Opinion ID: 2334690
Heading Depth: 3
Heading Rank: 1

Heading: relationship of the insurer to counsel hired to defend an insured

Text: Addressing the claims against Allstate first, the plaintiff asserts that Allstate is liable for the actions of its attorney hired to defend an insured because that attorney acts as a general agent for the insurer. On the other hand, Allstate argues that it cannot be held vicariously liable for the actions of an attorney hired to defend an insured, because such an attorney is properly characterized as an independent contractor, rather than an employee, of the insurance company. We agree that Allstate's characterization of the relationship in this regard is generally the more accurate of the two, but we disagree that an attorney's status as an independent contractor invariably forecloses the possibility that the insurer can be held vicariously liable for the tortious actions of that attorney. In the typical situation in which an insurer hires an attorney to defend an insured, the relationship of the insurer and its attorney is precisely that of principal to independent contractor. For example, the attorney is engaged in the distinct occupation of practicing law, and this occupation is one in which the attorney possesses special skill and expertise. Moreover, the attorney generally supplies his or her place of work and tools; the attorney is employed and paid only for the cases of individual insureds; and he or she alone, consistent with ethical obligations to ensure competence and diligence in the representation, determines the time to be devoted to each case. Finally, and obviously, the practice of law is not, nor could it be, part of the regular business of an insurer. Cf. Youngblood v. Wall, 815 S.W.2d 512, 517 (Tenn.Ct.App.1991) (listing similar factors to determine whether an employment relationship enjoys the status of principal-independent contractor). Moreover, an insurer in Tennessee clearly possesses no right to control the methods or means chosen by an attorney to defend the insured. Cf. Galloway v. Memphis Drum Serv., 822 S.W.2d 584, 586 (Tenn.1991) (stating that the most important factor to consider in determining whether one is an independent contractor is whether the principal has the right to control or direct the time, place, methods and means by which work is being done). As we stated in In re Youngblood, 895 S.W.2d 322, 328 (Tenn.1995), the insurer cannot control the details of the attorney's performance, dictate the strategy or tactics employed, or limit the attorney's professional discretion with regard to the representation [of the insured]. See also Tenn. Bd. of Prof'l Responsibility, Formal Op. 88-F-113 (Aug. 2, 1988) (stating that this principle is a basic and elementary element of the client-attorney relationship). In addition, we also affirmed without reservation that [a]ny policy, arrangement or device which effectively limits, by design or operation, the attorney's professional judgment on behalf of or loyalty to the client is prohibited by the Code, and, undoubtedly, would not be consistent with public policy. Youngblood, 895 S.W.2d at 328. Therefore, because the insurer lacks this important right of control, an attorney hired by an insurer to defend an insured must be considered, at least initially, to enjoy the status of an independent contractor. [3] However, while the rule is that a principal is not generally liable for the tortious actions of an independent contractor, see, e.g., Hutchison v. Teeter, 687 S.W.2d 286, 287 (Tenn.1985); Carr by Carr v. Carr, 726 S.W.2d 932, 933 (Tenn.Ct.App.1986), this rule is subject to many exceptions, and our finding that an attorney in this context should generally be regarded as an independent contractor does not, ipso facto, relieve the insurer of all liability from the attorney's acts or omissions. Chief among the some twenty-four exceptions to this general rule listed in the Restatement (Second) of Torts is that contained in section 410, which provides that when an independent contractor acts pursuant to the orders or directions of the employer, then the employer is subject to the same liability ... as though the act or omission were that of the employer himself. Several states have also recognized that when a principal directs or orders an independent contractor to act or fail to act, the principal cannot later assert the agent's status as an independent contractor as a defense to liability. [4] We are aware of no Tennessee case previously recognizing this principle, but it is certainly consistent with our general common law of agency, which holds that when one directs, orders, or knowingly authorizes another to perform an act, then the principal is liable for the harm proximately caused by those acts. See White v. Revco Disc. Drug Ctrs., Inc., 33 S.W.3d 713, 723 (Tenn.2000); Kinnard v. Rock City Constr. Co., 39 Tenn.App. 547, 551, 286 S.W.2d 352, 354 (1955). Indeed, liability for the directed or authorized acts of an agent may follow irrespective of whether other separate agency relationships also exist. See White, 33 S.W.3d at 723 (stating that a principal may be held liable for an agent's tortious act, even if that act occurs outside of the scope of the agency, if the act was commanded or directed by the principal). Because a principal's right to control an agent, in some cases, is not necessarily as important as the principal's exercise of actual control over the agent, id. (emphasis added), we must recognize that a principal can be held liable for the harm caused by the directed or knowingly authorized acts of an agent, even if that agent would otherwise be considered an independent contractor in the absence of any such direction or authorization. Consequently, although an insurer clearly lacks the right to control an attorney retained to defend an insured, we simply cannot ignore the practical reality that the insurer may seek to exercise actual control over its retained attorneys in this context. [5] While this practical reality raises significant potential for conflicts of interest, it does not become invidious until the attempted control seeks, either directly or indirectly, to affect the attorney's independent professional judgment, to interfere with the attorney's unqualified duty of loyalty to the insured, or to present a reasonable possibility of advancing an interest that would differ from that of the insured. See Tenn. Bd. of Prof'l Responsibility, Formal Op. 00-F-145 (Sept. 8, 2000). To be clear, our recognition of the control exercised by insurers in this context does not condone this practice, especially when it works to favor the interests of the insurer over that of the insured; rather, we acknowledge this aspect of the relationship only because it would be imprudent for this Court to hold that attorneys are independent contractors vis-à-vis insurers, but then to ignore the practical realities of that relationship when it causes injury. Accordingly, we hold that an insurer can be held vicariously liable for the acts or omissions of an attorney hired to represent an insured when those acts or omissions were directed, commanded, or knowingly authorized by the insurer. This having been said, we suspect that cases in which an insurer may be held liable under an agency theory will be rare indeed. We do not hold today that an insurer may be held vicariously liable for the acts or omissions of its hired attorney based merely upon the existence of the employment relationship alone. Nor do we hold that an insurer may be held liable for any acts or omissions resulting solely from the exercise of that attorney's independent professional judgment, and in all cases, a plaintiff must show that the attorney's tortious actions were taken partly at the insurer's direction or with its knowing authorization. Nevertheless, when the insurer does undertake to exercise actual control over the actions of the insured's attorney, then it may be held vicariously liable for any harm to a plaintiff proximately caused thereby.