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October 31, 2000

California State Automobile Ass’n Inter-Insurance Bureau v. Parichan, Renberg, Crossman & Harvey (2000) 84 Cal.App.4th 702

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Proof of the case-within-the-case is not required in trying transactional legal malpractice actions.  The case-within-the-case requirement still applies to litigation legal malpractice claims.

CSAA retained Parichan, Renberg, Crossman & Harvey to represent CSAA’s insured in a car accident.  The law firm did not provide a critical medical expert’s report to CSAA.  The report was damaging to the insured’s defense because it attributed the plaintiff’s severe psychological injuries to the car accident.  Without knowledge of the contents of the report, CSAA allowed a $50,000 C.C.P.  § 998 policy limits demand to expire.

While preparing for trial, expert depositions revealed differences in opinion about the cause of the plaintiff’s psychological injuries.  Some asserted that the car accident contributed significantly to the young boy’s problems, others concluded that the problems pre-existed the car accident.

After CSAA informed the insured that a policy limits offer had been made and rejected and that he was at risk for liability in excess of the policy limits, the insured responded that CSAA’s position constituted bad faith.  CSAA consulted a bad faith expert who opined that CSAA had a substantial risk of extracontractual exposure.

CSAA fired the Parichan firm and, after a lengthy mediation, settled the personal injury case for $850,000.  CSAA then sued the Parichan firm for legal malpractice, seeking $800,000 for extracontractual damages the carrier paid, plus attorney fees.  The jury awarded in excess of $920,000.

It appears that the Parichan firm argued that the legal malpractice jury should have been instructed that CSAA must try the automobile accident case within the legal malpractice case.  The Parichan firm asserted that the plaintiff had to prove that he would have been awarded a judgment greater than $50,000; the insured would have sued CSAA for bad faith; and the insured would have been awarded a bad faith judgment in excess of $920,000 solely because CSAA refused to settle the car accident case despite the damaging expert’s report.

The court held that the case-within-a-case method applies in litigation contexts when the lawyer mishandled the underlying case by, for example, allowing the statute of limitations to run or mishandling the case at trial.  The method did not apply to the case before the court, because the question was not how the underlying case would have come out, but rather whether CSAA was reasonable in settling the car accident case for $850,000.

The case-within-a-case method is not required in a business transaction context when the lawyer provides business advice.  In a transactional setting, causation and damages may be more simply established under rules applicable to all negligence claims.

To determine the context, the court looks to the nature of the services the lawyer provided.  The Parichan firm provided litigation services to the insured, and business advice to CSAA.  Although the legal duty to evaluate settlement offers is provided in conjunction with defending the insured, an attorney owes an independent duty to the carrier.  The court considered the advice to CSAA to be transactional and did not require application of the case-within-the-case method.


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