims arising out of the relationship
between the parties. 
30
lex loci delicti, an Alabama court will determine the
substantive rights of an injured party according to the law of
the state where the injury occurred.  Fitts v. Minnesota
Mining & Mfg. Co., 581 So. 2d 819 (Ala. 1991).  Lifestar's
remaining claims against Admiral are based on negligence and
wantonness; therefore, we will apply Alabama law because the
alleged injury occurred in Alabama.  
Discussion
The 
first 
issue 
is 
whether 
Admiral 
can 
be 
held
vicariously liable for the alleged negligence of the Taylor
defendants.   
The test for determining whether a person is an agent or
employee of another, rather than an independent contractor, is
whether that other person has reserved the right of control
over the means and method by which the person's work will be
performed, whether or not the right of control is actually
1060776
31
exercised.  Alabama Power Co. V. Beam, 472 So. 2d 619 (Ala.
1985).  Vicarious liability arises from the right of
supervision and control over the manner of the alleged agent's
performance.  Kennedy v. Western Sizzlin Corp., 857 So. 2d 71
(Ala. 2003).  Generally, one is liable for the actions of an
agent but is not liable for the actions of an independent
contractor.  Gonzalez, LLC v. DiVincenti, 844 So. 2d 1196
(Ala. 2002). 
Lifestar 
argues 
that 
based 
on 
Boyd 
Brothers
Transportation Co. v. Fireman's Fund Insurance Cos., 729 F.2d
1407 (5th Cir. 1984), an attorney retained by an insurance
company to defend the company's insured is not an independent
contractor and, therefore, that Admiral is responsible for the
Taylor defendants' allegedly negligent and/or wanton defense.
In Boyd Brothers, the insurance company agreed to represent
its insured, an Alabama transportation company, in an action
seeking damages as the result of a steel shipment from New
York where the transportation company had allegedly caused the
steel to rust in transport.  The insurance company undertook
to defend the action under an agreement that it was not
waiving its right to deny coverage or to deny that it had a
1060776
32
duty to provide the transportation company a defense.  The
insurance company assigned the case to a New York attorney and
paid for the bulk of the attorney's services throughout the
litigation.  The New York Supreme Court entered a summary
judgment for the steel supplier and against the transportation
company.  In response to the summary-judgment motion, the
attorney for the transportation company had attached only one
item, an affidavit by the transportation company's president,
who had no direct knowledge of any of the facts presented in
the affidavit.  After the entry of the summary judgment, the
insurance company wrote a letter to the transportation company
confirming that the judgment had been entered and refusing to
defend them further.  The transportation company paid for an
attorney to represent it on appeal of the summary judgment but
lost that appeal.  The case eventually went to a New York
jury, and damages were assessed against the transportation
company.  Subsequently, the transportation company sued the
insurance company, alleging negligence and wantonness in
defending the action.  The jury found in favor of the
transportation company, and damages were awarded.  The
insurance company appealed.  
1060776
33
On appeal, one of the issues was whether the New York
attorney was an agent of the insurance company or an
independent contractor.  The United States Court of Appeals
for the Fifth Circuit first turned to New York law on the
question whether an attorney retained and paid by an insurance
company to defend an insured is an independent contractor or
the insurance company's agent.  However, there were no New
York cases on point at that time.  The court next looked to
Alabama law because of its connection to the case and found no
Alabama law on point.  The court then looked to Alabama's
neighboring state of Georgia and found a case, Smoot v. State
Farm Mutual Automobile Insurance Co., 299 F.2d 525 (5th Cir.
1962), in which the federal appellate court, interpreting
Georgia law, determined that "[t]hose whom the insurer selects
to execute its promises, whether attorneys, physicians, no
less than company-employed adjusters, are its agents for whom
it has the customary legal liability."  299 F.2d at 530.
Lifestar's reliance on Boyd Brothers is misplaced.
First, Boyd Brothers did not apply Alabama law; instead, it
applied Georgia law, as interpreted by the federal court.
Second, Boyd Brothers was issued four years before Feliberty
1060776
34
v. Damon, 72 N.Y.2d 112, 531 N.Y.S.2d 778, 527 N.E.2d 261
(1988), in which the New York state court determined that the
alleged negligence of defense counsel, whom the insurance
company was required to retain to conduct litigation of behalf
of the insured, would not be imputed to the insurance company.
Had Feliberty been decided when Boyd Brothers was before the
federal court, the federal court would have followed New York
law.
