Comparative fault in legal malpractice and insurance bad faith: An argument for symmetry

I. Introduction

A The Basis of Comparison

The central argument of this Note is that comparative fault should not be applied in the legal malpractice context. In providing a model for reform of the law of legal malpractice, this Note relies heavily on recent developments in another "contort"1-insurance bad faith-in which the action of "comparative bad faith" has recently been struck down by the California Supreme Court. The analogy is not as unlikely as it may seem. Both of these tort causes of action originate from a contractual relationship and generally result in only economic loss to plaintiffs. Additionally and perhaps more importantly, both tort actions have-as a central purpose-the regulation of services that are "public trust" in nature; that is, services that serve a societal function that go well beyond that of ordinary commercial dealings. Similarly, both of the tort actions involve fiduciary relationships; courts have expressely justified the existence of insurance bad faith as a means of regulating that fiduciary relationship, and this Note submits that inherent in the tort of legal malpractice is a desire to regulate the quality of services provided by a fiduciary.

In a recent decision, Kransco v. American Empire Surplus Lines Insurance Co.,2 the California Supreme Court held that the public policy motivations for tort treatment of insurance bad faith precluded the availability of a comparative bad faith defense.3 The California high court held that public policy concerns attached only to the insurer and that there was no predicate for applying tort law to insureds.4 The same reasoning applies equally to legal malpractice.

B. A Sympathetic Case 5

Consider the story of Ina Carole London.6 Mrs. London was married for thirty-two years to a prominent and successful criminal defense attorney in St. Louis, Missouri. In the early years of her marriage, Mrs. London was a homemaker-managing the affairs of the house and caring for two small children. After the children grew older, Mrs. London took a position as a travel agent, eventually operating her own small travel agency with money provided by her husband.

Throughout the marriage, Mrs. London had very little knowledge about the family's financial situation. She did not know her husband's income, nor did she know what financial securities the family held. Her husband provided her with a monthly allowance of three to four thousand dollars to operate the household.

As the years passed, the marriage grew colder, and eventually husband and wife reached a mutual decision to divorce. Mrs. London moved to the family's vacation home in Arizona, while Mr. London stayed in St. Louis and continued his legal practice. There was alleged wrongdoing on both sides: one incident of marriage infidelity on the part of Mrs. London while traveling in Europe several years earlier and a lifetime of alcoholism and violent anger on the part of Mr. London.

In preparation for the divorce proceeding, Mrs. London retained a St. Louis divorce lawyer, Mr. Gerald Rimmel, to represent her interests. Mrs. London mailed Mr. Rimmel a letter explaining that she knew nothing of her husband's income or of the family's investment portfolio. Upon hearing that Mrs. London had retained competent counsel, Mr. London flew to Arizona and persuaded her to fire the attorney; Mr. London told Mrs. London that a hostile attorney publicly revealing the family's assets would lead to serious consequences. Mr. London was kind enough to draft the letter discharging Mr. Rimmel himself-pro bono, of course.

In replacement of Mr. Rimmel as legal representative for Mrs. London, Mr. London offered Mr. Bernard Weitzman, a longtime friend of Mr. London. Mr. Weitzman had been Mr. London's best man at the London's wedding, thirty-two years earlier. Mr. Weitzman obtained Mr. Rimmel's files concerning the London divorce proceeding, including the letter from Mrs. London to Mr. Rimmel explaining her ignorance of her husband's income and financial situation.

Mr. Weitzman, as counsel to Mrs. London, advised that a previously-suggested settlement figure of $500,000 was "way too much" based on Mr. London's income and assets and instead suggested a $250,000 lump sum payment, plus the vacation home in Arizona, plus $30,000 for 10 1/2 years, plus $10,000 a year thereafter. Mr. Weitzman advised Mrs. London that this offer was very generous and that she could not receive more money due to a "women's lib" law passed in 1974 that impeded a wife's ability to get alimony. On advice of counsel, Mrs. London accepted the offer. Mr. Weitzman never informed Mrs. London that for the last three years, Mr. London's income had been, respectively: $505,000; $300,000; and $600,000. Mr. Weitzman also never informed Mrs. London that the London's marital assets at the time of the divorce totaled over $2 million.

After the divorce was finalized, Mrs. London learned of the true nature of Mr. London's income and the size of the marital assets. She brought a legal malpractice suit against Weitzman, alleging that he breached his duty to inform her of her husband's income and the amount of marital assets. She alleged that had he informed her of this information she would never have settled for $30,000 a year. A jury found Weitzman guilty of legal malpractice and assessed damages at $500,000. However, the jury held that Mrs. London was also negligent for agreeing to the terms of the separation without knowing her marital assets or her husband's income. The jury apportioned fault at forty percent to Mrs. London and sixty percent to Weitzman and reduced the damage award accordingly from $500,000 to $300,000.

The outcome of Mrs. London's legal malpractice action is disturbing. It is quite reasonable to hold attorneys to a reasonable standard of care; it is quite another thing indeed to hold clients to a reasonable standard of care. Should clients be liable in tort if they fail to act with the competence and prudence of a reasonable client under similar circumstances? Or, derivatively, should lawyers charged with legal malpractice be able to assert a defense of comparative fault/negligence against clients? This Note answers both of these questions with a resounding no.

Legal malpractice is accepted as a tort because (1) society has a justifiable interest in protecting the public's trust in practitioners of the law, and (2) it is a means of regulating the fiduciary relationship between the attorney and the client. The public policy objectives that motivate tort treatment of legal malpractice apply only to the attorney, and as such only the attorney should be subject to tort liability, while the client should be held to a contract standard of performance.

