An ongoing legal malpractice lawsuit in Pulaski County Circuit Court highlights an issue commonly known as the eternal triangle: the relationship between the insured, the attorney and the insurance company.
A bankruptcy trustee has sued Little Rock attorney David Hodges over allegations that he didn’t tell his client, Laura Beth Stamp of Craighead County, that she had a possible lawsuit against her auto insurance carrier for not settling a lawsuit before it reached a jury.
That failure, the trustee says, left Stamp personally exposed to some of the $58,485 judgment.
Hodges didn’t mention it, the lawsuit alleges, because he was being paid by Stamp’s insurance carrier, Southern Farm Bureau Casualty Insurance, to represent Stamp. Hodges has represented Farm Bureau since 1965.
“Well, who do you think he’s loyal to? The one-time driver or Farm Bureau?” asked Paul Ford of the Ford & Cook law firm in Jonesboro. Ford represents Randy Rice, trustee in Stamp’s Chapter 7 bankruptcy case.
In 2006, a judgment was entered against Stamp as a result of a personal injury lawsuit stemming from an auto accident. In April 2008, Farm Bureau paid $29,430 to partially satisfy the judgment, leaving Stamp to cover the rest. That sum contributed to her filing for Chapter 7 bankruptcy in 2011, according to the lawsuit.
Hodges’ attorney, Richard Glassman of Glassman Wyatt Tuttle & Cox of Memphis, denied that Hodges did anything wrong. Hodges sent Stamp several letters “advising her she had a right to get another lawyer, advising her that there’s an excess exposure here,” Glassman said. But she remained with Hodges.
The lawsuit against Hodges was first filed in 2012 in Craighead County Circuit Court. But Ford asked for the case to be dismissed the day before a hearing on a motion for summary judgment in the case against Hodges in 2016.
“If you had a really good case, I would think a lawyer would go ahead” with the hearing to decide the case, Glassman said.
Ford said he decided to file a motion to dismiss the case after he took depositions from experts and then decided he needed to have better ones. He didn’t feel like the judge would give him the opportunity to do that. He refiled the case in Pulaski County Circuit Court last year.
In order to win the case, Ford said, he will have to prove that Farm Bureau either acted in bad faith or was negligent in its evaluation of the lawsuit against Stamp.
“And then we would have to prove that David Hodges was wrong in the way he handled the case by not disclosing to her the right to bring this lawsuit” against Farm Bureau, Ford said.
Hodges was paid more than $72,000 to defend Stamp in the personal injury lawsuit, according to the trustee’s lawsuit.
In April 2011, Stamp filed for Chapter 7 bankruptcy liquidation and listed $348,785 in debts and just $3,900 in assets. By that time, the principal and interest owed on her share of the 2006 judgment had ballooned to nearly $50,000.
The bankruptcy trustee “has an obligation to find all of her assets and liquidate those assets for creditors,” Ford said.
The trustee first filed a lawsuit in 2011 against Farm Bureau over allegations that it should have settled the case before it reached a jury, which is what the injured party, Kaity Wood, wanted. (Glassman said Stamp wanted the case to go to trial.) That case was dismissed a year later because the statute of limitations had passed.
The trustee then filed a lawsuit against Hodges that said: “Hodges owed Stamp a duty to place her interests above his own interests in maintaining a business relationship with Farm Bureau.”
The potential for conflict when an attorney represents a policyholder while being paid by the insurance carrier is not a new one.
“Several jurisdictions have adopted the view that an attorney retained by an insurer to defend an insured under a reservation of rights cannot adequately represent the insured’s interest because of the conflict inherent in the relationship,” the Supreme Court of Hawaii wrote in 1998.
“Even the most optimistic view of human nature requires us to realize that an attorney employed by an insurance company will slant his efforts, perhaps unconsciously, in the interests of his real client — the one who is paying his fee and from whom he hopes to receive future business — the insurance company.”
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