## Facts

- Herbert Harvey entered a construction site guarded by Security Services, Inc., walked about 120 feet, fell into a large hole, and later died from his injuries.
- Harvey’s estate sued Security Services for negligence.
- Atlanta International Insurance Company insured Security Services under a liability policy and retained John Bell, David Hertler, and their law firm to defend Security Services.
- A judgment was entered against Security Services, and Atlanta paid the judgment.
- Atlanta sued defense counsel for legal malpractice, alleging negligent failure to raise comparative negligence and other errors that increased the paid loss.

## Issues

1. Whether defense counsel retained by an insurer to defend an insured owes the insurer a direct duty of care sufficient to support the insurer’s own malpractice action.
2. Whether, absent a direct attorney-client relationship, an insurer that paid the loss may pursue a malpractice claim against defense counsel through equitable subrogation, standing in the insured’s place.

## Decision

- The Michigan Supreme Court reversed the Court of Appeals and remanded.
- The Court declined to recognize a broad, direct attorney-client duty from defense counsel to the insurer in the conduct of the defense.
- The Court held that the insurer may pursue a legal malpractice claim against defense counsel by equitable subrogation to the insured’s rights, to the extent the insured would have a viable claim.

## Legal Principles

- In defending the liability action, defense counsel’s loyalty and professional duty run to the insured, not the insurer.
- The absence of a direct attorney-client relationship between insurer and defense counsel generally forecloses an insurer’s independent malpractice claim based on a direct duty owed to the insurer.
- Equitable subrogation permits an insurer that has paid a loss on behalf of its insured to assert the insured’s rights against third parties responsible for the loss, including the insured’s malpractice claim against defense counsel.
- A subrogated insurer acquires no greater rights than the insured and remains subject to defenses that could be asserted against the insured.
- Allowing equitable subrogation in this setting enforces counsel’s existing duty to the insured without creating a new duty to the insurer.

## Conclusion

The court held that, while defense counsel ordinarily does not owe a direct attorney-client duty to the insurer, an insurer that pays a judgment on the insured’s behalf may sue defense counsel for malpractice through equitable subrogation by asserting the insured’s claim.


Atlanta Int'l Ins. Co. v. Bell, 438 Mich. 512, 475 N.W.2d 294 (Mich. 1991)