Part II of this Note explains relevant insurance bad faith law and provides a detailed analysis of the California Supreme Court's holding in the Kransco decision. Part III of the this Note analyzes the motivations for tort treatment of legal malpractice and explains the relevant law. Part IV argues that, as is the case with insurance bad faith, comparative fault should not be a defense to legal malpractice because (1) the tort action is meant to reinforce the public's trust in the skill and fidelity of legal practitioners and not the other way around, and (2) the tort action for legal malpractice derives from the fiduciary status of the attorney to the client. Part IV also argues that "lumping" legal malpractice with medical malpractice for the purposes of ascertaining the suitability of a comparative fault defense is an inappropriate and conclusory comparison.

II. Insurance Bad Faith

A. Good Faith and Fair Dealing Generally

It is widely held that the common law imposes upon every contract an implied covenant of good faith and fair dealing.7 The Restatement (Second) of Contracts contains a provision relating to the implied covenant of good faith and fair dealing,8 as does the Uniform Commercial Code.9 Broadly speaking, the implied covenant of good faith and fair dealing imposes a burden on both parties to a contract that neither will do anything to injure the rights of the other to receive the benefits of the contract and the obligation to do everything that the contract presupposes that the parties will do to accomplish the contract's purpose.10 As an explanation of specific types of conduct that would constitute bad-faith performance, the Restatement (Second) of Contracts states the following:

A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party's performance.11

Usually, only certain types of contracts are significantly affected by issues of good faith; in simple straightforward contracts, good-faith issues generally do not appear "because of the basic, uncomplicated nature of the agreement."12 Contracts that are most strongly affected by good-faith issues are those wherein the circumstances of the contract place the parties in a position in which they could adversely affect each other's interests without necessarily breaching explicit terms of the contract.13 Often in good-faith cases, one of the parties to the contract is in a dominant position over the other party; this domination is marked by significantly greater size and sophistication. 14 Factors that may indicate the existence of a "good-faith relationship" contract are as follows: (1) the agreement calls for performance over a period of time, (2) benefits of the agreement flow steadily from the subservient to the dominant party and only intermittently vice versa, (3) benefits to the subservient party flow after the dominant party has performed its obligation to the agreement, (4) benefits flowing to the subservient party are assessed and approved by the dominant party, and (5) the dominant party's interests are at least partially adverse to those of the subservient party. 15

B. The Tort of Insurance Bad Faith

1. The Present Law

Almost every jurisdiction recognizes an independent tort action when an insurer breaches the implied covenant of good faith and fair dealing with an insured.16 However, a few jurisdictions maintain that an insurer's breach of an obligation of good faith and fair dealing sounds only in contract.17 Insureds prefer to bring the action in tort because tort recovery is not subject to contract law's forseeability limitation; under tort law, aggrieved parties can recover damages proximately caused by the tortfeasor including mental distress and economic loss.'8 Also, tort law provides the alluring prospect of recovering a punitive damage award.

Generally, insurance contracts impose several duties upon insurers. These duties can best be understood by differentiating between "first-party" and "third-party" insurance. "First-party" insurance is a "contract between the insurer and insured protecting the insured's own actual losses and expenses"; examples include property insurance, fidelity insurance, and medical/health insurance.19 "Third-party" insurance is "a contract to protect the insured from actual or potential monetary liability to a third party, such as liability insurance."20

Broadly speaking, in both first-party and third-party insurance contracts, an insurer has a duty to pay the proceeds of the insurance policy in the event of a claim within coverage.21 A thirdparty insurance contract provides additional duties for the insurer. In a third-party contract, the insurer has a duty to defend the insured against an action by an aggrieved third party.22 The insurer also has a duty to settle with a third party in appropriate circumstances.23 Unlike the duty to defend, the duty to settle does not arise explicitly from contract language. Rather, the duty is court-imposed.24 A failure of an insurer to prosecute any of the these duties in good faith can give rise to a bad faith tort suit by an insured.

2. "Special Relationship" Justification for Tort Treatment of an Insurer's Bad Faith Performance

Courts generally adhere to a "special relationship" theory for allowing tort recovery for an insurance bad-faith suit, an action that traditionally would be viewed solely as a contract claim.25 In explaining the "special relationship" of the insurer to the insured, courts tend to focus on the fiduciary or quasi-fiduciary nature of the relationship between the insurer and insured and the "public trust" nature of the insurance service. Much of this discussion will focus on California law because, in the author's opinion, California has always been on the forefront of sculpting the tort of bad faith in the insurance context.

In a landmark case, Egan v. Mutual of Omaha Insurance Co.,26 the court reviewed and subsequently overturned the plaintiff's $5 million punitive judgment recovery against the defendant insurance company in a first-party bad-faith suit.27 The plaintiff, Egan, held a disability insurance policy with the defendant insurance company. Egan suffered a work-related back injury and filed a claim with the insurance company; Egan missed over a year of work and underwent surgery.28 The insurer denied coverage for the missed work, claiming that the injury was due to a pre-existing condition and not caused by an accident.29 In investigating the claim, the insurer reviewed records from the Workers' Compensation Appeals Board, the State Compensation Insurance Fund, and the hospital where the surgery was performed.30 Hospital records contained statements from treating physicians and surgeons that the plaintiff's current condition was fifty percent attributable to natural degenerative wear and fifty percent attributable to injury.31 Based on that information, the insurer denied the insured's claim for disability coverage. The trial court ruled as a matter of law that the "defendants' failure to have the plaintiff examined by a doctor of their choice or to consult with plaintiff's treating physicians and surgeon violated the covenant of good faith and fair dealing."32

The defendant appealed, claiming that it could be liable in bad faith only if it wrongfully denied a claim knowing that it had no reasonable basis to do so. The Supreme Court held otherwise and affirmed the jury damage award.33 The court held, "Although we recognize that distinguishing fraudulent from legitimate claims may occasionally be difficult, . . . an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial."34