We note that other jurisdictions have held that an
insurer is not vicariously liable for the actions of counsel
it retained on behalf of its insured.  In Merritt v. Reserve
Insurance Co., 34 Cal. App. 3d 858, 880, 110 Cal. Rptr. 511,
526 (1973), the California court stated that "independent
counsel retained to conduct litigation in the courts act in
the capacity of independent contractors, responsible for the
results of their conduct and not subject to the control and
direction of their employer over the details and manner of
their performance."  The nature of the duty assumed by the
insurer to defend its insured against suits must be considered
a delegable duty because the insurer had no authority to
perform that duty itself and in fact, because an insurance
1060776
35
carrier is not authorized to practice law, was prohibited from
doing so.  "If counsel negligently conducts the litigation,
the remedy for this negligence is found in an action against
counsel for malpractice and not in a suit against counsel's
employer to impose vicarious liability."  34 Cal. App. 3d at
881-82,  110 Cal. Rptr. at 527.  See also Brown v. Lumbermens
Mut. Cas. Co., 90 N.C. App. 464, 369 S.E.2d 367 (1988)(alleged
negligence of attorneys hired by insurer to defend insured
could not be imputed to insurer because attorney was an
independent contractor); Aetna Cas. & Sur. Co. v. Protective
Nat'l Ins. Co., 631 So. 2d 305 (Fla. Dist. Ct. App.
1993)(holding that an insurance company is not vicariously
liable for the malpractice of the attorney it retained to
defend its insured).  
Other jurisdictions have held an insurer vicariously
liable for the negligence of counsel retained to defend its
insured.  See, e.g., Pacific Employers Ins. Co. v. P.B.
Hoidale Co., 789 F.Supp. 1117 (D. Kan. 1992)(holding that
under Kansas law primary insurer was vicariously liable under
agency principles because counsel was engaged in the
furtherance 
of 
the 
insurer's 
business 
and 
received
1060776
36
instructions from the insurer rather than the insured);
Continental Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281
(Alaska 1980)(expressly declining to follow the Merritt
court's rationale).   
Lifestar cites Waters v. America Casualty Co. of Reading,
Pa., 261 Ala. 252, 73 So. 2d 524 (1954), for the proposition
that an attorney retained by an insurance company to represent
an insured is an agent of the insurance company.  In Waters,
this Court held that a liability insurer may be liable beyond
the limits of the policy for negligence or bad faith in
failing to settle claims against the insured within policy
limits when a judgment greater than the policy limits is
subsequently obtained against the insured.  In Waters, the
insured sued his insurer, alleging negligence and bad faith,
when the jury's verdict exceeded the policy limits and the
insurer had had an opportunity to settle within the policy
limits before the verdict was returned.  During the trial, the
plaintiff offered to settle the case for an amount equal to
the policy limits.  The defense attorney retained by the
insurer to represent the insured did not notify the insurer of
the offer.  The Court stated that the opinion was addressing
1060776
37
the liability of the insurer, and not of the attorney.
However, the Court noted that the attorney must exercise
ordinary 
diligence 
and 
skill 
throughout 
his 
or 
her
representation and that that requirement imposes a duty on the
attorney to inform the insurer of a proposal presented by the
plaintiff to settle an action within the limits of the policy.
Whether or not the attorney notifies the insurer, the insurer
is charged with the same notice the attorney received in the
course of the employment the same as if the attorney had in
fact so notified the insurer.  The Court held that the
question of the insurer's liability was properly left to the
jury where the attorney, acting within the line and scope of
his employment, was the agent of his client, the insurer.
Although the Waters Court imputed the attorney's knowledge of
the settlement offer to the insurer, the "agency" relationship
did not extend to control the attorney's practice of law.
Rule 1.8(f), Ala. R. Prof. Cond., provides:
"A 
lawyer 
shall 
not 
accept 
compensation 
for
representing a client from one other than the client
unless:
"(1) 
the 
client 
consents 
after
consultation or the lawyer is appointed
pursuant to an insurance contract; 
1060776
38
"(2) there is no interference with the
lawyer's 
independence 
of 
professional
judgment 
or 
with 
the 
client-lawyer
relationship; and 
"(3) 
information 
relating 
to
representation of a client is protected as
required by Rule 1.6."
The Comment to Rule 1.8 explains:
"Paragraph (f) requires disclosure of the fact
that the lawyer's services are being paid for by a
third party.  Subsection (1) in this paragraph
expressly recognizes that in the insurance defense
practice, attorneys are appointed by the insurers to
represent the insureds as clients.  The insurer's
authority to appoint counsel springs from its
contract with the insured.  In the normal insurance
defense relationship where, for example, there are
no coverage issues, appointed counsel has two
clients, the insured and the insurer.  Hence, the
insurer is not a third party.  Additionally, all
arrangements pursuant to paragraph (f) must also
conform to the requirements of Rule 1.6 concerning
confidentiality and Rule 1.7 concerning conflict of
interest.  Where the client is a class, consent may
be obtained on behalf of the class by court-
supervised procedure."
