Opinion ID: 1415749
Heading Depth: 1
Heading Rank: 4

Heading: Liability of an insurance company under the UTPA for the actions of a defense attorney

Text: The plaintiff in the instant action, Mr. Barefield, contends that an insurance company has a duty under the UTPA to avoid, among other things, engaging in unfair or abusive settlement practices. The plaintiff further contends that this duty cannot be delegated to any other person, including a defense attorney hired by the insurance company to defend the interests of an insured in a liability matter. In other words, the plaintiff argues that because the insurance company could not, under the UTPA, legally refuse to settle the plaintiff's claim once liability became reasonably clear, the insurance company could not then legally instruct Attorney S, as an agent of the insurance company, to refuse to settle the plaintiff's claim as a way of avoiding responsibility under the UTPA. The defendant insurance company, DPIC, argues that an attorney retained by an insurance company to defend an insured must, under the Rules of Professional Conduct, defend the case in the best interests of the insurednot the insurance companyand the insurance company cannot infringe on the attorney's duties to the insured. [5] The defendant therefore contends that the defense attorney is not an agent of the insurance company, and that any allegations of unfair conduct against the attorney for aggressive or wrongful litigation actions cannot constitute a violation of the UTPA. We recently addressed this precise issue in Rose v. St. Paul Fire & Marine Ins. Co., 215 W.Va. 250, 599 S.E.2d 673 (2004). As we noted in Rose, the purpose of the UTPA is to regulate trade practices in the business of insurance [.] 215 W.Va. at 255, 599 S.E.2d at 678, quoting W.Va.Code, 33-11-1 [1974] (emphasis added). This is because [t]he Unfair Trade Practices Act, W.Va.Code §§ 33-11-1 to -10, and the tort of bad faith apply only to those persons or entities and their agents who are engaged in the business of insurance. Syllabus Point 2, Hawkins v. Ford Motor Co., 211 W.Va. 487, 566 S.E.2d 624 (2002). Examining the phrase business of insurance as used in the UTPA, we stated in Rose that: ... we do not perceive a defense attorney, employed by an insurance company to represent an insured in a liability matter, to be a person who is in the business of insurance. There is nothing to suggest that the defense attorneys in this case had any contractual obligations to pay the appellee's claim ... nor anything to suggest the defense attorneys made, solicited, negotiated, or otherwise directly acted in any manner pursuant to the terms of an insurance contract. The defense attorneys were employed by the insurance company to defend the interests of the insured; the insurance contract at issue bound only the insurance company and the insured.... [T]he defense attorneys' ethical attorney-client obligations were to the insured.... Any obligations imposed by an insurance contract were between [the insured] and [the insurance company], and the defense attorneys were neither parties to nor bound by that contract. 215 W.Va. at 257, 599 S.E.2d at 680. We concluded in Syllabus Point 5 of Rose that: A defense attorney who is employed by an insurance company to represent an insured in a liability matter is not engaged in the business of insurance. The defense attorney is therefore not directly subject to the provisions of the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to -10. We see no difference between the facts of the instant case and those in Rose. [6] The defense attorney, Attorney S, was employed by the insurance company, DPIC, to represent the interests of an insured, Attorney A, against a lawsuit seeking to impose civil liability for legal malpractice. We see nothing in the record presented to suggest that Attorney S was in any way engaged in the business of insurance. Accordingly, the defense attorney was not subject to the provisions of the UTPA, and his actions, standing alone, cannot form the basis of an action against the insurance company. This does not mean, however, that the defendant is fully absolved from any potential responsibility by our holding. We made clear in Rose that an insurance company in the business of insurance must continue to comply with the UTPA, and can be held liable for its own actions that violate the UTPAregardless of the actions of a defense attorney it might employ to defend an insured. As we said in Syllabus Point 6 of Rose: A claimant can establish a violation of the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to -10, by showing that an insurance company, through its own actions, breached its duties under the Act by knowingly encouraging, directing, participating in, relying upon, or ratifying wrongful litigation conduct of a defense attorney hired by the insurance company to represent an insured. It is well established, of course, that if a plaintiff is alleging that an insurance company violated the UTPA by committing an unfair claim settlement practice, as set forth in W.Va.Code, 33-11-4(9) [2002], the plaintiff must establish that the insurance company had a general business practice of committing unfair claim settlement practices and that the breach of the law was not an isolated event. See Syllabus Point 3, Jenkins v. J.C. Penney Cas. Ins. Co., 167 W.Va. 597, 280 S.E.2d 252 (1981), overruled on other grounds by State ex rel. State Farm Fire & Cas. Co. v. Madden, 192 W.Va. 155, 451 S.E.2d 721 (1994). It is possible that multiple violations of W.Va.Code, 33-11-4(9), occurring in the same claim would be sufficient [to establish a `general business practice.'] Jenkins, 167 W.Va. at 610, 280 S.E.2d at 259-60. As we stated, in Syllabus Point 4 of Dodrill v. Nationwide Mut. Ins. Co., 201 W.Va. 1, 491 S.E.2d 1 (1996): To maintain a private action based upon alleged violations of W.Va.Code § 33-11-4(9) in the settlement of a single insurance claim, the evidence should establish that the conduct in question constitutes more than a single violation of W.Va.Code § 33-11-4(9), that the violations arise from separate, discrete acts or omissions in the claim settlement, and that they arise from a habit, custom, usage, or business policy of the insurer, so that, viewing the conduct as a whole, the finder of fact is able to conclude that the practice or practices are sufficiently pervasive or sufficiently sanctioned by the insurance company that the conduct can be considered a general business practice and can be distinguished by fair minds from an isolated event. The district court's certified question asked, in part, whether under the UTPA an insurer [is] liable to a third party for the conduct of an attorney hired by the insurer, when that attorney is hired by the insurer to represent the insurer's insured[.] We answer this portion of the district court's question no, because defense attorneys are not engaged in the business of insurance, and the insurance company cannot be held liable for merely hiring the attorney to represent an insured. The insurance company may, however, be liable for its own conduct if it is shown that the company breached the Act by knowingly encouraging, directing, participating in, relying upon or ratifying the wrongful conduct of an attorney hired by the insurance company. B.