In justifying tort treatment of the cause of action and, hence, the hefty punitive damage award, the court held that the "special relationship" between the insurer and insured justified an exemplary award.35 The court stated:

The insurers' obligations are ... rooted in their status as purveyors of a vital service labeled quasi-public in nature. Suppliers of services affected with public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements.... The obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary. Insurers hold themselves out as fiduciaries, and with the public's trust must go private responsibility consonant with that trust.36

This notion that insurers are fiduciaries is not unique to California; many other jurisdictions have labeled insurers fiduciaries or quasi-fiduciaries to their insureds.37 As fiduciaries, insurers do not deal with insureds at arm's length-they must, at least, consider the interests of the insureds as tantamount to their own interests.38 Because of the fiduciary nature of the relationship, an insurer can be liable in tort if it fails to subjugate its interests to those of the insured by failing to settle with a third party under reasonable circumstances 39 and by unreasonably failing to pay obligations on a first party claim by an insured.40 Insurance bad faith tort liability does not necessarily require that the insurer act in an overtly dishonest fashion. As Egan holds, a less-than-thorough or negligent investigation into the legitimacy of a first-party claim may also incur tort liability.41

Generally, insureds purchase insurance policies to protect them in times of calamity and economic dilemma.42 In the event that an insurance company refuses to pay benefits in bad faith, an insured cannot look to the marketplace to seek alternate protection because the loss has already occurred, and no other insurance company will agree to pay for the loss.43 The role of the insurer as caretaker of the insured during the insured's moment of weakness is central to the notion that an insurer is a fiduciary to the insured. Courts hold that this weakness of the insured vis-a-vis the insurer does not exist only after the loss has occurred; often insureds enter into insurance contracts in a weak bargaining position-unable to bargain for coverage and forced to accept or reject an adhesion contract.44 The fact that insureds often enter into insurance contracts without being able to bargain for assurances and warranties of performance makes courts more favorable toward allowing a tort remedy for a breach of that contract by the insurer.

Courts allow tort treatment of an ostensible contract action, breach of the implied covenant of good faith and fair dealing in insurance contracts, because of the "special relationship" of the insurer to the insured.45 Insurers, by selling security in times of crisis, are the stewards of a public-trust service. Insurers, as fiduciaries, must put the interests of their insureds above their own interests as well.

C. The Rise and Fall of Comparative Bad Faith in California

1. Prior Law

Comparative bad faith is an affirmative defense doctrine akin to comparative fault, whereby a defendant to a tort bad-faith action can assert that the plaintiff's own bad faith contributed to the damage. In so asserting the defense, the defendant hopes to reduce or bar a judgment on the plaintiff's tort bad-faith claim.

Conduct by an insured that could constitute bad faith can take many forms.47 In an insured's bad-faith claim against the insurer, the insured's conduct itself may have created or exacerbated the underlying loss; the insured's conduct may affect the speed and accuracy of the claims process; or the insured's conduct may affect the severity of the loss that results from the carrier's wrongful handling of the claim.48

California was the first state to recognize the comparative bad faith defense in the case of California Casualty General Insurance Co. v. Superior Court.49 Recently, in Kransco v. American Empire Surplus Lines Insurance Co., the California Supreme Court overturned the California Casualty holding and eliminated the defense of comparative bad faith in the third party context.50

In California Casualty, the plaintiff owned a car insurance policy issued by the defendant insurance company.51 After experiencing a car accident, the plaintiff-insured sought to recover under the automobile insurance policy, but the insurer denied the claim.52 The insured subsequently obtained a favorable judgment on the policy against the insurer through arbitration and then brought a tort claim against the insurer for bad-faith failure to reasonably and promptly investigate the plaintiff's insurance claim.53 The insurer asserted an affirmative defense of comparative bad faith, alleging that the insured had failed to provide full and complete information to the insurer during the investigation process.54

On interlocutory appeal regarding the insurer's ability to assert an affirmative defense of comparative bad faith, the appellate court held that the "duty of good faith and fair dealing in an insurance policy is a two-way street, running from the insured to his insurer as well as vice versa."55 The court could perceive no sound reason that the recognized doctrine of comparative fault applied to negligent conduct should not be applicable to tort bad faith cases as well.56 The court held that "while the duty of good faith and fair dealing arises out of a contractual relationship ... breach of the duty and ensuing damages are governed by tort principles."57 In so holding, the court followed a logical, syllogistic argument: (1) insurance bad faith has been removed from the contract realm and into the tort realm, (2) comparative fault principles apply to tort claims, and therefore (3) comparative fault should apply to insurance bad faith.

2. The Kransco Decision

The California Casualty court's simplistic acceptance of comparative insurance bad faith was overruled by the holding of the California Supreme Court in Kransco,58 in which the state high court held that a comparative fault defense should not be available to insurers and that because of the public policy motivations for the tort, tort principals should apply to the insurer while the insured should remain subject to contract law.59 a. Background

i. The Underlying Personal Injury Litigation

Kransco manufactures a water slide toy known as Slip N' Slide, a toy that is basically a piece of plastic that lies flat on the ground and becomes slippery when made wet.60 In 1987, a Wisconsin user of the product, 35-year-old Michael Hubert, jumped headfirst onto the water slide, breaking his neck and rendering him a quadriplegic.61 Hubert brought suit against Kransco in Wisconsin state court. Kransco then tendered defense of the action to its primary liability insurance carrier-American Empire Surplus Lines Insurance Company (AES)-with whom it held a $1 million policy.62 In addition to the AES primary liability policy, Kransco had several layers of excess insurance that brought its total liability coverage to $5 million.63

During the discovery phase of the Wisconsin personal injury action, Kransco denied knowledge of prior Slip N' Slide accidents that had resulted in cervical injuries to adults.64 Kransco later amended its response to admit knowledge of two such accidents: one resulting in the user's death and another causing the user's quadriplegia and resulting in a $1.5 million settlement with the company from whom Kransco had bought the rights to manufacture the Slip N' Slide.65

