American Centennial Insurance Co. v. Canal Insurance Co

In American Centennial Insurance Co. v. Canal Insurance Co., 843 S.W.2d 480 (Tex. 1992), the Court recognized an excess insurer's right to assert a legal malpractice claim against the insured's defense attorney through equitable subrogation. Although Texas law does not permit a nonclient to sue an attorney for malpractice, we reasoned that permitting an excess carrier to stand in the shoes of its insured and assert the insured's claims would not burden the existing attorney-client relationship with additional duties or create potential conflicts of interest for the attorney. Id. at 484. "Subrogation permits the insurer only to enforce existing duties of defense counsel to the insured." Id. In a concurring opinion, a majority of the Court in Canal also stated that the defendant to the equitable subrogation claim, whether the primary carrier or an attorney, should "have any defense available against either the insured or the excess carrier, including the excess carrier's unreasonable refusal to cooperate in the defense and settlement of the action." Id. at 486 (Hecht, J. concurring).