(Emphasis added.)
In Mitchum v. Hudgens, 533 So. 2d 194 (Ala. 1988), an
obstetrician sued the attorney who had been designated by the
insurer to defend the medical-malpractice claim against the
obstetrician, alleging that the attorney had committed
malpractice by settling the medical-malpractice action within
1060776
39
policy limits without giving prior notice of the settlement to
the obstetrician. This Court explained:
"It must be emphasized that the relationship between
the insured and the attorney is that of attorney and
client.  That relationship is the same as if the
attorney were hired and paid directly by the insured
and therefore it imposes upon the attorney the same
professional responsibilities that would exist had
the attorney been personally retained by the
insured.  These responsibilities include ethical and
fiduciary obligations as well as maintaining the
appropriate standard of care in defending the action
against the insured."
533 So. 2d at 199.
In its complaint, Lifestar alleges that the Taylor
defendants represented both Lifestar and Admiral in a
tripartite 
relationship. 
 
In 
the 
normal 
tripartite
relationship between an insurer, the insured, and the defense
attorney, the insurer has a duty to defend and retains an
attorney to provide the defense.  So long as the interests of
the insurer and the insured coincide, they are both clients of
the retained attorney, with the mutual goal of defeating the
action against the insured.  Two classic conflicts of interest
that may arise between the insured and the insurer are where
the claimed damages exceed coverage and where the insurer has
reserved its right to contest coverage under the policy.
1060776
40
"[N]o real conflict of interest exists between the insured and
the insurer, at least where the claim or settlement is within
policy limits and there has been no reservation of rights by
the insurer."  Mitchum, 533 So. 2d at 201 (emphasis added).
If a conflict exists, the primary obligation of the retained
attorney is to the insured. In the present case, Admiral
reserved its right to deny coverage.  Thus, the Taylor
defendants represented Lifestar, not Admiral.           
This Court has addressed a defense attorney's obligation
when the insurer reserves its rights to deny coverage or
disclaim its duty to provide a defense.  In L & S Roofing
Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So. 2d
1298 (Ala. 1987), this Court answered the certified question
posed by a federal district court as to whether an insurer's
election to defend its insured under a reservation of rights
creates such a conflict of interest that the insured is
entitled to engage counsel of its choice at the insurer's
expense.  The insured, L & S Roofing, relied on decisions from
"'[a]t least fifty different courts in a dozen jurisdictions'"
that have held that the existence of a dispute as to coverage
justifies selection of independent counsel by the insured.
1060776
41
521 So. 2d at 1302.  This Court disagreed and adopted a
standard of "enhanced obligation of good faith," 521 So. 2d at
1304, that the insurer and defense counsel retained by it must
follow.  This Court adopted the enhanced-good-faith standard
established by the Washington Supreme Court in Tank v. State
Farm Fire & Casualty Co., 105 Wash. 2d 381, 715 P.2d 1133
(1986), and quoted extensively from that opinion:  
"'This enhanced obligation [of good faith] is
fulfilled by meeting specific criteria.  First, the
company must thoroughly investigate the cause of the
insured's accident and the nature and the severity
of the plaintiff's injuries.  Second, it must retain
competent defense counsel for the insured.  Both
retained defense counsel and the insurer must
understand that only the insured is the client.
Third, the company has the responsibility for fully
informing the insured not only of the reservation of
rights defense itself, but of all the developments
relevant to his policy coverage and the progress of
this lawsuit.  Information regarding progress of the
lawsuit includes disclosure of all settlement offers
made by the company.  Finally, an insurance company
must refrain from engaging in any action which would
demonstrate a greater concern for the insurer's
monetary interest than for the insured's financial
risk.'"
521 So. 2d at 1303 (quoting Tank, 105 Wash. 2d at 388, 715
P.2d at 1137)(emphasis omitted).  This Court admonished that
when an insurer defends its insured under a reservation of
1060776
42
rights retained counsel should understand that counsel
represents only the insured, not the insurer.    
Lifestar is not the first party to sue a third party for
an attorney's alleged malpractice when the third party
retained the attorney.  In United Steelworkers of America,
AFL-CIO v. Craig, 571 So. 2d 1101 (Ala. 1990), the union
members brought an action against their union alleging legal
malpractice.  The trial court entered a judgment in favor the
union members, and the union appealed.  This Court held that
"the duty, if any, on which the [union members']
claims rest, arises solely out of federal labor law
....  The fact that the [union members] couched
their suit in language indicative of state-law
claims does not create a state-law cause of action
where, as here, a state-law claim does not otherwise
exist.  In other words, but for the duty of fair
representation 
implied 
in 
the 
union-employee
relationship, inherent in federal labor law, no
cause of action exists for legal malpractice against
a nonlawyer, based on the nonlawyer's 'failing to
adequately represent the plaintiffs' in a litigated
'discrimination' suit."  