During the trial, Hubert offered to settle the action for $750,000, and Kransco approved, agreeing to contribute its $100,000 self-insured retention.66 However, the primary insurer, AES, rejected Hubert's offer and instead offered $450,000-a figure comprised of Kransco's $100,000 contribution and a $100,000 contribution from one of the excess insurers.67 Hubert rejected the counteroffer and subsequently was awarded $2.3 million in compensatory damages and $10 million in punitive damages by the jury.68

The amount of this punitive award was unprecedented; prior to this verdict, the largest punitive award in Wisconsin was $200,000.69 While post-verdict motions were pending to reduce the award, Kransco settled with Hubert for a payment of $7.5 million and an agreement to prosecute a bad-faith insurance action against AES, the primary liability insurer, and to split equally with Hubert any proceeds from the litigation.70

ii. The Bad-Faith Action

Kransco brought the bad-faith action alleging that AES breached the implied covenant of good faith and fair dealing by rejecting the injured plaintiff's offer to settle for a sum within Kransco's policy limits despite the risk of a much larger judgment being awarded.71 AES offered two affirmative defenses that would be at issue on appeal. AES alleged that Kransco was comparatively negligent for the large verdict because Kransco, by purchasing the rights to manufacture a discontinued product that it knew had produced serious injuries, failed to exercise ordinary care for its own safety.72 AES also offered a comparative bad faith defense, arguing that because Kransco tendered false interrogatory answers during pretrial discovery in the Wisconsin action, the jury became enraged and therefore levied a large punitive judgment.

The trial court instructed the jury on both the comparative negligence and comparative bad faith theories and stated that the total amount of damages to which Kransco would otherwise be entitled should be reduced in proportion to the amount of fault attributable to Kransco.74 The jury found that AES had breached its duty of good faith and fair dealing by refusing to settle.75 However, the jury-failing to differentiate between the comparative negligence and comparative bad faith affirmative defenses-found that Kransco had breached the duty of good faith and fair dealing to AES or had failed to exercise ordinary care for its own safety, or both, in its handling of Hubert's claim before the verdict.76 The jury assessed compensatory damages at over $13.6 million but apportioned fault at ninety percent to Kransco and ten percent to AES.77

Kransco moved for judgment notwithstanding the verdict on the grounds that the trial court had erred in instructing on both theories of comparative fault: comparative bad faith and comparative negligence.78 The trial court agreed, holding that a comparative negligence instruction was wholly inapplicable to the case and that its instruction on comparative fault should have been limited to whether Kransco contributed to AES's failure to settle by impairing its ability to assess the risk of an excess judgment.79 Further, the trial court found that the jury's finding of comparative fault was unsupported by the evidence because there was no evidence of a causal nexus between Kransco's failure to properly convey knowledge of prior injuries from the product and AES's failure to recognize the substantial likelihood of excess judgment. Accordingly, judgment was entered for Kransco in the full amount of the jury verdict.sn

b. The California Supreme Court Holding

The California Supreme Court affirmed the trial court's judgment notwithstanding the verdict in its entirety.82 The breadth of the Kransco decision, for all intents and purposes, makes the affirmative defense of comparative bad faith and the "reverse bad faith" cause of action, in either the first- or third-party scenarios, a dead letter. While the specific facts of the Kransco decision involved a third-party insurance claim, the court expressly overruled California Casualty,83 an opinion allowing the comparitive bad faith defense in a first-party bad-faith claim. However, the court confined itself to an inquiry into comperative bad faith alone and did not decide whether a comparitive negligence defense should be available to insurers.84 Of course, the force and logic of the opinion lends strong credence to the proposition that given the right facts, the court would strike down the affirmative defense of comparitive negligence for insurers as well.

The Kransco decision was an affirmation and expansion of the logic of the recent California appellate decision, Argricultural Insurance Co. v. Superior Court,85 that invalidated the so-called reverse bad-faith cause of action from an insurer against an insured.86 The appellate court held that an insured may be held liable in contract for breach of a covenant but cannot be held liable in tort.87 The court expounded: "A relationship including specialized circumstances of reliance and dependence is necessary to transmute such a contractual breach into a tort.988 A summary of the Agricultural Insurance court's "specialized circumstances" is as follows:

(1) The insured seeks peace of mind and economic protection against calamity while the insurer provides that protection for a fee;

(2) The insured relies on the insurer for protection while the insurer does not rely on the insured in the same manner;

(3) Insurers occupy the status as purveyors of a vital service that is quasi-public in nature;

(4) Insurers act as fiduciaries to their insureds and as such, must place the insureds interests in at least as high regard as their own interests;

(5) Insurance contracts are generally adhesive-an indication of the disparity in bargaining power between the two parties; and

(6) Breach of an insurance contract by an insurer can leave an insured in an extreme economic dilemma because an insured that has suffered a loss cannot turn to the marketplace to find another insurance company willing to pay for the loss it has incurred. 89

In the same vein, the Kransco court held that the insurer's duty of good faith and fair dealing is grounded in tort principles while the insured's duty is governed by contract law.90 In overruling California Casualty, which held that comparative bad faith defense should be available to insurers, the court held that the comparative fault doctrine as explained in Knight v. Jewitt should not apply to third-party insurance bad faith because "commonsense notions of relative responsibility of the parties for proximate causation of an injury, equitable allocation of loss, and indeed responsibility for lessthan-perfect litigation conduct that leads to an inflated verdict, have limited, if any, application."92

While an insurer may not assert bad faith tort claims against an insured, the insurer may still assert contract claims against the insured, such as failure to adhere to the terms of the contract-- including the implied covenant of good faith.93 These contract claims are not insignificant because an insured's breach of contract terms may result in the voiding of coverage or may show that the insurer acted reasonably under the circumstances, thereby vitiating a bad-faith claim brought by an insured.94 Insureds are also still potentially liable for other torts, including fraudulent misrepresentation.95 The California Supreme Court was clear that despite the unavailability of a comparative bad faith defense, insureds are not immune from their own misconduct.

