## Facts

- Paradigm Insurance Company insured Dr. Benjamin Vanderwerf for medical malpractice.
- A patient sued Vanderwerf and his employer, Samaritan, for malpractice.
- Paradigm retained Langerman Law Offices to defend Vanderwerf.
- Paradigm later replaced Langerman, asserting Langerman violated an alleged “panel counsel” understanding by representing claimants adverse to Paradigm insureds.
- Paradigm alleged Langerman failed to investigate whether another carrier was the primary insurer and advised that there was no viable coverage theory involving Samaritan.
- Replacement counsel concluded another insurer likely should have been primary; when Paradigm attempted to tender the defense, the tender was rejected as untimely.
- Paradigm funded the defense and settlement and claimed it suffered economic loss that should have been borne by the primary carrier.
- Langerman sued Paradigm for unpaid fees; Paradigm counterclaimed for professional negligence and related theories based on the alleged failure to identify and timely tender to the primary insurer.

## Issues

1. Whether counsel retained by an insurer to defend an insured may owe the insurer a duty of care, supporting a malpractice claim for purely economic loss, when the insurer’s and insured’s interests coincide.
2. Whether an express attorney–client agreement between insurer and defense counsel is required before any professional duty can run to the insurer.

## Decision

- The Arizona Supreme Court held that defense counsel may owe a duty of reasonable care to both the insured and the retaining insurer when their interests coincide and harm to the insurer is foreseeable.
- The court rejected the view that the absence of an express attorney–client agreement between the insurer and defense counsel necessarily precludes a duty to the insurer.
- The court limited any duty to circumstances in which insurer and insured interests are aligned; where they conflict, counsel’s primary duty runs to the insured.
- The court reversed the no-duty basis for summary judgment and remanded for further proceedings on breach of the standard of care and causation.

## Legal Principles

- A lawyer’s duty of care may extend to a nonclient third party when the representation is intended to benefit that party and the party’s injury is foreseeable.
- In the insurer–insured–defense counsel relationship, defense counsel may owe a duty of care to the insurer regarding matters where the insurer’s and insured’s interests are congruent.
- An express attorney–client contract with the insurer is not a prerequisite to a duty of care to the insurer in aligned-interest situations.
- When insurer and insured interests diverge, counsel must protect the insured’s interests as the primary client, which restricts any duty to the insurer.

## Conclusion

The court recognized that an insurer may sue defense counsel for malpractice based on negligent work performed in an aligned-interest defense, even without an express insurer–counsel attorney–client agreement, and remanded for determination of breach and causation.


Paradigm Ins. Co. v. Langerman Law Offices, P.A., 200 Ariz. 146, 24 P.3d 593 (Ariz. 2001)