571 So. 2d at 1102 (citations omitted).
In Alabama Education Ass'n v. Nelson, 770 So. 2d 1057
(Ala. 2000), a former teacher brought a legal-malpractice
action against her attorney and the teachers organization, the
Alabama Education Association ("the AEA"), which had provided
1060776
43
the attorney.  This Court held that the AEA was not a "legal
services provider" under the Alabama Legal Services Liability
Act, § 6-5-270 et seq., Ala. Code 1975, and, therefore, could
not be held liable for the alleged malpractice of the attorney
it retained to represent the former teacher.  
In the present case, the Taylor defendants' alleged
negligence and wantonness could not be imputed to Admiral.
Admiral could not control the Taylor defendants' professional
judgment.  Rule 1.8(f)(2), Ala. R. Prof. Cond., prevents an
attorney from accepting compensation from a third party unless
there is no interference with the attorney's independent
judgment.  Therefore, the attorney's ethical obligation to his
or her client (here, Lifestar) prevents an insurer from
controlling the manner of the attorney's performance.  We also
agree with the rationale of the New York court in Feliberty v.
Damon, supra:
"First, the duty to defend an insured is by its
very nature delegable, as all the parties must know
from the outset, for in New York -- as in California
-- an insurance company is in fact prohibited from
the practice of law. Accordingly, the insurer
necessarily must rely on independent counsel to
conduct 
the 
litigation. Second, the paramount
interest independent counsel represents is that of
the insured, not the insurer. The insurer is
precluded 
from 
interference 
with 
counsel's
1060776
44
independent professional judgments in the conduct of
the litigation on behalf of its client. Vicarious
liability thus produces an untenable situation here:
on the one hand an insurer is prohibited from itself
conducting 
the 
litigation 
or 
controlling 
the
decisions of the insured's lawyer, yet on the other
hand it is charged with responsibility for the
lawyer's 
day-to-day 
independent 
professional
judgments in the 'nuts and bolts' of representing
its client. Finally, in determining whether a new
exception should be recognized, we note that an
insured is not otherwise left without a remedy for
a law firm's claimed incompetence, and a law firm is
not insulated from liability for wrongdoing; indeed,
in the case before us, plaintiff has sought full
recovery for his damages in a legal malpractice
claim against the firm."
72 N.Y 2d at 120, 531 N.Y.S.2d at 782, 527 N.E.2d at 265
(citations omitted).  Accordingly, we hold that Admiral cannot
be held vicariously liable for the Taylor defendants' alleged
negligence or wantonness.
Lifestar also argues that Admiral is directly liable for
the negligent and/or wanton manner in which it supported and
supervised the Taylor defendants as Admiral's  panel counsel.
Lifestar also argues that Admiral was negligent and/or wanton
in investigating the Lemuel action and in the manner in which
it failed to challenge the excessiveness of the default
judgment.   
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45
First, any claim that Lifestar had regarding Admiral's
failure to investigate the underlying action would have fallen
under Admiral's enhanced obligation of good faith as discussed
in L & S Roofing, supra.  In a subsequent case, this Court has
held that a claim of a breach of the enhanced obligation of
good faith is a breach-of-contract claim.  See Twin City Fire
Ins. Co. v. Colonial Life & Accident Co., 839 So. 2d 614 (Ala.
2002).  In Twin City Fire, this Court stated that after L & S
Roofing, "whenever an insurer defends the insured under a
reservation of rights, the enhanced duty of good faith is read
into that reservation of rights. ...  Because the enhanced
duty arises from the contract, it follows that claims alleging
a breach of the enhanced duty of good faith are contract
claims." 839 So. 2d at 616.  Lifestar recognizes that any
contract claims that it had against Admiral should have been
brought in the federal action.  Second, as to Lifestar's
claims that Admiral failed to supervise the Taylor defendants,
including 
supervising 
them 
in 
the 
challenging 
the
excessiveness of the award in the Lemuel action, an insurance
company is prohibited from practicing law and must rely on
independent counsel to conduct litigation.  A corporation
1060776
46
cannot practice law, and an appearance for a corporation by
one not an attorney is not permissible.  A-Ok Constr. Co. v.
Castle Constr. Co., 594 So. 2d 53 (Ala. 1992). Furthermore,
the Taylor defendants, as discussed earlier, represented
Lifestar's interests, not Admiral's.
Based on the foregoing, the judgment of the trial court
is affirmed.  
AFFIRMED.
Cobb, C.J., and Lyons, Woodall, Stuart, Smith, Parker,
and Murdock, JJ., concur.