III. Legal Malpractice

A. Tort, Contract, or Breach of Fiduciary Duty?

Legal malpractice as a cause of action is a very large tent. Its girth encompasses breach of contract, tort, and breach of fiduciary duty.96 As between tort and contract, the general trend is for courts to treat legal malpractice as sounding in tort.97 However, some courts hold that if the complaint alleges a breach of specific obligations of the contract, then contract rules will apply.98 As a general rule, claimants prefer to bring an action for legal malpractice in tort because this remedy can result in a higher damage recovery than a contract remedy. However, a plaintiff would prefer a contract cause of action when a tort statute of limitation would bar a tort claim or to avoid a defense of comparative fault.99

The basic elements of the tort action for legal malpractice are (1) the employment of the attorney or some other basis for imposing a duty, (2) the failure of the attorney to exercise ordinary skill and knowledge, and (3) such negligence was the proximate cause of damage to the plaintiff.'0

Legal malpractice and breach of fiduciary duty are doctrinally distinct causes of action. Legal malpractice as negligence and breach of fiduciary duty both involve a breach of a standard of care.101 However, legal malpractice as negligence is an action at law,102 while breach of fiduciary duty is an equitable action.los While legal malpractice in the general sense often encompasses both breach of fiduciary duty and legal malpractice, in actuality, the two causes of action are separate torts. Legal malpractice as negligence is an action at law and is marked by a breach of a reasonable standard of care."34 In contrast, a breach of fiduciary duty is an equitable action and involves a breach of a standard of conduct.105 In the attorney-client fiduciary context, the lawyer has a duty to exercise undivided loyalty and fidelity to her client's interests.106 The distinction is relevant because proving fiduciary breach requires proving completely standards of breach, causation, and damages that are completely different from the standards for proving negligence.17 Breach of fiduciary duty also allows fewer defenses than a negligence claim allows. For example, comparative or contributory negligence is not available as a defense to a claim of fiduciary breach.l 8 However, despite the different standards for proving and defending breach of fiduciary duty and malpractice, many courts are quick to point out that professional malpractice often involves a breach of fiduciary duty and under those circumstances prefer to apply rules of general legal malpractice rather than those of breach of fiduciary duty. 109

B. The Tort Action: Getting Beyond the Economic Loss Rule

1. General Rule: No Negligence Liability for Purely Economic Loss

In general, economic loss or commercial loss is monetary harm without accompanying physical injury or property damage.110 When commercial or economic harm stands alone, courts have not imposed a general duty of reasonable care."' Lost profit, for example, is economic harm that is not recoverable from a negligence action unless the lost profit is accompanied by physical injury or property damage. The justifications for this limiting rule are twofold: (1) liability for commercial loss would tend to be unlimited as financial injury can radiate endlessly from any given injury, and (2) where commercial loss is suffered by parties to a transaction, contract law is adequate to deal with the problem and usually more appropriate.112

A paradigmatic case of the economic loss rule barring recovery for negligent performance of contract obligations is Moorman Manufacturing Co. v. National Tank Co. 113 In Moorman, the plaintiff purchased a bolted-steel grain storage tank from defendant for use in its feed-processing plant.114 After purchasing and installing the storage tank, a crack developed in one of the steel plates in the tank.115 The plaintiff suffered no physical injury or property damage to anything besides the tank itself.' 16 The plaintiff brought suit for, inter alia, negligent design of the tank.' 17 The plaintiff sought damages for the cost of repairs for the damaged tank, as well as the lost profit attributable to the diminished use of the damaged tank."' The Illinois Supreme Court held that the plaintiff could not recover for the cost of repairs or lost profits under a theory of negligent performance of the contract without accompanying physical injury or property damage.119

In affirming the economic loss rule, the court held that if a manufacturer were held liable for commercial loss to a particular purchaser, it would be liable for commercial losses to other users of the same product even though the defendant had no contact with the other user.120 At base, there is no limit to the amount of economic loss that could result from a negligently performed contract obligation, and the court felt that the potential liability imposed upon the manufacturer would be too great.

With regard to the apparent arbitrary nature of the economic loss rule, which allows for recovery in negligence only in the event of coincidental physical injury or property damage, the court held that the purpose of the rule is not to reward "lucky" plaintiffs with physical injury but rather to discourage the manufacturing of unsafe products while simultaneously allowing for freedom of contract regarding performance specifications of a product.lai In that sense, the economic loss rule is a balance between the interests of public safety and the liberal notion that individuals should be free to set their own parameters in performance of contractual obligations.

2. The "Special Relationship" Exception to the Economic Loss Rule for Legal Malpractice

As a general rule, legal malpractice does not result in property damage or physical injury.122 In the case of negligently-- handled litigation, an attorney is liable for the difference between what the client actually recovered and the value of the claim lost due to the attorney's negligence. 123 When the injury from malpractice is an adverse judgment, the measure of damages is the judgment itself.124 Often clients seek to recover lost profits alleging that the attorney's 25 negligence prevented the formation or success of a business.lzs All of the forms of damage listed above are economic in nature and normally would not be recoverable in a suit for negligence without accompanying property damage or physical injury.

The legal relationship originates with an employment contract.126 The contractual origin of the legal relationship combined with the fact that a lawyer's breach of her duties results only in economic loss to the client makes legal malpractice a seemingly unlikely tort. However, every jurisdiction in the country recognizes legal malpractice as an independent tort cause of action.127 It is the fiduciary nature of the attorney-client relationship, the "special relationship" of the attorney vis-a-vis the client, that underlies tort treatment for an action for breach of an attorney's duties to her client.

