It’s not that often that one sees a legal malpractice decision in which the law firm settled the case, yet the matter continues on.  Here, in  QBE Ins. Corp. v Maloof, Lebowitz, Connahan &
Oleske, P.C.  2015 NY Slip Op 32113(U)  May 13, 2015  Supreme Court, New York County
Docket Number: 600412/2010  Judge: Carol R. Edmead we see the aftermath of a legal malpractice settlement amidst a squabble between insurers and their administrators.

“This case arises from an underlying personal injury action in Kings County entitled Wright v AWL Industries, Inc. (index No. 26835/05) and a related coverage action in this county entitled AWL Indus., Inc. & Virginia Surety Co., Inc. v QBE Insur. Corp., index No. 600275/06. In the latter action, plaintiff, QBE Insurance Corporation (QBE), which was represented by Maloof, was found to owe coverage for two reasons: (1) the plaintiff in the coverage action, AWL Industries Inc., a general contractor, was an additional insured under the contract between the general contractor and a subcontractor insured by QBE; and (2) QBE’s answer was struck because of failures to comply with discovery. QBE, tendered the full amount of a $1,000,000 policy in order to settle the underlying personal injury action. After QBE commenced this action against Maloof for legal malpractice, 1 Maloof brought third-party claims against CSB (QBE’s third-party administrator) and Newman (who substituted as counsel for Maloof in the coverage action in February 2007. CSB brought a third-party claim against Rockville Risk Management (Rockville), alleging that Rockville took over from it as QBE’s third-party administrator starting in November 2006. QBE has since settled its claims against Maloof; all that remains of QBE’s complaint is its contractual claim against CSB. Further, Maloof has voluntarily discontinued its third-party action against Newman, and Rockville has discontinued its cross claims against Maloof. As for CSB’s claims against the moving parties, it seeks common-law indemnification and contribution against Maloof, Newman, and Rockville. ”

“Maloof argues that, if CSB is found liable to QBE, then the court will necessarily have found that CSB was actively at fault. As such, Maloof contends, CSB may not avail itself of common-law indemnification. In opposition, CSB argues two points: that the QBE/Maloof settlement does not extinguish its indemnification claim against Maloof and that Maloof’s application to dismiss that claim is premature. Maloof acknowledges that the indemnification claim against it is not extinguished by operation of General Obligations Law § 15-108 (b). And, as to the ripeness, CSB argues that Maloof’s application is premature because the court has not yet determined whether CSB is liable to QBE. CSB contends that if it is found liable, such liability would be triggered vicariously through the actions of Maloof and the other parties, rather than through its own fault. CSB is correct that the motion is premature if there is a possibility that CSB will be held liable solely for the fault of Maloof. However, for the reasons set forth below, this application is not premature, as there is no danger that Maloof will be unjustly enriched and no possibility that CSB will be entitled to common-law indemnification. ”

“Common-law negligence “is a restitution concept which permits shifting the loss because to fail to do so would result in the unjust enrichment of one party at the expense of the other” (Mas v Two Bridges Assoc., 75 NY2d 680, 690 [1990]). Thus, courts imply an indemnification agreement requiring the party “actively at fault in bringing about the injury” to indemnify another party that “is held responsible solely by operation of law because of [its] relation to the actual wrongdoer” (McCarthy v Turner Constr., Inc., 17 NY3d 369, 374, 375 [2011] [internal quotation marks and citation omitted]). ”

“It is clear that this provision is narrowly constructed to expose CSB to liability only for its own fault. The complaint alleges three predicates of liability under this provision based on three omissions: (1) failure to advise QBE of a defense to coverage based on late notice; (2) failure to notify QBE that the plaintiff’s in the coverage action were seeking to strike the answer; and (3) failure to provide Maloof with a copy of a statement by a principal of QBE’s insured which indicated that there was no contract between the insured and the general contractor at the time of the accident. CSB argues that none of these alleged omissions could possibly have given rise to QBE’s damages. Specifically, CSB argues that it did not cause QBE’s losses because QBE terminated CSB before the court struck QBE’s answer and the First Department subsequently relied on the striking of the answer in upholding the trial court’s declaration of coverage (see AWL Indus., Inc. v QBE Ins. Corp., 65 AD3d 904 [1st Dept 2009]). However, these arguments are better directed against QBE, rather than Maloof. There is no possibility that CSB will be held liable for Maloof’s wrongdoing: QBE alleges that CSB is directly, rather than vicariously, liable. Indeed, under the QBE/CSB contract, QBE must show active wrongdoing in order to recover against CSB. Thus, common-law indemnification is not applicable. ”