This new article is drawn from research for the manuscript of the 2020 Supplement of LITIGATION AND PREVENTION OF INSURER BAD FAITH, which I am writing right now:
In 2019, the Reporters on the Restatement of the Law of Liability Insurance Reporters wrote that the majority view now rejects vicarious bad-faith liability of liability insurance companies for the professional malpractice of the defense counsel they provide to their insureds. See RESTATEMENT OF THE LAW OF LIABILITY INSURANCE § 12 & cmt. d (2019).
The Tenth Circuit Court of Appeals echoed this view in 2020, based on the Reporters' Comment in 2019. The Tenth Circuit pointed out that Kansas law already follows this rule. The federal appellate court accordingly affirmed the trial court's summary judgment under Kansas law on a claim of vicarious bad-faith liability for the conduct of the insured's defense counsel in this case.
The Tenth Circuit panel predicted that the Kansas Supreme Court will apply the following test which the appellate panel read in the Restatement, "[b]ecause of the soundness of the common rejection of an insurer's general vicarious liability for negligent representation by the insured's attorney":
An insurer is subject to liability for the harm caused by the negligent act or omission of counsel provided by the insurer to defend a legal action when the insurer directs the conduct of the counsel with respect to the negligent act or omission in a manner that overrides the duty of the counsel to exercise independent professional judgment.
Progressive Northwestern Ins. Co. v. Gant, ___ F.3d ___, No. 18-3226, 2020 WL 2078282, at *9 (10th Cir. April 30, 2020), quoting RESTATEMENT OF THE LAW OF LIABILITY INSURANCE § 12(2) (2019) (emphasis by the Tenth Circuit).
In a shorter version of the appropriate test in Kansas, the Tenth Circuit panel wrote and applied the following test: "But the test for vicarious liability in this context is not the right to control, but the exercise of control." Gant, 2020 WL 2078282, at *10 (emphasis added).
Query for the defense: How much of this is about vicarious liability?
See generally Dennis J. Wall, § 3:71, Requirements for fulfillment or enforcement of good faith duty: Conduct of defense--Negligence of trial counsel, in Volume 1 of LITIGATION AND PREVENTION OF INSURER BAD FAITH (Thomson Reuters West 3d ed., 2020 Supplements in process).
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