The concept of an action for legal malpractice is old, dating back at least to Eighteenth-Century England.12 In earlier times, the notion of distinct paradigms for tort and contract law was nonexistent.129 Prior to the Civil War, it was quite common for parties to bring suit for negligently-performed contractual obligations.130 It was not until the advent of a machine capable of inflicting serious injury in a routine fashion-the railroad-that the tort concept of negligence as known today became defined as a separate cause of action. 131 However, while the tort and contract paradigms separated themselves along the lines of obligations imposed by society (tort) versus obligations voluntarily undertaken (contract), legal malpractice lingered in the "borderland" of tort and contract. Instead of a discrete and reasoned analysis-in the form of a few significant cases excepting legal malpractice from the economic loss rule-we have the largely unreasoned weight of precedent allowing legal malpractice to be brought in tort.

The effect of this tremendous precedent can be seen in Collins v. Reynard,132 in which the Illinois Supreme Court grappled with the question of whether, despite the economic loss rule, legal malpractice could remain actionable under a negligence theory. In Collins, a client hired an attorney to handle the sale of the client's business,133 and the attorney negligently failed to provide the client with a primary security interest in the assets of the business. The buyer of the business pledged the assets of the business to a bank as collateral for a loan; the buyer then defaulted, and the bank foreclosed on the assets. The bank, having a superior interest in the assets in relation to the selling client, took possession. The court held that legal malpractice could be pleaded in tort or contract despite the economic loss rule.134 As explanation, the court offered, "[o]ur ruling is grounded on historical precedent rather than logic. If something has been handled in a certain way for a long period of time . . . it is reasonable to continue with that practice until and unless good cause is shown to change the rule."135

However, Chief Justice Miller, in his concurring opinion, added the fiduciary nature of the attorney-client relationship and the disparity in bargaining power between the attorney and the client as additional factors-besides precedent-weighing in favor of excepting legal malpractice from the economic loss rule.136 Chief Justice Miller explained:

The cases in which Moorman has been applied are grounded on the notion that the complaining party, if he wished protection against the particular type of harm suffered, could have bargained for a guarantee or warranty against it. It is difficult to apply that concept in the area of legal representation, where the purpose of retaining counsel is to obtain a representative who will function as a fiduciary and will act professionally, with reasonable skill and ability, to advance the client's interests.137

The basic premise of the "special relationship" theory justifying tort treatment of legal malpractice is that clients enter the attorney-client relationship in a severely weakened position vis-a-vis the attorney. In a landmark decision, Clark v. Rowe,138 the Massachusetts Supreme Court held that the tort of legal malpractice was outside the bounds of the economic loss rule because "[w]hen the economic loss rule has been applied, the parties usually were in a position to bargain freely concerning the allocation of risk, and, more importantly, there was no fiduciary relationship."139 The court held that the fiduciary nature of the attorney-client relationship precludes arm's length negotiation concerning the terms of legal representation contract.140 Since clients generally cannot bargain with their attorneys for warranties of performance to ensure the fulfillment of their expectations, society imposes performance standards upon the attorney such that an attorney must perform with the skill and ability of a reasonable attorney. If an attorney fails to perform his obligations with the requisite society-imposed standard, he will be liable for his performance shortfall in tort.

C. Comparative Fault/Contributory Negligence and Legal Malpractice

Comparative Fault Generally

The defense of comparative fault was designed to ameliorate the tough "all or nothing" rule of contributory negligence. Common law contributory negligence, subject to several exceptions, traditionally held that the contributory negligence of the plaintiff was a complete bar to the claim.141 However, modern comparative fault statutes act to reduce the amount of the award to a plaintiff who is chargeable with contributory fault.142 Many states have "modified" comparative fault statutes. The effect of these statutes is to bar the plaintiff after reaching a certain level or percentage of chargeable fault.143 For example, in New Hampshire the plaintiff can recover if her negligence is "not greater than the fault of the defendant;14 in Arkansas the plaintiff is barred if her contributory negligence is "equal to" the negligence of the defendant. 145

The justifications for the defense of comparative fault are fairness, accountability, and deterrence.146 It is unfair to hold a defendant liable for the total costs of an injury that the plaintiff also proximately caused. Apportioning fault for an injury between parties responsible for that injury furthers the principles of justice because those who caused the injury are held responsible. Comparative fault also acts to deter plaintiffs from negligent conduct.

2. Legal Malpractice and Comparative Fault

a. The Basic Rules

Almost every jurisdiction that has considered the question of whether contributory negligence should be a defense to a claim of legal malpractice has answered in the affirmative.147 Only one jurisdiction, Wyoming, has explicitly rejected the defense.148 While comparative fault may be a defense to legal malpractice in the narrow sense against claims of negligence, it is not a recognized defense to breach of fiduciary duty. 149 If a legal malpractice claim is brought by alleging a breach of express terms of the employment contract, then the defense will not apply.150 However, some courts look to see if the substance of the claim is actually for a breach of an express contractual obligation or for a breach of a standard of care; if the court sees the claim as essentially one of negligence brought as a contract claim, then the court may choose to allow the defense.151 Comparative fault is not a defense to willful breach of duty.152

According to Professors Smith and Mallen,153 assertions of contributory negligence usually fall within five factual patterns: (1) the failure of the client to supervise, review, or inquire about matters concerning the subject of the attorney's representation;114 (2) the failure of the client to follow the attorney's advice or instructions; (3) the failure of the client to provide essential information;155 (4) the client's active interference with the attorney's representation or failure to complete certain tasks regarding the subject matter;156 and (5) the failure of the client to pursue remedies to avoid or mitigate the effect of an attorney's negligence.157 Section V of this Note will address the viability and merits of the contributory negligence assertions listed above.

