Opinion ID: 52295
Heading Depth: 3
Heading Rank: 3

Heading: NNIC’s Settlement with Burge

Text: NNIC initially retained attorney Clare Trinchard to determine whether the ADIC policies provided coverage for the alleged misconduct of the Sheriff and his personnel. After receiving her review of the case, NNIC retained the Trinchard firm to represent the Sheriff, Hale, and NNIC in the Burge litigation. Later, after deciding to dispute coverage under the ADIC policies, NNIC instructed the Trinchard firm to continue representing the Sheriff and Hale individually but retained separate counsel to represent NNIC’s interests. In November 2000, shortly before the Burge litigation was to be tried, the Trinchard firm and NNIC’s counsel negotiated a partial settlement with Burge. In exchange for $75,000, Burge agreed to (1) release NNIC fully from all liability under the ADIC policies and (2) release the Sheriff and Hale from liability, 7 “Cancelled flat” is a term of art essentially meaning “void ab initio.” See, e.g., Highlands Ins. Co. v. Hobbs Group, LLC, 373 F.3d 347, 350 n.4 (3d Cir. 2004) (discussing effect of “flat” cancellation of a surety bond); Escobedo v. Estate of Snider, 930 P.2d 979, 985 (Cal. 1997) (“[A]ccording to insurance industry usage, a “cancellation” may under some circumstances be made “flat,” meaning effective from the policy's inception, eliminating liability for either premiums due or losses incurred in the interim.”). 8 All of these coverage/coverage limits issues were set out in a July 2000 letter to NNIC from its counsel. 6 except for punitive damages, for any conduct that occurred during the ADIC policies’ coverage period (September 1, 1980 to September 1, 1983). Burge expressly reserved his right to pursue claims against the Sheriff and Hale for conduct that occurred outside of the coverage period as well as for punitive damages at any time. In January 2001, on the advice of the Trinchard defendants, Hale consented to the Burge settlement and signed a separate “Release and Acknowledgment” absolving that firm’s former client, NNIC, from “any and all liability” under the ADIC policies, including “claims for indemnification, defense, legal fees and costs, [and] bad faith.” The release itself did not specify the terms of the Burge settlement, particularly Burge’s reservation of his right to sue Hale for conduct occurring outside of the ADIC policies’ coverage period. After obtaining Hale’s release of NNIC, the Trinchard defendants terminated their representation of Hale and the Sheriff. D. The Burge Trial and Hale’s Bankruptcy Proceedings Burge’s remaining claims against the Sheriff and Hale were tried in May 2001. The Sheriff was represented by other counsel, but Hale decided to represent himself, possibly believing that the only liability he faced postsettlement was for punitive damages, which he believed to be, at most, a remote possibility. After a jury verdict for Burge, the court entered judgment against 7 the Sheriff and Hale, awarding Burge more than $4,000,000 in compensatory damages. The Sheriff appealed to this court, and we reversed the judgment against him. Hale, still unrepresented by counsel, did not appeal. The judgment against Hale became final in September 2001. The following month, Burge forced Hale into involuntary bankruptcy in Mississippi. As the appointed trustee of Hale’s bankruptcy estate, Stanley filed the instant action against the Trinchard defendants9 and NNIC in the district court in April 2002, alleging that (1) the Trinchard defendants were negligent in their representation of Hale and (2) NNIC breached its fiduciary duty of good faith and fair dealing in its settlement of the Burge litigation. Hale was discharged in the bankruptcy proceeding in December 2002, and neither Stanley as trustee nor Burge as Hale’s only creditor contested the discharge. E. District Court Proceedings The Trinchard defendants and NNIC each filed a motion for summary judgment in the district court. The court granted both motions, concluding that (1) Hale’s bankruptcy discharge made it impossible for Stanley to show that any damages resulted from the Trinchard defendant’s alleged malpractice and (2) Stanley did not allege conduct by NNIC that would constitute a breach of the 9 Stanley later added as a defendant Leigh Ann Schell, an attorney employed by Trinchard & Trinchard during the Burge litigation. The district court dismissed all claims against Schell as time-barred, and Stanley does not challenge that ruling. 8 insurer’s duty of good faith and fair dealing under Louisiana law. On appeal, Stanley contends that the district court based these rulings on erroneous interpretations of the controlling law.