b. The Rationale for Comparative Fault in Legal Malpractice: The Syllogism

The decision of Becker v. Port Dock Four, Inc. 158 is paradigmatic of the reasoning that courts use in adopting the defense of comparative fault in legal malpractice. In Port Dock, the court follows this basic logic: (1) the statute authorizes a comparative fault instruction to claims of negligence, (2) legal malpractice is a form of negligence, and therefore (3) comparative fault should apply to legal malpractice."59

Courts also frequently use this syllogism: (1) doctors and dentists can assert a defense of comparative fault to a malpractice claim; (2) lawyers, like doctors and dentists, are subject to tort malpractice claims; and therefore (3) lawyers should be able to assert a defense of comparative fault just like doctors and dentists.160

Theobald v. Byers,161 a bedrock decision allowing the defense of contributory negligence for legal malpractice, is paradigmatic of the reasoning that courts generally use in applying contributory fault principles to legal malpractice:

Doctors and dentists are held to this higher standard of care and their services can also be said to be of a fiduciary and confidential nature. Hence it would seem clear that similar rules of law would be applicable to all three professions. In actions against doctors and dentists for medical malpractice, courts have held the doctrine of contributory negligence to be a proper defense.162

Part IV of this Note will argue that comparing legal malpractice to medical malpractice is improper for determining the suitability of a legal malpractice comparative fault defense. Part IV will also argue that legal malpractice is sufficiently different from general negligence actions, and thus, a comparative fault defense is not appropriate.

IV. Comparative Fault Should Not Be a Defense to Legal Malpractice

A. Society Is Concerned with Maintaining the Public's Trust in Competent Legal Counsel; Society Has No Converse Interest in the Client's Competence, and Therefore, Clients Should Not Be Held to a Tort Standard of Performance

Tort liability for attorney malpractice is predicated on the public trust nature of legal representation. It is stating the obvious to point out that people hire attorneys to protect them and advise them when they are helpless. The public is not expected to understand the substance or procedure of the legal system; the public should be able to rely on legal practitioners to carry out the processes of the legal system with skill and integrity. The proper and efficient functioning of civil society necessitates public faith in the integrity of the legal system. The trust that people place in attorneys to act in a competent and loyal manner is so vital to society that there is an expansive system of lawyer regulation. An essential facet of this regulation is allowing tort recovery for legal malpractice.

In ascertaining the need for a defense of comparative fault to legal malpractice, the analogy to insurance bad faith is useful. Courts impose tort liability upon insurers for a breach of the implied covenant of good faith and fair dealing because of a social interest in maintaining the public's trust in insurance companies. People plan their lives around the expectation that insurers will live up to their contractual obligations and protect them at a time when they are especially vulnerable. The notion that an insurer might try to usurp the trust that people place in insurance companies is so repugnant to the proper functioning of a civil society that tort liability for such a breach of trust is necessary.

In both "contort" contexts-legal malpractice and insurance bad faith-society's interest is in maintaining the public's trust in the purveyors of the service and not in maintaining the trust of the purveyors in the buyers. Courts have explicitly recognized this in the insurance context and accordingly have barred the use of a bad-- faith affirmative defense against the insured. While courts have, as of yet, failed to recognize it, the public-trust argument is much stronger in the legal malpractice context. The public's faith in legal practitioners is potentially more fragile than in insurance companies because lawyers administer much of the regulatory processes aimed at keep keeping lawyers accountable. Coherent rules concerning lawyer liability are necessary in order to avoid the "club" perception of the legal profession. Because society is concerned only with the attorney's competence and loyalty and not the client's, courts should not allow attorneys to assert the comparative fault of their clients as a defense to a legal malpractice action.

B. The Action for Legal Malpractice Is Largely Predicated on the Attorney's Position as a Fiduciary to the Client, and Since Actions for Breach of Fiduciary Duty Are Not Subject to a Comparative Fault Defense, Neither Should Claims for Legal Malpractice

The action for breach of fiduciary duty is not subject to a defense of comparative fault. The notion of such a defense seems almost silly because generally only one of the parties in a fiduciary relationship is charged with representing the interests of the other party-they are not fiduciaries to each other. When a fiduciary breaches her obligation to a client by failing to adhere to a reasonable standard of conduct, she will be liable for the full extent of the damage caused by her breach regardless of the client's conduct so long as the fiduciary relationship was intact at the time of the fiduciary's breach. Imposing the entire tort liability on the fiduciary is not unfair because only the fiduciary's conduct can draw tort liability; a fiduciary cannot sue a client for fiduciary breach, and a fortiori, a fiduciary cannot assert an affirmative defense of comparative fiduciary breach against a client.

A claim of legal negligence does not always include an assertion of breach of fiduciary duty, but the tort action of legal negligence is itself derived from the fiduciary nature of the relationship. The fiduciary relationship between an attorney and his or her client is the unmentioned "two-ton elephant" in the room of tort treatment for attorney negligence: undoubtedly, it is the fiduciary status of the attorney vis-h-vis the client that justifies tort treatment for legal malpractice, yet courts and commentators often fail to acknowledge or recognize its significance. An assertion of attorney negligence would be untenable as a tort if not for the attorney's position as a fiduciary to the client. The justifications for allowing tort recovery for attorney negligence and breach of fiduciary duty are inseparable. An attorney, as a fiduciary, is expected to perform with a reasonable level of skill and with the utmost fidelity. An attorney cannot bring a tort negligence action against a client because clients are not fiduciaries to attorneys, and for the same reason, attorneys should not be able to assert a defense of comparative negligence against their clients.

An analysis of the law concerning insurance bad faith and comparative insurance bad faith supports the argument. A breach of the implied covenant of good faith and fair dealing normally gives rise only to contractual damages; however, because of the fiduciary relationship of the insurer to the insured, courts allow insureds to bring the action in tort against insurers. An insurer's bad faith performance is not necessarily a breach of its fiduciary duty; in fact, as in the case of an insurer's bad faith investigation of a first-party benefit claim, the bad-faith conduct may be comprised only of negligent action. However, courts have recognized that because the insurer stands in a fiduciary position to the insured, the insurer's breach of its implied obligation of good faith and fair dealing should sound in tort. Since an insured is not a fiduciary to the insurer, an insured's breach of the implied covenant of good faith and fair dealing gives rise only to a contract action and not one for tort. Hence, insurers cannot assert a comparative fault defense against insureds.

C. Justice Could Be Served Further if Courts More Strictly Enforced Legal Malpractice as a Negligence Action, Thereby Requiting Causation Before Liability Is Imposed

Too often courts have used comparative fault as a means of reaching a compromise between the sympathy of a plaintiff and the not-so negligent behavior of a lawyer. Instead of imposing a strict law of negligence that requires plaintiffs to prove causation, courts have split the difference. Courts allow a verdict of negligence for lawyer behavior that may be unseemly but nevertheless did not cause injury, yet they apply comparative fault principles to reduce or bar the plaintiff's damage award. The most common scenario for this type of sloppy, biased justice is when the client's injury is directly attributable to either the client's refusal to follow competent instructions from counsel or the client's failure to supply correct and complete information to counsel.

Applying comparative negligence in the above situations is a crude and unprincipled means of accommodating a sympathetic plaintiff. Legal malpractice is designed to further the interests of society as a whole, and society is no better off when a lawyer is held liable in negligence for an injury that he did not cause. If an injury results from a client's refusal to follow competent instructions from counsel or from a client's proffering of incomplete or inaccurate information to counsel, then the injury should rest upon the client, for it is the client who has caused the injury. Applying legal malpractice strictly by requiring causation will deny recovery to plaintiffs. However, those plaintiffs will not be deserving of recovery, and the perceived need for the availability of comparative fault in legal malpractice will be reduced dramatically.

D. The Analogy Between Legal Malpractice and Medical Malpractice-That Lawyers Should Be Able to Assert a Comparative Fault Defense Because Medical Practitioners Can-Does Not Hold Up to Scrutiny

Some courts have held that attorney malpractice should fall within the same legal rubric of doctor and dentist malpractice. They argue that because medical practitioners can assert a defense of comparative fault, lawyers should be able to do so. This argument ignores significant differences between the nature of medical care and that of legal representation. Doctors and dentists, while providing a service to patients, are neither representatives nor caretakers of a patient's legal or financial interests. Of course, medical practitioners have a duty of confidentially to patients, but that duty can be adequately enforced through the action of breach of fiduciary duty. In the case of medical malpractice, there is no reason to infect the straightforward negligence action with concepts of fiduciary breach.

The reason for the tort action for medical malpractice is simple enough: whenever an activity is undertaken that could result in physical injury, courts impose a reasonable standard of care. Society's interest in preventing physical injury is so great that in some undertakings, such as product manufacturing, courts impose strict liability for causation of physical injuries. It is fair to apportion fault in medical malpractice actions because society's mandate for a reasonable standard of care for activities resulting in physical harm applies to everyone, not just doctors. When a physical injury occurs, it is fair and efficient to hold accountable everyone who proximately caused that injury.

In short, the lumping of legal malpractice with medical malpractice is a shortsighted, result-oriented analytical approach. The tort of legal malpractice is concerned with reinforcing the public's trust in the legal system and with maintaining balance in a largely one-sided, fiduciary relationship. Medical malpractice, on the other hand, is concerned with preventing physical injury and holding accountable those who proximately cause physical injury.

V. Conclusion

Legal malpractice is a "contort"; it is by nature a contract action removed from the world of contract and placed in the land of tort. Public policy rationales, including society's desires for a strong public faith in the legal system and regulation of the fiduciary nature of the attorney-client relationship, motivate the removal of legal malpractice from contract to tort. These public policy objectives are better served by not allowing a defense of comparative fault for legal malpractice. In essence, we need only the baby and can leave the bath water behind.

Insurance bad faith can, in many respects, serve as a model for legal malpractice. Both insurance bad faith and legal malpractice are actions based in contract that sound in tort. Many of the expressed justifications for the tort of insurance bad faith apply equally in the context of legal malpractice. As explained in Part II, insurance bad faith is treated as a tort because (1) insurance companies are purveyors of a quasi-public good, (2) insurers serve as fiduciaries to their insureds, (3) insurers have a great advantage in sophistication and bargaining power over their insureds, and (4) a breach by an insurer can leave an insured in a dire economic dilemma. All of these justifications for the tort of insurance bad faith apply to the legal malpractice context as well, and maybe more so.

New thinking has rendered the comparative fault defense unavailable in the insurance bad faith context. The concept is that the public policy concerns motivating the tort treatment of insurance bad faith apply only to the insurer's performance and that society has no such corresponding interest in the insured's performance. The same thinking should be applied also to legal malpractice to make the comparative fault defense unavailable in that context. The tort of legal malpractice is directed at regulating lawyers by holding them to the standard of skill and performance of most practicing lawyers; the state has no such corresponding interest in regulating the performance of clients.

Abolishing the affirmative defense of comparative fault will bring society further along in its goal of fostering a sturdy public trust in those who administer the legal system. As it stands, the defense of comparative fault in the context of legal malpractice only adds fuel to the fire of those who think that the law is designed substantially to serve the needs of lawyers. Courts would do well to recognize the negative utility of the present rule and assert society's rightful dominion over the substance of the law. We can mold the law to fit our needs; we do not need to mold ourselves to fit the law.